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All ER 2000 Volume 2

All ER 2000 Volume 2

[2000] 2 All ER 1

Re H (child abduction: rights of custody)

FAMILY; Children

COURT OF APPEAL, CIVIL DIVISION

MORRITT, THORPE AND CHADWICK LJJ
12 OCTOBER, 11 NOVEMBER 1999

HOUSE OF LORDS
LORD NICHOLLS OF BIRKENHEAD, LORD MACKAY OF CLASHFERN, LORD STEYN, LORD HOPE OF CRAIGHEAD AND LORD HUTTON
8, 14 DECEMBER 1999, 3 FEBRUARY 2000

Minor – Rights of custody – Foreign custody rights – Wrongful removal or retention – Child living with mother in Republic of Ireland – Father applying
to Irish court for guardianship of child – Mother removing child to England while application pending – Father bringing proceedings in England for
return of child to Ireland – Whether Irish court having rights of custody in respect of child – Whether father entitled to rely on custody rights of Irish
court – Child Abduction and Custody Act 1985, Sch 1, art 3.

The parties were the parents of NH, a girl who was born in the Republic of Ireland in 1992. After her parents separated, NH continued to live with her
mother. In March 1998 NH’s father applied to an Irish district court for an order appointing him the guardian of the child. While that application was
pending, the mother left the Republic of Ireland without the father’s consent or knowledge, and came to live in England with NH. The father
subsequently brought proceedings in England, seeking an order for the return of his daughter to the Republic of Ireland under the provisions of the Hague
Convention on the Civil Aspects of International Child Abduction 1980 (as set out in Sch 1 to the Child Abduction and Custody Act 1985). The judge
dismissed those proceedings, but his decision was reversed by the Court of Appeal which held that the Irish district court had had rights of custody in
respect of NH at the time of her removal from the Republic of Ireland, that the removal amounted to a breach of those rights and that the father was
entitled to rely upon that breach. Accordingly, the court made an order for NH’s return to the Republic of Ireland. On the mother’s appeal to the House
of Lords, issues arose as to (i) whether a court could be an ‘institution or any other body’ to which rights of custody could be attributed within the
meaning of art 3a of the convention, (ii) if so, whether such rights were in fact to be attributed to the Irish district court and whether they had been
exercised at the time of NH’s removal or would have been exercised but for her removal within the meaning of art 3, (iii) whether that
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a Article 3, so far as material, is set out at p 5 a b
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­ 1

removal was in breach of any such rights and (iv) whether a person lacking rights of custody could, in proceedings brought by him under the 1985 Act,
rely on such rights as were possessed by another person, body or institution.

Held – For the purposes of art 3 of the convention, a court could be an ‘institution or any other body’ to which rights of custody could be attributed. Such
a construction was consistent with the purposes of the convention, namely to secure the prompt return of children wrongfully removed to, or retained in,
any contracting state, and to ensure that rights of custody and of access under the law of one contracting state were effectively respected in the other
contracting states. In order for a court to enjoy such rights of custody, the application before it had to raise matters of custody within the meaning of the
convention. Moreover, although interim orders might be made before service and special cases might arise, the court’s jurisdiction would, as a general
rule, be invoked at the time when the application was served. That jurisdiction would be continuously invoked thereafter until the disposal of the
application, unless the proceedings had been stayed or some equivalent action had been taken. Furthermore, where a person had invoked the jurisdiction
which had conferred rights of custody on a court, he was entitled to apply to the courts of the country to which the child had been wrongfully removed for
its restoration to the country of its habitual residence. A conclusion to the contrary would create an unnecessary obstacle to the smooth working of the
convention. In the instant case, an application for guardianship under Irish law constituted an application involving rights of custody within the meaning
of the convention. It therefore followed that the Irish district court had had rights of custody in respect of NH at the time of her removal, and that those
rights had been exercised by reason of her father’s pending application for guardianship. Accordingly, the appeal would be dismissed (see p 22 a b, p 24 f
to j, p 26 d g h, and p 27 b to e, g to p 28 e, post).
C v C (minor: abduction: rights of custody abroad) [1989] 2 All ER 465 considered.
Re V-B (minors) (abduction: rights of custody) [1999] 2 FCR 371 distinguished.

Notes
For the provisions of the Hague Convention in respect of the wrongful removal or retention of children, see 5(2) Halsbury’s Laws (4th edn reissue) para
987.
For the Child Abduction Act 1985, Sch 1, art 3, see 6 Halsbury’s Statutes (4th edn) (1999 reissue) 300.

Cases referred to in judgments and opinions

B (a minor) (abduction), Re [1995] 2 FCR 505, CA.
B (a minor) (abduction: rights of custody), Re [1998] 2 FCR 212, CA; affg (unreported, 7 March 1997), Fam D.
B v B (abduction: custody rights) [1993] 2 All ER 144, [1993] Fam 32, [1992] 3 WLR 865, CA.
BM (a minor) (wardship: jurisdiction), Re [1993] 2 FCR 388.
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C (child abduction) (unmarried father), Re [1999] 3 FCR 678.

C v C (minor: abduction: rights of custody abroad) [1989] 2 All ER 465, [1989] 1 WLR 654, CA.
Dresser UK Ltd v Falcongate Freight Management Ltd, The Duke of Yare [1992] 2 All ER 450, [1992] QB 502, [1992] 2 WLR 319, CA.
E (Mrs) v Eve [1986] 2 SCR 388, Can SC.
­ 2
F (minor: abduction: rights of custody abroad), Re [1995] 3 All ER 641, [1995] Fam 224, [1995] 3 WLR 339, CA.
HI (a minor), Re, HI v MG [1999] 2 ILRM 1, Ir SC.
J (abduction: rights of custody), Re [1999] 3 FCR 577; affd [2000] 1 FCR 160, CA.
J (minor: abduction: ward of court), Re [1989] 3 All ER 590, [1989] Fam 85, [1989] 3 WLR 825.
Neste Chemicals SA v DK Line SA, The Sargasso [1994] 3 All ER 180, CA.
S (abduction: separate representation of children), Re [1997] 2 FCR 342.
Seroka v Bellah 1995 SLT 204, Ct of Sess (Outer House).
T (a minor) (child: representation), Re [1993] 4 All ER 518, [1994] Fam 49, [1993] 3 WLR 602, CA.
Thomson v Thomson [1994] 3 SCR 551, Can SC.
Thorne v Dryden-Hall (1997) 148 DLR (4th) 508, BC CA.
V-B (minors) (abduction: rights of custody), Re [1999] 2 FCR 371, CA.
W (minors) (abduction: father’s rights), Re [1999] Fam 1, [1998] 3 WLR 1372.
W(V) v S(D) (1996) 134 DLR (4th) 481, Can SC.

Appeal
The father of a child known as NH, who had been removed from the Republic of Ireland to England by her mother, appealed with leave from the decision
of Hughes J on 5 August 1999 dismissing his application for an order for the return of NH to the Republic of Ireland. The facts are set out in the
judgment of Thorpe LJ.

David Tyzack QC and Catriona Murfitt (instructed by Collyer-Bristow) for the father.
James Turner QC and Adrian Langdale (instructed by Kirwans, Prenton) for the mother.

Cur adv vult

11 November 1999. The following judgments were delivered.

THORPE LJ (giving the first judgment at the invitation of Morritt LJ). The appellant, who I will call ‘the father’, is 33. The respondent, who I will call
‘the mother’, is 32. They are both Irish and come from the Cork area. They never married but commenced a relationship which resulted in the birth of
their daughter N on 3 April 1992. So she is now seven. The mother and the father separated in 1995 after which the father had irregular contact by
agreement. However, on 14 March 1996 he commenced proceedings in the District Court of Carrigaline in respect of his daughter. An order was made
on 11 April 1996. The order is headed under the Guardianship of Infants Act 1964, s 11. It is in the following terms:

‘Upon application by [RG] … being a guardian of [N] INFANT for an order under section 11 of the Guardianship of Infants Act, 1964 … THE
COURT being satisfied that the notice of application … was duly served on the Respondent [AH] … ORDERS AS FOLLOWS: Custody Order in
favour of mother by consent. Interim Order until 10.10.96 as follows Access every Sunday from 2.00 to 6.00 pm … Liberty to re-enter.’

The order is marked 124/96, which I take to be the record number indicating the 124th issue of process since 1 January 1996. As drawn the order
was ­ 3 erroneous in that the father was not a guardian of N. There was no order extending or replacing the interim order, perhaps because between
May 1996 and May 1997 the father served a term of imprisonment. After his release contact resumed sporadically but difficulties between the parents led
to the father filing a further application in the same court dated 30 March 1998. The form was headed ‘Guardianship of Infants Act, 1964 Notice of
application under section 11(1), 11(4) for the court’s direction’. At the foot of the form are the printed words ‘FOR THE COURT’S DIRECTION
regarding the custody of the infant(s) and the right of access thereto of the applicant’. The father’s solicitors added the words ‘to wit Guardianship and
access’.
On the return of the notice of application on 14 May an agreement was reached between the parents that the father should have daily access on
Saturday and Sunday on alternate weekends. On that basis the notice of application was adjourned to 23 July. There is no order from the court to this
effect and it seems probable that no order was in fact drawn. However, contact proceeded apparently successfully in accordance with the agreed
provision until 20 June when the father found an empty house when he arrived to collect his daughter. Although he managed to see his daughter briefly at
another address that weekend, his efforts on the following weekends drew blank and rumour had it that mother and child had left for England.
Accordingly on 23 July the court—

‘being satisfied that the welfare of the infant(s) requires the making of this Order, HEREBY DIRECTS:—Appoint Applicant guardian of child.
Access to applicant from 10 am Saturday to 6 pm Sunday.’

This order was of course made without the mother’s attendance.

It was not until March 1999 that the father received definite news to the effect that mother and daughter were in Manchester and that the mother
might agree some restoration of contact. At the end of May the father was given the mother’s telephone number in the North West but his endeavour to
agree contact proved unsuccessful. It was in those circumstances that his summons for his daughter’s return to the Republic under the Child Abduction
and Custody Act 1985 was issued in the Principal Registry. On the following day a seek and locate order was made and two days later the mother was
duly served and her passport taken into the charge of the tipstaff. After various interlocutory hearings the father’s summons came on for hearing before
Hughes J on 4 August. He had the advantage of a court welfare officer’s report and also affidavits from the parties. Each also filed an opinion from a
suitably qualified expert in Irish family law. The mother’s expert had the last word by a further opinion put in at the hearing. The judge did not hear oral
evidence. At the conclusion of submissions he delivered an ex tempore judgment giving his reasons for dismissing the father’s summons. It is clear from
his judgment that he reached that conclusion with some regret. The father’s case for the return of his daughter was advanced on the alternative ground
that the mother’s removal had been in breach of his rights of custody, alternatively rights of custody vested in the district court. In presenting the appeal
Mr Tyzack QC has abandoned his client’s claim to rights of custody and has relied solely on the contention that the removal was in breach of the district
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court’s rights of custody.
To understand the somewhat unusual concept of rights of custody in the court it is necessary to turn to the convention itself (see the Convention on
the Civil Aspects of International Child Abduction (The Hague Convention) (The Hague, 25 October 1980) (TS 66 (1986); Cm 33), which of course
appears in our ­ 4 jurisdiction as Sch 1 to the 1985 Act. This appeal focuses upon art 3, which provides:

‘The removal or the retention of a child is to be considered wrongful where—(a) it is in breach of rights of custody attributed to a person, an
institution or any other body, either jointly or alone, under the law of the State in which the child was habitually resident immediately before the
removal or retention; and (b) at the time of removal or retention those rights were actually exercised, either jointly or alone, or would have been so
exercised but for the removal or retention. The rights of custody mentioned in sub-paragraph (a) above may arise in particular by operation of law
or by reason of a judicial or administrative decision, or by reason of an agreement having legal effect under the law of that State.’

Rights of custody are defined and contrasted with rights of access in art 5 in the following terms:

‘For the purposes of this Convention—(a) “rights of custody” shall include rights relating to the care of the person of the child and, in particular,
the right to determine the child’s place of residence; (b) “rights of access” shall include the right to take a child for a limited period of time to a
place other than the child’s habitual residence.’

The scope of arts 3 and 5 were considered by this court in C v C (minor: abduction: rights of custody abroad) [1989] 2 All ER 465, [1989] 1 WLR
654. It would be easy to cite from any one of the three powerful judgments but, as others have frequently done before me, I cite the exposition of Lord
Donaldson MR ([1989] 2 All ER 465 at 472–473, [1989] 1 WLR 654 at 663–664):

‘I give a separate judgment only because I wish to emphasise the international character of this legislation. The whole purpose of such a code is
to produce a situation in which the courts of all contracting states may be expected to interpret and apply it in similar ways, save in so far as the
national legislatures have decreed otherwise. Subject then to exceptions, such as are created by s 9 of the Act in relation to art 16 and s 20(4) of the
Act in relation to art 10(2)(b), the definitions contained in the convention should be applied and the words of the convention, including the
definitions, construed in the ordinary meaning of the words used and in disregard of any special meaning which might attach to them in the context
of legislation not having this international character. We are necessarily concerned with Australian law because we are bidden by art 3 to decide
whether the removal of the child was in breach of “rights of custody” attributed to the father either jointly or alone under that law, but it matters not
in the least how those rights are described in Australian law. What matters is whether those rights fall within the convention definition of “rights of
custody”. Equally, it matters not in the least whether those rights would be regarded as rights of custody under English law, if they fall within the
definition. “Custody”, as a matter of non-technical English, means “Safe keeping, protection; charge, care, guardianship” (I take that from the
Shorter Oxford English Dictionary); but “rights of custody” as defined in the convention includes a much more precise meaning which will, I
apprehend, usually be decisive of most applications under the convention. This is “the right to determine the child’s place of residence”. This right
may be in the court, the mother, the father, ­ 5 some caretaking institution, such as a local authority, or it may, as in this case, be a divided right,
in so far as the child is to reside in Australia, the right being that of the mother but, in so far as any question arises as to the child residing outside
Australia, it being a joint right subject always, of course, to the overriding rights of the court. If anyone, be it an individual or the court or other
institution or body, has a right to object, and either is not consulted or refuses consent, the removal will be wrongful within the meaning of the
convention. I add for completeness that a “right to determine the child’s place of residence” (using the phrase in the convention) may be specific,
the right to decide that it shall live at a particular address, or it may be general, eg “within the Commonwealth of Australia”.’

This citation signposts the route for the remainder of this judgment. It is necessary to determine both the law of Ireland and the procedures taken
under that law in relation to N between the date of commencement of proceedings in the district court and the date of the mother’s removal. It will then
be necessary to determine whether such rights as were held by the district court immediately preceding the mother’s removal amounted to rights of
custody within the convention definition.
However, before turning to the Irish law and proceedings it is convenient to trace the development of case law in this jurisdiction since the decision
in C v C. In B v B (abduction: custody rights) [1993] 2 All ER 144, [1993] Fam 32 this court, applying C v C, held that art 5 custody rights were vested in
the court of Ontario. In Re B (a minor) (abduction) [1995] 2 FCR 505 and Re F (minor: abduction: rights of custody abroad) [1995] 3 All ER 641, [1995]
Fam 224 this court emphasised that the construction of the phrase ‘rights of custody’ in arts 3 and 5 should be purposive and wide. To take a single
sentence from the judgment of Waite LJ in the former case ([1995] 2 FCR 505 at 517): ‘In most cases, that will involve giving the term the widest sense
possible.’
However, there are undoubted practical difficulties in determining where the line should be drawn in individual cases. What act or event is sufficient
to vest rights of custody in the court once a wide and purposive construction is adopted? The facts in B v B presented no great difficulty since prior to the
wife’s removal divorce proceedings had been instituted and at an interlocutory hearing the court had both given the necessary directions for the
substantive hearing and in the interim committed the custody of the child to the wife with contact to the husband. However, in the subsequent case of Re
B (a minor) (abduction: rights of custody) (unreported, 7 March 1997) Wall J considered the return to Italy of an Italian mother who, whilst resident in
this jurisdiction had a relationship with an Englishman resulting in the birth of a child, aged 2 at the date of removal. Until their departure the child was
exclusively cared for by the mother although having frequent contact with his father. On 17 February the father issued an application for an order for
parental responsibility in the county court. On 3 March mother and child left for Italy. On 6 March the father applied in the county court for a direction
that the child be returned to this jurisdiction. On 8 April he issued a wardship summons seeking a declaration that the child’s removal had been wrongful
within the meaning of art 3. Wall J refused to grant relief on the grounds that since the father did not have parental responsibility he could not point to
any right that had been breached and further that a right of custody if given to him after the abduction would not make the abduction wrongful. The father
applied to this court for permission to appeal. The application failed.
­ 6
The judgment of Swinton Thomas LJ stating reasons for refusal is fully reported (see [1998] 2 FCR 212). I have considerable doubts as to the value
of reports of failed applications for leave, even in a specialist series. Such judgments are not binding on this court, as both counsel in the present case
agree, and are often delivered in circumstances that do not allow much research or reflection. That is not to be taken as any criticism of the judgment of
Swinton Thomas LJ which is characteristically careful and lucid. However, it has subsequently been developed, as I am sure he never intended, into a
leading case counter-balancing the judgment of the court in the Ontario case of B v B. In commenting upon B v B Swinton Thomas LJ analysed its ratio
decidendi to be that rights of custody remained in the court because an interim custody order had been made. He stated (at 219): ‘That case must be the
high watermark of any submission of this nature and the basis of the decision was that the court had made an interim custody order.’
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I am not sure that I agree with that analysis since in my opinion the result would have been the same in B v B had the court at the interlocutory
hearing simply given directions for trial without committing the interim custody to the mother. For in B v B that court was fully seised of all issues
relating to the child and was fixing the date for its determination of the substantive issues. However, the appearance of the judgment of Swinton Thomas
LJ in the specialist reports made a significant contribution to establishing the boundary between what sufficed to vest rights of custody in the court and
what did not. The mere issue of an application for parental responsibility without service, let alone judicial consideration, was not enough.
Equally it was clear that the issue of an application only for contact would not suffice to vest rights of custody in the court however it was
progressed. That follows from the clear distinction in the definition of art 5 between ‘rights of custody’ (see para (a)) and ‘rights of access’ (see para (b)).
That mere rights of access could not be elevated into rights of custody is not only plain from the language of art 5 but also from the explanatory report by
Elisa Perez-Vera (see The Explanatory Report of the Convention on the Civil Aspects of International Child Abduction Actes et Documents of the XIVth
Session of the Hague Conference on Private International Law, vol III (1982)). In dealing with art 3 she wrote (p 444):

‘As for what could be termed the juridical element present in these situations, the Convention is intended to defend those relationships which
are already protected, at any rate by virtue of an apparent right to custody in the state of the child’s habitual residence, ie by virtue of the law of the
state where the child’s relationships developed prior to its removal. The foregoing remark requires further explanation in two respects. The first
point to be considered concerns the law, a breach of which determines whether a removal or retention is wrongful, in the Convention sense. As we
have just said, this is a matter of custody rights. Although the problems which can arise from a breach of access rights, especially where the child is
taken abroad by its custodian, were raised during the 14th Session, the majority view was that such situations could not be put in the same category
as the wrongful removals which it is sought to prevent.’

In the event it is Hale J who has sought to draw and rationalise the boundary which must be crossed in order to vest rights of custody in the court. In
Re W (minors) (abduction: father’s rights) [1999] Fam 1 she considered two cases in which children had been taken abroad by their mothers who alone
had parental ­ 7 responsibility under English law and who were not inhibited by any court order prohibiting removal. It was nevertheless argued that
the removal was in breach of rights of custody held by the fathers. In one of the cases it was alleged alternatively to be in breach of the court’s rights of
custody. The judge noted that in the case of W the father was on the point of acquiring parental responsibility at the date of the removal. The welfare
officer had recommended that his application be granted and the application had been fixed for hearing a few days after the date of removal. Having
reviewed the Ontario case of B v B and the judgment of Swinton Thomas LJ in Re B (a minor) (abduction: rights of custody) [1998] 2 FCR 212, she
continued ([1999] Fam 1 at 16–17):

‘I am greatly attracted to the proposition that, where the court is actively seised of proceedings to determine rights of custody, removal of the
child from the jurisdiction without leave of the court while those proceedings remain pending is a breach of the rights of custody attributable to the
court … Of course hard cases make bad law. But the behaviour of the mother in the W. case was calculated to frustrate the process of the court …
There is something particularly repugnant about a litigant seeking to frustrate the processes of the law in this way. This emboldens me to conclude
that the removal of the W. children was wrongful within the meaning of the Convention because it was in breach of rights of custody attributable to
the court.’

Later under the heading ‘Provisional conclusions’ the judge said (at 19):

‘These conclusions have the practical advantage of making it comparatively easy to advise unmarried parents where they stand. Prima facie,
removing a child who is habitually resident here will be wrongful under the Hague Convention of 1980 if: (a) the father has parental responsibility
either by agreement or court order; or (b) there is a court order in force prohibiting it; or (c) there are relevant proceedings pending in a court in
England and Wales. Relevant proceedings would obviously include proceedings for residence, parental responsibility or to prohibit removal of the
child as these are “rights of custody” under the Hague Convention of 1980. It may be that they should extend to any proceedings for an order
relating to the child, but that does not arise in the present case. Similarly, proceedings will obviously be pending for this purpose if interim orders
have been made and directions given for a final hearing. In the light of [Re B (a minor) (abduction: rights of custody) [1998] 2 FCR 212], however,
it is doubtful whether the mere issue of the proceedings is sufficient. They should probably have been served and it is possible that some action by
the court is needed to invest it with rights of custody. This could be making interim orders or it could be giving directions for the future conduct of
the case.’

Hale J gave judgment on 25 June 1999 in two further cases that demanded a decision as to whether or not rights of custody were vested in the court
at the date of a child’s removal. The first was Re J (abduction: rights of custody) [1999] 3 FCR 577. In that case the English father and South African
mother cohabited with their son in England. They were not married. When the relationship broke down the father made an urgent ex parte application for
a parental responsibility order and an order prohibiting the mother from removing the child from the jurisdiction. The application was adjourned to be
heard on notice but on that ­ 8 very day the mother left with the child for South Africa. On the following day the father was granted an order requiring
the mother to return the child. On those facts the judge (at 582) held ‘that there was sufficient to invest the court with rights of custody, in the sense that
the court was seised of the issue of whether or not the child should be taken abroad.’ She clearly concluded that the case was on its facts governed by her
previous decision in Re W (minors) and she refused the mother’s application for permission to appeal. As a footnote that application was renewed to this
court and refused on 22 September (see [2000] 1 FCR 160). The court’s reasons for refusing permission appear from the judgment of Swinton Thomas
LJ, who implicitly upheld the authority of the judge’s earlier decision in Re W (minors).
The more interesting of the judgments given by Hale J on 25 June was Re C (child abduction) (unmarried father) [1999] 3 FCR 678. The judge (at
680) categorised the case thus:

‘The applicant father does not have parental responsibility for C nor is there in force any court order restraining the mother from taking him out
of the jurisdiction. It is not therefore argued that his removal was in breach of the father’s rights of custody. However it is argued that it was in
breach of the rights of the court. The facts fall somewhere between those of Re B (a minor) (abduction: rights of custody) [1998] 2 FCR 212, and
those of Re W; Re B (a minor) (unmarried father) [1998] 2 FCR 549 …’

The short facts were that the father had applied for contact and parental responsibility. Those applications were never determined largely because
the father sought to improve contact by negotiation and did not wish to jeopardise negotiation by pursuing his parental responsibility application too
quickly. The judge noted that the facts of the case were not as strong as were the facts in Re W (minors) but that there was otherwise no relevant
distinction between the two cases. She (at 683) then posed herself questions:
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‘The Hague Convention draws a deliberate distinction between rights of custody and rights of access. Our law draws a deliberate distinction
between married and unmarried fathers. The mother did not break any domestic law or court order in taking the child out of the country. Is the
current case not a good example of how hard cases do indeed make bad law? Does not my decision in Re W; Re B set a dangerous precedent in a
hard case which will lead to the erosion of those important distinctions? In other words, ought I to reconsider the decision in Re W; Re B?’

The judge then referred to the Colorado case of Re F (minor: abduction: rights of custody abroad) [1995] 3 All ER 641, [1995] Fam 224, in which
the alternative argument that rights of custody had been vested in the court was not pursued. That decision was taken against the background that the
Colorado court had given interim custody to the mother prior to the removal. However, the obiter expressions were either neutral or negative.
Butler-Sloss LJ had merely said that the existence of a court order or pending proceedings did not automatically clothe the court with rights of custody.
Millett LJ stated his opinion that on the evidence it was very doubtful whether any rights of custody had been vested in the Colorado court. The judge
also referred to a practice note from the Central Authority for England and Wales dated 14 October 1997 (see [1998] 1 FCR 253). The authors on the
basis of the judgments in the Colorado case Re F (a minor) and ­ 9 the Ontario case B v B (abduction: custody rights) [1993] 2 All ER 144, [1993] Fam
32, stated:
‘An application for a residence order, by invoking the court’s powers to determine the [child’s] place of residence, would necessarily involve
the exercise of the court’s rights of custody within the meaning of the convention, as would an application for an order restraining the removal of a
child from the jurisdiction. An application for a parental responsibility order, on the other hand, does not require the court to determine the child’s
place of residence, and thus would not involve an exercise by the court of rights of custody within the meaning of the convention.’ (See [1998] 1
FCR 253 at 256.)
Although that commentary predated the judge’s decision in Re W (minors) it was not considered in that judgment, presumably because it had not
come to the judge’s attention. Clearly it would not have affected the formulation of that judgment since Hale J explains convincingly why she rejects the
opinion expressed in the note. Thus having seemingly found nothing in the intervening 15 months to justify reappraisal she extended the application of
her earlier decision to grant the declaration of wrongful removal.
The permission to appeal which she also granted resulted in a hearing in this court on 22 September. The appeal was adjourned generally on
counsel’s sensible response to the court’s suggestion that the parents should attempt ADR before litigating further at public expense. It is therefore this
appeal that becomes the first to require a review of the decision in Re W (minors).
I say at once that I am in complete agreement with the development for which Hale J has been responsible. That development was sufficient for the
determination of the three cases in question but it by no means resolves the dividing line between what does and what does not vest rights of custody in
the court for the guidance of practitioners in this jurisdiction in future cases. In one of the passages that I have cited from her judgment in Re W (minors)
she recognised that any proceedings for an order relating to the child could be said to vest rights in the court. There is an equal difficulty in explaining
rationally the point at which relevant proceedings are sufficiently progressed to vest rights in the court. Why should the court’s rights not arise once it has
issued the relevant proceedings? Mr Turner QC points to the potential injustice to a mother who embarks on a 10,000 mile journey after the issue of an
application to prevent her exodus but without knowledge of it. I suspect that such cases would be rare, particularly if knowledge is constructive as well as
actual. These difficulties are compounded for lawyers in this jurisdiction by the wardship phenomenon. The mere making of the application serves to
make the child a ward of court. In Re J (minor: abduction: ward of court) [1989] 3 All ER 590 at 595, [1989] Fam 85 at 91 Swinton Thomas J held that
where a minor was a ward of court, the court was a ‘person, an institution or any other body’ within the meaning of arts 3 and 8 of the Hague Convention
and that the court held ‘rights of custody’. He accordingly granted a declaration of wrongful removal against a mother who had removed a five-year-old
child a few days after her birth. The correctness of that decision can surely not be doubted. I would not say the same of the subsequent decision in Re
BM (a minor) (wardship: jurisdiction) [1993] 2 FCR 388. The unmarried parents had a daughter born in 1991. They separated in 1992. Seemingly as a
result of difficulties over contact the father had issued applications ­ 10 for contact and parental responsibility. Those applications were issued on 14
August. Pending the court’s determination, contact was agreed between solicitors. However, before its commencement on 3 September the mother
returned home to Germany taking the child. On the following day the father obtained an ex parte order that the child should remain a ward of court and
that the mother should forthwith return the ward to the jurisdiction. The mother ignored the order for the child’s return. The father sought and obtained a
declaration under art 3 that the child’s retention was wrongful. Eastham J granted the declaration holding that there were rights of custody in the court,
not as a consequence of the pending determination of the father’s applications for parental responsibility and contact, but as a consequence of the making
of the wardship order. I do not doubt the conclusion that the father was entitled to his declaration on the basis that rights of custody were vested in the
court. But in my opinion those rights would have been more securely founded on the pending determination of the claim to parental responsibility.
It is always to be remembered that this is an international convention, now adopted by no less than 57 separate jurisdictions, and jurisprudence
developed in individual jurisdictions should have a degree of authority in the courts of other jurisdictions. It is unlikely that other jurisdictions will have
procedures or remedies comparable to ours in wardship and it is important that we should be on guard against exorbitant jurisdictional claims founded on
a remedy of great historical significance but one peculiar to this jurisdiction. In Re BM the proceedings in wardship had not only not been served on the
mother prior to her departure, they had not even been issued. As Wall J observed in Re B (a minor) (abduction: rights of custody) (unreported, 7 March
1997): ‘A right of custody given to [the father] after the abduction does not make the abduction itself wrongful.’ (See [1998] 2 FCR 212 at 214.) Perhaps
the problem is of diminishing dimension. Since the commencement of the 1989 Act the court’s inherent jurisdiction should be invoked only where
particular circumstances indicate that a question concerning a child cannot be as effectively resolved under the statute (see Re T (a minor) (child:
representation) [1993] 4 All ER 518, [1994] Fam 49).
Obviously there would be satisfaction as well as benefit in achieving a rational analysis which would serve to define clearly the frontier between the
acts or events which were and which were not sufficient to give rise to rights of custody under the convention in those cases where the disputed removal
is from this jurisdiction and the relevant prior proceedings are within our family justice system. However, I have reached the reluctant conclusion that it
is an impossible task. As Hughes J said in the present case: ‘Whether an application before a court is such as to give that court rights of custody will, it
seems to me, depend upon the particular circumstances of each case.’
However, I do offer the following general guidance.
(i) An application that in its substance seeks only the determination, definition or quantification of contact cannot vest rights of custody in the court
(see Re V-B (minors) (abduction: rights of custody) [1999] 2 FCR 371).
(ii) An application that in its substance seeks the court’s determination on issues of physical care, parental responsibility (to use our current statutory
terminology), or the jurisdiction in which the responsibility of physical care will be exercised may or may not suffice to vest rights of custody in the court
of issue. To determine whether rights are vested it is necessary to scrutinise the nature of the application, the merit of the application and the applicant’s
commitment to ­ 11 its pursuit. Obviously the mere issue of a hopeless or insincere application vests nothing in the court which at that stage is no more
than the tool of the applicant’s manipulation. Equally the issue of an arguably meritorious application may be offset if thereafter by inactivity or
inconsistent statement the applicant belies his seeming intention to obtain judgment. In the end each case must call for its own evaluation always giving
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the article its wide and purposive construction.
(iii) Today I would not give greater status to an application issued in wardship proceedings in the absence of exceptional circumstances. Wardship
has an important continuing role to curb or retrieve abduction where one of the jurisdictions is not a signatory to the Hague Convention but where a case
is either within or without the art 5 definition I do not consider that the issue of wardship proceedings should ordinarily be judged to have strengthened
the applicant’s hand.
Of course the present case concerns a removal from a friendly neighbouring jurisdiction and it will be necessary to examine in some detail the
relevant forensic events in the district court as well as the family law of Ireland. Before doing so it is worth recording that the approach developed within
this jurisdiction to whether a court may hold rights of custody in the convention sense and, if so, what minimum is necessary to give rise to such rights,
has been settled along parallel lines in other jurisdictions whose jurisprudence carries great respect. In Canada there is the decision of the Supreme Court
of Canada in Thomson v Thomson [1994] 3 SCR 551, which follows the decision of this court in C v C (minor: abduction: rights of custody abroad)
[1989] 2 All ER 465. In the later case of W(V) v S(D) (1996) 134 DLR (4th) 481 the Supreme Court of Canada emphasised the danger of confusing rights
of custody and rights of access. In Thorne v Dryden-Hall (1997) 148 DLR (4th) 508 the British Columbia Court of Appeal, applying Thomson v
Thomson, held that an English mother to whom a residence order had been granted under the Children Act 1989 breached rights of custody vested in the
father and the court by removing the children to Canada without having obtained the father’s written consent or leave of the court.
In Scotland Seroka v Bellah 1995 SLT 204 shows that C v C is also regarded as good law in that jurisdiction, although Lord Prosser questioned the
subsequent decision of this court in the Ontario B v B and indeed expressed reservations as to the construction of the convention generally in relation to
rights of custody in courts. He said (at 210):

‘I must confess to having some misgivings at the concept of a court having “rights” of custody, or the “right” to determine the child’s place of
residence, even in general terms. I am also uneasy, in relation to courts, with the concept of actual exercise of rights at some specified time, and
with the question of whether such rights would or would not have been exercised but for removal or retention. Such rights may be “attributed” to
others who will exercise them, whether these others be individuals or institutions or other bodies. What the court has would in my view more
normally be called a power, rather than a right, to attribute rights to others; and I am uneasy at the equiparation of such a power with the type of
rights with which the convention is concerned. But it is true that a court may “determine” a child’s place of residence, when exercising its powers
in that connection; and it is perhaps easier to see the court as exercising a “right” to determine the matter such as this, than it is to see the court as
exercising a right of custody in any more general sense. While I have thought it right to express these misgivings, and while I appreciate that they
seem to run counter to the decision of the English Court of Appeal, I do not find it necessary to reach a ­ 12 concluded view upon this aspect of
matters. Even if a court is rightly to be regarded, for the purposes of the Convention, as having rights of custody in certain circumstances, and in
particular as having the right to determine a child’s place of residence, the facts of the present case appear to me to be very different from those in
[B v B].’

Thus it is apparent that the decision of this court in C v C has been accepted as fundamental in all other jurisdictions that have considered it.
I turn now to consider the relevant Irish family law and the effect of the Irish proceedings. The Hague Convention was introduced into Irish law with
effect from 1 October 1991 by the Child Abduction and Enforcement of Custody Orders Act 1991. However, the crucial statute for the purposes of this
appeal is the Guardianship of Infants Act 1964, as amended. Section 6 deals with rights of parents to guardianship. The following subsections are
relevant:

‘(1) The father and mother of an infant shall be guardians of the infant jointly …
(4) The mother of an illegitimate infant shall be guardian of the infant.’

The Status of Children Act 1987 added to s 6 the following section:

‘6A.—(1) Where the father and mother of an infant have not married each other, the court may, on the application of the father, by order
appoint him to be a guardian of the infant …’

That provision was further amended by s 6 of the Children Act 1997 but I do not record its terms since it does not shift the fundamental grant of the
right of the unmarried father to apply for appointment as a guardian. Sections 10 and 11 of the 1964 Act are crucial and I set out so much of each as is
necessary for this judgment:

‘10.—(1) Every guardian under this Act shall be a guardian of the person and of the estate of the infant unless, in the case of a guardian
appointed by deed, will or order of the court, the terms of his appointment otherwise provide.
(2) Subject to the terms of any such deed, will or order, a guardian under this Act—(a) as guardian of the person, shall, as against every person
not being, jointly with him, a guardian of the person, be entitled to the custody of the infant and shall be entitled to take proceedings for the
restoration of his custody of the infant against any person who wrongfully takes away or detains the infant and for the recovery, for the benefit of
the infant, of damages for any injury to or trespass against the person of the infant …
11.—(1) Any person being a guardian of an infant may apply to the court for its direction on any question affecting the welfare of the infant and
the court may make such order as it thinks proper.
(2) The court may by an order under this section—(a) give such directions as it thinks proper regarding the custody of the infant and the right of
access to the infant of his father or mother …’

Each side relied upon a highly qualified expert in Irish family law. The expert instructed on behalf of the father expressed the firm opinion that the
proceedings in the district court vested rights of custody in that court. The expert for the mother expressed the contrary view with equal firmness. The
mother’s expert perhaps gained some advantage when furnishing a supplemental opinion which became available at the opening of the trial. However,
since judgment the ­ 13 father’s expert has written a comprehensive supplemental opinion and Mr Turner did not oppose Mr Tyzack’s application for
its admission at the opening of the appeal. Thus before us the expert evidence is more evenly balanced. Neither expert has been cross-examined and
there may be a partisan tinge to each contribution. However, we have in addition the advantage of a judgment of the Irish Supreme Court in Re HI (a
minor), HI v MG [1999] 2 ILRM 1 at 22 as well as recourse to Shatter on Family Law in the Republic of Ireland (4th edn, 1997). The following
propositions of Irish law emerge.
(1) The rights and duties of a guardian include the duty to care for the child, which includes the right to custody of the child, as well as the right to
make decisions about the child’s religious and secular education, health requirements and general welfare.
(2) Custody means the right to physical care and control. Cohabiting married parents are joint custodians as are cohabiting unmarried parents
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providing the father has been appointed guardian under s 10 of the 1964 Act. The mother of course needs no such order since her guardianship stems
from s 6(4).
(3) Once the father joins the mother in guardianship by appointment under s 10 any disagreement as to the custody of the child must be settled by the
court’s direction under s 11(2)(a).
(4) There is no prohibition in law against a parent removing a child from Ireland to exercise rights of custody elsewhere. However, if there is
disagreement between joint guardians not as to which should exercise the right of custody but as to where that right should be exercised, the disagreement
will be settled by the court’s direction under s 11(2)(a).
In the recent Supreme Court judgment in Re HI Keane J, with whose judgment the other members of the court concurred, had to decide whether a
child’s removal from New York had been in breach of art 3 rights of custody. After a careful review of the authorities in this jurisdiction the judge
adopted the decision of this court in C v C. He said (at 40):

‘Even where the parent, or some other person or body concerned with the care of the child, is not entitled to custody, whether by operation of
law, judicial or administrative decision or an agreement having legal effect, but there are proceedings in being to which he or it is a party and he or
it has sought the custody of the child, the removal of the child to another jurisdiction while the proceedings are pending would, absent any legally
excusing circumstances, be wrongful in terms of the convention. The position would be the same, even where no order for custody was being
sought by the dispossessed party, if the court had made an order prohibiting the removal of the child without the consent of the dispossessed party
or a further order of the court itself. In such cases, the removal would be in breach of rights of custody, not attributed to the dispossessed party, but
to the court itself, since its right to determine the custody or to prohibit the removal of the child necessarily involves a determination by the court
that, at least until circumstances change, the child’s residence should continue to be in the requesting state. It could even be that an order by the
court granting a right of access to the dispossessed parent might, by implication, be treated as prohibiting the removal of the child without the
consent of the dispossessed parent or a further order of the court. That would fall to be determined in accordance with the law of the state of the
habitual residence at the time of the removal. A further question could then arise as to whether, ­ 14 in any event, the appropriate machinery for
enforcing the access rights in that case was that under article 21 rather than article 3, which is invoked in the present case. Since however, at the
time of the allegedly wrongful removal in the present case, no rights of access had been granted by the court in New York, it is unnecessary to
express any concluded view on that question. It is sufficient to say, in the context of the present proceedings, that, giving the convention the
purposive and flexible construction which it should be given, circumstances can arise in which a removal can be “wrongful” within the meaning of
article 3 because it is in breach of rights of custody, not vested in either of the parents but in the court itself.’

The judge also reviewed fully the decision of this court in the Australian case of Re B (a minor) (abduction) [1995] 2 FCR 505. The judge clearly
preferred the dissenting view of Peter Gibson LJ and doubted the court’s extension of the concept of convention rights to inchoate rights of persons
carrying out parental functions.
Thus it seems to me that on the issue raised by this appeal, namely the determination of what does and does not suffice to vest rights of custody in a
court, there is little if any distinction between the law of this jurisdiction and the law of Ireland.
Against that background I can now approach the crucial question: were the proceedings between 14 March 1996 and late June 1998 sufficient to vest
rights of custody in the District Court of Carrigaline? I take the date of 14 March 1996 because I conclude that it is right to regard the district court
proceedings as having a currency from their date of first issue. The essence of orders in relation to children is that they are rarely final. Here the first
order clearly anticipated continuity. The contact provision was for a six-month trial. The order ended with the words ‘liberty to re-enter’, that is to say in
our terminology ‘liberty to apply’. The order of 23 July 1998 carries the same case record number as the order of 11 April 1996. The father’s two
applications were made under the same section of the same statute. Mr Turner sought to make much of the fact that an application for guardianship fell
under s 10 and an application for contact under s 11. The fact that the father’s application and the subsequent order referred only to s 11 seems to me a
technicality of no significance.
So what is the real consequence of this forensic activity? The father never sought custody, that is to say the responsibility of daily care. But implicit
in his consent to the order giving custody to the mother was that she would exercise that responsibility in their shared locality. His application for
guardianship would, if granted, have constituted him joint custodian with the consequence that any dispute as to where the child should reside was to be
decided by the court under s 11(2)(a). In my opinion the court’s adjudication in relation to the custody of the child together with the court’s imminent
determination of the father’s application for guardianship vested art 3 rights of custody in the court. Hughes J’s finding of fact is trenchant and is fully
justified on the evidence. He said:

‘… despite Mr Turner’s seductive submissions on her behalf, her contention that she had no intention of frustrating the court process in Ireland
and that the frustration of it which occurred was simply an uncovenanted side effect is, I am afraid, quite unconvincing. If she had wished contact
to continue she could easily have let the father know where she was. The clandestine disappearance and the long period without ­ 15 disclosing
where she was makes it completely clear that this was a removal of [N] in order to evade what would otherwise have been the father’s input into the
girl’s life, except on terms controlled by the mother rather than by the court which was currently seized of it. It was, I am satisfied, an example not
so much of forum shopping as of forum avoidance and it is a clear example.’

Bearing in mind the need for wide and purposive construction parental conduct of this character should not succeed in out-manoeuvring the
culmination of the forensic process in what is indubitably the court of primary responsibility. If the mother believes that England is better for N she
should submit that conviction to the determination of the Irish court. Indeed it was her responsibility to seek that determination before presenting the
father and the court with what she no doubt hoped would be a fait accompli.
I have already said that Hughes J reached the contrary conclusion with regret. I have also pointed out that he did not have the advantage of the
supplemental report from the father’s expert. Plainly what swayed the judge was the distinction between the effect of issuing an application for parental
responsibility in this jurisdiction and the effect of issuing an application for guardianship in Ireland. He said:

‘Whether an application before a court is such as to give that court rights of custody will, it seems to me, depend upon the particular
circumstances of each case. Whether an application in England for parental rights does so or not is, despite the decision in Re W; Re B, not, it
seems to me, altogether free from doubt, in the face of 1997 Re B [(abduction: rights of custody) [1998] 2 FCR 212]. Whether or not that is so,
however, this much seems to me to be clear. Even if it can be held that an English court seised of an application for parental responsibility is
exercising rights of custody because the parental responsibility which it is considering brings with it the [Re C (a minor) (abduction) [1989] FCR
197] right of veto, the same cannot be said of an Irish court which is entering an application for guardianship, since guardianship (if granted) does
not bring any similar right.’
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Of course in her decisions in W (minors) (abduction: father’s rights) [1999] Fam 1 and in Re C (child abduction) (unmarried father) [1999] 3 FCR
678, Hale J laid stress on the fact that, by virtue of the Child Abduction Act 1984, s 1(1) and (3)(a)(ii), it is a criminal offence for a parent to remove a
child from the jurisdiction without the consent of the other parent holding parental responsibility. Some states within the common law tradition favour the
express provision of territorial limits on rights of custody. Other states impose no such limitations, no doubt on the basis that in the vast majority of cases
they are unnecessary and in the few cases of dispute one parent or other will invoke the court’s jurisdiction prior to any removal. In my opinion it would
be wrong to find rights of custody vested in the courts of the jurisdictions that opt for express limitation and to reject jurisdiction in the courts that do not.
In conclusion I cast the emphasis not upon the absence of a right of veto but upon the fact that the jurisdiction of the Irish court was invoked, not simply
as to the extent of the father’s contact, but on issues of child custody and on issues of guardianship. Although differing from Hughes J on this crucial
question I emphasise that I do so on evidence more extensive than was available to him. I also pay tribute to a full and lucid ex tempore judgment.
­ 16
I would allow this appeal and order that N be returned to the jurisdiction of the Republic of Ireland forthwith.

CHADWICK LJ. These proceedings under the Child Abduction and Custody Act 1985 were commenced by the issue of a summons in the Principal
Registry of the Family Division of the High Court on 14 June 1999. That summons came before Hughes J on 5 August 1999. The judge held, and it has
not been in dispute in this court, that the respondent mother removed the child, N, from the Republic of Ireland—within whose territory N had been
habitually resident immediately before such removal—to the United Kingdom on 23 June 1998. In those circumstances, if the removal to, and subsequent
retention of N in, the United Kingdom was wrongful within the meaning of art 3 of the Convention on the Civil Aspects of International Child Abduction
signed at The Hague on 25 October 1980 (the Hague Convention) (TS 66 (1986); Cm 33), then art 12 of the convention—which, by virtue of s 1(2) of the
1985 Act, has the force of law in the United Kingdom—required that the judge should order the return of the child to the Republic of Ireland forthwith
unless the mother, who opposed the return of the child, could establish one or other of the matters set out in art 13.
The judge held that the mother had not established any of the matters set out in art 13. He was satisfied that, had he held that the removal and
retention were wrongful, there was no basis upon which an immediate order for return could be refused. There is no cross-appeal against that part of his
decision. Although contentions based on acquiescence and intolerable situation were raised in the skeleton argument submitted to this court on behalf of
the mother, they were not pursued at the hearing of the appeal. The only question which this court has to decide is whether the judge was right to hold
that the removal of N from the Republic of Ireland on 23 June 1998, and her subsequent retention in the United Kingdom since that date, were not
wrongful within the meaning of art 3 of the convention.
Article 3 of the convention is in these terms:

‘The removal or the retention of a child is to be considered wrongful where—(a) it is in breach of rights of custody attributed to a person, an
institution or any other body, either jointly or alone, under the law of the State in which the child was habitually resident immediately before the
removal or retention; and (b) at the time of the removal or retention those rights were actually exercised, either jointly or alone, or would have been
so exercised but for the removal or retention. The rights of custody mentioned in sub-paragraph (a) above, may arise in particular by operation of
law or by reason of a judicial or administrative decision, or by reason of an agreement having legal effect under the law of that State.’

‘Rights of custody’ are defined for the purposes of the convention by art 5(a): ‘… “rights of custody” shall include rights relating to the care of the
person of the child and, in particular, the right to determine the child’s place of residence.’
As Thorpe LJ has pointed out, rights of custody must be contrasted with ‘rights of access’, defined by art 5(b): ‘… “rights of access” shall include
the right to take the child for a limited period of time to a place other than the child’s habitual residence.’
In C v C (minor: abduction: rights of custody abroad) [1989] 2 All ER 465 at 472–473, [1989] 1 WLR 654 at 663–664 Lord Donaldson MR, in the
passage to which Thorpe LJ has already referred, expressed the view that ‘the right to determine ­ 17 the child’s place of residence’ was a right that
may lie in the court itself. That view leads to the conclusion that the court may itself be an institution having rights of custody which may be breached by
the removal of the child from its jurisdiction. As Lord Donaldson MR put it ([1989] 2 All ER 465 at 473, [1989] 1 WLR 654 at 663):

‘If anyone, be it an individual or the court or other institution or a body, has a right to object, and either is not consulted or refuses consent, the
removal will be wrongful within the meaning of the convention.’

In C v C the removal of the child from Australia to the United Kingdom without the consent of the father was in breach of an order made by the
Australian court that neither the mother nor the father should remove the child from Australia without the consent of the other. Giving to the concept
‘rights of custody’ the extended meaning which it must bear in the light of art 5 of the convention, the removal of the child from Australia in those
circumstances was in breach of the father’s rights of custody under the existing order. That was the basis on which the other two members of this court,
Butler-Sloss and Neill LJJ, allowed the appeal (see [1989] 2 All ER 465 at 468 and 472, [1989] 1 WLR 654 at 658 and 663). They did not find it
necessary to consider whether the removal of the child was also in breach of rights of custody vested in the court. Lord Donaldson MR expressly agreed
with the reasons which they had given (see [1989] 2 All ER 465 at 472, [1989] 1 WLR 654 at 663).
If the law in this area had not been developed by a decision of this court subsequent to C v C, I would, for my part, have taken the view that the
observations of Lord Donaldson MR as to the existence of rights of custody in the court were not reflected in the views of the other members of this court
who decided that appeal; were not necessary to his decision; and were not binding on this court in subsequent cases. I might, I think, have felt able to
give effect to my own misgivings on the point, which are well expressed in the passage from the judgment of Lord Prosser in the Court of Session in
Seroka v Bellah 1995 SLT 204, which Thorpe LJ has set out. But, in the light of the subsequent decision of this court in B v B (abduction: custody rights)
[1993] 2 All ER 144, [1993] Fam 32, I am satisfied that that course is not open to me.
In B v B this court held that custody rights were vested in the court in Ontario. The Ontario court had made an interim order, in divorce proceedings
between the father and the mother in which each had made applications for custody, that the child should not be removed from the jurisdiction; and had
made interim orders for access which were themselves to be exercised in Ontario. The father submitted that the effect of those orders was to give him
rights of custody within the extended meaning which, as was explained by Butler-Sloss LJ in C v C, those words must bear in the context of the
convention. But, in an alternative submission ([1993] 2 All ER 144 at 149, [1993] Fam 32 at 37) counsel for the father sought to persuade this court that
the Ontario court was ‘an institution or other body’ within the terms of the convention which had a right to determine the child’s place of residence. Sir
Stephen Brown P, with whose judgment the other two members of the court, Leggatt and Scott LJJ, agreed, accepted that submission. He said ([1993] 2
All ER 144 at 149, [1993] Fam 32 at 38):
‘It seems to me that the court itself had a right of custody at this time in the sense that it had the right to determine the child’s place of residence,
and it was in breach of that right that the mother removed the child from its place of habitual residence.’
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­ 18
It would, I think, have been possible for this court to have reached the result which it did in B v B by holding that the effect of the interim orders
which had been made by the Ontario court gave to the father the right to be consulted and to object if the child’s residence in Ontario was to be disturbed
before the substantive issues had been heard and determined. That right, following the decision in C v C, could, perhaps, have been regarded for the
purposes of the convention as a right of custody attributed to the father—as, indeed, was submitted on his behalf. But this court did not decide the appeal
on that basis. It decided the appeal on the basis that the relevant right of custody was in the Ontario court. It is not now open to the Court of Appeal to
hold that a foreign court is incapable of being an institution or other body within the meaning of art 3 of the convention to which rights of custody may be
attributed.
The point is of importance on the present appeal in the circumstances that the father abandoned the argument—advanced below and in para 2 of his
notice of appeal—that the removal of N was in breach of his rights of custody. The appeal was argued on the basis that the only rights of custody capable
of being breached by the removal of the child were those of the Irish court itself. It is on that basis that we must decide this appeal.
It is common ground that the Irish court was seised of proceedings in relation to N long before N was removed from its jurisdiction on 23 June 1998.
As Thorpe LJ has explained, those proceedings were commenced by the father on 14 March 1996. In those proceedings the father sought an order under s
11 of the Guardianship of Infants Act 1964. The section is in these terms, so far as material:

‘(1) Any person being a guardian of an infant may apply to the court for its direction on any question affecting the welfare of the infant and the
court may make such order as it thinks proper.
(2) The court may by an order under this section—(a) give such directions as it thinks proper regarding the custody of the infant and the right of
access to the infant of his father or mother …
(4) In the case of an infant whose father and mother have not married each other, the right to make an application under this section regarding
the custody of the infant and the right of access thereto of his father or mother shall extend to the father who is not a guardian of the infant, and for
this purpose references in this section to the father or parent of the infant shall be construed as including him.’

[Note: the words in italics were substituted for the text as enacted in 1964 by s 13 of the Status of Children Act 1987.]
The order made on 25 April 1996 in the district court for the area of Carrigaline recited, wrongly, that the father was a guardian of N; it gave custody
to the mother by consent; and it provided for the father to have weekly access at the mother’s house. As Thorpe LJ has pointed out, the order gave liberty
to apply. The order for access was expressed to be an interim order, effective until 10 October 1996. Plainly, it was contemplated that the court would
remain seised of the matter; and that further applications under s 11, including applications for directions about custody, could be made in the existing
proceedings if and when circumstances required.
Although the recital in the order of 25 April 1996—that the father was guardian of N—was incorrect, there was provision in the relevant legislation
in the Republic of Ireland under which his appointment as guardian could be sought ­ 19 and made. That provision was incorporated as s 6A of the
1964 Act by s 12 of the Status of Children Act 1987:

‘(1) Where the father and the mother have not married each other, the court may, on the application of the father, appoint him to be a guardian
of the infant.’

The rights of a guardian are prescribed by s 10 of the 1964 Act:

‘(1) Every guardian under this Act shall be a guardian of the person and of the estate of the infant unless, in the case of a guardian appointed by
deed, will or order of the court, the terms of his appointment otherwise provide.
(2) Subject to the terms of any such deed, will or order, a guardian under this Act—(a) as guardian of the person, shall, as against every person
not being, jointly with him, a guardian of the person, be entitled to the custody of the infant …’

The position, therefore, of an unmarried father is that he can apply to be appointed a guardian under s 6A(1) of the 1964 Act—in which case, if the
application is successful, he will become entitled to rights of custody under s 10(2)(a)—or he can apply for directions as to custody and access under s
11(2)(a) and (4). It seems to me inconceivable that, on an application by an unmarried father for directions as to custody under s 11 of the 1964 Act, the
court seised of that application would not address the question of guardianship.
On 30 March 1998 the father made application, in the existing proceedings, for directions regarding the custody of N and the rights of access of both
parents ‘to wit Guardianship and access’. The application was made under s 11 of the 1964 Act; but the reference to guardianship on the face of the
application fairly reflects, as it seems to me, what it was that the district court was invited to consider. It appears that an interim order for access was
made on 14 May 1998; and the substantive issues, including guardianship and custody, were adjourned over until 23 July 1998. That was the position
when the child was removed from the jurisdiction of the Irish court on 23 June 1998.
In these circumstances—and on the basis that rights of custody can be vested in the court for the purposes of the convention—I think it plain that the
removal of N from the Republic of Ireland on 23 June 1998 was wrongful within the meaning of art 3 of the convention. Save for the fact that the district
court had not made an order expressly prohibiting the removal of N from the jurisdiction pending the determination of the substantive issues, the position
is indistinguishable from that in B v B (abduction: custody rights) [1993] 2 All ER 144, [1993] Fam 32. I do not find the absence of a prohibition against
removal a material distinction in the circumstances of the present case. It is clear that questions of guardianship and custody were before the court; the
court had given directions which would lead to those questions being determined; and the removal of N was wrongful, in the sense that it was calculated
to ensure that the determination of those questions by the court would not be effective.
I am conscious that the reasoning in this judgment will make little or no contribution towards a rational analysis defining clearly the distinction
between acts and events which do and acts and events which do not vest rights of custody in the court for the purposes of the convention. For my part I
find it very difficult to see why, if the court is capable of being an institution or body to whom rights of custody can be attributed, the invocation in good
faith of the court’s jurisdiction to determine where the child should reside—by whatever process is ­ 20 appropriate in the jurisdiction in which the
child is habitually resident before removal—should not be sufficient to vest those rights in the court. But I appreciate, of course, that that approach is
difficult, if not impossible, to reconcile with the decision of this court, refusing leave to appeal, in Re B (a minor) (abduction: rights of custody) [1998] 2
FCR 212—see, in particular, the observations of Swinton Thomas LJ (at 219) with which the other members of the court agreed. I appreciate, also, that
there must be potential for injustice if the convention is enforced against a custodial parent who—being under no restraint—takes the child out of the
jurisdiction in ignorance of proceedings which, although formally commenced, have not been served.
The observations of Hale J in Re W (minors) (abduction: father’s rights) [1999] Fam 1 at 16 have, if I may say so, a great deal to recommend them
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as a matter of practical common sense:

‘I am greatly attracted to the proposition that, where the court is actively seised of proceedings to determine rights of custody, removal of the
child from the jurisdiction without leave of the court while those proceedings remain pending is a breach of the rights of custody attributable to the
court.’

I have little doubt that the family courts will be able to develop through the cases examples of when a court is, or is not, ‘actively seised’ of relevant
proceedings. Hale J had, herself, begun this development in the two decisions which she handed down on 25 June 1999, Re J (abduction: rights of
custody) [1999] 3 FCR 577 and Re C (child abduction: unmarried father) [1999] 3 FCR 678. Although, as one whose experience has been in other fields,
I may feel uncomfortable with a test of ‘actively seised’ which is, perhaps, easier to recognise than to define—and not at all easy to rationalise—I am
persuaded that this is a field in which the law is best left to develop on a case by case basis.
I would allow this appeal.

MORRITT LJ. I agree with the judgments of both Thorpe and Chadwick LJJ. I share the concerns expressed by the latter and would allow the appeal
for the reasons given by the former.

Appeal allowed.

Kate O’Hanlon Barrister.

Appeal
The mother appealed to the House of Lords with permission of the Appeal Committee given on 25 November 1999. The facts are set out in the opinion of
Lord Mackay of Clashfern.

James Turner QC and Adrian Langdale (instructed by Dawson Cornwell, agents for Kirwans, Prenton) for the mother.
David Tyzack QC and Catriona Murfitt (instructed by Collyer-Bristow) for the father.

14 December 1999. Their Lordships dismissed the appeal for reasons to be given later.
­ 21

3 February 2000. The following opinions were delivered.

LORD NICHOLLS OF BIRKENHEAD. My Lords, this appeal was dismissed by the House on 14 December 1999, for reasons to be given later. I
have now had the advantage of reading in draft the speech of my noble and learned friend Lord Mackay of Clashfern. I agree with the reasons he gives
for dismissing this appeal.

LORD MACKAY OF CLASHFERN. My Lords, this appeal concerns a female child called ‘H’ who was born on 3 April 1992 in the Republic of
Ireland. The appellant is the mother of that child and the respondent is her father. The parties both come from the Republic of Ireland and at the time of
the birth of H they were living together there but they never married and they separated in about 1995. After the separation of the parties the father had
contact with H with the agreement of the mother but that contact was irregular, albeit that it included staying contact on a few occasions. There is an
unresolved factual dispute as to the reason why that contact was irregular. The problems concerning contact resulted in the father initiating proceedings
under the Guardianship of Infants Act 1964 (1964, No 7) in the District Court of Carrigaline in the Republic of Ireland in respect of his daughter on 14
March 1996. On 11 April 1996 the District Court, by consent, made a custody order in favour of the mother and made what was expressed to be an
interim order until 10 October 1996 granting the father access to his daughter every Sunday from 2 pm to 6 pm; access to be in the mother’s dwelling
house with walks in the neighbourhood, with liberty to re-enter by which is meant liberty to apply. Between about May 1996 and May 1997 the father
was in prison serving a sentence in respect of drugs offences and did not exercise the right of access conferred by the order of 11 April 1996.
After his release from prison there was sporadic access between him and the child and on about 30 March 1998 the father filed an application in the
District Court of Carragaline. The application was made in a pro forma document headed ‘Guardianship of Infants Act, 1964 Notice of Application under
section 11(1) 11(4) for the Court’s Direction’ and containing the pre-printed words ‘FOR THE COURT’S DIRECTION regarding the custody of the
infant(s) and the right of access thereto of the applicant …’ following which the father’s Irish solicitors had added the words ‘to wit Guardianship and
access’. In the present proceedings the evidence filed by the father has made it clear that the relief he sought from the district court was in reality to be
appointed a guardian of the child and an order specifying the access that he should have to that child, and, indeed, those were the forms of relief
eventually granted to him. The father’s application of 30 March 1998 first came before the district court on 14 May 1998. Both parties and their lawyers
were in attendance and the matter was adjourned, by consent, to 23 July 1998, the parties having reached an agreement that there should be access
between the father and his daughter during the daytime on each Saturday and Sunday in the meantime. No order appears to have been drawn to reflect
this state of affairs, but access took place in accordance with the agreement of the parties until 20 June 1998 when the father found the mother’s house to
be empty when he attended for an access visit. He was told by the neighbours that the mother was leaving Ireland, he found the child staying with a
friend of the mother and he reported to the Gardai and to his lawyers his fear that the mother would remove the child from Ireland. The mother was in
fact in England looking for accommodation between 18 and 21 June 1998. On 23 June 1998 the mother ­ 22 left the Republic of Ireland without the
knowledge or consent of the father and came to live in England with her two children H and another child born of a different relationship. The father
believed that the mother and children were in either the Liverpool or Manchester area, but he had not been informed of their address and there was no
direct communication between the parties until May 1999 when such communication was re-established through the good offices of the father of the
mother’s other child. In the meantime on 23 July 1998 the District Court of Carrigaline had proceeded to hear the father’s application, in the absence of
the mother, and had made orders appointing the father a guardian of his daughter and granting him access to that child from 10 am each Saturday until 6
pm each Sunday. The order of 23 July 1998 bears the same case number as that of 11 April 1996.
Having re-established communication with the mother, the father, on 14 June 1999, initiated the present proceedings in the Family Division of the
High Court of Justice in England, seeking an order for the return of his daughter to the Republic of Ireland, pursuant to the provisions of the Hague
Convention on the Civil Aspects of International Child Abduction (the Hague Convention) (the Hague, 25 October 1980) (TS 66 (1986); Cm 33), as
implemented by the Child Abduction and Custody Act 1985.
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The father’s application was heard substantively on 4 and 5 August 1999 by Hughes J. It was the father’s case that the relevant child had been
habitually resident in the Republic of Ireland immediately before her removal to England in June 1998 and that at the time of that removal he and/or the
district court in the Republic of Ireland had ‘rights of custody’, within the meaning of the Hague Convention, that had been breached by the removal. The
mother conceded that the relevant child had been habitually resident in the Republic of Ireland before her removal to England in June 1998, but denied
that either the father or the district court had rights of custody in respect of the child at the time of the removal and, in the alternative, denied that the
removal had amounted to a breach of any such rights and, further, denied that the father was entitled to rely on any rights that were not his own rights. In
the further alternative the mother put forward other defences that were rejected by Hughes J and which are not material to the present appeal. Hughes J
rejected the father’s contention that he, personally, had rights of custody in respect of his daughter at the relevant time and, further, rejected the father’s
contention that the District Court of Carrigaline had rights of custody in respect of the child of the parties at the relevant time. The father’s application for
the return of the child to the Republic of Ireland was, therefore, dismissed, but leave to appeal to the Court of Appeal was granted by Hughes J.
The only issues raised before the Court of Appeal (Morritt, Thorpe and Chadwick LJJ) were the contentions of the father that the District Court of
Carrigaline had been possessed of rights of custody in respect of the child of the parties at the time of her removal from the Republic of Ireland, that the
removal had amounted to a breach of such rights and that he was entitled to rely upon the breach of the rights possessed by the district court. These
contentions were disputed by the mother.
By its judgment of 11 November 1999 the Court of Appeal accepted the contentions of the father and allowed the appeal. Accordingly an order was
made that the child be returned to the Republic of Ireland forthwith. The mother appealed to your Lordships’ House pursuant to a grant of leave by this
House.
­ 23
The issues before your Lordships on this appeal are:

‘(i) Whether a court can ever be an “institution or any other body” to which rights of custody may be attributed within the meaning of Article 3
of the Hague Convention on the Civil Aspects of International Child Abduction (as implemented by the Child Abduction and Custody Act 1985)
and, if so, in what circumstances.
(ii) If such rights of custody may be attributed to a court, whether such rights were in fact to be attributed to the District Court of Carrigaline in
the Republic of Ireland, within the meaning of Article 3(a) of the said Convention, on the facts of the present case and, if so, whether such rights
were actually exercised at the time of removal of the relevant child from the Republic of Ireland or would have been so exercised but for that
removal, within the meaning of Article 3(b) of the said Convention.
(iii) Whether the removal of the child from the Republic of Ireland by the Petitioner on 23 June 1998 was in breach of any rights that may have
been attributable to the said District Court of Carrigaline in respect of that child, within the meaning of Article 3 of the said Convention.
(iv) Whether it is open to a person who has no rights of custody of his own, within the meaning of Article 3 of the said Convention, to rely upon
the breach of any rights of custody possessed by a person, institution or body other than himself in proceedings instituted by him under the Child
Abduction and Custody Act 1985.’

I take these issues in order. At first sight it appears strange to attribute to a court rights of custody but I think it is necessary to consider in some
detail the provisions of the Hague Convention bearing on this matter in order to determine whether that preliminary view accords with a proper
construction of the convention.
The objects of the convention are (a) to secure the prompt return of children wrongfully removed to or retained in any contracting state; and (b) to
ensure that rights of custody and of access under the law of one contracting state are effectively respected in the other contracting states. Since this is an
international convention to be applied under a variety of systems of law it is right that it should be given a purposive construction in order to make as
effective as possible the machinery set up under it. So approaching the matter it appears to me that the phrase in art 8 ‘Any person, institution or other
body claiming that a child has been removed or retained in breach of custody rights’ may include a court as an ‘other body’ particularly when one
appreciates that the phraseology chosen was deliberately wide. Again the phrase ‘rights of custody’ are said by art 5 for the purposes of this convention
to include rights relating to the care of the person of the child and, in particular, the right to determine the child’s place of residence; many of the matters
relating to the care of the person of the child will consist in duties and powers rather than rights in the narrow sense of that word and in particular the
power to determine the child’s place of residence being itself characterised as a right underlines the width that should be given to the word ‘rights’ in this
convention. While therefore initially sharing the misgivings expressed by Chadwick and Morritt LJJ in the present case and by Lord Prosser in Seroka v
Bellah 1995 SLT 204 sitting at first instance in the Court of Session in Scotland I am now of the view that these misgivings should be allayed by these
considerations, but the matter does not end there.
­ 24
The question has arisen in previous cases and I refer first to C v C (minor: abduction: rights of custody abroad) [1989] 2 All ER 465, [1989] 1 WLR
654. Lord Donaldson of Lymington MR said ([1989] 2 All ER 465 at 473, [1989] 1 WLR 654 at 663):

‘This is “the right to determine the child’s place of residence”. This right may be in the court, the mother, the father, some caretaking
institution, such as a local authority, or it may, as in this case, be a divided right, in so far as the child is to reside in Australia, the right being that of
the mother but, in so far as any question arises as to the child residing outside Australia, it being a joint right subject always, of course, to the
overriding rights of the court.’

Although this view was obiter in that case it was founded on B v B (abduction: custody rights) [1993] 2 All ER 144 at 149, [1993] Fam 32 at 38 by Sir
Stephen Brown P:

‘It seems to me that the court itself had a right of custody at this time in the sense that it had the right to determine the child’s place of residence,
and it was in breach of that right that the mother removed the child from its place of habitual residence.’

Leggatt LJ said ([1993] 2 All ER 144 at 153, [1993] Fam 32 at 42):

‘Having made what is no more than an interim custody order, the Ontario court, in my judgment, retained what art 5(a) of the Convention on the
Civil Aspects of International Child Abduction (The Hague, 25 October 1980; TS 66 (1986); Cm 33) calls “the right to determine the child’s place
of residence”.’
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Scott LJ agreed with both of these judgments. This was an essential ground of judgment in that case. The matter has also received detailed consideration
by the Supreme Court of Canada first in Thomson v Thomson [1994] 3 SCR 551 in which La Forest J quoting the passage I have already quoted from Sir
Stephen Brown P said (at 588):

‘I am fully in agreement with this statement. It seems to me that when a court has before it the issue of who shall be accorded custody of a
child, and awards interim custody to one of the parents in the course of dealing with that issue, it has rights relating to the care and control of the
child and, in particular, the right to determine the child’s place of residence. It has long been established that a court may be a body or institution
capable of caring for the person of a child. As I explained in E. (Mrs.) v. Eve ([1986] 2 SCR 388), the Court of Chancery has long exercised
wardship over children in need of protection in the exercise of its parens patriae jurisdiction. But I see no need to rely on jurisdiction emanating
from this doctrine, which has understandably “puzzled and concerned” other Contracting Parties …’

This judgment was a judgment not only of La Forest J himself but also of Lamer CJ, Sopinka, Gonthier, Cory and Iacobucci JJ. The other two judges
sitting, L’Heureux-Dubé and McLachlin JJ agreed with La Forest J’s interpretation and application of the convention to the present case and differed on a
matter with which your Lordships are not concerned.
It appears from Re S (abduction: separate representation of children) [1997] 2 FCR 342 that the High Court of New Zealand considered that it had
rights of custody in respect of the children who were the subject of that application and was ­ 25 represented before Wall J when he was considering the
subject matter of the application, which does not have relevance to the present appeal. The Supreme Court of the Republic of Ireland took the same view
in Re HI (a minor), HI v MG [1999] 2 ILRM 1 at 22.
We have not been referred to any contrary decision and the report of the third Special Commission meeting to review the operation of the Hague
Convention on the Civil Aspects of International Child Abduction which took place on 17 to 21 March 1997 reported in para 15 the decision of the
Supreme Court of Canada that the removal in that case ‘breached the custody rights retained by the Scottish court’. The absence from that report of any
decision to the contrary strongly suggests that there was none, at least up to that time, and none since then has been brought to our attention. In response
to a question from my noble and learned friend Lord Steyn counsel for the mother stated that he could think of no particular practical difficulty in the
adoption of this construction of the convention except the uncertainty that prevailed and is referred to by Thorpe LJ in the present case as to the
circumstances in which the court should be held to have a right of custody.
There are two aspects to this matter. First of all the application to the court must raise matters of custody within the meaning of the convention and
that will require in every case a consideration of the terms of the application. Secondly, a question arises as to the time at which the court acquires such
right. It is clear that the interpretation which has been accepted of the convention which allows the possibility of a court having rights of custody does not
contemplate that happening unless there is an application to the court in a particular case raising the issue of the custody of one or more children. The
date at which such application confers these rights is a matter which has not been the subject of detailed consideration in relation to the convention. For
the purposes of the Civil Jurisdiction and Judgments Act 1982, Sch 1, art 21 and the 1968 Brussels Convention which is scheduled to that Act it has been
held that an English court becomes definitively seised of proceedings for the purposes of that convention on the date of service of the writ at which point
it has jurisdiction over the merits of the dispute: Neste Chemicals SA v DK Line SA, The Sargasso [1994] 3 All ER 180 and Dresser UK Ltd v Falcongate
Freight Management Ltd, The Duke of Yare [1992] 2 All ER 450, [1992] QB 502.
In relation to the present convention while in the wardship jurisdiction the issue of an application made the child who was the subject of the
application a ward of court I consider that generally speaking there is much force in using the service of the application as the time which the court’s
jurisdiction is first invoked. It is true that interim orders may be made before service and special cases may arise but generally speaking I would think it a
reasonable rule that at the latest when the proceedings have been served the jurisdiction has been invoked and unless the proceedings are stayed or some
equivalent action has been taken I would treat the court’s jurisdiction as being continuously invoked thereafter until the application is disposed of. In the
present case no difficulty arises on this issue because at the time when the child was removed from Ireland the court had fixed a date for the determination
of the application as a result of an earlier hearing at which both parties were represented. I would not think it necessary for the court of the jurisdiction to
which the child has been removed to consider whether the pending application in the court of the child’s habitual residence was in good faith or with
merit. These are questions in my judgment ­ 26 for the court of the habitual residence to determine and if any doubt arises on these matters it should be
resolved by application to that court.
In the present case the contest is on whether the application for guardianship which was pending at the date of removal constitutes an application
involving rights of custody within the meaning of the Hague Convention. The statutory provisions in Ireland have been carefully described by Thorpe
and Chadwick LJJ and there are full reports from experts to which they also refer. It is clear to my mind that under the law of Ireland once an unmarried
father is appointed guardian he and the mother have equal rights in respect of the custody in its wider sense of the child. In particular both have the power
of decision in relation to these matters and if they cannot agree the matter must be resolved by the court. In this case the mother had been awarded
custody by consent but as Thorpe LJ said it was implied in the consent as appears from the terms relating to access that the day-to-day care of the child
would be exercised at the mother’s address given in the application. Once the father had appointment as guardian he had an equal right with the mother to
determine where the child should live and in particular whether the child should be removed from the jurisdiction from the courts of Ireland. I do not
regard the award of custody by consent in proceedings which were still pending and in which active consideration of an application for guardianship by
the father was taking place at the time of the removal as destructive of the court’s power to decide the place of the child’s residence. In these
circumstances I conclude that the District Court of Carrigaline had rights of custody in respect of H at the time of her removal and that these rights were
being exercised by reason of the pending application of her father to be appointed her guardian.
The mother argued, particularly founding on the opinion of the Court of Appeal delivered by Ward LJ in Re V-B (minors) (abduction: rights of
custody) [1999] 2 FCR 371, that the application of the father for guardianship did not confer rights of custody on the Irish court. In that case it was held
that a right merely to be consulted on residence, or any other issue, without an associated right to object did not amount to a right relating to the care of
the person of the child. While consultation was of considerable importance, it had little legal effect and did not amount to a veto. As the Dutch order left
the mother free to decide where the children were to reside, and the father could not object, it followed that the father had no rights of custody. In my
opinion the application to the court in this case by the father was for a position which gave him much higher rights in relation to the custody of H than
were possessed by the father in that case. The father in this case once appointed guardian as I have said had the right to decide and if he and the mother
could not agree then application required to be made to the court for the ultimate decision.
That disposes of the second and third issues raised in this appeal. It remains to consider only the fourth which is whether a person other than the
holder of custody rights which have been breached by a removal is entitled to found on the wrongful removal. I see no reason in terms of the convention
or otherwise why a person who has invoked the jurisdiction of the court as a result of which the court has rights of custody in respect of a child should not
be entitled to apply to the courts of the country to which the child has been wrongfully removed for the restoration of the child to the jurisdiction of his or
her habitual residence. It would seem to me an unnecessary obstacle to the smooth working of the convention to hold otherwise. Although I have
referred to a situation in which the High Court of New Zealand was represented in an English court I would ­ 27 think it more appropriate in most cases
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that the application for the restoration of the child should be made by the person whose application to the court conferred on it a right of custody rather
than the court itself having to undertake that responsibility.
For these reasons which are substantially the same as those given by the Court of Appeal I consider that this appeal falls to be dismissed and the
order of the Court of Appeal affirmed. In view of the urgency of the matter the House on 14 December 1999 dismissed this appeal, for reasons to be
given later.

LORD STEYN. My Lords, I have had the privilege of reading in draft the speech of my noble and learned friend Lord Mackay of Clashfern. I am in full
agreement with the reasons given by Lord Mackay of Clashfern for the dismissal of the appeal.

LORD HOPE OF CRAIGHEAD. My Lords, I have had the advantage of reading in draft the speech which has been prepared by my noble and learned
friend Lord Mackay of Clashfern. I agree with it, and for the reasons which he has given I too am of the opinion that the appeal fell to be dismissed.

LORD HUTTON. My Lords, I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend Lord
Mackay of Clashfern.
I agree with it, and for the reasons which he has given, I too would dismiss the appeal.

Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 29

Re O (a child) (blood tests: constraint)

Re J (a child) (blood tests: constraint)

FAMILY; Children

FAMILY DIVISION
WALL J
7, 24 JANUARY 2000

Paternity – Blood test – Child under 16 in care of mother – Applicants obtaining orders for the testing of children’s blood to determine paternity –
Children’s mothers refusing to consent to tests – Whether court having jurisdiction to compel mothers to consent to tests – Family Law Reform Act 1969,
ss 20(1), 21(3) – Children Act 1989, s 37.

In two cases raising the same issue concerning the provisions of Pt III of the Family Law Reform Act 1969 for the use of blood tests in determining
paternity, the applicants obtained county court orders under s 20(1)a of that Act for the use of such tests to determine the paternity of the children in the
respective proceedings. Section 21(1)b of of the Act provided that a blood sample which was required to be taken from any person to give effect to a s 20
direction ‘shall not’ be taken from that person without his consent. That provision was subject, inter alia, to s 21(3), which provided that a blood sample
‘may’ be taken from a person under the age of 16 with the consent of the person who had his care and control. In each case, the child’s mother, the
person with such care and control, refused to consent to the blood tests. The proceedings were therefore transferred to the High Court for the purpose of
determining what order, if any, the court could make to enforce the s 20 direction. Relying on the difference in wording between s 21(1) and (3), the
applicants contended that sub-s (3) was facilitative, that the word ‘may’ was not to be read as ‘may only’ and that accordingly sub-s (3) did not prevent
the court from giving consent. Alternatively, they contended that the court could order a sample of blood to be taken from a child under its inherent
jurisdiction. One of the applicants further contended that the court was entitled to make a direction under s 37c of the Children Act Act 1989 for a report
by a local authority and make an interim care order vesting parental responsibility in the authority which would then be able to consent to blood testing on
the child’s behalf.
________________________________________
a Section 20, so far as material, is set out at p 33 b c, post
b Section 21 is set out at p 33 d to f, post
c Section 37, so far as material, is set out at p 42 j to p 43 d, post
________________________________________

Held – On the true construction of s 21(3) of the 1969 Act, a parent with the care and control of the child was entitled to refuse to consent to the taking of
a sample of blood from that child for the purposes of determining paternity. In that subsection, the word ‘may’ was to be read as ‘may only’, and a
conclusion to the contrary was impermissible since sub-ss (1) and (3) could not be read in isloation from each other. Moreover, the statutory scheme
under Pt III of the Act overrode both the court’s inherent jurisdiction to direct the testing of a child’s blood for the purposes of determining paternity and
any consequential power to enforce that direction. Nor would it be appropriate to use the inherent jurisdiction to circumvent the statutory scheme by
recourse to other scientific tests which had ­ 29 become available since 1969. Furthermore, it would be an abuse of process to make an interim care
order at the same time as ordering a report under s 37 of the 1989 Act in order to enable the implementation of a direction for blood tests under s 20(1) of
the 1969 Act. Accordingly, in the instant cases, the court had no jurisdiction to compel the mothers to consent to the taking of samples of their children’s
blood (see p 35 b, p 36 d e, p 40 f g, p 42 f g, p 43 f to h and p 44 b c, post).
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Re R (a minor) (blood test: constraint) [1998] 1 FCR 41 not followed.

Notes
For consent to the taking of blood tests, see 5(2) Halsbury’s Laws (4th edn reissue) para 715.
For the Family Law Reform Act 1969, ss 20, 21, see 17 Halsbury’s Statutes (4th edn) (1999 reissue) 199, 202.
For the Children Act 1989, s 37, see 6 Halsbury’s Statutes (4th edn) (1999 reissue) 425.

Cases referred to in judgment

A v Liverpool City Council [1981] 2 All ER 385, [1982] AC 363, [1981] 2 WLR 948, HL.
B v Croydon Health Authority [1995] 1 All ER 683, [1995] Fam 133, [1995] 2 WLR 294, CA.
B R B v J B [1968] 2 All ER 1023, [1968] P 466, [1968] 3 WLR 566, CA.
C (a child) (HIV test), Re [1999] 3 FCR 289.
C (a minor) (adoption: freeing order), Re [1999] Fam 240, [1999] 2 WLR 1079.
C (detention for medical treatment), Re [1997] 3 FCR 49.
C v K (inherent powers: exclusion order) [1996] 3 FCR 488.
CB (a minor) (blood tests), Re [1994] 2 FCR 925.
E (a minor) (wardship: medical treatment), Re [1993] 1 FLR 386.
F (a minor) (blood tests: parental rights), Re [1993] 3 All ER 596, [1993] Fam 314, [1993] 3 WLR 369, CA.
Gillick v West Norfolk and Wisbech Area Health Authority [1985] 3 All ER 402, [1986] AC 112, [1985] 3 WLR 830, HL.
GW (a minor) (blood tests), Re [1994] 2 FCR 908, CA.
H (a minor) (blood tests: parental rights), Re [1996] 4 All ER 28, [1997] Fam 89, [1996] 3 WLR 506, CA.
J (a minor) (wardship: medical treatment), Re [1990] 3 All ER 930, [1991] Fam 33, [1991] 2 WLR 140, CA.
L, Re [1968] 1 All ER 20, [1968] P 119, [1967] 3 WLR 1645, CA.
L (medical treatment: Gillick competence), Re [1999] 2 FCR 524.
M (child: refusal of medical treatment), Re [1999] 2 FCR 577.
Nottingham City Council v October Films Ltd [1999] 2 FCR 529.
Nottinghamshire CC v P [1993] 3 All ER 815, [1994] Fam 18, [1993] 3 WLR 637, CA.
O (a minor) (medical treatment), Re [1993] 1 FCR 925.
R (a minor) (blood test: constraint), Re [1998] 1 FCR 41.
R (a minor) (medical treatment), Re [1993] 2 FCR 544.
Richards v Richards [1983] 2 All ER 807, [1984] AC 174, [1983] 3 WLR 173, HL.
S v S, W v Official Solicitor [1970] 3 All ER 107, [1972] AC 24, [1970] 3 WLR 366, HL.
South Glamorgan CC v B [1993] 1 FCR 626.
T (a minor) (wardship: medical treatment), Re [1997] 1 All ER 906, [1997] 1 WLR 242, CA.
­ 30
W (a minor) (medical treatment), Re [1992] 4 All ER 627, [1993] Fam 64, [1992] 3 WLR 758, CA.
Z (a minor) (freedom of publication), Re [1995] 4 All ER 961, [1997] Fam 1, [1996] 2 WLR 88, CA.

Preliminary issue

Re O (a child) (blood tests: constraint)

By applications issued on 20 October 1998, Mr A sought a parental responsibility order and a contact order under the Children Act 1989 in respect of a
child known as E. On 26 January 1999, in the course of those proceedings, a county court district judge made a direction for blood tests under under s
20(1) of the Family Law Reform Act 1969 to determine the child’s paternity. Following the refusal of E’s mother, Ms O, to consent to blood being taken
from E, the proceedings were transferred to the High Court for the purpose of determining what order, if any, the court could make to enforce the
direction. The case was heard in private, but judgment was given by Wall J in open court. The facts are set out in the judgment.

Re J (a child) (blood tests: constraint)

By application dated 8 June 1999, Mr G applied for a specific issue order under the Children Act 1989 to determine whether he was the father of a child
known as J and, if so, for contact to J. On 26 July 1999, in the course of those proceedings, a county court district judge made a direction for blood tests
under under s 20(1) of the Family Law Reform Act 1969 to determine the child’s paternity. Following the failure of J’s mother, Ms W, to comply with
that direction, the proceedings were transferred to the High Court for the purpose of determining what order, if any, the court could make to enforce it.
The case was heard in private, but judgment was given by Wall J in open court. The facts are set out in the judgment.

Pamela Scriven QC and Sylvia Allen (instructed by Yvonne Brown & Co) for Mr A.
Cliona Papazian (instructed by Wilson & Co) for Ms O.
Heather Hobson (instructed by Rowlands) for Mr G.
Ms W did not appear.
Peter Jackson (instructed by the Official Solicitor) as amicus curiae in both cases.

Cur adv vult

24 January 2000. The following judgment was delivered.

WALL J. The two cases with which I am dealing raise the same point, and as a consequence, I have heard them together. As the point in question is, in
my judgment, important, I am handing this judgment down in open court. Nothing, however, must be published which in any way identifies any of the
parties or the children in the proceedings.
In each of the two cases, a male applicant in proceedings instituted in the county court under the Children Act 1989 has obtained an order under s
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20(1) of the Family Law Reform Act 1969 for the use of blood tests designed to determine the paternity of the child who is the subject of the proceedings.
In each case, the mother (the person with sole parental responsibility for and who has the care and control of the child) refuses to consent to the child’s
blood being tested.
­ 31
In these circumstances, the question which arises is simply: what, if any, order or orders may the court make to enforce the direction that a sample of
blood be taken from the child?
The point is one of pure law and statutory interpretation. In neither case am I invited to deal with the merits of the application for relief made by
each of the male applicants under the 1989 Act, nor indeed could I. I have, however, had the benefit of full written and oral argument from counsel; in
particular from Miss Pamela Scriven QC, who appears for the applicant in the first case, and Mr Peter Jackson of counsel, who was instructed by the
Official Solicitor as amicus curiae. I am extremely grateful to all counsel, and to Mr Jackson in particular, for the clear and helpful way their submissions
were formulated.
Each case has been transferred to the High Court solely for the one point to be decided, and at the conclusion of this judgment I propose to direct that
both cases be remitted to the county court for further directions and/or adjudication on their merits.

THE FACTS
Against the background I have described, I need only sketch in the facts of each case.
In the first case, the child, E, was born on 18 December 1997. The applicant, Mr A, had a relationship with E’s mother, Ms O, which Ms O says
ended in December 1996. She accepts, however, that she had sexual intercourse with Mr A on four or five occasions between December 1996 and March
1997, when she began a relationship with another man. Mr A says the relationship ended in April 1997. He says Ms O has given various dates for the
last occasion on which she agrees she had sexual intercourse with him, and according to Mr A she has vacillated between telling him on some occasions
that he is E’s father, whilst on others saying he is not.
Mr A has, to date, had very limited contact with E, and Ms O now says she wants him to have nothing more to do with either her or E. Mr A issued
applications for parental responsibility for and contact with E on 20 October 1998, and on 26 January 1999 a district judge made a direction for blood
tests under s 20(1) of the 1969 Act. In her latest statement to the court Ms O has made it clear that she will not consent to blood being taken from E. She
has a relationship with another man, and regards Mr A’s application as a form of harassment motivated by spite. She denies he is E’s father.
In the second case, the child, J, was born on 7 April 1999. The male applicant, Mr G, says he had a brief sexual encounter with the child’s mother,
Ms W, in the summer of 1998. He says that on 8 April 1999 the mother telephoned him advising him that she had given birth to their child. Up until that
date he had not even been aware that Ms W was pregnant. Mr G alleges that he has suffered considerable harassment from the mother and members of
her family, and only wishes to have a relationship with J if it is proved he is J’s father.
On 8 June 1999 Mr G applied in the county court for a specific issue order to ascertain whether he is the father of J and, if so, for contact to J. On 26
July 1999 a district judge gave a direction for blood tests under s 20(1) of the 1969 Act. The mother has failed to comply with the direction, and has taken
no part in the proceedings. As a consequence of her failure to co-operate, an order for a court welfare officer’s report made on 16 September 1999 has not
been implemented.
­ 32

THE STATUTORY PROVISIONS

The power of the court to require the use of blood tests to determine paternity is governed by Pt III of the 1969 Act, which is entitled: ‘Provisions for
use of blood tests in determining paternity.’ The relevant sections for current purposes are the following:

‘20. Power of court to require use of blood tests.—(1) In any civil proceedings in which the paternity of any person falls to be determined by
the court hearing the proceedings, the court may, on an application by any party to the proceedings, give a direction for the use of blood tests to
ascertain whether such tests show that a party to the proceedings is or is not thereby excluded from being the father of that person and for the
taking, within a period to be specified in the direction, of blood samples from that person, the mother of that person and any party alleged to be the
father of that person or from any, or any two, of those persons …
21. Consents, etc., required for taking of blood samples.—(1) Subject to the provisions of subsections (3) and (4) of this section, a blood
sample which is required to be taken from any person for the purpose of giving effect to a direction under section 20 of this Act shall not be taken
from that person except with his consent.
(2) The consent of a minor who has attained the age of sixteen years to the taking from himself of a blood sample shall be as effective as it
would be if he were of full age; and where a minor has by virtue of this subsection given an effective consent to the taking of a blood sample it shall
not be necessary to obtain any consent for it from any other person.
(3) A blood sample may be taken from a person under the age of sixteen years … if the person who has the care and control of him consents …
(5) The foregoing provisions of this section are without prejudice to the provisions of section 23 of this Act.’

(Subsection (4) of s 21 deals with taking a blood sample from a person who is suffering from mental disorder within the meaning of the Mental Health
Act 1983, and is immaterial for present purposes.)

‘23. Failure to comply with direction for taking blood tests.—(1) Where a court gives a direction under section 20 of this Act and any person
fails to take any step required of him for the purpose of giving effect to the direction, the court may draw such inferences, if any, from the fact as
appear proper in the circumstances …
(3) Where any person named in a direction under section 20 of this Act fails to consent to the taking of a blood sample from himself or from any
person named in the direction of whom he has the care and control, he shall be deemed for the purposes of this section to have failed to take a step
required of him for the purpose of giving effect to the direction.’

Parliament has revisited Pt III of the 1969 Act several times. Most importantly, the Family Law Reform Act 1987 amended its 1969 namesake by
bringing it up to date with the scientific advances established through DNA testing. Instead of the phraseology in s 20(1) ‘to ascertain whether such tests
show that a party to the proceedings is or is not thereby excluded from being the father’, the amended s 20(1) provides for ‘the use of scientific tests to
ascertain whether such tests show that a party to the proceedings is or is not the father’. In addition, the phrase ‘blood samples’ is replaced, wherever it
appears by ‘bodily samples’. These ­ 33 amendments have not, however, been brought into force, and the language of s 20(1), scientifically out of date
as it is, remains the law.
For the purposes of the present case, the crucial section is s 21, and in particular sub-ss (1) and (3) of that section. On their face, they appear not
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only to give a person over 18 the absolute right to refuse to give a blood sample; sub-s (3), read with sub-s (1), appears to give a person who has the care
and control of a child under 16 the absolute right to refuse to allow a sample of blood to be taken from that child. This, indeed, is the construction for
which Mr Jackson and Miss Cliona Papazian, who appears for Ms O, argue.
For Mr A, Miss Scriven QC, supported by Miss Hobson for Mr W, argues that this is not in fact what s 21 does. She relies in particular on the
different language used in sub-ss (1) and (3) of s 21. Whereas, in the case of an adult, a blood sample ‘shall not be taken from that person except with his
consent’, in the case of a minor who has not reached 16, a blood sample ‘may be taken … if the person who has the care and control of him consents’ (s
21(3)).
Miss Scriven submits that the language of s 21(3) is deliberately different from that used in s 21(1) where the refusal of a mentally competent adult
to the taking of his or her own blood presents, she accepts, a mandatory bar. The language of s 21(3), she submits, is facilitative and provides a
mechanism by which the consent may be given by another party. Section 21(3) uses the word ‘may’: it does not say ‘may only’ and the word ‘may’
should not, she submits, be read as though it did.
In particular, Miss Scriven argues that the statutory scheme does not prohibit consent being given, for example, by the court. In this regard she relies
heavily on the one reported case on the point, the decision of Hale J in Re R (a minor) (blood test: constraint) [1998] 1 FCR 41.
Mr Jackson frankly acknowledges that if the construction for which he argues is right, the position is highly unsatisfactory. Knowledge of their
paternity is increasingly seen not only as a matter of prime importance to children, but as being both their right and in their interests. That knowledge is
now scientifically ascertainable with certainty through DNA testing. If a direction for blood tests cannot be enforced, the court and the children
concerned are deprived of the means of acquiring that knowledge, and the court is thrown back on the unsatisfactory and blunt instrument of drawing an
inference against the person with the care and control of the child.
Where the applicant for the direction for blood tests is the mother of the child, and is willing for the child to be tested, a man’s refusal to be tested is
of less significance. As the Court of Appeal pointed out in Re GW (a minor) (blood tests) [1994] 2 FCR 908, the advances in DNA testing mean that if a
man refuses to obey a direction under s 20(1) of the 1969 Act it is possible to draw the inference that he is in fact the father of the child. However, where
a mother with the care and control of the child refuses to permit the child to be tested, no such certainty is possible.

THE ISSUES RAISED BY THE CASE

The three issues raised by the case therefore seem to me to be the following. (1) Is s 21 of the 1969 Act, and in particular s 21(3) to be construed as
giving the person with the care and control of a child the absolute right to refuse to allow a sample of blood to be taken from the child for the purposes of
determining paternity? (2) Does the statutory scheme under Pt III of the 1969 Act oust the inherent jurisdiction of the court to order that a sample of
blood be taken from a ­ 34 child? (3) Is Re R (a minor) (blood test: constraint) [1998] 1 FCR 41 (in which Hale J directed that a child was to be
delivered temporarily into the ‘care and control’ of the Official Solicitor with authority given to the Official Solicitor to consent to blood being taken from
the child) correctly decided? I propose to take these questions in turn.

(1) The construction of s 21(3)

I have already set out the essence of Miss Scriven’s argument. I would like to have been able to accept it. It seems to me, however, that the
construction for which Mr Jackson argues—namely, in essence, that the words mean what they say—is correct.
Mr Jackson argues that in enacting Pt III of the 1969 Act, Parliament has created a comprehensive statutory code, and that s 21(1) and (3) read
together make the consent of the carer a precondition to the taking of blood from a child under 16. It is only possible to interpret s 21(3) as ‘facilitative’
by reading it in isolation from s 21(1). This is not, he submitted, a permissible interpretation.
Apart from what he submits are the plain terms of the statute itself, Mr Jackson relies on the principle expressio unius est exclusio alterius. For the
purposes of this part of the argument, his submission is that where an Act of Parliament contains a specific excepting provision, it is to be presumed that
this is the only exception of the kind intended.
Applying the expressio unius principle to s 21, Mr Jackson submits that there is only one exception to the absolute prohibition against blood being
taken from a person without that person’s consent: that sole exception is that a sample can be taken from a child under 16 without the child’s consent, but
the only circumstances in which that can happen is if the person who has the care and control of the child consents on the child’s behalf.
Mr Jackson is able to summon a formidable battery of arguments to support his construction of s 21. The first was the Report of the Law
Commission dated 6 September 1968 (Item XIX of the Second Programme: Blood Tests and the Proof of Paternity in Civil Proceedings) (Law Com No
16).
The 1969 Act, Mr Jackson submits, followed the recommendations of the Law Commission in their entirety. He makes the following points: (1) that
the impetus for the report had been a judicial suggestion that consideration be given to an extension of the law to allow blood tests to be ordered (see para
29); (2) that the power to compel was deliberately not recommended (see para 39); (3) that the Commission had specifically addressed the problem
created by refusal to consent to the taking of blood from a child (see para 48(b)); (4) that its recommendation was that where a child is under 16 the
consent of the person having care and control of him should be required (see para 69(i)); (5) that its draft cl 2 was enacted in identical terms as s 21; and
(6) that it was a central feature of the legislation that it turned its face against compulsion.
Mr Jackson further submits that where the consequences of legislation are clear, the task of the court is to apply the law as it is, rather than as it
ought to be. Unsatisfactory and anomalous consequences are for Parliament, not the courts, to remedy. In appropriate circumstances a declaration of
incompatibility under s 4 of the Human Right Acts 1998 (when in force) might be made. I will return to that point at the conclusion of this judgment.
Prior to the decision of Hale J in Re R, Mr Jackson argues that the courts had consistently acted on the basis that the refusal of the person with care
and control of the child to consent to the child’s blood being tested was an absolute obstacle ­ 35 to the test taking place. In this respect, Mr Jackson
relies on two decisions of the Court of Appeal. The first is the judgment of Balcombe LJ in Re F (a minor) (blood tests: parental rights) [1993] 3 All ER
596 at 601, [1993] Fam 314 at 321, where he said: ‘As the judge rightly said, the court will not order a blood test to be carried out against the will of the
parent who has since birth had sole parental responsibility …’
Secondly, Mr Jackson relies on the judgment of Ward LJ in Re H (a minor) (blood tests: parental rights) [1996] 4 All ER 28 at 37, [1997] Fam 89 at
100, where he said:

‘In Re F … Judge Callman had said: “… this court will not order a blood test … to be carried out against the will of a parent …” Again, I add
the emphasis and I add my agreement with his proposition.’

Mr Jackson also relies on some observations of my own to like effect in Re CB (a minor) (blood tests) [1994] 2 FCR 925 at 934 and 938–939.
Finally, Mr Jackson points out that whilst Parliament had revisited Pt III of the 1969 Act several times, it had not altered the consent provisions of s
21 apart from replacing the phrase ‘blood samples’ with ‘bodily samples’—an amendment not brought into effect—and by updating the reference to the
Mental Health Act.
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In my judgment, Mr Jackson’s submissions on the proper interpretation of s 21(3) are compelling, and lead irresistibly to the conclusion that
Parliament has indeed empowered a parent with the care and control of a child to refuse to permit a sample of blood to be taken from the child for the
purposes of determining paternity. The expressio unius rule gives the word ‘may’ in s 21(3) the meaning of ‘may only’ (a meaning which it is well able
to bear) and the interpretation for which Miss Scriven argues is only permissible if the two subsections (s 21(1) and (3)) are read in isolation from each
other, which, in my judgment they cannot. The answer to the first question which I have posed is, accordingly, in my judgment, Yes.

(2) Does the statutory scheme under Pt III of the 1969 Act oust the inherent jurisdiction of the court to order that a sample of blood be taken from a
child?
Whilst accepting that both under the 1969 Act and at common law there was no power to compel adults of sound mind to provide a sample of blood
against their will, Miss Scriven argued that the position was different in relation to a child. She began her argument with citations from the speeches in
the House of Lords in S v S, W v Official Solicitor [1970] 3 All ER 107, [1972] AC 24. Firstly, she cited the speech of Lord Reid:

‘There is no doubt that a person of full age and capacity cannot be ordered to undergo a blood test against his will … The real reason is that
English law goes to great lengths to protect a person of full age and capacity from interference with his personal liberty … But the position is very
different with regard to young children. It is a legal wrong to use constraint on an adult beyond what is authorised by statute or ancient common
law powers connected with crime and the like. But it is not and could not be a legal wrong for a parent or person authorised by him to use
constraint to his young child provided it is not cruel or excessive. There are differences of opinion as to the age beyond which it is unwise to use
constraint, but that cannot apply to infants or young children. So it seems to me to be impossible to deny that a parent can lawfully require that his
young child should submit to a blood test. And if the parent can require that, why not the court? There ­ 36 is here no overriding requirement of
public policy as there is with an adult.’ (See [1970] 3 All ER 107 at 111, [1972] AC 24 at 43.)

Miss Scriven also relied on the speech of Lord Hodson:

‘… in what circumstances should the court make an order for blood tests so as to prove with more or less certainty, according to the data
available, the paternity of a child? No one doubts that so far as adults are concerned the law does not permit such an operation to be performed
against the wishes of the patient … The [position] of a child is different. Here the court is occupying the position of the parent and must act as the
judicial reasonable parent. The parent is not guilty of assault if he physically interferes with his child by way of reasonable restraint or
chastisement or for therapeutic reasons. There is, therefore, not the same objection to taking a blood test from a child.’ (See [1970] 3 All ER 107 at
123, [1972] AC 24 at 57.)

S v S, W v Official Solicitor was, of course, decided before the 1969 Act was brought into force, and in a passage which Miss Scriven pointed out
was clearly obiter, Lord Reid doubted that it would be possible to order a blood test to be carried out on a child against the will of a parent after Pt III
came into operation. Miss Scriven argues, however, that the inherent jurisdiction of the court to order the testing of children’s blood is not extinguished
by Pt III of the 1969 Act.
Inevitably, the authorities on which Miss Scriven relies are what can generically be described as the ‘treatment’ cases, where the court has exercised
its inherent jurisdiction over children in order to override a parental veto of necessary treatment for a child.
Miss Scriven seeks to argue, however, that the duty owed by parents to their children transcends the question of treatment, and is properly described
as a general duty to act in the interests of their children which can, accordingly, be overridden by the court if it is not exercised, or exercised
inappropriately. For this proposition she relies on a passage in the judgment of Lord Donaldson MR in Re J (a minor) (wardship: medical treatment)
[1990] 3 All ER 930 at 934, [1991] Fam 33 at 41:

‘The parents owe the child a duty to give or to withhold consent in the best interests of the child and without regard to their own interests. The
court when exercising the parens patriae jurisdiction takes over the rights and duties of the parents, although this is not to say that the parents will
be excluded from the decision-making process. Nevertheless in the end the responsibility for the decision whether to give or to withhold consent is
that of the court alone.’ (Lord Donaldson MR’s emphasis.)

Miss Scriven also relies upon several of the ‘treatment’ cases in which the court has ordered medical treatment and blood tests of a child despite
parental opposition (see eg Re O (a minor) (medical treatment) [1993] 1 FCR 925, Re R (a minor) (medical treatment) [1993] 2 FCR 544 (where the court
authorised the administration of blood products under s 8 of the 1989 Act) and Re C (a child) (HIV test) [1999] 3 FCR 289).
Miss Scriven also pointed out that the court had the power under its inherent jurisdiction to order and enforce treatment for a minor over the age of
16 (and thus by virtue of s 8 of the 1969 Act able to consent to medical treatment) despite the child’s refusal to consent (see Re W (a minor) (medical
treatment) [1992] 4 All ER 627, [1993] Fam 64). This included the power to order the detention of the minor ­ 37 for the purposes of that treatment
(see Re C (detention for medical treatment) [1997] 3 FCR 49).
For Mr G, Miss Hobson sought to argue that a blood test taken for the purposes of determining paternity was capable of constituting ‘treatment’ for
the purposes of the exercise of the inherent jurisdiction. I did not understand Miss Scriven to support that submission, but in any event I am unable to
accept it.
A blood test taken for the purpose of determining paternity cannot be said to be either curative or prophylactic, nor is it designed to facilitate
diagnosis of any medical condition, as was the case in Re C (a child) (HIV test) [1999] 3 FCR 289. Even given the broad definition of treatment
contained, for example, in the decision of the Court of Appeal in B v Croydon Health Authority [1995] 1 All ER 683 at 687, [1995] Fam 133 at 138, I am
unable to accept that ‘treatment’ includes steps taken to avoid the potential psychological damage of children growing up without certain knowledge of
their paternity.
However, even if I am wrong about that, the most formidable difficulty faced by Miss Scriven and Miss Hobson is Mr Jackson’s argument that the
statutory scheme under Pt III of the 1969 Act ousts any residual power in the court to exercise its inherent jurisdiction to order a child to be blood tested
for the purposes of determining paternity.
In Re C (detention for medical treatment) [1997] 3 FCR 49 at 60 the question was whether the inherent jurisdiction of the court to detain a minor
over the age of 16 in a clinic for the purpose of ensuring treatment was ousted by the secure accommodation provisions enacted in s 25 of the 1989 Act.
In that case I accepted the submission of Mr James Munby QC, instructed as amicus curiae on behalf of the Official Solicitor in that case, that—

‘the existence of a parallel statutory regime has never been treated as fettering the parens patriae jurisdiction save in those cases where the
statute in question either ousts the jurisdiction altogether or specifically regulates or fetters the exercise of the jurisdiction. Examples relevant to the
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instant case are ss. 25 and 100(2) and (3) of the Children Act 1989.’

I take that to be an accurate statement of the law.

Mr Jackson, in a full and most helpful argument, indorsed the proposition which I have just set out, and went on to develop the arguments for and
against the existence of the inherent jurisdiction in the instant case. I propose to set out his argument in full, since it seems to me not only an exemplary
exegesis, but a model of the argument of an amicus curiae in a case such as the present.
The arguments in favour of the existence of the inherent jurisdiction were, Mr Jackson submitted, the following. (1) Prior to the enactment of the
1969 Act, the preponderant judicial opinion was that there was power to direct the taking of blood from a child to establish paternity, and such orders
were on occasion made (see Re L [1968] 1 All ER 20, [1968] P 119 and B R B v J B [1968] 2 All ER 1023, [1968] P 466). (2) The 1969 Act does not
explicitly overrule this power. (3) Section 21(3) is said to be facilitative only and does not make the absence of consent a mandatory bar. (4) Were
reference to Hansard appropriate as an aid to interpretation, the measure was introduced by the Attorney General as ‘a substantial extension of the existing
law’ (see extract from 778 HC (5th series) (Family Law Reform Bill) (17 February 1969) cols 47 and 48). (5) The important principle (enshrined in art 7
of the UN Convention on the Rights of the Child (New York, 20 November 1989; TS 44 (1992); Cm 1976)) that children have so far as possible the right
to know their parents has been accepted and acted upon ­ 38 domestically, in a number of cases, including S v S, W v Official Solicitor [1970] 3 All ER
107, [1972] AC 24 and Re H (a minor) (blood tests: parental rights) [1996] 4 All ER 28, [1997] Fam 89. The inability to ascertain paternity may be
seriously detrimental to the child’s welfare. (6) It would be anomalous to constrain the use of the inherent jurisdiction when it is theoretically limitless
(see Lord Donaldson MR in Re W (a minor) (medical treatment) [1992] 4 All ER 627 at 637, [1993] Fam 64 at 81). (7) The existence of the jurisdiction
in respect of blood tests was accepted (though not acted upon) by Hale J in Re R (a minor) (blood test: constraint) [1998] 1 FCR 41. (8) Advances in
medical science have elevated scientific testing to an instrument of virtual certainty, and not merely (as in 1969) of significant probability. Reliable
positive identification is now available. Samples from a child and one parent are valid. (9) By contrast the statutory scheme, providing only for the
drawing of inferences, is a blunt instrument in an age of microscience. It is fallible and may work injustice. In many cases the logical inference may not
be the correct one. The child, usually unrepresented, is subject to the whim of the carer and may become the victim of a false inference. (10) The rigid
scheme of the Act is at odds with the modern respect for autonomy in the older child (see Gillick v West Norfolk and Wisbech Area Health Authority
[1985] 3 All ER 402, [1986] AC 11).
Mr Jackson also accepted that the inherent jurisdiction had been exercised vigorously and creatively in other, often graver, circumstances. These
included involving the use of compulsion in respect of a heart transplant against the wishes of a teenager (see Re M (child: refusal of medical treatment)
[1999] 2 FCR 577); a liver (see Re T (a minor) (wardship: medical treatment) [1997] 1 All ER 906, [1997] 1 WLR 242); blood transfusions against the
wishes of teenage Jehovah’s witnesses (see Re E (a minor) (wardship: medical treatment) [1993] 1 FLR 386 and Re L (medical treatment: Gillick
competence) [1999] 2 FCR 524); blood transfusion for babies against the wishes of Jehovah’s witness parents (see Re O (a minor) (medical treatment)
[1993] 1 FCR 925 and Re R (a minor) (medical treatment) [1993] 2 FCR 544); blood testing of a baby for HIV against parents’ wishes (see Re C (a child)
(HIV test) [1999] 3 FCR 289); directions for medical/psychiatric treatment against the wishes of a teenager (including restriction of liberty) (see Re W (a
minor) (medical treatment) [1992] 4 All ER 627, [1993] Fam 64, South Glamorgan CC v B [1993] 1 FCR 626 and Re C (detention for medical treatment)
[1997] 3 FCR 49); the exclusion of a joint tenant from property (see C v K (inherent powers: exclusion order) [1996] 3 FCR 488); the restriction of free
speech (see Re Z (a minor) ( freedom of publication) [1995] 4 All ER 961, [1997] Fam 1 and Nottingham City Council v October Films Ltd [1999] 2 FCR
529); and the discharge of an order freeing a child for adoption (see Re C (a minor) (adoption: freeing order) [1999] Fam 240, [1999] 2 WLR 1079).
Mr Jackson then turned to the arguments against the existence of the inherent jurisdiction in the instant case. Developing the argument that s 21(3)
was capable of only one interpretation, and that in enacting the statutory scheme in Pt III of the 1969 Act the plain intention of Parliament had been to
codify legal rights and remedies in relation to establishing paternity by scientific means, Mr Jackson argued that the effect of the application of correct
principles of statutory construction in this case led to the inevitable conclusion that the previous inconsistent law was overridden, and the inherent
jurisdiction ousted.
Mr Jackson argued further, that where an Act sets out specific remedies, penalties or procedures, it is presumed that other remedies, penalties or
procedures are by implication excluded. Mr Jackson relied on Bennion Statutory Interpretation (3rd edn, 1997) section 32 (pp 133ff) and on the speech
of ­ 39 Lord Hailsham LC in Richards v Richards [1983] 3 All ER 807 at 813, [1984] AC 174 at 199, where he said:

‘… in my opinion, where, as here, Parliament has spelt out in considerable detail what must be done in a particular class of case it is not open to
litigants to bypass the special Act, nor to the courts to disregard its provisions by resorting to the earlier procedure, and thus choose to apply a
different jurisprudence from that which the Act prescribes. Any other conclusion would, I believe, lead to the most serious confusion. The result of
a particular application cannot depend on which of two alternative statutory provisions the applicant invokes, where one is quite general and the
other deals in precise detail with the situation involved and was enacted at a time when the general provision already existed.’

The analogy used by Bennion section 32, p 133 is that of a rug being spread on a floor:

‘To describe the way Acts operate on existing law one can use the image of a floor upon which rugs are spread. The floor consists of unwritten
law or lex non scripta, in other words common law, rules of equity, and customary rules. An Act is like a rug laid down on this floor. The Act
conceals, for the area it covers, the texture underneath. That texture becomes visible again if the rug is later removed, that is the Act is repealed.’

Mr Jackson concluded by submitting that the unfortunate but clear consequence of the 1969 Act is to restrict the power to direct the taking of blood
from children for the purpose of establishing paternity to orders within the format of the Act. Any power under the inherent jurisdiction has been
abrogated.
Mr Jackson accepted that the inherent jurisdiction remained available to fill lacunae in any statutory scheme, as made clear in the speech of Lord
Wilberforce in A v Liverpool City Council [1981] 2 All ER 385 at 388, [1982] AC 363 at 373. Re C (a minor) (adoption: freeing order) [1999] Fam 240,
[1999] 2 WLR 1079 was such a case. Here, however, the statutory scheme left no lacuna.
I find myself in complete, albeit reluctant, agreement with these submissions. In my judgment, unattractive as the proposition remains, both the
inherent jurisdiction to direct the testing of a child’s blood for the purposes of determining paternity and any consequential power to enforce that direction
are entirely overridden by the statutory scheme under Pt III of the 1969 Act. If a remedy is to be provided, it is, accordingly, for Parliament to provide it.
In this context I do not think that the ‘treatment’ cases assist Miss Scriven and Miss Hobson. Quite apart from the question of whether or not a blood
sample to determine paternity constitutes ‘treatment’, the inherent jurisdiction in relation to cases involving the treatment of children is not governed by
statute, save in so far as the Mental Health Act 1983, the secure accommodation provisions of the 1989 Act or s 100 of the same Act fetter the exercise of
the court’s inherent jurisdiction.

(3) Is Re R (a minor) (blood test: constraint) [1998] 1 FCR 41 correctly decided?

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Miss Scriven and Miss Hobson rely on the decision of Hale J in Re R (a minor) (blood test: constraint) [1998] 1 FCR 41. In that case Hale J
considered the powers of the court to enforce a direction that blood be taken from a child. Having discussed: (a) the inherent jurisdiction, and in
particular the observations of Lord Reid in S v S, W v Official Solicitor [1970] 3 All ER 107, [1972] AC 24;
­ 40
(b) developments in the law thereafter; and (c) the statutory scheme under Pt III of the 1969 Act, she concluded ([1998] 1 FCR 41 at 44):

‘Being satisfied that there is nothing, in principle, against obliging the child to provide a blood sample, there are two possible approaches. One
is to make a direction under the 1969 Act but to deal with the question of the child under the inherent jurisdiction. But a mechanism which is
consistent, both with the legislation and with the principles accepted elsewhere, is to make a direction under the 1969 Act but to order the delivery
of the child into the care and control of the Official Solicitor at a particular time and place for that purpose and to make it plain that the Official
Solicitor is permitted to consent on the child’s behalf.’

There was some debate before me about the derivation of the jurisdiction which Hale J was seeking to exercise in Re R (a minor) (blood test:
constraint). Mr Jackson submitted that Hale J was not in fact exercising the inherent jurisdiction of the High Court when she ordered the delivery of the
child into the care and control of the Official Solicitor; she was seeking to make an order designed to give effect to the direction which she had made
under s 20(1). Miss Scriven, in her skeleton argument, agrees that this is Hale J’s approach. The question is whether it was an approach open to her.
Mr Jackson helpfully supplied an anonymised copy of the terms of the order which Hale J made. Paragraph 2 provides that on a given date and at a
given time and place the child was to be delivered ‘to a representative of the Official Solicitor … and that the said child shall remain in the care and
control of the Official Solicitor through his said representative for so long as may be necessary for the taking of blood samples from her’. Paragraph 3 of
the order reads: ‘And it is ordered that the Official Solicitor is authorised to consent on behalf of the child … to the taking of blood samples from her.’
Mr Jackson submitted, with respect, that Hale J had no jurisdiction to make orders in Re R in the terms set out above, and that they were, in reality, a
device to avoid the plain meaning of s 21(3), although in the event, they were not put into effect, as the mother subsequently consented to testing. Mr
Jackson told me that the Official Solicitor has never taken possession of a child or given consent in these circumstances and has serious reservations about
doing so in future.
Mr Jackson accepted that, as one means of operating the statutory scheme under Pt III of the 1969 Act it would be open to the court, in an
appropriate case, to order a transfer of the care and control of the child, where a genuine alternative carer was available. In such a case, he accepted, the
balance of the welfare equation being considered by the court in the context of an application under the 1989 Act in which paternity was in issue might tip
in favour of a transfer, either temporary or permanent, to a carer who could and would give consent to a sample of blood being taken. Mr Jackson cited,
by way of analogy, the case in which residence is transferred because a carer is frustrating proper contact. He submitted, however, that care could not
properly be transferred to an otherwise inappropriate carer for the sole purpose of consent being given to the child’s blood being sampled.
The term ‘care and control’ in the context of the court’s inherent jurisdiction in wardship has connotations of full-time, permanent care, equivalent to
residence under s 8 of the 1989 Act. Plainly, it is not possible to make a residence or contact order in relation to a child in favour of the Official Solicitor,
and a direction that a child be placed temporarily in the care and control of the Official ­ 41 Solicitor (assuming the power to make such an order exists)
must, if it does not derive from any statute, be an exercise of the inherent jurisdiction.
In my judgment, the direction given by Hale J in Re R was either a direction deriving from the court’s powers under the statute to facilitate the
enforcement of the direction given under s 20(1) (the judge’s view); or it was an exercise of the court’s inherent jurisdiction. Either way it was, in my
judgment, a device designed to circumvent the plain provisions of s 21(3) and thus impermissible.
I would not want it thought that I am using the term ‘device’ in any pejorative sense or that I disagree in any way with the objective which Hale J
was seeking to achieve. To the contrary, I would very much have preferred to follow Re R, but find myself prevented by Mr Jackson’s compelling
arguments. Indeed, it is in part the fact that the Official Solicitor himself is unhappy about the appropriateness of the order in Re R that emboldens me,
reluctantly, to disagree with Hale J on the point.
I should also say that unlike Hale J in that case, where, as I understand it, she was on circuit, had very limited help and had to give what was, in
effect, an ex tempore judgment, I have had the advantage of very full argument, and the leisure to consider my conclusions. None of this lessens my
sense of regret in relation to the conclusions which I feel constrained to reach.

OTHER BODILY SAMPLES

Mr Jackson dealt with a third possibility for determining paternity, namely testing other bodily samples. He pointed out that DNA testing can be
carried out on hair roots and saliva. As the 1969 Act refers to blood only, arguments deriving from the Act cannot directly apply to other bodily samples.
He submitted, however, that a direction for other bodily samples to be taken would fly in the face of the intention to codify the law.
Furthermore, the unimplemented amendments to s 20 of the 1969 Act contained in s 23 of the Family Law Reform Act 1987 provide for the taking
of bodily samples. But s 21 of the 1969 Act is unaffected. Had those amendments been brought into force, the same difficulty would apply to bodily
samples as to blood.
Mr Jackson submitted that it would be inappropriate to use the inherent jurisdiction to circumvent the statutory scheme by recourse to other scientific
tests which have become available since 1969. I accept these submissions.

THE USE OF S 37 OF THE 1989 ACT AND AN INTERIM CARE ORDER UNDER S 38
On behalf of Mr W, Miss Hobson argued that it would be open to the court (a) to make a direction under s 37 of the 1989 Act for a report by a local
authority and then (b) pursuant to s 38(1) to make an interim care order which would vest parental responsibility for the child in the local authority, which
could then consent to blood testing on behalf of the child.
The relevant parts of s 37 are in the following terms:

‘Powers of court in certain family proceedings.—(1) Where, in any family proceedings in which a question arises with respect to the welfare of
any child, it appears to the court that it may be appropriate for a care or supervision order to be made with respect to him, the court may direct the
appropriate authority to undertake an investigation of the child’s circumstances.
(2) Where the court gives a direction under this section the local authority concerned shall, when undertaking the investigation, consider
whether they ­ 42 should—(a) apply for a care order or for a supervision order with respect to the child; (b) provide services or assistance for the
child or his family; or (c) take any other action with respect to the child.
(3) Where a local authority undertake an investigation under this section, and decide not to apply for a care order or supervision order with
respect to the child concerned, they shall inform the court of—(a) their reasons for so deciding; (b) any service or assistance which they have
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provided, or intend to provide, for the child and his family; and (c) any other action which they have taken, or propose to take, with respect to the
child.
(4) The information shall be given to the court before the end of the period of eight weeks beginning with the date of the direction, unless the
court otherwise directs …
(6) If, on the conclusion of any investigation or review under this section, the authority decide not to apply for a care order or supervision order
with respect to the child—(a) they shall consider whether it would be appropriate to review the case at a later date; and (b) if they decide that it
would be, they shall determine the date on which that review is to begin.’

Section 38(1)(b) and a combination of ss 38(2) and 31(2) of the 1989 Act provide that where the court gives a direction under s 37 the court may
make an interim care order with respect to the child concerned if it is satisfied that there are reasonable grounds for believing that the child concerned is
suffering, or is likely to suffer significant harm, and that the harm or likelihood of harm is attributable to the care given to the child, or likely to be given
to him if the order were not made, not being what it would be reasonable to expect a parent to give to him.
There may, of course, be cases in which the court orders a s 37 report and makes an interim care order; or where local authority has or applies for an
interim care order, and in the context of the care proceedings it is or becomes necessary for the child’s paternity to be determined. However, as already
stated, the court must be satisfied, before it makes a s 37 order, that ‘it may be appropriate for a care or supervision order to be made in relation to the
child’.
The court cannot compel a local authority to institute care or supervision proceedings (see Nottinghamshire CC v P [1993] 3 All ER 815, [1994] Fam
18), and it would, in my judgment, be a wholly inappropriate judicial use of s 37 to order a report and to make an interim care order at the same time for
the sole purpose of enabling a local authority under an interim order to give consent to the child’s blood being sampled. To put the matter another way, it
would in my view be an abuse of process to make an interim care order at the same time as ordering a s 37 report as a means of enabling a direction for
blood tests under s 20(1) of the 1969 Act to be implemented.

THE REPRESENTATION OF CHILDREN IN APPLICATIONS FOR THE USE OF BLOOD TESTS

Mr Jackson submitted that it would not normally be appropriate for a child to be separately represented on an application for blood tests, whether by
the Official Solicitor or another guardian ad litem. The principal reason he gave for this was that it is not in the interests of the child to be a party to
proceedings and bound by a finding about paternity which, as a consequence of the court’s inability to enforce a blood test, would not be reached on the
best evidence. Furthermore, the child’s right to apply for a declaration of parentage under s 56(1) of the Family Law Act 1986 would remain unaffected.
­ 43

ENFORCEMENT
Mr Jackson dealt finally with the question of enforcement which, in the light of the view I have taken of the case does not arise, but in respect of
which, as Re C (a child) (HIV test) [1999] 3 FCR 289 demonstrates, there are formidable difficulties.

CONCLUSION
For the reasons I have given, I am of the view that the court has no jurisdiction to compel either of the mothers in the instant case to give their
consent to samples being taken of their respective children’s blood, and each case will be remitted to the county court for further directions and/or
adjudication on the merits of the respective applications.
I cannot, however, part from the case without reiterating what I said in Re CB (a minor) (blood tests) [1994] 2 FCR 925 at 933–934:

‘More importantly, however, in the present context, if the person having the care and control of the child … does not want a sample of the
child’s blood taken the sample cannot be taken and the direction given by the court is thereby rendered incapable of implementation … Parliament
has empowered a parent with the care and control of a child to refuse to permit a sample of blood to be taken from the child …’

And (at 938–939):

‘I recognize the situation which results from my decision is unsatisfactory, since it permits a litigant whose conduct may be open to severe
criticism, and who may not be acting in the best interests of the child, effectively to dictate what should or should not happen. But that, it seems to
me, follows inevitably from the terms of s. 21 of the Family Law Reform Act 1969, and if the matter is to be reformed it is for Parliament to reform
it.’

If Parliament does not implement reform, the law in this area will continue not to serve the best interests of children. In these circumstances I
anticipate that reform may need to be achieved when the Human Rights Act 1998 comes into force, by the point being taken that Pt III of the 1969 Act is
not human rights’ compliant.

Order accordingly. Permission to appeal granted.

K Mydeen Esq Barrister.

[2000] 2 All ER 45

Hollicourt (Contracts) Ltd (in liquidation) v Bank of Ireland

COMPANY; Insolvency
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CHANCERY DIVISION (MANCHESTER DISTRICT REGISTRY)

BLACKBURNE J
7 OCTOBER, 11 NOVEMBER 1999

Company – Compulsory winding up – Avoidance of disposition of property after commencement of winding up – Whether bank liable for payments out of
company’s account made after commencement of winding up – Insolvency Act 1986, s 127.

A petition was presented for the winding up of a company. Although the petition was advertised as normal, the company’s bank missed the advertisement
due to an oversight. As a result, payments continued to be made out of the account for nearly three months after the advertising of the petition.
Throughout that time, the account had remained in credit. After the company was wound up, the liquidator brought proceedings against the bank under s
127a of the Insolvency Act 1986, seeking the recovery of post-advertisement payments as void dispositions of the company’s property. The bank
contended that the dispositions to third party recipients through its agency were not dispositions made by the bank itself, that s 127 operated only against
the third party recipients, and that accordingly that section provided no remedy against the bank. Alternatively, the bank contended that it had merely
carried out the company’s mandate in making the dispositions, and that therefore the liquidator had no cause of action against it.
________________________________________
a Section 127 is set out at p 48 c d, post
________________________________________

Held – Where money was withdrawn from a company’s account after the presentation of a winding-up petition, the transaction was avoided by s 127 of
the 1986 Act not only against the third party recipient but also against the bank which made the payment. In the case of an account that was in credit,
such a withdrawal had the effect of reducing the bank’s liability to the company arising from the relationship of banker and customer, but that liability
could only be reduced by those payments if validly made. Accordingly, the consequence of avoidance was that the bank’s liability fell to be considered
as if those payments out had not been made. Moreover, the bank was not afforded any defence by the fact that the relationship between it and the
company was also that of agent and principal. Nor was the liquidator deprived of his remedy against the bank by the fact that he was entitled to seek
recovery from the individual recipients of the withdrawals. It followed that in the instant case the liquidator was entitled to relief under s 127 (see p 53 a
to d, p 54 h j and p 55 c, post).
Re Gray’s Inn Construction Co Ltd [1980] 1 All ER 814 applied.

Notes
For the avoidance of dispositions of a company’s property after the commencement of the winding up, see 7(3) Halsbury’s Laws (4th edn) (1996 reissue)
para 2460.
For the Insolvency Act 1986, s 127, see 4 Halsbury’s Statutes (4th edn) (1998 reissue) 823.
­ 45
Cases referred to in judgment
Bank of East Asia Ltd v Rogerio Sou Fung Lam [1988] 1 HKLR 181, HK CA.
Barn Crown Ltd, Re [1994] 2 BCLC 186.
Gray’s Inn Construction Co Ltd, Re [1980] 1 All ER 814, [1980] 1 WLR 711, CA.
Leslie (J) Engineers Co Ltd (in liq), Re [1976] 2 All ER 85, [1976] 1 WLR 292.
Loteka Pty Ltd (in liq), Re [1990] 1 Qd R 322, Qld SC.
McGuinness Bros (UK) Ltd, Re (1987) 3 BCC 571.
Mal Bower’s Macquarie Electrical Centre Pty Ltd (in liq), Re [1974] 1 NSWLR 254, NSW SC.
Ramsay v National Australian Bank Ltd (1988) 6 ACLC 625, Vict SC.
Tasmanian Primary Distributors Pty Ltd (in liq) v R C & M B Steinhardt Pty Ltd (1994) 13 ACSR 92, Tas SC.

Application
Raymond Claughton, the liquidator of Hollicourt (Contracts) Ltd, applied pursuant to s 127 of the Insolvency Act 1986 for (i) a declaration that all
payments made out of the company’s account with the respondent, the Bank of Ireland, between 5 February and 7 June 1996 were void, and (ii) an order
requiring the bank to reconstitute the fund. The facts are set out in the judgment.

Hugh Jory (instructed by Eversheds, Leeds) for the company.

David Marks (instructed by Brooke North, Leeds) for the bank.

Cur adv vult

11 November 1999. The following judgment was delivered.

BLACKBURNE J. This application is concerned with the meaning and effect of s 127 of the Insolvency Act 1986.
The facts, which can be briefly stated, are as follows. On 5 February 1996 a petition was presented for the compulsory winding up of Hollicourt
(Contracts) Ltd, which was carrying on business in the construction industry. The petition was advertised on 26 February 1996. On 7 June 1996,
following substitution of another creditor as petitioner in place of the original petitioning creditor, a winding-up order was made. On 25 July 1996
Raymond Claughton was appointed liquidator. The company’s statement of affairs dated 30 May 1996 disclosed an estimated deficiency as regards
creditors of £447,224.
The company banked with the Bank of Ireland at its King Street branch in Leeds. Although it had a system for checking these matters, due to an
oversight the bank missed the advertisement of the petition and, in ignorance of the proceedings, continued to honour cheques drawn by the company on
its account and fulfil direct debit instructions. This lasted until 16 May 1996 when, following a letter from a firm of insolvency practitioners acting on the
company’s behalf, the bank froze the company’s account.
During the intervening period, a great many payments out of the account were effected. They totalled just over £156,200. They included a number
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of cash withdrawals and payments of wages to the company’s employees and sub-contractors. They also included various banking charges totalling
£1,078ÿ86.
During the same period £146,284ÿ91 was paid into the account. Throughout the period the account remained in credit except very briefly in
mid-March and again in mid-April when it was overdrawn to the extent (on each occasion) of £30-odd ­ 46 following the debiting of bank charges.
The account was then immediately brought back into credit by a further substantial payment in. The credit balance on the account was reduced to just
under £9-odd by early May 1996. Following the freezing of the account on 16 May the only activity on it related to the debiting of bank charges. That
had the effect of converting the £9-odd credit balance into a debit balance of £185.
Between late November 1997 and early February 1998 the liquidator’s solicitors were in correspondence with a dozen or so (out of well over 100) of
the recipients of money from the company’s account paid to them subsequent to the presentation of the winding-up petition. The solicitors sought to
recover what had been paid out. None of these persons has effected repayment. Only one has acknowledged any obligation to do so. Several, including
the original petitioning creditor, do not admit having received any payment from the company. Two of them claim to have received payment against the
delivery of goods purchased by the company in the ordinary course of trading.
The liquidator, applying in the name of the company, now seeks to recover from the bank the aggregate of the moneys paid out to these various third
parties following commencement of the company’s winding up which, by force of s 129 of the 1986 Act, was on 5 February 1996 when the petition was
presented on which the winding-up order was made. He contends, through Mr Jory, that the payments out of the company’s account at the bank were
‘dispositions’ of the company’s property within the meaning of s 127 and, as such, void by that provision. He contends that the company has a right to
recover these payments from the bank which caused them to be made, or from the recipients themselves. He chooses to recover them from the bank. The
precise relief claimed is a declaration, pursuant to s 127, that all payments out of the account between 5 February and 7 June 1996 were void and an order
that the bank do ‘reconstitute’ the account.
The liquidator does not, in the event, seek repayment of all sums paid out subsequent to presentation of the petition, merely that there be payment of
a sum equal to the various sums paid out of the account following advertisement of the petition on 26 February. This is in accordance with the
well-established practice of the court whereby dispositions effected after commencement of a company’s winding up but before advertisement, although
avoided under s 127, would ordinarily be validated on an application for that purpose by the person from whom repayment is sought. Underlying this is a
twofold assumption: (1) that advertisement of the petition is notice to all the world that a winding-up petition against the company in question has been
presented (see eg Re J Leslie Engineers Co Ltd (in liq) [1976] 2 All ER 85 at 95, [1976] 1 WLR 292 at 304); and (2) that the person sought to be made
accountable (in this case the bank) had no actual knowledge of the winding-up petition prior to its advertisement. The liquidator does not challenge the
first assumption and does not seek to suggest the contrary as regards the second.
Mr Marks for the respondent bank contends that, although the payments were dispositions by the company, they were dispositions to the various
third party recipients made through the agency of the bank and were not dispositions to the bank itself. He contends that avoidance under the section is
only as against the person to whom the property of the company is disposed of by the transaction in question. He argues, therefore, that avoidance of the
payments provides no remedy against the bank. In the alternative, he submits that, if the payments did constitute dispositions to the bank, the bank was
doing no more than carry out ­ 47 its principal’s mandate, which is a circumstance affording the liquidator no cause of action for the recovery of the
sums paid.
The bank accepts, and has said so in evidence, that it should reimburse the £1,078ÿ86 banking charges debited by it to the company’s account
following the date of the presentation of the petition. Over and above that it contends that, in so far as the court should find that the liquidator is
otherwise entitled to recover from it the payments made to the third parties after advertisement of the petition, the payments should be validated on the
ground that they constitute transactions entered into in the ordinary course of the company’s business. It is agreed, however, that on this hearing I am
only concerned with the consequences (if any) as against the bank of avoidance under the section. I am not concerned with whether, if the liquidator is
otherwise entitled to recover them from the bank, those payments should be validated under the section.
Section 127 of the 1986 Act provides as follows:

‘In a winding up by the court, any disposition of the company’s property, and any transfer of shares, or alteration in the status of the company’s
members made after the commencement of the winding up is, unless the court otherwise orders, void.’

By s 436 of the 1986 Act ‘property’ is defined as including:

‘… money, goods, things in action, land and every description of property wherever situated and also obligations of every description of
interest, whether present or future or vested or contingent, arising out of, or incidental to, property …’

There is no doubt that, where a company withdraws a sum of money from its bank account in credit and pays that sum to a third party, there is a
disposition of the company’s property which, if it occurs after the commencement of the company’s winding up, is avoided by s 127. There is also no
doubt that the third party recipient can be required to repay the sum so received, subject to validation of the payment by recourse to the dispensing power
contained in the section. The question for decision on this application is whether, in these circumstances, the bank as well as the third party recipient of
the payment can be required to make repayment.
The leading case in this area is the well-known decision of the Court of Appeal in Re Gray’s Inn Construction Co Ltd [1980] 1 All ER 814, [1980] 1
WLR 711. There the bank had continued to accept payments into and make payments out of a company’s account after the commencement of the
company’s winding up. It had continued to do so after it had acquired actual notice of the presentation of the winding-up petition of the company on
which the winding-up order was later made.
In the course of his judgment Buckley LJ (with whom the other members of the court agreed) said:

‘The judge proceeded on the basis, which he held to be the position in law, that payment of moneys to the credit of a company’s account,
whether it is in credit or not, do not constitute, a disposition of the company’s property. That is a view with which, with deference to the judge, I
feel unable to agree.
When a customer’s account with his banker is overdrawn he is a debtor to his banker for the amount of the overdraft. When he pays a sum of
money into the account, whether in cash or by payment in of a third party’s cheque, ­ 48 he discharges his indebtedness to the bank pro tanto.
There is clearly in these circumstances, in my judgment, a disposition by the company to the bank of the amount of the cash or of the cheque. It
may well be the case, as counsel for the bank has submitted, that in clearing a third party’s cheque and collecting the amount due upon it, the bank
acts as the customer’s agent, but as soon as it credits the amount collected in reduction of the customer’s overdraft, as in the ordinary course of
banking business it has authority to do in the absence of any contrary instruction from the customer, it makes a disposition on the customer’s behalf
in its own favour discharging pro tanto the customer’s liability on the overdraft. Counsel for the bank was constrained in the course of the argument
to accept that this is so. In the present case the company’s account with the bank was overdrawn, so I need not consider what the position would
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have been if any cheque had been paid in when the account was in credit, but I doubt whether even in those circumstances it could be properly said
that the payment in did not constitute a disposition of the amount of the cheque in favour of the bank. Counsel for the bank does not dispute that all
payments out of the company’s account to third parties, not being payments to agents of the company as such, are dispositions of the company’s
property; but he contends (as I understand his argument) that they are only relevant for the purposes of s 227 [of the Companies Act 1948] to the
extent that payments out during the relevant period exceed payments in. That all such payments out must be dispositions of the company’s property
is, I think, indisputable, but I cannot accept counsel’s contention. The section must, in my judgment, invalidate every transaction to which it
applies at the instant at which that transaction purports to have taken place. I cannot see any ground for saying that the invalidation can be
negatived by any subsequent transaction. It follows, in my judgment, that unless validated under the section all the payments into and all the
payments out of the company’s account during the period 3 August to 9 October 1972 were invalid. No one, however, suggests that the bank
should repay to the liquidator £25,313 and that all the recipients of the £24,129 should repay to the liquidator the sums so received by them. The
problem is how in these circumstances the discretionary power of the court under the section to validate dispositions which would otherwise be
invalid should be exercised.’ (See [1980] 1 All ER 814 at 818–819, [1980] 1 WLR 711 at 715–716.)

He then went on to consider whether, and to what extent, the court should exercise its discretionary power under the section to validate the various
dispositions involved. With that aspect of the matter I am not concerned. From the passage quoted, it is apparent (1) that payments out of (and not just
into) the account were treated as dispositions avoided by the section, (2) that the disposition occurs when the payment in or payment out (as the case may
be) is effected, and (3) that the fact that the bank performed a role as the company’s agent (in collecting the third parties’ cheques and crediting the
proceeds to the company’s account) did not prevent avoidance of the transaction as against the bank.
That passage from Buckley LJ’s judgment was cited with approval by the Full Court of the Supreme Court of Victoria in Ramsay v National
Australian Bank Ltd (1988) 6 ACLC 625 at 634 and, so far as I am aware, has been widely accepted ­ 49 as correct by the courts of this country. See,
for example, Re McGuinness Bros (UK) Ltd (1987) 3 BCC 571 at 574 per Harman J: ‘It is clear that payments out of or into the bank account are
dispositions of property …’
In passing, I should mention that doubts have been expressed concerning the accuracy of the proposition conceded by the bank and accepted as
‘indisputable’ by Buckley LJ that all payments out of the company’s account (which, apparently, was at all times in debit) constituted dispositions of the
company’s property whereas, in truth, the payments were no more than increases in the company’s liability to the bank. Whatever else it may be, a
liability is not an asset and an increase in a company’s liability is not a disposition of its property. See, in this connection, Goode Principles of Corporate
Insolvency Law (2nd edn, 1997) pp 430–431, a work to which Mr Marks referred me. In itself the point is well made. I am inclined to think, however,
that the objection disregards the factual background to Buckley LJ’s observations. According to the information concerning the company’s account set
out in the judgment, it appears that, during the period between presentation of the winding-up petition and the making of the winding-up order, sums
amounting to £25,313 had been paid into the account and withdrawals (including interest and bank charges) amounting to £24,455 had been debited to the
account leaving the company’s overdraft at the date of the winding up less by some £858 than it was when the petition was presented. I infer from the
absence of any mention of this in the judgment that the precise order in which the movements on the account occurred was not regarded as material. If
that is correct I cannot think that the result in that case would have been any different if all of the payments into the account had been effected at the
inception of the relevant period and before any further payments out had been permitted (thereby converting the existing overdraft into a credit balance of
£20,000-odd) and if thereafter the credit balance thus created had been progressively reduced by the payments out and then converted, by further
payments, into the overdraft of £4,464 which existed when the company was wound up. It is, I consider, in this factual context that Buckley LJ’s
conclusion that all payments into and out of the company’s account during the relevant period were invalid must be understood.
I was much pressed by Mr Marks with the decisions in two Australian cases, Re Mal Bower’s Macquarie Electrical Centre Pty Ltd (in liq) [1974] 1
NSWLR 254 and Re Loteka Pty Ltd (in liq) [1990] 1 Qd R 322. The question in each of those cases was whether, as here, a bank could be made liable for
payments out of the account in credit of a company account holder made after commencement of the company’s winding up. The decisions turned on
whether the bank could be said to be a ‘disponee’ of the payments in question, the view being that the relevant statutory provision (ie the statutory
equivalent of s 127) only operates to render void the disposition in question so far as concerns the ‘disponee’.
In the Re Mal Bower case the relevant statutory provision was s 227(1) of the New South Wales Companies Act 1961. In his judgment Street CJ in
Equity (in the Supreme Court of New South Wales) said (at 258):

‘The word “disposition” connotes in my view both a disponor and a disponee. The section operates to render the disposition void so far as
concerns the disponee. It does not operate to affect the agencies interposing between the company, as disponor, and the recipient of the property, as
disponee. As was put in course of argument, if a company, after presentation of the petition, delivered goods to a carrier consigned to a
purchaser, the purchaser would face the avoidance of the transaction under s. 227, but the ­ 50 carrier would not be placed in the position of a
tortious handling of the goods. Again, if a company were to send its wages clerk up to the bank to cash the weekly wages cheque and bring back
the proceeds for making out the paypackets, the payment of the cheque would involve no disposition of the company’s property: the company’s
property belonged to it just as much when it was in the bank as when it was in the form of cash in the hands of the wages clerk. The element of
disposition only enters into the situation when something passes out from the company to a disponee. It is the passing to the disponee which is the
relevant disposition avoided by s. 227. Taking further the example of a wages cheque, the giving by a company to the employee of his wages out of
the cash brought back by the wages clerk would be disposition of property of the company to the employee. Alternatively, if the company gave to
the employee directly a cheque for him to present to collect for himself, the handing over of that cheque would be a conditional disposition within s.
227. The intermediary functions fulfilled by the bank in respect of paying cheques drawn by a company in favour of and presented on behalf of a
third party do not implicate the bank in the consequences of the statutory avoidance prescribed by s. 227. The conclusion I have reached is that s.
227 avoids in the hands of or as against a disponee any disposition of the property of the company made after the commencement of the winding up
by the court. I do not regard this as reading additional words into the section that the legislature has not itself put there. Rather, I consider that the
legislative intention, as disclosed by the terms of s. 227 (1), is such as to require an investigation of what happened to the property, that is to say,
what was the disposition, and then to enable the liquidator to recover it upon the basis that the disposition was void. It is recovery from the
disponee that forms the basic legislative purpose of s. 227.’

He therefore granted a declaration that payments made by the bank out of the account in credit were not dispositions of the property of the company
under the relevant statutory provision.
Re Mal Bower was followed in Re Loteka Pty Ltd (in liq) [1990] 1 Qd R 322. After referring to Street CJ’s view in Re Mal Bower that ‘disposition’
in the relevant provision (s 368(1) of the Companies (Queensland) Code) meant ‘transfer or alienate’, McPherson J, sitting in the Supreme Court of
Queensland, said (at 325):

‘With that I respectfully agree, although preferring perhaps to express it more expansively in the form that, in order to constitute a “disposition”
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within the context of s. 368(1), there must be some change that takes out of the company at least the beneficial ownership in a corporate asset and
passes it to someone else.’

Then, after referring to the judgment of Buckley LJ in Re Gray’s Inn Construction Co Ltd and after observing that, in contrast to the case before him, that
case involved a company account which was in overdraft, he said (at 328–329):

‘In paying the customer’s cheque, the bank debits the customer’s account with the amount of the cheque drawn in favour of the stranger. In
doing so, the bank, if the customer’s account is overdrawn, lends its own money to the customer. That involves no disposition of the customer’s
property to the bank. Equally, if the account is sufficiently in credit to meet the cheque, no disposition of property of the customer takes place in
favour of the bank. The amount standing to the credit of the customer’s account is simply ­ 51 diminished thus reducing pro tanto the
indebtedness of the bank to the customer. It is the payee of the cheque that receives the benefit of the proceeds of the cheque. All that happens
between customer and banker is an adjustment of entries in the statement recording the accounts between them … I am not persuaded that in the
course of such a transaction there is anything in the nature of a disposition of the property of the company as customer; or, if there is, that it takes
place in favour of the bank. Like Street C.J. in Eq. In Re Mal Bower I consider that any disposition of company property is in favour of the creditor
or other person to whom the cheque is paid.’

McPherson J then went on to express the view that, in any event, the disposition of the company’s property was of the property in its cheques, with the
disposition occurring when the company delivered its cheques to its creditors and not when the cheques were paid. His conclusion on this point was
expressed in the following passage (at 329–330):

‘From all this it follows that when on the dates listed above the company in this case drew cheques and issued by delivering them to the
creditors whose names are specified on that list, it thereby transferred the property in a chattel that was an instrument having a value equal to the
amount for which it was drawn. Of course, the value of each cheque was dependent upon there being funds in the account of the company available
to meet it; but, as it turned out there were, and the cheques were met by the Bank. It seems to me, therefore, that, although there was a disposition
of property of the company, it took place not when the cheques were paid but on the date or dates on which each cheque was issued; and that the
disponee in each case was not the Bank but the particular creditor in whose favour the cheque was drawn and delivered. Consistently with the
decision in Re Mal Bower’s Macquarie Electrical Centre Pty Ltd, it is therefore only against those creditors as disponees, and not against the Bank,
that the disposition of company property is avoided by the operation of s.368(1).’

I was also referred to the decision of Underwood J (in the Supreme Court of Tasmania) in Tasmanian Primary Distributors Pty Ltd (in liq) v R C &
M B Steinhardt Pty Ltd (1994) 13 ACSR 92 which followed and applied the Re Mal Bower case and Re Loteka Pty Ltd.
Mr Marks invited me to apply the reasoning in those authorities and not to follow what Buckley LJ said in the passage from Re Gray’s Inn
Construction Co Ltd cited earlier. He submitted that it was open to me to follow this course in that Re Gray’s Inn Construction Co Ltd concerned an
account which at all material times was in debit. So also, he said, were the accounts in Ramsay v National Australian Bank Ltd and Re McGuinness Bros
(UK) Ltd. Whereas, he pointed out, the case before me, like the Re Mal Bower and Re Loteka Pty Ltd cases, involved an account which at all material
times remained in credit.
I regret that I am unable to accept Mr Marks’ invitation. With all due respect to those who decided the Australian cases, I fail to see why the
consequence of the avoidance of a transaction by s 127 must be limited to the recipient (or disponee) of the property disposed of if, by ‘disponee’, is
meant (as it appears to be in those decisions) the person to whom the sum withdrawn from the company’s account was paid. Nor, for that matter, do I
follow why, where payment is made by cheque, the disposition of the company’s property is ­ 52 confined to delivery of the company’s cheque to the
third party. The debiting to the customer’s account of the amount of his cheque on presentation for payment (by paying out that amount to the third party
in satisfaction of the cheque) seems to me to be in every sense a disposition of the company’s property.
In my judgment, the transaction which is avoided by s 127, ie the withdrawal from the account, is avoided not simply as against the third party
recipient of the money in question but also as against the bank which makes the payment. The amount of the company’s credit balance on its account
with the bank constituted a debt owed by the bank to the company. The action of the bank in debiting the company’s account with the various payments
had the effect of reducing the bank’s liability to the company. The bank’s liability to the company arising out of their relationship of banker and customer
could only be reduced by those payments if they were validly made (ie not avoided). Section 127, however, renders all such payments void and
ineffective with effect from the commencement of the company’s winding up. The consequence of such avoidance, so far as the bank is concerned, must
therefore be that its liability to the company falls to be considered as if those payments out had not been made. In short, the bank’s liability to the
company must be what it was (ie the credit balance) as at the date of commencement of the winding up together with all sums credited to the account
since the winding up began. Whether the bank is to be permitted to offset against that total any and if so which of the payments out that it effected must
turn on (1) the extent to which, in relation to those payments which the liquidator impugns, it succeeds in obtaining the court’s validation under the
dispensing power contained in the section and (2) the extent to which the liquidator has succeeded in effecting recoveries from third party payees of the
various cheques.
I venture to think that this conclusion is in accord with the conclusion reached by the Hong Kong Court of Appeal in Bank of East Asia Ltd v Rogerio
Sou Fung Lam [1988] 1 HKLR 181. In that case, so far as material, the claimant bank had paid $600,000 out of the account of a company by honouring a
cheque in that sum drawn in favour of the defendant. At the time of the payment, which was on 8 February 1984, the account had a credit balance of
$806,000-odd and a winding- up petition against the company (brought, as it happens, by the claimant bank) was pending. Eight days later, on 16
February 1984, a winding-up order was made against the company. Subsequently, the bank reimbursed the company (by then in liquidation) the
$600,000. It then took proceedings to recover that sum from the defendant to whom the sum had originally been paid. One of the issues considered by
the court was the effect of s 182 of the (Hong Kong) Companies Ordinance. That provision is identical to s 227 of the Companies Act 1948 (considered
by the Court of Appeal in Re Gray’s Inn Construction Co Ltd) and therefore, for all practical purposes, the same as s 127 of the 1986 Act. The claim
succeeded. Cons V-P, delivering the judgment of the court, said (at 192–193):

‘To all intents and purposes, but subject to the possible hazard created by s. 182 which had no operation at the time of the transaction, the
honouring of the company’s cheque for $600,000 on 8th February 1984 was a routine banking transaction resulting in the discharge of the
company’s obligation to the defendant and the consequential debiting of the bank’s account in respect of the amount of the payment. There were
therefore two distinct dispositions of the company’s property involved. As between the bank and the company, the bank by debiting the company’s
account to the extent of ­ 53 $600,000 reduced its debt to its customer. As between the company and the bank on the one hand and the defendant
on the other hand, the bank had acted as the company’s agent and paid the company’s money to the defendant in discharge of the company’s
obligation to the defendant. The combined effect of ss. 182 and 184(2) is to render both these dispositions void with effect from the date they were
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effected. My understanding is that it is for this reason that the English courts regard a payment of this kind as being recoverable to a liquidator
against both the payee and the company’s bank, albeit primarily against the payee: see re Gray’s Inn Construction Co. Ltd. per Buckley, L.J.
([1980] 1 All ER 814 at 823, [1980] 1 WLR 711 at 721) cited above. In that case the English Court of Appeal evidently was not persuaded to accept
the reasoning of Street, C.J. in re Mal Bower’s Macquarie Electrical Centre Pty. Ltd. (in liquidation) [1974] 1 NSWLR 254 to the effect that in a
similar situation the relevant paying bank was not a disponee for the purposes of the equivalent provision in New South Wales legislation to s. 227
of the Companies Act 1948 (and s. 182 of the Hong Kong Ordinance). Mr. Knos did not seek to rely on the Mal Bower’s case on the appeal. As
Oliver, J. (as he then was) observed in relation to s. 227 of the Companies Act 1948 in re Leslie Engineers Co. Ltd. ([1976] 2 All ER 85 at 90,
[1976] 1 WLR 292 at 298), s. 182 of the Companies Ordinance says nothing about recovery but merely avoids dispositions, so that what is the
appropriate remedy in respect of an invalidated disposition has to be determined by the general law. However, this was said as a preliminary to
considering the effect of a payment made to a company’s creditor from a joint account of a controlling director and his wife which had been fed
from the company’s account in circumstances of some complexity. In the same case Oliver, J. made it quite clear ([1976] 2 All ER 85 at 89, [1976]
1 WLR 292 at 297) that he had no doubt about a liquidator’s entitlement to recover moneys clearly identifiable as received by a payee from a
company’s account. The English judges do not find it necessary to embark on any jurisprudential analysis to arrive at the legal basis for recovery in
such a straightforward situation. In our judgment the basis for recovery is obvious in the present case where the relevant dispositions are
established. Section 182 renders the dispositions void and therefore ineffective. As between the bank and the company, the bank remained in
receipt of the company’s property to which it was not entitled on and after 16th February 1984 when the winding-up order was made. Likewise, as
between the company and its agent, the bank, on the one hand and the defendant on the other hand the defendant remained in receipt of the
company’s property to which it was not entitled.’

The reasoning in that case is exactly in point in the present. The fact that the relationship between the company and the bank is also that of principal
and agent (in respect of the drawing and payment of the customer’s cheques as against money of the company in the banker’s hands) does not afford the
bank any defence to the liquidator’s claim, as was recognised by Buckley LJ in the passage from his judgment in Re Gray’s Inn Construction Co Ltd set
out earlier. I therefore reject Mr Marks’ alternative submission.
I would add that the fact that the liquidator is entitled to seek recovery from the individual recipients of the withdrawals from the company’s account
(the ‘disponees’ to adopt the Australian terminology) does not deprive the liquidator of his remedy against the bank. He is under no duty to exhaust his
remedies ­ 54 against the recipients before resorting to the bank. I do not read Buckley LJ’s judgment in Gray’s Inn Construction Co Ltd as suggesting
that the liquidator’s right to proceed against the bank is circumscribed in this way (see [1980] 1 All ER 814 at 823, [1980] 1 WLR 711 at 721). See also,
to similar effect, the decision in the Bank of East Asia Ltd case [1988] 1 HKLR 181 at 187–188.
I should also add that I was referred by Mr Marks to the decision in Re Barn Crown Ltd [1994] 2 BCLC 186. The only issue before the court in that
case was whether payments into a company’s bank account constituted dispositions of the company’s property (the account being at all times in credit). It
was accepted, without argument, that payments out of the account, although dispositions of the company’s property, were not dispositions to the bank. As
that issue was not explored, I do not find that the decision assists me in deciding the present case.
It follows therefore that the company, by its liquidator, establishes its entitlement to the relief sought. It was agreed that if I should come to this
conclusion the extent to which, in exercise of its dispensing power under the section, the court should validate the various payments out should be left
over for consideration at a future hearing. Subject to hearing from counsel I propose to give directions with a view to the determination of those matters
in early course.

Order accordingly.

Celia Fox Barrister.

[2000] 2 All ER 56

Coutts & Co v Stock

COMPANY; Insolvency

CHANCERY DIVISION
LIGHTMAN J
12, 24 NOVEMBER 1999

Company – Compulsory winding up – Avoidance of disposition of property after commencement of winding up – Bank granting company overdraft
facility secured by director’s personal guarantee – Winding-up petition being presented against company – Bank continuing to honour cheques drawn on
company’s account between presentation of petition and making of winding-up order – Whether guarantor liable in respect of increase of overdraft after
presentation of winding-up petition – Insolvency Act 1986, s 127.

The claimant bank granted a £200,000 overdraft facility to L Ltd, secured by a personal guarantee given by S, a director of the company. Three weeks
later, when its account was £500 in credit, a winding-up petition was presented against L Ltd. By the time that the petition was advertised the account
was overdrawn in the sum of £121,875, and the overdraft had increased to at least £190,000 by the time that the winding-up order was made. The
increases in the overdraft reflected the honouring by the bank of cheques drawn in favour of third parties, with the bulk of the payments being made to
three companies owned and/or controlled by S. In subsequent proceedings by the bank to enforce the guarantee, S contended that s 127a of the
Insolvency Act 1986, which rendered void dispositions of company property made after the commencement of the winding up, disentitled the bank from
debiting L Ltd’s account in respect of cheques honoured after the presentation of the petition, and that accordingly the bank was not entitled to recover
from him the amounts in question.
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________________________________________
a Section 127 is set out at p 58 e, post
________________________________________

Held – On its true construction, s 127 of the 1986 Act invalidated only a disposition by a company, not a loan made by someone else to the company to
enable it to make that disposition. Such a loan was not a disposition of the company’s property within the meaning of that section. Nor could s 127
retrospectively countermand the instructions given to the bank as the company’s agent to make payment of the company’s moneys to a third party.
Rather, it merely denuded the payment of legal effect, entitling the company to obtain recoupment from the payee. In contrast, as between the company
and the bank the money was validly borrowed and paid by the company to the payee. Such a conclusion was consistent with the underlying purpose of s
127, namely to recover for the company moneys paid to a payee. That purpose did not extend to making the bank the guarantor of the payee’s obligation
to pay. Accordingly, in the instant case s 127 had no effect on the state of the account between the bank and L Ltd. It therefore followed that S, as
guarantor, was legally bound to pay the full sum due on the overdrawn account (see p 60 g to p 61 a, p 62 j to p 63 a and p 65 a, post).
Re Gray’s Inn Construction Co Ltd [1980] 1 All ER 814 and Hollicourt (Contracts) Ltd (in liq) v Bank of Ireland [2000] 2 All ER 45 doubted.
­ 56

Notes
For the retrospective effect of a winding-up order, see 7(3) Halsbury’s Laws (4th edn) (1996 reissue) para 2460.
For the Insolvency Act 1986, s 127, see 4 Halsbury’s Statutes (4th edn) (1998 reissue) 823.

Cases referred to in judgment

Agip (Africa) Ltd v Jackson [1992] 4 All ER 385, [1990] Ch 265, [1989] 3 WLR 1367; affd [1992] 4 All ER 451, [1991] Ch 547, [1991] 3 WLR 116, CA.
Bank of East Asia Ltd v Rogerio Sou Fung Lam [1988] 1 HKLR 181, HK CA.
Gray’s Inn Construction Co Ltd, Re [1980] 1 All ER 814, [1980] 1 WLR 711, CA.
Hollicourt (Contracts) Ltd (in liq) v Bank of Ireland [2000] 2 All ER 45.
Loteka Pty Ltd (in liq), Re [1990] 1 Qd R 322, Qld SC.
Mal Bower’s Macquarie Electrical Centre Pty Ltd (in liq), Re [1974] 1 NSWLR 254, NSW SC.
R v Kohn (1979) 69 Cr App R 395, CA.
Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd (in liq) [1996] 2 BCLC 69, PC.
Tasmanian Primary Distributors Pty Ltd (in liq) v R C & M B Steinhardt Pty Ltd (1994) 13 ACSR 92, Tas SC.

Application
The claimant bank, Coutts & Co, applied for the determination of two points of law in proceedings brought by it to enforce a guarantee given by the
defendant, Michael Stock, over an overdraft facility granted by the bank to Love This Records Ltd, a company of which the guarantor was a director. The
questions of law are set out at p 58 f g, post. The facts are set out in the judgment.

Michael Lazarus (instructed by Farrer & Co) for the bank.

Christopher R Parker (instructed by Berrymans Lace Mawer) for the guarantor.

Cur adv vult

24 November 1999. The following judgment was delivered.

LIGHTMAN J.

INTRODUCTION
1. This is an action by the claimant Coutts & Co (the bank) against the defendant Mr Stock (the guarantor) to enforce the guarantee given by the
guarantor (the guarantee) of the account with the bank of Love This Records Ltd (the debtor). In this action the bank is applying under what was RSC
Ord 14A, and what is now CPR 24.2, for the determination of two issues of law of some importance. These issues concern the effect of s 127 of the
Insolvency Act 1986 on the liability of a guarantor of the overdraft arising from the bank’s continuing to honour cheques of an insolvent company over
the period between the date of presentation of a petition to wind up the company and the date of the subsequent winding-up order.
­ 57

FACTS
2. On 25 March 1997 the bank granted to the debtor a £200,000 overdraft facility secured by a personal guarantee given by the guarantor who was a
director of the debtor. Three weeks later on 16 April 1997 a winding-up petition was presented against the debtor. On that date the debtor’s account with
the bank was £500 in credit. The petition was advertised in the London Gazette on 30 May 1997. On that date the account was overdrawn in the sum of
£121,875. A winding-up order was made on the petition on 11 June 1997. The overdraft by then had increased to at least £190,000. The increases in the
overdraft reflected the honouring by the bank of cheques drawn in favour of third parties. Of the increases, the larger part totalling £139,564·10 reflected
cheques drawn by the debtor in favour of three companies owned and/or controlled by the guarantor. On 15 June 1997 pursuant to the provisions of the
guarantee the bank demanded payment by the guarantor of the balance of £192,602·34, a demand repeated by the bank’s solicitors on 28 May 1998. The
writ in this action was issued on 11 June 1998. On 15 July 1998 the liquidators of the company demanded repayment by the three companies of the three
sums paid to them, but the companies have made no repayment. No validation order under s 127 has been applied for or made.

ISSUES
3. Section 127 provides as follows:

‘In a winding up by the court, any disposition of the company’s property, and any transfer of shares, or alteration in the status of the company’s
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members, made after the commencement of the winding up is, unless the court otherwise orders, void.’

The only defence of the guarantor is invocation of s 127. Absent s 127, there could be no defence to the claim by the bank against him. The two
questions raised are: (1) whether (in the absence of a validation order under that section) upon the making of the winding-up order s 127 operated
retrospectively to disentitle the bank from debiting the debtor’s account in respect of cheques honoured after the date of the presentation of the petition
and accordingly (leaving aside the provisions of cl 10 of the guarantee) retrospectively disentitled the bank from recovering the amounts in question from
the guarantor; (2) (if the answer to question (1) is in the affirmative) whether none the less the provisions of cl 10 of the guarantee are effective to impose
on the guarantor a liability for the amounts in question as sole or principal debtor. I shall consider each of these questions in turn.

SECTION 127 AND OVERDRAFTS

4. There is one decision of the English Court of Appeal, namely Re Gray’s Inn Construction Co Ltd [1980] 1 All ER 814, [1980] 1 WLR 711, a very
recent decision of Blackburne J, namely Hollicourt (Contracts) Ltd (in liq) v Bank of Ireland [2000] 2 All ER 45 and a body of authority in
Commonwealth jurisdictions on the impact of s 127. The authorities are in disarray and the state of the law is uncertain, if not confused. In the
circumstances it is appropriate to consider first what as a matter of principle should be the answer to the question raised, and then second whether the
authorities require some other answer to be given.
5. I must first identify certain significant facts in this case: (a) the question raised in this case arises, not between the liquidators of the debtor and a
third party (whether the bank or the payee of moneys paid out by the bank), but ­ 58 between the bank and the guarantor; (b) the bank or such a payee,
so long as it was ignorant of the presentation of the petition at the date of any payment or receipt of the debtor’s money, could have applied for a
validation order validating payments by or to it between the date of presentation and the date of advertisement and on such an application a validation
order would have been granted almost as a matter of course (see Hollicourt (Contracts) Ltd (in liq) v Bank of Ireland). But the bank has made no
application for validation: the bank maintains that it does not need any such order to obtain full recovery from the guarantor; (c) the issue is confined to
the impact of s 127 on the creation of, and subsequent increases in, the debtor’s overdraft with the bank. Attention is to be focused on payments made by
the bank to third parties which gave rise to and built up the overdraft producing today the figure claimed in this action. No question is raised as to the
validity or voidness of payments received by the bank and applied in reduction of the overdraft (as in Re Gray’s Inn Construction Co Ltd) or of payments
made by the bank which operated in reduction of the company’s credit balance (as in Hollicourt (Contracts) Ltd (in liq) v Bank of Ireland).

Principles
6. The following are the principles which would be expected to operate in a case where s 127 applies. (1) The invalidation of dispositions of a
company’s assets after the date of presentation of a winding-up petition is part of the statutory scheme designed to prevent the directors of a company,
when liquidation is imminent, from disposing of the company’s assets to the prejudice of its creditors and to preserve those assets for the benefit of the
general body of creditors. It does not accordingly bite when the disposition can have no impact on the creditors, eg in case of dispositions by receivers
appointed under charges of the company’s property or by the company where it holds legal title to property as bare trustee or subject to a specifically
enforceable obligation to convey the property to a third party. (2) The retrospective invalidation effected by s 127 does not change what happened
between the date of the petition and the date of the winding-up order: it merely denudes any disposition of the company’s property during that period of
legal effect. (3) The invalidation is limited to dispositions of property: (a) the section does not invalidate a company’s assumption of liabilities. The
section in no way precludes a company incurring or continuing to incur liabilities (eg for rates, electricity or the services of employees) nor does it
invalidate liabilities so incurred. An increase in a company’s overdraft over the period between presentation of the petition and the making of the order
for winding up is accordingly outside the ambit of s 127; (b) nor does s 127 have any impact on the company’s use, consumption or exhaustion of its
assets. Thus though an agreed overdraft limit has been held to be ‘property’ which can be the subject of theft by presentation of forged cheques (see R v
Kohn (1979) 69 Cr App R 395), it must be clear that (notwithstanding the contrary view expressed by Professor Goode in Principles of Corporate
Insolvency Law (2nd edn, 1997) p 432) the use and indeed partial or total exhaustion of that overdraft limit by the company cannot constitute a disposition
within s 127. (4) Presentation of the winding-up petition has no impact on the powers of the directors of the company, the authority of the company’s
agents or the powers of disposition of the company. In particular the presentation does not invalidate the mandate of the company’s bank to honour the
cheques of the company. The subsequent winding-up order accordingly does not invalidate the loan made by ­ 59 the bank to the company constituted
by honouring cheques drawn on the company’s overdrawn account. (5) If (contrary to my view) the acts of the bank of honouring cheques drawn on a
company’s overdrawn account constitute payments by the bank (by way of loan to the company) of its own moneys to the party in whose favour the
cheques are drawn, the transaction is outside s 127, for there is no disposition of the company’s property: the disposition is of the bank’s property and the
increase in the company’s overdraft itself does not constitute a disposition within s 127: see (3) above. (This is the analysis by Professor Goode pp
429–431). The liquidator of the company can accordingly make no recovery from the payee nor can he challenge the state of the overdrawn account of
the bank reflecting the payments drawn on the company’s overdrawn account. (6) On principle however the acts of the bank in honouring cheques drawn
on a company’s overdrawn account constitute (i) loans of the sums in question by the bank to the company and (ii) payment by the bank as agent of the
company of the sums loaned as moneys of the company to the party in whose favour the cheques are drawn. On this analysis, the loan by the bank to the
company is not a disposition of the company’s money (it is a disposition of the bank’s money to the company) and is therefore outside s 127; but the
payment by the bank as agent for the company of the company’s money does constitute a disposition to the payee by the company within s 127 and is
recoverable by the liquidator from the payee. (This analysis accords with the view expressed by Millett J in Agip (Africa) Ltd v Jackson [1992] 4 All ER
385 at 396, 404, [1990] Ch 265 at 283, 292).
7. This last approach reflects the substance of the transaction between the company, the bank and the payee. It also gives due weight to the facts that
(a) the company validly made conditional payment to its creditors by delivery to them of the cheques; (b) the bank lawfully and properly honoured the
cheques drawn by the company, and indeed to have failed to have honoured them, (at least without knowledge of the advertisements and possibly
presentation of the petition) would have constituted a breach of contract with the most serious possible repercussions for the bank and the company; (c)
the common understanding of all involved would have been that it was the company (and not the bank) paying the company’s debts; and (d) s 127 has no
retrospective operation or effect on the increases in the overdraft consequent upon the bank honouring the cheques.
8. In summary, the principles lead to the conclusion that s 127 cannot be read as invalidating, not merely the disposition by a company, but also a
loan made by someone else to the company to enable it to make that disposition. Nor can s 127 retrospectively countermand the instructions given to the
bank as the company’s agent to make payment of the company’s moneys to the third party: it merely denudes the payment by the company, as a
disposition of the company’s money to the payee, of legal effect, entitling the company to obtain recoupment from the payee. It avoids the disposition of
the company’s money as between the company and the payee: but there is no disposition of the company’s money by the company to the bank. As
between the company and the bank the money was validly borrowed and paid by the company to the payee.
9. On principle therefore, as it seems to me, s 127 had no effect on the state of account between the bank and the company. The full sum of
£190,000 has remained due from the company to the bank, though the company is entitled to seek recovery from the payees. This result accords with the
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underlying purpose of the section, namely to recover for the company moneys paid to a payee.
­ 60
The purpose does not extend to making the bank the guarantor of the payee’s obligation to repay. It also means that there is no difference between a
situation where the company withdraws the money from the bank and gives it to an agent to hand to the payee and a situation where the payment is made
through a bank.

Authorities
10. I now turn to the authorities to see whether they require some other conclusion.

(a) Re Gray’s Inn Construction Co Ltd

Undoubtedly the most important authority is Re Gray’s Inn Construction Co Ltd [1980] 1 All ER 814, [1980] 1 WLR 711. In Re Gray’s Inn
Construction Co Ltd the liquidator made a claim against the company’s bank in respect of the amount which the company lost by remaining in business
after presentation of the winding-up petition. At all dates between the presentation of the petition and the winding-up order the company’s account was
overdrawn in a figure fluctuating between £3,600 and £7,000 and sums amounting to £25,313 were paid in and sums amounting to £24,129 were paid out
(see [1980] 1 All ER 814 at 817, [1980] 1 WLR 711 at 715). The only judgment in the Court of Appeal was that of Buckley LJ (with which the other
members of the court agreed). Buckley LJ held that (save and unless validated) all these payments were invalid. There are two parts of the judgment by
Buckley LJ which are of critical importance. The first explained why the payment into the company’s account constituted dispositions by the company to
the bank:

‘It may well be the case, as counsel for the bank [Mr Heslop] has submitted, that in clearing a third party’s cheque and collecting the amount
due on it, the bank acts as the customer’s agent, but as soon as it credits the amount collected in reduction of the customer’s overdraft, as in the
ordinary course of banking business it has authority to do in the absence of any contrary instruction from the customer, it makes a disposition on the
customer’s behalf in its own favour discharging pro tanto the customer’s liability on the overdraft.’ (See [1980] 1 All ER 814 at 818, [1980] 1
WLR 711 at 716.)

The second related to the question whether the payments out of the company’s account constituted dispositions:

‘Counsel for the bank does not dispute that all payments out of the company’s account to third parties, not being payments to agents of the
company as such, are dispositions of the company’s property; but he contends (as I understand his argument) that they are only relevant for the
purposes of [s 127] to the extent that payments out during the relevant period exceed payments in. That all such payments out must be dispositions
of the company’s property is, I think, indisputable, but I cannot accept counsel’s contention. The section must, in my judgment, invalidate every
transaction to which it applies at the instant at which that transaction purports to have taken place. I cannot see any ground for saying that the
invalidation can be negatived by any subsequent transaction.’

What Mr Heslop appears to have conceded was (i) that payments out of the company’s account to third parties constituted dispositions of the company’s
property; and (ii) that they constituted dispositions of property which the bank ­ 61 was liable to make good. No contrary argument was addressed. It
is to be noted that Professor Goode in Principles of Corporate Insolvency Law p 430 expresses the view that both concessions were wrongly made. The
correctness of the first concession depends on whether the payments to the payees are held to have been payments of the bank’s or the company’s
moneys. Professor Goode (as I have already said) favours the former view, but I favour the latter. I do not accordingly question concession (i). But I do
question concession (ii). I am uncertain how far Buckley LJ distinguished the two elements in counsel’s concession, and I do not think that he would
have held the bank liable if the contrary had been fully argued, as it has been argued before me. I acknowledge my debt to both counsel. In the
circumstances, whilst any view expressed by Buckley LJ must carry persuasive weight, nothing he may have said binds me to hold the bank liable.

(b) Hollicourt (Contracts) Ltd (in liq) v Bank of Ireland

The issue in Hollicourt (Contracts) Ltd (in liq) v Bank of Ireland [2000] 2 All ER 45 related to the bank account of a company in liquidation which
had been in credit throughout the period after presentation of the petition. Blackburne J held that the honouring by the bank of the company’s cheques
after the date of presentation of the petition constituted dispositions of the moneys standing to the credit of the company in that it reduced the bank’s
liability to the company; and that avoidance of these dispositions operated, not merely between the company and the payees, but also between the
company and the bank with the effect that the bank could not debit the payment to the accounts. Blackburne J did not have to decide what would be the
legal position in a case where (as a case such as that now before me) the account was at all times in overdraft. He did say (at 50) that the point was well
made that a liability is not an asset of a company and that an increase in its liabilities is not a disposition of its property. The judgment of Blackburne J
takes a different view of the Commonwealth authorities from that which I take (see below) and accordingly of the applicability of the principles on which
I base my decision. So far as his decision is based on this view, I must respectfully disagree with it.

(c) Commonwealth authorities

There are three Commonwealth authorities which hold that s 127 merely invalidates a disposition as between the company and the payee of the
company’s money, and not as against the bank when it merely fulfils an agency or intermediary role between the company and the payee (see Re Mal
Bower’s Macquarie Electrical Centre Pty Ltd (in liq) [1974] 1 NSWLR 254, Re Loteka Pty Ltd (in liq) [1990] 1 Qd R 322 and Tasmanian Primary
Distributors Pty Ltd (in liq) v R C & M B Steinhardt Pty Ltd (1994) 13 ACSR 92). There is a decision to the contrary by the Hong Kong Court of Appeal
in Bank of East Asia Ltd v Rogerio Sou Fung Lam [1988] 1 HKLR 181. Blackburne J expresses preference for the view expressed in Bank of East Asia
Ltd v Rogerio. I prefer the reasoning in the three Commonwealth authorities as entirely in accord with and supportive of the principles which I have
stated.

Conclusion
11. I reach the conclusion that the authorities do not preclude a decision adopting the principles which I have referred to. In accordance with those
principles I therefore hold that the debtor (and therefore the guarantor) is legally ­ 62 bound to pay the full sum due on the overdrawn account, and that
s 127 has no impact on this liability.

CONSTRUCTION OF GUARANTEE
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12. If the sum due from the debtor on the overdraft is unaffected, as I have held, by s 127, it is common ground that it is recoverable from the
guarantor by the bank, and it is unnecessary to explore further whether the terms of the guarantee in this case would entitle the bank to recover even if s
127 invalidated the debtor’s overdraft liability. But since I have heard full argument, the question is of some importance and the case may go further, I
shall express my views on that question. For the purposes of this part of the judgment I assume (contrary to what I have held) that s 127 retrospectively
invalidated the loans made by the bank to the company in honouring the post-petition cheques.
13. Clause 10 of the guarantee reads as follows:

‘This Guarantee shall not be discharged nor shall the Guarantor’s liability be affected by reason of any failure of or irregularity defect or
informality in any security given by or on behalf of the Debtor in respect of the moneys or liabilities hereby secured nor by any legal limitation bar
or restriction dissolution disability incapacity or want of any borrowing powers of the Debtor or want of authority of any director manager official
or other person appearing to be acting for the Debtor in any matter in respect of the moneys or liabilities hereby secured or by any supervening
matters rendering the performance of the obligations of the Debtor illegal in any jurisdiction and such moneys and liabilities will be recoverable by
the Bank from the Guarantor as sole or principal debtor.’

14. The correct approach to construction of the guarantee is to decide whether, read in the context of the document as a whole, the language of cl 10
is apt to include an obligation on the part of the guarantor to pay advances made by the bank to the debtor invalidated by s 127; and in case an ambiguity
arises whether this scenario is included, such ambiguity is to be resolved against the bank who put forward the guarantee for execution by the guarantor:
see Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd (in liq) [1996] 2 BCLC 69.
15. Clause 10 (so far as material) can be broken down into the following component parts:

‘[(a)] the Guarantor’s liability [shall not] be affected by any [(1)] legal limitation, bar or restriction [(2)] dissolution disability incapacity or want
of borrowing powers of the Debtor … or [(3)] by any supervening matters rendering the performance of the obligations of the Debtor illegal in any
jurisdiction and [(b)] such monies or liabilities shall be recoverable by the Bank from the Guarantor as sole or principal debtor.’

It is quite clear that the words ‘such monies or liabilities’ refer to the moneys or liabilities which fall within the provisions of the clause, ie debts and
liabilities for which the guarantor would not otherwise be responsible in the absence of the provisions of the clause. The critical question is accordingly
whether the legal effect of s 127 on the loans made by the bank to the debtor (ie the retrospective invalidation of the loans by reason of the order made for
compulsory liquidation of the debtor) is one of the states of affairs which falls within (a)(1) or (2). It cannot be suggested that it falls within (a)(3).
­ 63
16. The guarantor made two submissions with which I should briefly deal. (a) The first submission concentrated on the provision in (a)(3), ie for
‘supervening matters rendering the performance of the obligations of the Debtor illegal in any jurisdiction’. ‘Supervening matters’ clearly means matters
arising after the date of assumption by the debtor of the obligations in question. The submission made was that, because specific provision is made in
(a)(3) for supervening matters and there is no express reference to supervening matters in (a)(1) or (a)(2), (a)(1) and (a)(2) should be construed as
referring exclusively to states of affairs or events existing at the date of loans to the debtor and do not embrace supervening events ie events happening
thereafter. That is an untenable proposition for two reasons: (i) the provision for supervening matters rendering performance of the debtor’s obligations
illegal in any jurisdiction is designed to meet specific legal problems familiar in the field of conflict of laws, and throws no light on the ambit of the other
provisions in the clause; and (ii) the express provision in (a)(2) for ‘dissolution’ can only be designed to cover the supervening event of dissolution after
the date that the debtor has assumed liability. (b) The second submission was that the express provision for the eventuality of dissolution indicated that
the clause was not intended to operate at any earlier stage in the life (or death) of a company and most particularly on liquidation and on invalidation by s
127 triggered by liquidation. This again is untenable. There is no necessary relationship between dissolution and liquidation: a company may be
liquidated without thereafter being dissolved and a company may be dissolved (eg for failure to file returns) without ever being wound up. The express
provision for the eventuality of dissolution is intended to cover the situation where the debtor is a company and ceases to exist. This express provision for
the eventuality of dissolution is no guide to the meaning of the other words in cl 10.
17. Provisions such as cl 10 have grown like Topsy. As each possible ground for a challenge by a guarantor to the validity or enforceability of his
guarantee has seen the light of day, further protective provisions for the bank have been devised designed to head off that challenge and tagged onto the
clause. The present compilation of words is in dire need of revision. If a guarantor is intended to be made primarily liable when there is no primary
liability for any reason on the part of the debtor, this could and should be spelt out explicitly. The words particularly relied on by the bank are ‘legal
limitation, bar or restriction’ and the words ‘disability incapacity or want of borrowing powers of the Debtor’. In my view none of these words is apt to
cover the situation with which I am concerned, namely a debt validly incurred but subsequently retrospectively invalidated. The effect of the invalidation
must be that from the date of invalidation there is no debt or liability. The invalidation does not arise by reason of any ‘legal limitation, bar or
restriction’, language peculiarly apt to cover limitations, bar or restrictions on enforcement, but inapposite to cover statutory invalidation of the debt; nor
does it arise by reason of any ‘disability, incapacity or want of borrowing powers’ of the debtor, for the debtor has the ability, capacity and borrowing
power at all relevant times: it was not the lack of these which invalidated the debtor’s debt. It is notwithstanding the ability, capacity and power that s
127 invalidates the debt and accordingly the liability of the guarantor. I therefore do not think that, if s 127 did invalidate the debt of the debtor, the terms
of cl 10 would be sufficiently ample to validate the liability of the guarantor. I should add that the clearest language is required to impose on a guarantor
liabilities of the principal debtor in ­ 64 cases where statute has decreed that the liabilities of the principal debtor shall be void. There is no such
language in this case.

SUMMARY
18. I accordingly hold that the bank is entitled to the full sum claimed, for it is a debt owed by the debtor. The bank has no need to invoke cl 10 of
the guarantee, but, if it did have such a need, that clause would be of no assistance.

Order accordingly.

Celia Fox Barrister.

[2000] 2 All ER 66
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Re X (parental responsibility agreement: children in care)

FAMILY; Children: LOCAL GOVERNMENT

FAMILY DIVISION
WILSON J
24 NOVEMBER, 9 DECEMBER 1999

Child – Care – Local authority – Parental responsibility agreement – Local authority obtaining full care orders in respect of children of unmarried
parents – Mother agreeing with father that he should have parental responsibility – Whether local authority having power to prevent mother entering into
parental responsibility agreement with father – Children Act 1989, ss 4(1)(b), 33(3).

The father and mother were the unmarried parents of two young sons who were the subject of interim care orders in favour of a local authority. On the
authority’s application for a full care order, the father applied for an order that he should have parental responsibility over his sons. The magistrates made
the full care orders sought by the local authority, but rejected the father’s application. Before the hearing of the father’s appeal against the rejection of his
application, the mother agreed that the father should have parental responsibility for the boys. That agreement was in accordance with s 4(1)(b)a of the
Children Act 1989 which provided that, where a child’s parents were not married to each other at the time of his birth, the parents could provide, by
agreement, for the father to have parental responsibility for that child. On the hearing of the father’s appeal, the local authority contended that in entering
into the agreement the mother was exercising her parental responsibility, that by virtue of s 33(3)b of the 1989 Act it had the power, while the care orders
were in force, to determine the extent to which the mother could meet her parental responsibility for her sons, and that accordingly it was entitled to
prevent the mother from entering into the agreement in the interests of the boys’ welfare.
________________________________________
a Section 4, so far as material, is set out at p 68 e, post
b Section 33, so far as material, is set out at p 68 h j, post
________________________________________

Held – A local authority had no power to prevent a mother from entering into a parental responsibility agreement, under s 4(1)(b) of the 1989 Act, in
relation to a child held under a care order. The facility to enter into such an agreement was self-contained and did not depend upon the exercise of
parental responsibility. The agreement itself was the product of equal contribution on the part of each parent acting in unison. Thus the mother could not
confer parental responsibility upon the father against his wishes, and he could not arrogate it to himself against her wishes. Moreover, a father was not
exercising parental responsibility when signing an agreement that he should have such responsibility. That would be a logical absurdity, and indeed the
father’s parental responsibility did not even take effect until the agreement was filed in the Principal Registry. In those circumstances, it would be
paradoxical if the mother could not act in unison with the father, as required by s 4(1)(b), without exercising her parental responsibility. Accordingly, in
the instant case the father and mother were at liberty to enter into ­ 66 an agreement under that provision, and it was therefore unnecessary to make any
order on the father’s appeal (see p 69 g to j and p 71 a b, post).

Notes
For acquisition of parental responsibility by a father, see 5(2) Halsbury’s Laws (4th edn reissue) para 735.
For the Children Act 1989, ss 4, 33, see 6 Halsbury’s Statutes (4th edn) (1999 reissue) 378, 419.

Case referred to in judgment

D v Hereford and Worcester CC [1991] 2 All ER 177, [1991] Fam 14, [1991] 2 WLR 753.

Appeal
The appellant, the father of two boys aged five and two, appealed from the decision of the magistrates of the Havering Family Proceedings Court on 19
April 1999 refusing his application for a parental responsibility order for the children. In the same decision, the magistrates granted full care orders in
respect of the children in favour of the London Borough of Havering (the local authority). The grant of those orders had been opposed by the children’s
father and mother, and they subsequently entered into an agreement pursuant to s 4(1)(b) of the Children Act 1989, providing for the father to have
parental responsibility for the children. On the appeal, the local authority contended that it was entitled to prevent the mother from entering into such an
agreement. The case was heard in private, but judgment was given in open court. The facts are set out in the judgment.

Elpha Lecointe (instructed by Clinton Davis & Co) for the father.
Ariff Rozhan (instructed by Ashley Bean & Co, Ilford) for the mother.
Brian Jubb (instructed by Christine Dooley, Romford) for the local authority.

Cur adv vult

9 December 1999. The following judgment was delivered.

WILSON J. The father of two children, boys now aged five and two, appeals from the refusal by the magistrates of the Havering Family Proceedings
Court on 19 April 1999 to make an order that he should have parental responsibility for them.
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By the time of the hearing the boys were the subject of interim care orders in favour of the London Borough of Havering (the local authority) and
were living with short-term foster parents. The leading application before the magistrates was that of the local authority for full care orders. The care
plan, indorsed by the guardian ad litem, was that the boys be placed for adoption, with limited ongoing supervised contact with the mother and father.
The parents, who have never been married, had separated; and indeed at the time of the hearing the father was in prison, where he remains. They each
opposed the making of full care orders and argued mainly for further interim care orders with directions for further assessments. But the magistrates made
full care orders; and neither parent appeals against them. The local authority have recently issued an application for an order authorising them to refuse to
allow contact between the boys and the parents; so it seems that their plan for contact to take place following adoption ­ 67 may have changed. Before
the magistrates the response of the other parties to the father’s application for an order for parental responsibility was subdued. The mother said that,
were the boys to be returned into her care, she would agree to his having parental responsibility but that otherwise she saw no point in his having it. The
local authority articulated reservations about his application but mounted no active opposition. The guardian expressed no view.
At the outset of the hearing of this appeal, however, I was informed that stances had changed. The mother now agrees that the father should have
parental responsibility for the boys even though they are the subject of full care orders and, as things stand, are unlikely ever to return into her care.
Indeed shortly before this hearing she attended before the clerk to the Havering Family Proceedings Court and asked him to witness her signature upon a
parental responsibility agreement in favour of the father; in the light of the imminence of the hearing the clerk declined to do so. For their part, the local
authority are now actively opposed to the grant of parental responsibility to the father. The guardian, in my view sensibly, has taken no part in the appeal.
So a preliminary issue arises: can the parents of a child who is the subject of a care order be prevented from entering into a parental responsibility
agreement? If not, then I will declare the parents to be at liberty to enter into the proposed agreement and the father’s appeal will become redundant. But
if, as the local authority contend, they can prevent such an agreement from being validly made, I must proceed to hear the appeal.
Section 4(1) of the Children Act 1989 provides:

‘Where a child’s father and mother were not married to each other at the time of his birth … (b) the father and mother may by agreement (“a
parental responsibility agreement”) provide for the father to have parental responsibility for the child.’

At first sight the ability of the parents to enter into the agreement seems absolute. But the interesting argument advanced with his customary charm
by Mr Jubb on behalf of the local authority is based upon the conjunction of two other provisions of the 1989 Act, namely ss 3(1) and 33(3).
Section 3(1) provides:

‘In this Act “parental responsibility” means all the rights, duties, powers, responsibilities and authority which by law a parent of a child has in
relation to the child and his property.’

Section 33(3) provides:

‘While a care order is in force with respect to a child, the local authority designated by the order shall—(a) have parental responsibility for the
child; and (b) have the power (subject to the following provisions of this section) to determine the extent to which a parent … of the child may meet
his parental responsibility for him.’

It is convenient at this stage to notice s 33(4):

‘The authority may not exercise the power in subsection (3)(b) unless they are satisfied that it is necessary to do so in order to safeguard or
promote the child’s welfare.’
­ 68
Mr Jubb’s argument is as follows.
(a) In entering into a parental responsibility agreement with the father the mother would be exercising the power or right which s 4(1)(b) confers
upon her in relation to the boys.
(b) So, in the light of the definition in s 3(1), the mother would be exercising her parental responsibility in entering into the agreement.
(c) In that care orders are in force the effect of s 33(3) is that the local authority also have parental responsibility for the boys and, subject to s 33(4),
have the power to determine the extent to which the mother may meet her parental responsibility.
(d) The local authority are satisfied that, in order to promote the boys’ welfare, it is necessary for them to determine the extent to which the mother
may meet her parental responsibility for them by preventing her from entering into the parental responsibility agreement with the father; this is a matter
which, by the words of s 33(4), has to be established to the satisfaction of the local authority rather than of the court.
(e) Accordingly the local authority can prevent the mother’s entry into the agreement.
(f) Even though a local authority can prevent the mother of a child under a care order, including even an interim care order, from entering into a
parental responsibility agreement, the father can apply for a parental responsibility order and, if the court differs from the local authority’s conclusion as
to whether the child’s welfare would be served by investing the father with parental responsibility, the order will be made. It is well settled that a care
order does not preclude the making of a parental responsibility order (see D v Hereford and Worcester CC [1991] 2 All ER 177, [1991] Fam 14).
Mr Jubb’s argument therefore rests crucially upon the proposition that, in entering into a parental responsibility agreement, a mother is exercising her
own parental responsibility. I have been much exercised by the width of the definition of parental responsibility in s 3(1): how can (to choose a neutral
word) the ‘facility’ given to the mother under s 4(1)(b) be other than a ‘power’—or, perhaps only slightly less aptly, a ‘right’—which by law she has in
relation to the child?
In the end, however, I reject Mr Jubb’s argument.
In my view the most telling point made by Miss Lecointe and Mr Rozhan on behalf of the father and mother is that under s 4(1)(b) a parental
responsibility agreement is the product of equal contribution on the part of each parent. The mother cannot confer parental responsibility upon the father
against his wishes. He cannot arrogate it to himself against her wishes. They must act in unison and each sign the agreement. When the father signs the
agreement that he should have parental responsibility, he is not exercising parental responsibility. That would be a logical absurdity; indeed, by virtue of
s 4(2)(b) of the Act and reg 3 of the Parental Responsibility Agreement Regulations 1991, SI 1991/1478, his parental responsibility does not even take
effect until the agreement is filed in the Principal Registry. If, therefore, the parents are required by s 4(1)(b) to act identically and if, in so acting, the
father is not exercising parental responsibility, it would be paradoxical if the mother could not so act without exercising her parental responsibility. This
strongly suggests that the facility under s 4(1)(b) for the parents of a non-marital child to enter into a parental responsibility agreement is a self-contained
facility which does not depend upon the exercise of parental responsibility.
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­ 69
It is also worth noting that, if the parents were now to get married, the father would thereby acquire parental responsibility which the local authority
would be powerless to prevent. Although s 2(1) of the 1989 Act provides for each parent automatically to have parental responsibility for a child only
where they ‘were married to each other at the time of his birth’, those words are required by s 2(3) of the 1989 Act to be read with ss 1(2)(a) and 1(3)(b)
of the Family Law Reform Act 1987 and thus with ss 2 and 10 of the Legitimacy Act 1976 so as to include subsequent marriage. In that there are
therefore two types of parental arrangement whereby the father can acquire parental responsibility, one would want a good reason why, when the child is
in care, the local authority can prevent acquisition in one type but not in the other.
Mr Jubb’s point that it is little hardship for a father obstructed by a local authority to apply to the court for an order for parental responsibility can be
turned the other way: a parental responsibility agreement in relation to a child in care would present a local authority with few practical difficulties.
Parental responsibility does not entitle the father to act incompatibly with the care order (see s 2(8)). The local authority have the power to determine the
extent to which he may meet his parental responsibility (see s 33(3)(b)). The main effect of the agreement would be that the child could not be the subject
of an adoption order unless the agreement of the father to the order was either obtained or dispensed with under s 16 of the Adoption Act 1976. This
incident of parental responsibility cannot be eroded by the local authority’s use of their power under s 33(3)(b) (see s 33(9)). I would feel uncomfortable
that a local authority holding a child under a care order and proposing to place him for adoption should be able to suppress the need for the father’s
agreement to the adoption order to be obtained or dispensed with by the suggested expedient of preventing the mother from entering into the parental
responsibility agreement. If, however, there was good reason for them to object to the parental responsibility agreement, the local authority, as holders
themselves of parental responsibility, could exercise the right to apply under s 4(3)(a) for an order that the agreement be brought to an end.
Last—and probably least—there are practical problems attendant upon a law which enables the local authority to prevent a mother from entering into
a parental responsibility agreement in relation to a child held under a care order. Had the law been thus, one would have expected it to have addressed
them. There is no mechanism which requires the mother to alert the local authority to her intention to enter into such an agreement. No part of the form
set out in the Schedule to the 1991 regulations requires the parents to state whether the child is the subject of a care order or whether, if so, the local
authority have been notified of the intention to enter into the agreement. The notes on the back of the form, which are included in the Schedule, make no
reference to a local authority or to a care order. There is no provision in the regulations for the local authority to register at the Principal Registry their
objection to the mother’s entry into the parental responsibility agreement and accordingly for the officer there to decline to file it and thus to give effect to
it. What, if Mr Jubb is right, would be the status of a parental responsibility agreement duly filed at the Principal Registry but entered into in relation to a
child under a care order without notice to the local authority? It seems to me that, if the regulations have been complied with, the agreement would have
to be adjudged effective under s 4(2). If so, the alleged power of the local authority to prevent the mother from entering into the agreement would at
present be largely illusory.
­ 70
Near the outset of this judgment I noted the ostensibly absolute language of s 4(1)(b), ‘the father and mother may by agreement … provide …’ I do
not need to await the coming into force of the Human Rights Act 1998 in order to conclude that the law must at the very least be clear before it should be
so construed as to permit invasion of parental autonomy by public authorities. It is far from clear to me that the local authority have the power to prevent
the mother from entering into a parental responsibility agreement in relation to a child held by them under a care order. I hold that no such power exists.
Accordingly I declare that the father and the mother are at liberty to enter into a parental responsibility agreement in relation to the boys. This enables me
to make no order upon the father’s appeal.

Declaration accordingly.

K Mydeen Esq Barrister.

[2000] 2 All ER 72

R v Newham London Borough Council, ex parte Begum and another

HOUSING: LOCAL GOVERNMENT

QUEEN’S BENCH DIVISION (CROWN OFFICE LIST)

COLLINS J
24 AUGUST, 10 SEPTEMBER 1999

Housing – Homeless person – Duty of housing authority to provide accommodation – Duty to provide accommodation to homeless person with priority
need – Scope of duty – Housing Act 1996, s 193.

The applicants, a husband and wife, had a large family. When the family was evicted from their accommodation in May 1998, an application was made
to the respondent local authority under Pt VII of the Housing Act 1996. That application triggered an interim duty on the part of the authority, under s
188(1)a of the 1996 Act, to secure that accommodation was available for the occupation of the applicants. That duty could be discharged only if the
accommodation provided was suitable. The family was housed in bed and breakfast accommodation which was clearly unsuitable. Subsequently, the
authority decided that the family was unintentionally homeless and in priority need, and accordingly it accepted that it had a duty under s 193b of the
1996 Act to ensure that suitable accommodation was made available for their occupation. Section 193(3) provided that an authority was subject to that
duty for a period of two years. In the case of an applicant who had been occupying accommodation made available under s 188, that period began to run
from the day on which the authority notified him that it owed him a duty under s 193. In other cases, s 193(4)(c) provided that time ran from the day on
which accommodation was first made available under the s 193 duty. In November 1998, the applicants were offered an assured shorthold tenancy of a
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four-bedroom house. They accepted that offer, even though they contended that the property was not large enough and was therefore unsuitable. In
January 1999 the husband’s mother, who needed to use a wheelchair, came to live with the family. In April 1999 the authority accepted that the property
was overcrowded and unsuitable for a wheelchair user, but it failed to ensure that suitable accommodation was available. Five-bedroom houses converted
for wheelchair use were in short supply, but the authority had a policy of not using its own housing stock to provide temporary accommodation, even
though it had power to do so. The applicants applied for judicial review, seeking, inter alia, a declaration that the authority was in breach of its duty under
s 193. Relying on s 193(4)(c), the authority contended that the s 193 duty did not arise immediately. It further contended that the duty was one to make
suitable accommodation available within a reasonable time, and that the appropriate length of time depended on the circumstances of each case,
particularly whether or not the authority had the necessary accommodation available.
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a Section 188(1) provides: ‘If the local housing authority have reason to believe that an applicant may be homeless, eligible for assistance and have a priority need, they
shall secure that accommodation is available for his occupation pending a decision as to the duty (if any) owed to him under the following provisions of this Part.’
b Section 193, so far as material, is set out at p 74 f to p 75 a, post
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­ 72

Held – On its true construction, s 193(4)(c) of the 1996 Act did not entitle a local authority to defer performance of its duty under s 193. The purpose of s
193(4)(c) was to cater for a situation where no interim duty had been needed, eg where the applicant had only been threatened with homelessness and had
been in suitable accommodation until he moved to that provided under the s 193 duty. Moreover, that duty was unqualified. Accordingly, although the
duty would not be enforced unreasonably, the court should not be persuaded by the alleged impossibility of finding suitable accommodation unless it was
satisfied that all reasonable steps had been taken. In the instant case, the local authority’s policy of not using its own stock meant that it had not taken all
reasonable steps and thus the delay could not be excused. Accordingly, the application would be allowed, at least to the extent of granting the declaration
(see p 77 e f, p 79 d f g j to p 80 a and p 82 e f, post).
R v Southwark London BC, ex p Anderson (11 February 1999, unreported) and R v Merton London BC, ex p Sembi (1999) Times, 9 June criticised.

Notes
For the duty of a local housing authority to persons with priority need who are not homeless intentionally, see 22 Halsbury’s Laws (4th edn reissue) para
258.
For the Housing Act 1996, ss 188, 193, see 21 Halsbury’s Statutes (4th edn) (1997 reissue) 896, 900.

Cases referred to in judgment

R v Brent London Borough, ex p Omar (1991) 23 HLR 446.
R v Ealing London BC, ex p Surdonja [1999] 1 All ER 566.
R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB 67, [1984] 3 WLR 643, DC.
R v Merton London BC, ex p Sembi (1999) Times, 9 June.
R v Southwark London BC, ex p Anderson (11 February 1999, unreported), QBD.

Cases also cited or referred to in skeleton arguments

R v Ealing London BC, ex p McBain [1986] 1 All ER 13, [1985] 1 WLR 1351, CA.
R v Exeter City Council, ex p Gliddon [1985] 1 All ER 493.

Application for judicial review

The applicants, Mashuda Begum and her husband Nanu Ali, applied by way of judicial review for (i) a declaration that the respondent, Newham London
Borough Council, was in breach of a duty owed to them under s 193 of the Housing Act 1996, and (ii) an order of mandamus requiring the council to
discharge that duty. The facts are set out in the judgment.

Jan Luba and Beatrice Prevatt (instructed by T V Edwards) for the applicants.
Steven Woolf (instructed by Gifty Edila) for the council.

Cur adv vult

10 September 1999. The following judgment was delivered.

COLLINS J. The applicants, who are husband and wife, have six children aged between 3 and 17. In addition, Mr Ali’s 14-year-old half-brother and his
mother, Mrs Bibi, normally live with them, although for part of the relevant time until 30 January 1999 she was in Bangladesh. In May 1998 the family
was evicted from ­ 73 their accommodation and so an application was made on 13 May to the respondents pursuant to Pt VII of the Housing Act 1996
on the ground that they were homeless and the council had a duty to house them. That application did not include Mr Ali since he and his wife were
living apart. They became reconciled in June 1998 and have been living together since then.
That application triggered an interim duty to secure that accommodation was available under s 188(1) of the 1996 Act. This is one of four statutory
provisions which, in differing circumstances, oblige a local authority to ‘secure that accommodation is available for his occupation’ by the applicant in
question. In each case, the accommodation in question must be suitable, since by virtue of s 206(1) a local housing authority may discharge their housing
functions under Pt VII of the Act only by securing that suitable accommodation is provided either by them (see s 206(1)(a)) or by some other person, for
example a private landlord or a housing association (see s 206(1)(b)). Section 210(1) provides:

‘In determining for the purposes of this Part whether accommodation is suitable for a person, the local housing authority shall have regard to
Parts IX, X and XI of the Housing Act 1985 (slum clearance; overcrowding; houses in multiple occupation).’

Mr Woolf for the council did not seek to argue to the contrary and my reading of the Act in this respect is fortified by the decision of Scott Baker J in R v
Ealing London BC, ex p Surdonja [1999] 1 All ER 566.
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The family was initially housed in bed and breakfast accommodation which was clearly unsuitable. On 24 August 1998 the council decided that the
applicants were unintentionally homeless and in priority need and so, as was stated in the standard letter in this instance addressed to Mrs Begum: ‘This
decision means that we have accepted a duty to ensure that suitable accommodation is made available for your occupation.’ That duty arose under s 193
of the 1996 Act. I should set out the provisions which are material to this application. These read:

‘(1) This section applies where the local housing authority are satisfied that an applicant is homeless, eligible for assistance and has a priority
need, and are not satisfied that he became homeless intentionally. This section has effect subject to section 197 (duty where other suitable
accommodation available).
(2) Unless the authority refer the application to another local housing authority (see section 198), they shall secure that accommodation is
available for occupation by the applicant.
(3) The authority are subject to the duty under this section for a period of two years (“the minimum period”), subject to the following provisions
of this section. After the end of that period the authority may continue to secure that accommodation is available for occupation by the applicant,
but are not obliged to do so (see section 194).
(4) The minimum period begins with—(a) if the applicant was occupying accommodation made available under section 188 (interim duty to
accommodate), the day on which he was notified of the authority’s decision that the duty under this section was owed to him; (b) if the applicant
was occupying accommodation made available to him under section 200(3) (interim duty where case considered for referral but not referred), the
date on which he was notified under subsection (2) of that section of the decision that the conditions for referral were not met; (c) in any other case,
the day ­ 74 on which accommodation was first made available to him in pursuance of the duty under this section …
(6) The local housing authority shall cease to be subject to the duty under this section if the applicant … (c) accepts an offer of accommodation
under Part VI (allocation of housing) …’

For a time, the family remained in bed and breakfast accommodation. Although this was unsuitable and so apparently did not comply with the
requirements of s 193(2), in fairness to the council, it was faced with a very difficult situation in having to house a larger than normal family when there
was a chronic shortage of accommodation which would be suitable. I shall have to return to this later since it is fundamental to the council’s submissions
as to the ambit of its duty under s 193. However, on 9 November 1998, the applicants were offered and accepted a six-month assured shorthold tenancy
of a four-bedroom house at 315 Sherrard Road, E12. This was not in their view suitable, because overcrowded, but it was so much better than the bed and
breakfast that they were prepared to take it while contending that something suitable should be provided. They sought a review under s 202(1)(f) of the
1996 Act, which reads:

‘An applicant has the right to request a review of … (f) any decision of a local housing authority as to the suitability of accommodation offered
to him in discharge of their duty under [inter alia s 193].’

By letter dated 20 January 1999, the council accepted that the property was not large enough but asserted:

‘… when deciding whether or not accommodation is suitable, the Council is entitled to take into account the housing conditions in its area.
There are 988 householders seeking four or five bedroom accommodation on the Council’s housing Register. Households requiring four bedroom
or larger properties are unlikely to receive an offer of accommodation from the Housing Register for many years if at all.’

The letter went on to say that 315 Sherrard Road was ‘the most suitable property available for you at this time’. This response, as the letter pointed out,
triggered a right of appeal to the county court. Such an appeal is permitted by s 204(1), which, so far as material, reads:

‘If an applicant who has requested a review under section 202—(a) is dissatisfied with the decision on the review … he may appeal to the
county court on any point of law arising from the decision or, as the case may be, the original decision.’

The applicants did not lodge an appeal because their circumstances changed when Mrs Bibi returned from Bangladesh to live with them on 30 January
1999. She had had the misfortune to break her hip in Bangladesh in September 1998 and she had not been able to return to the United Kingdom as she
had intended at the end of that month. She was disabled and had to use a wheelchair. Quite apart from the overcrowding, there were real problems of
wheelchair access to and within the premises and the council’s social services department accepted that:

‘The present assessment suggests that Mrs Bibi and her family would be more suitably and appropriately placed in accommodation that is
accessible ­ 75 to wheelchair use with a bedroom, bathroom/toilet located on the ground floor, and, ideally larger, ie 5 bedrooms.’

Following further correspondence and discussions, by letter dated 16 April 1999, the council through a Mr Bruni, its principal homeless officer, wrote to
the applicants’ solicitors in these terms:

‘As you are aware, the family currently occupy a property which is overcrowded and is not suitable for a wheelchair user. I have agreed that
the family should be re-nominated for alternative accommodation.’

The applicants’ solicitors pressed the council to carry out its duty under s 193 and to provide suitable accommodation by 9 May, failing which judicial
review would be applied for. A suggestion was made by the solicitors that two adjoining smaller properties would be a possible answer, but that was
rejected because, apart from anything else, the council did ‘not have two ground floor properties next door to each other among the temporary housing
stock currently available to the council.’ The applicants were urged to put the matter ‘on hold’ since the best way forward was for the council to assist the
family to secure private rented accommodation. It was said a rent deposit scheme was being introduced. However, nothing has developed as yet.
No further steps were or have since been taken by the council and the family remain at 315 Sherrard Road in accommodation which, as the council
has accepted since 16 April 1999, is unsuitable. So, on 28 May 1999 these proceedings were launched seeking a declaration that the council is in breach
of its duty under s 193 and an order of mandamus that it discharge that duty. On 7 July 1999 an oral application for permission was made to Latham J,
the council being represented. Latham J refused permission because it seemed that there were two first instance decisions in the applicants’ way which
decided that a council was not in breach of its s 193 duty provided that it was making reasonable efforts to find suitable accommodation if none was
available. Latham J thought that in the circumstances it was more sensible for the Court of Appeal to hear a renewed application and, if it decided that the
case was arguable, perhaps reserve it to itself, thus saving time and money.
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In the result, on 3 August 1999 the Court of Appeal granted permission, but remitted the case to be heard by me in the week commencing 23 August.
The council were directed to serve further evidence since that before the court was likely to be insufficient to enable the scope of the duty under s 193 to
be properly considered. It seems that the court may have considered that it might be possible to argue that the council was able to take a reasonable time
to comply with its duty to secure suitable accommodation but there was insufficient evidence to show what policy the council operated. In the light of
this observation the Form 86A was amended to suggest that in any event such a time should not exceed 25% of the minimum period of two years laid
down by s 193(3). I should say that neither counsel before me was in the least enthusiastic about the possible approach mooted by the Court of Appeal.
Mr Luba believed that it was not in accordance with the statutory language and Mr Woolf saw enormous difficulties for the council in setting any
particular time which might be reasonable. For reasons which will, I hope, become clear, I too reject any such approach.
Before I refer to the salient parts of the council’s evidence, I should deal with the relevant statutory provisions to which I have not yet referred and
which indicate the manner in which the council should carry out its functions. I have ­ 76 already mentioned the existence of four statutory obligations
to secure that suitable accommodation is available to an applicant. Mr Luba gave each a helpful label. Section 188 is the ‘interim’ duty. It commences if
the council has reason to believe that an applicant may be homeless, eligible for assistance and have a priority need and ends when the decision is made as
to the duty (if any) owed under Pt VII of the 1996 Act. Section 190 contains the ‘temporary’ duty. This commences if the council decides that the
applicant is homeless and eligible for assistance but that he became homeless intentionally. If the applicant has a priority need, that duty requires that he
be provided with accommodation for such period as the council considers will give him a reasonable opportunity of securing accommodation for his
occupation (see s 190(2)). There is then the ‘holding’ duty under s 200. This arises when the council proposes to refer his application to another
authority under s 198. The applicant must be housed until he is notified of the decision whether the conditions for referral are met. Finally, there is the
‘full’ duty under s 193, which I have already set out.
That duty, which by s 193(3) continues for two years with an option to extend it under s 194, is given different starting times depending on the
relevant circumstances by s 193(4). Mr Woolf has submitted that, because the council never complied with its duty under s 188 since the only interim
accommodation provided was unsuitable bed and breakfast, the minimum period would not begin until suitable accommodation was made available under
s 193(4)(c). This, he submitted, would protect an applicant from the erosion of the minimum period if the council was unable to find suitable
accommodation. Mr Woolf also relied on s 193(4)(c) to found an argument that Parliament must have intended that the duty under s 193 did not arise
immediately. That argument I reject. The purpose behind s 193(4)(c) is in my view to cater for the situation where no interim duty has been needed
(because, for example, the applicant was only threatened with homelessness and was in suitable accommodation until he moved to that provided pursuant
to the s 193 duty). It may incidentally protect an applicant where a council has failed to comply with its s 188 duty, but that cannot lead to the conclusion
that Parliament intended that a council would be able to defer performance of its duty.
The facts of this case show the impossibility of the argument. In November 1998 the council purported to fulfil its s 193 duty by providing 315
Sherrard Road. In the absence of challenge, it must be regarded as having been suitable until Mrs Bibi returned on 30 January 1999. Thus the minimum
period began in November 1998. But when Mrs Bibi returned, the accommodation ceased to be suitable and, since the duty was continuing (see s
193(3)), the council had to secure the provision of fresh accommodation which was suitable. Meanwhile, the two-year minimum period continues to run
and the applicants are not protected. They have no suitable accommodation and do not have the benefit, if such accommodation is found, of being able to
remain in it for the period Parliament intended.
It is important to remember at all times that the duty under Pt VII of the 1996 Act is to house the homeless. It is to deal with those who are suddenly
and through no fault of their own rendered homeless. It is not to provide them with permanent accommodation, but only with temporary. The two-year
period was chosen because it was anticipated that councils should be able within that time to provide permanent accommodation in their own stock after
the applicant had been placed on the register which is required to be kept by s 162 of the Act (in Pt VI) and which provides the only means whereby
council accommodation can ­ 77 be provided. The discretion to extend the full housing duty beyond two years in s 194 was to cater for cases where
two years was insufficient to obtain permanent accommodation.
It is essential to bear in mind that the duties under Pt VI and Pt VII are separate. That under Pt VI relates to permanent accommodation and involves
joining a queue. The council must have an allocation scheme which gives reasonable preference to those who suffer various disadvantages (see s 167(2)).
One such disadvantage, which has been added to the list by regulations made pursuant to s 167(3), is that of having been homeless. Many councils have
a points scheme so that the more disadvantaged families can reach the top of the queue more quickly. But Pt VII contains no recognition that there may
be a delay in complying with the duty. Mr Luba submits that the contrary is the case and that the provisions of ss 207 to 209 of the Act show that the duty
arises immediately. Those sections set out the various ways in which a council may discharge its functions under Pt VII. I should set them out so far as
material:

‘207.—(1) A local housing authority shall not under section 206(1)(a) discharge their housing functions under this Part by providing
accommodation other than—(a) accommodation in a hostel within the meaning of section 622 of the Housing Act 1985, or (b) accommodation
leased to the authority as mentioned in subsection (2) below, for more than two years (continuously or in aggregate) in any period of three years.
This applies irrespective of the number of applications for accommodation or assistance in obtaining accommodation made by the person
concerned.
(2) The accommodation referred to in subsection (1)(b) is accommodation— (a) leased to the authority with vacant possession for use as
temporary housing accommodation on terms which include provision for the lessor to obtain vacant possession from the authority on the expiry of a
specified period or when required by the lessor, (b) the lessor of which is not an authority or body within section 80(1) of the Housing Act 1985
(the landlord condition for secure tenancies), and (c) in which the authority have no interest other than under the lease in question or as a mortgagee
…
(4) The Secretary of State may, on the application of a local housing authority, by direction exclude or modify the operation of subsection (1) in
relation to that authority if it appears to him that the authority will not otherwise be able reasonably to discharge their housing functions under this
Part.
(5) Any such direction shall have effect only—(a) with respect to applicants of a description specified in the direction, and (b) for a period
specified in the direction, which shall not exceed one year, and may be expressed to have effect subject to any conditions specified in the direction
…
208.—(1) So far as reasonably practicable a local housing authority shall in discharging their housing functions under this Part secure that
accommodation is available for the occupation of the applicant in their district.
(2) If they secure that accommodation is available for the occupation of the applicant outside their district, they shall give notice to the local
housing authority in whose district the accommodation is situated …
209.—(1) This section applies where in pursuance of any of their housing functions under this Part a local housing authority make arrangements
with a private landlord to provide accommodation. For this purpose a “private ­ 78 landlord” means a landlord who is not within section 80(1) of
the Housing Act 1985 (the landlord condition for secure tenancies) …
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(3) Where in any other case a tenancy is granted in pursuance of the arrangements by a registered social landlord to a person specified by the
authority—(a) the tenancy cannot be an assured tenancy unless it is an assured shorthold tenancy, and (b) the landlord cannot convert the tenancy to
an assured tenancy unless the accommodation is allocated to the tenant under Part VI.’

These provisions make plain that the accommodation must not be more than temporary: see particularly ss 207(1) and 209(3). The council may use
its own stock, but only for a limited period (see s 207(1)) or of a particular limited type (see s 207(2)). This is to ensure that those who have to be housed
under Pt VII do not jump the queue to the detriment of those who are awaiting permanent housing under Pt VI. Parliament has clearly assumed that these
provisions will enable councils to meet their obligations under Pt VII, but there is a safety valve provided by s 207(4) whereby application can be made to
the Secretary of State if that proves impossible. Neither counsel was aware of that power ever having been used. Thus Mr Luba submits and I agree that
Pt VII of the Act is consistent only with the assumption that the housing duties under ss 188, 190, 200 and 193 cannot be deferred.
Newham, like most if not all the Inner London Boroughs, has appalling difficulties in finding accommodation for the homeless, particularly if there
are problems such as a large family. It contends that it is doing its best and Parliament cannot have intended that it should be required to provide
accommodation when it has none available. Accordingly, submits Mr Woolf, the duty must be construed as being one to make suitable accommodation
available within a reasonable time and what is reasonable will depend upon the circumstances of each case and in particular upon whether the council has
the necessary accommodation available.
While I have considerable sympathy with the council, I do not think that the qualifications which Mr Woolf submits are necessary can be read in to
the words of the statute. Parliament has not qualified the duty in any way: it could have done. However, the situation for the council is not quite as
desperate as might be thought. While the duty exists, no court will enforce it unreasonably. Mr Luba accepts that it would be unreasonable for an
applicant to seek mandamus within a few days of the duty arising if it were clear that the council was doing all that it could, nor, in its discretion, would a
court make such an order. Indeed, permission would probably be refused. Furthermore, whether or not accommodation is suitable may depend upon how
long it is to be occupied and what is available. It may be reasonable to expect a family to put up with conditions for a few days which would be clearly
unsuitable if they had to be tolerated for a number of weeks. But there is a line to be drawn below which the standard of accommodation cannot fall. A
good example is to be found in R v Brent London Borough, ex p Omar (1991) 23 HLR 446 where Henry J decided that a subterranean room riddled with
damp could not conceivably be regarded as suitable for anyone, let alone a refugee from Somalia on the verge of a nervous breakdown.
However, the court must bear in mind that Parliament has not qualified the duty and must not be too ready to accept that the council is taking all
appropriate steps. In this case, the council cannot show that it has done all that it can since it ­ 79 has adopted a policy which has disabled it from
having all possible accommodation available. Its evidence is that five-bedroom properties, let alone those converted for disabled use, are extremely
limited and that there are others in greater need than the applicants so that they must wait their turn. In a statement lodged following the Court of Appeal
hearing, Mr Williams, the council’s homeless co-ordinator for the Homeless Persons Unit of the Housing Department, says this in para 5:

‘The scenarios described above, reflect a state of affairs, where if there isn’t enough permanent accommodation to go around, at least there is
enough temporary accommodation suitable to house homeless applicants. However this is not the position in Newham. In the London Borough of
Newham there are neither enough properties to provide permanent accommodation, nor enough properties to provide temporary accommodation,
immediately. Of course this is not an unusual state of affairs. I would venture to suggest that demand is far higher than supply, in a majority of
local housing authorities.’

He goes on to make the point that the pressure is increasing and he draws attention to the efforts being made in the context of the shortages of
accommodation and the existence of families in greater need than the applicants. So far, so good. But in paras 10 and 11 of his statement he says:

‘As a matter of law, the accommodation that meets the needs of persons recognised as being owed a duty under section 193 comes from leased
accommodation. It cannot come from the Respondent’s housing stock (such as it is) because that stock is restricted to persons being provided with
permanent housing from the housing register under Part VI … 11. The temporary accommodation therefore is either leased directly by the
Respondent Borough from private landlords or it is leased by Housing Associations who manage the properties and sublet the properties to the
Respondents.’

This is to disregard s 207(1) which makes it clear that Pt VII housing can be provided from the council’s own stock, provided that it is not for more than
two years in any period of three years. Thus the council has not made available all that could be made available since it has apparently thought it was
limited in the way Mr Williams describes. Furthermore, s 208 recognises the possibility that families may have to be accommodated out of the council’s
district: there is no evidence before me that that option has been properly considered.
I recognise that this approach may justifiably be said to be likely to prejudice those seeking permanent accommodation from a council and to favour
the homeless. But that is what Parliament has in my judgment intended. The duty to house the homeless, albeit temporarily, is unqualified: that to
provide permanent accommodation depends on joining a queue and the availability of such accommodation.
This case comes before me by way of judicial review because the council has accepted that it has not provided suitable accommodation and so there
is no power of review or appeal to the county court under ss 202 and 204. The council believed that two decisions of this court enabled it to establish that,
notwithstanding it had not yet secured that suitable accommodation was available, it had fulfilled its duty under s 193, or, rather, it had a reasonable time
within which to comply with its duty and, because it was doing all it reasonably ­ 80 could, that time had not expired. It was the existence of those two
cases which, as I have said, led Latham J to refuse leave so that the case could go to the Court of Appeal.
Having heard Mr Luba’s submissions about those two cases, I am satisfied that they do not stand in the way of the construction of the Act which I
believe to be correct. The first is R v Southwark London BC, ex p Anderson (11 February 1999, unreported), a decision of Moses J. In the opening
paragraph of his judgment, Moses J said that, the council having accepted liability to provide the applicants with accommodation pursuant to s 193 of the
1996 Act: ‘This application concerns the contentions of the applicants that Southwark failed to comply with this obligation.’ He went on to say:

‘The real question in this case is whether it is correct to say that they have failed in their duty merely because [suitable] accommodation has, as
yet, not been provided.’

Thus the case does appear to be concerned with whether the duty under s 193 had been fulfilled. Moses J was satisfied that the council was trying its best
and was having great difficulties in finding anywhere because there were medical problems and a four-bedroom property was needed. But Moses J says:

‘The provisions within the 1996 Act, which require housing authorities to put in place an allocations policy and to comply with that policy, are
contained within Pt VI of the 1996 Act. They demonstrate that there will be those to whom a duty is owed under s 193 of the Act who will not be
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housed immediately or within any particular time limit. There may be those in respect of whom the housing authority will be under an obligation,
in accordance with their allocations policy, to give a greater priority. The very existence of an allocation scheme means that some will,
unfortunately, have to wait longer than others.’

With the greatest respect to Moses J, that is to confuse two duties, the one under Pt VI and the other under Pt VII. It may be that the confusion arose
because of the way counsel argued the case, but it is clear from the scheme of the Act that the Pt VII duty is quite distinct from the authority’s functions
under Pt VI. It may be that the conclusion in favour of Southwark was justified on the facts of the case because, having regard to what the council had
done, no relief was appropriate in the exercise of the court’s discretion. But the council was not complying with its duty under s 193 because no suitable
accommodation had been provided since the duty arose in May 1997. Mr Luba has submitted that Ex p Anderson is no authority on the extent of the duty
arising under s 193 since Moses J was apparently being pressed with a claim based on Pt VI. That may be so, in which case anything said on the s 193
duty is obiter. But I am satisfied that, if Moses J was intending to deal with the duty under s 193, he was wrong in what he said about it and so I need not
follow his reasoning (see R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB 67).
The second case is R v Merton London BC, ex p Sembi (1999) Times, 9 June, a decision of Jowitt J. That was a case involving judicial review of ‘the
discharge by the respondent … of the duty it owes to the applicant under s 193 of’ the 1996 Act. Jowitt J says:

‘There is a single issue in this case before me, and that is whether or not the respondent has delayed in providing suitable longer term
accommodation, ­ 81 to the point at which it becomes right to say it has simply failed to discharge the duty which it owes to Miss Sembi. Miss
Maxwell [counsel for the applicant] accepts that the respondent is entitled to a reasonable time in which to make its investigations and seek to find
suitable accommodation. Of course, the more difficult question is: what is a reasonable time?’

He then cites the passage from Moses J’s judgment in Ex p Anderson which I have already set out, and continues:

‘Here the issue is not the competition between Miss Sembi and other people similarly situated, but the problem of finding accommodation
which is suitable, or can be made suitable, for her particular case. Inevitably … it takes time to find a suitable property. It is not possible to simply
conjure up accommodation out of thin air.’

It seems that the council had provided accommodation which it asserted was suitable. It is not entirely clear whether Jowitt J accepted that it was suitable,
but he certainly took the view that the applicant ought to have appealed to the county court. This has enabled Mr Luba to submit that Jowitt J’s
observations were obiter. In any event, they rely on what in my view is an erroneous approach adopted by Moses J.
It may be that the result in both Ex p Anderson and Ex p Sembi would have been the same whichever approach was adopted. The flexibility of the
concept of suitability and the recognition by the court that it cannot order a council to do the impossible may mean that delay in providing
accommodation which an applicant feels to be suitable will be tolerated. But the court must always bear in mind that Parliament has decided that the duty
is unqualified and so should not be persuaded by alleged impossibility in finding suitable accommodation unless satisfied that all reasonable steps have
been taken. So in this case the council’s policy in deciding not to use its own stock means that it has not taken all reasonable steps and so the delay
cannot be excused.
In the result, I propose to allow this application at least to the extent of granting a declaration. I shall hear counsel on any other appropriate relief
and on the precise terms of any declaration.

Application allowed.

Caroline Stomberg Barrister.

[2000] 2 All ER 83

Re DWS (deceased)
Re EHS (deceased)
TWGS v JMG and others
SUCCESSION; Intestacy

CHANCERY DIVISION AT NEWCASTLE UPON TYNE

BLACKBURNE J SITTING AS VICE-CHANCELLOR OF THE COUNTY PALATINE OF LANCASTER
1, 5 MARCH 1999

Intestacy – Succession – Exclusion from benefit – Public policy – Murder of deceased – Plaintiff’s father murdering parents and being disqualified from
succession on intestacy – Plaintiff claiming succession to grandparents’ estates – Plaintiff capable of taking only if father had predeceased grandparents
– Executors of grandfather’s sister claiming succession to grandfather’s estate – Grandfather’s sister capable of taking only if grandfather had left no
issue – Whether disqualified child of intestate to be treated as having predeceased intestate – Whether sister taking even though intestate leaving
disqualified son – Administration of Estates Act 1925, ss 46, 47.

RS was convicted of murdering his parents, neither of whom left a will. By virtue of a rule of public policy, RS was disqualified from inheriting his
parents’ estates in accordance with the rules of succession set out in the Administration of Estates Act 1925. At the time of the murders, RS had a
two-year-old son who subsequently claimed to be entitled to his grandparents’ estates by virtue of s 47(1)(i)a of the 1925 Act. Under that provision, the
issue of the child of an intestate could take if, inter alia, that child had predeceased the intestate. The plaintiff’s claim was challenged by a number of
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parties, including the executors of the estate of the grandfather’s sister, W. They claimed that she had been entitled to succeed to the grandfather’s estate
by virtue of s 46(1)(v)b of the 1925 Act which provided that an intestate’s estate passed to his brothers and sisters if, inter alia, he left no issue. On the
trial of the action, the plaintiff contended that he fell within the terms of s 47(1)(i) because the rule of public policy which barred his father, RS, from
succeeding required the court to treat RS as having predeceased the plaintiff’s grandfather. That contention was resisted by W’s executors, who instead
contended that she took, even though RS was still alive.
________________________________________
a Section 47, so far as material, is set out at p 87 c to f, post
b Section 46, so far as material, is set out at p 86 f to p 87 b, post
________________________________________

Held – (1) The rule of public policy that disqualified a murderer from benefiting from his victim’s death did not require the court to treat the murderer as
having predeceased the victim for the purposes of s 47(1)(i) of the 1925 Act. That provision was to be given its plain meaning, namely that the issue of a
child of the intestate could take only if his parent had in fact predeceased the intestate. In the instant case, RS had not predeceased his father, and
accordingly the plaintiff was not entitled to take under s 47(1)(i) (see p 92 b to d, post); Cleaver v Mutual Reserve Fund Life Association [1891–4] All ER
Rep 335 and Re Callaway (decd), Callaway v Treasury Solicitor [1956] 2 All ER 451 applied.
­ 83
(2) Where the earlier class of successor was in existence but disabled from taking, the next available class under s 46(1)(v) of the 1925 Act was
entitled to take, notwithstanding that the existence of the earlier class meant that the condition precedent for the operation of that provision had not been
satisfied. Such a conclusion provided, in the instant case, a commonsense answer to the problem posed by RS’s disqualification from benefit. Moreover,
if necessary, the result could be achieved by implying the words ‘capable of taking’ after the words ‘no issue’ in s 46(1)(v). A conclusion to the contrary,
which would have resulted in the grandfather’s estate passing to the Crown as bona vacantia, would seem all the more perverse given that the Crown had
asserted no claim. Accordingly, W’s executors had established their claim to the grandfather’s estate (see p 93 j, p 95 e f j and p 96 e, post); Re Scott
(decd), Widdows v Friends of the Clergy Corp [1975] 2 All ER 1033 followed.

Notes
For the disqualification of a murderer from succession on an intestacy, see 17 Halsbury’s Laws (4th edn) para 1372.
For the Administration of Estates Act 1925, ss 46, 47, see 17 Halsbury’s Statutes (4th edn) (1999 reissue) 452, 457.

Cases referred to in judgment

Burns v Secretary of State for Social Services 1985 SLT 351, Ct of Sess.
Callaway (decd), Re, Callaway v Treasury Solicitor [1956] 2 All ER 451, [1956] Ch 559, [1956] 3 WLR 257.
Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147, [1891–4] All ER Rep 335, CA.
Crippen (decd)’s Estate, Re [1911] P 108, [1911–13] All ER Rep 207.
Hunter’s Exors, Petitioners 1992 SLT 1141, Ct of Sess.
Jones (decd), Re, Jones v Midland Bank Trust Co Ltd [1997] 3 FCR 697, CA.
Peacock (decd), Re, Midland Bank Exor and Trustee Co Ltd v Peacock [1957] 2 All ER 98, [1957] Ch 310, [1957] 2 WLR 793.
Robertson (decd)’s Estate, Re, Marsden v Marsden (1963) 107 SJ 318.
Scott (decd), Re, Widdows v Friends of the Clergy Corp [1975] 2 All ER 1033, [1975] 1 WLR 1260.
Sigsworth, Re, Bedford v Bedford [1935] Ch 89, [1934] All ER Rep 113.
Sinclair (decd), Re, Lloyds Bank plc v Imperial Cancer Research Fund [1985] 1 All ER 1066, [1985] Ch 446, [1985] 2 WLR 795, CA.

Cases also cited or referred to in skeleton arguments

Gore, Re (1971) 23 DLR (3d) 534, Ont HC.
Hall’s Estate, Re, Hall v Knight [1914] P 1, [1911–13] All ER Rep 381, CA.
Public Trustee v Fraser (1987) 9 NSWLR 433, NSW SC.
Royse (decd), Re, Royse v Royse [1984] 3 All ER 339, [1985] Ch 22, CA.
Tucker (decd), Re (1920) 21 SR (NSW) 175, NSW SC.

Action
The plaintiff, TWGS, acting by his mother as next friend, brought proceedings, inter alia, for a declaration that he was entitled to succeed on intestacy to
the estates of his grandparents, DWS and EHS, who had been murdered by RS, their son and the plaintiff’s father. The plaintiff’s claim was resisted, in
respect of the grandfather’s estate, by the first to third defendants, the executors of the estate of ­ 84 the grandfather’s sister, Winifred. Proceedings
against the fourth and fifth defendants, the grandmother’s blood nephews, were stayed with liberty to restore. The case was heard at Newcastle upon
Tyne. The facts are set out in the judgment.

Francis Barlow (instructed by Crombie Wilkinson, York) for the plaintiff.

James Barker (instructed by Hague & Dickson, Pickering) for the executors.

Cur adv vult

5 March 1999. The following judgment was delivered.

BLACKBURNE J. This case arises out of tragic circumstances. Because the plaintiff is an infant whose well-being could be harmed as a result of the
publicity which the circumstances are likely to evoke if he were to be identified, I shall avoid referring to persons by their full names.
On a date in late 1993 the plaintiff’s paternal grandparents, Mr and Mrs S, were murdered. The order of their deaths is uncertain. Just over a year
later RS, as I shall call him, was convicted of their murder and was sentenced to life imprisonment. There has been no appeal. RS is the plaintiff’s father.
These facts are not in dispute: I have been taken to evidence which satisfies me of their accuracy.
Mr and Mrs S were domiciled in England and Wales at the time of their deaths. Both died intestate. The wife was the older of the two.
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Accordingly, by s 184 of the Law of Property Act 1925, their deaths are presumed to have occurred in order of seniority, with the result that Mr S is
deemed to have survived Mrs S. However, by s 46(3) of the Administration of Estates Act 1925 (as amended) the provisions of that section, which
govern the succession to real and personal estate on intestacy, have effect as respects Mrs S as if Mr S, the deemed survivor under s 184, had not survived
her. The result, therefore, is that neither is treated as having survived the other for succession purposes.
Mr and Mrs S were survived by the following issue: RS, their killer, who was their only child; and the plaintiff, their only grandchild, who is RS’s
illegitimate son and only child. At one stage the plaintiff’s paternity was in issue, but it is no longer. At the time of the murders the plaintiff was aged
two. He is now seven years old.
Mr S left no surviving parent, but was survived by his sister and only sibling, Winifred, who died in April 1995. Her estate is represented before me
by her three executors, who are the first, second and third named defendants on the amended record. I shall refer to them simply as Winifred’s executors.
Mrs S left no surviving parent, but was survived by her niece, Debbie, the only child of Mrs S’s only brother, Jack, who predeceased her, and by the
fourth and fifth named defendants on the record, John and Alan, who are the only children of Mrs S’s only sister, Gladys, who also predeceased her.
These proceedings were launched by the plaintiff, acting by his mother as next friend, in April 1995 with a view to obtaining two heads of relief: (1)
grants of administration to the estates of his two murdered grandparents; and (2) a declaration as to his entitlement to those estates, contingently upon
attaining 18. Grants have since been made, so that the first head of relief is no longer necessary. There remains, however, the issue as to the plaintiff’s
entitlement to his deceased grandparents’ estates. By amendment the relief now claimed is to a declaration ­ 85 that he is entitled to the two estates
contingently upon attaining the age of 18 years or marrying under that age. The administrators, although not joined as parties, are awaiting the outcome
of these proceedings to know to whom they should distribute the two estates.
Neither Debbie, the only daughter of Mrs S’s deceased brother Jack, nor the Treasury Solicitor in respect of any claim by the Crown to the estates, as
bona vacantia, has been joined as a party to these proceedings, as neither has wished to participate.
In the case of the Treasury Solicitor this is because, on what he knows of the relevant circumstances, the view taken is that the Crown has no interest.
As against John and Alan, the fourth and fifth named defendants on the record and the only sons of Mrs S’s late sister, Gladys, the proceedings have been
stayed generally with liberty to restore. Their claims, and that of their cousin Debbie in respect of Mrs S’s estate, will follow the fate of the claim to Mr
S’s estate by Winifred’s executors. Before me, therefore, the proceedings are only active as between the plaintiff, for whom Mr Barlow has appeared, and
Winifred’s executors, for whom Mr Barker has appeared, and are confined to Mr S’s estate.
The issue for decision is the effect on the provisions contained in ss 46 and 47 of the 1925 Act (as amended) of the so-called forfeiture rule. Under
this rule, so far as relevant, a person who murders another cannot take, or enforce, any right or benefits resulting from his crime. The rule applies to rights
and benefits arising under the victim’s intestacy, just as much as it does to rights and benefits arising under the victim’s will. Applying the rule RS, who
would otherwise have been solely entitled to the estates of his two parents as their nearest next of kin, is disqualified from taking any benefit under their
intestacies.
So much is common ground. Less clear, and a matter of acute controversy between the parties, is what the consequences are flowing from the
operation of the rule as regards the provisions contained in ss 46 and 47, and in particular the position under those provisions of the plaintiff and
Winifred’s executors. So far as material, ss 46 and 47 are as follows:

‘46.—(1) The residuary estate of an intestate shall be distributed in the manner or be held on the trusts mentioned in this section, namely:—(i) If
the intestate leaves a husband or wife, then in accordance with the following Table … (ii) If the intestate leaves issue but no husband or wife, the
residuary estate of the intestate shall be held on the statutory trusts for the issue of the intestate; (iii) If the intestate leaves no husband or wife and
no issue but both parents, then … the residuary estate of the intestate shall be held in trust for the father and mother in equal shares absolutely; (iv)
If the intestate leaves no husband or wife and no issue but one parent, then … the residuary estate of the intestate shall be held in trust for the
surviving father or mother absolutely; (v) If the intestate leaves no husband or wife and no issue and no parent, then … the residuary estate of the
intestate shall be held in trust for the following persons living at the death of the intestate, and in the following order and manner, namely:—First,
on the statutory trusts for the brothers and sisters of the whole blood of the intestate; but if no person takes an absolutely vested interest under such
trusts; then Secondly, on the statutory trusts for the brothers and sisters of the half blood of the intestate; but if no person takes an absolutely vested
interest under such trusts; then Thirdly, for the grandparents of the intestate and, if more than one survive the intestate, in equal shares; but if there
is no member of this class; then Fourthly, on the ­ 86 statutory trusts for the uncles and aunts of the intestate (being brothers or sisters of the
whole blood of a parent of the intestate); but if no person takes an absolutely vested interest under such trusts; then Fifthly, on the statutory trusts
for the uncles and aunts of the intestate (being brothers or sisters of the half blood of a parent of the intestate) … (vi) In default of any person taking
an absolute interest under the foregoing provisions, the residuary estate of the intestate shall belong to the Crown or to the Duchy of Lancaster or to
the Duke of Cornwall for the time being, as the case may be, as bona vacantia, and in lieu of any right to escheat …
47.—(1) Where under this Part of this Act the residuary estate of an intestate, or any part thereof, is directed to be held on the statutory trusts for
the issue of the intestate, the same shall be held upon the following trusts, namely:—(i) In trust, in equal shares if more than one, for all or any the
children or child of the intestate, living at the death of the intestate, who attain the age of eighteen years or marry under that age, and for all or any
of the issue living at the death of the intestate who attain the age of eighteen years or marry under that age of any child of the intestate who
predeceases the intestate, such issue to take through all degrees, according to their stocks, in equal shares if more than one, the share which their
parent would have taken if living at the death of the intestate, and so that no issue shall take whose parent is living at the death of the intestate and
so capable of taking …
(2) If the trusts in favour of the issue of the intestate fail by reason of no child or other issue attaining an absolutely vested interest—(a) the
residuary estate of the intestate and the income thereof and all statutory accumulations, if any, of the income thereof, or so much thereof as may not
have been paid or applied under any power affecting the same, shall go, devolve and be held under the provisions of this Part of this Act as if the
intestate had died without leaving issue living at the death of the intestate; (b) references in this Part of this Act to the intestate “leaving no issue”
shall be constructed as “leaving no issue who attain an absolutely vested interest”; (c) references in this Part of this Act to the intestate “leaving
issue” or “leaving a child or other issue” shall be constructed as “leaving issue who attain an absolutely vested interest.”’

In Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147 at 156–157, [1891–4] All ER Rep 335 at 340 Fry LJ succinctly stated the
justification for the forfeiture rule and the basis, when applying it, for disregarding a right conferred by statute on the wrongdoer resulting from his
wrongdoing:

‘The principle of public policy invoked is in my opinion rightly asserted. It appears to me that no system of jurisprudence can with reason
include amongst the rights which it enforces rights directly resulting to the person asserting them from the crime of that person … This principle of
public policy, like all such principles, must be applied to all cases to which it can be applied without reference to the particular character of the right
asserted or the form of its assertion … it must be so far regarded in the construction of Acts of Parliament [I pause to say that in that case the
provision was s 11 of the Married Women’s Property Act 1882] that general words which might include cases obnoxious to this principle must be
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read and construed as subject to it.’

­ 87
RS’s disqualification from benefit under his father’s intestacy gives rise to two questions: (1) do the terms of the statutory scheme enable the plaintiff
to take his grandfather’s estate in his father’s place? (2) even if they do not, so that the plaintiff is excluded from benefit, do the terms of the scheme
enable Winifred’s estate to take? There is a further question: even if the terms of the scheme do enable the plaintiff to take, is he disabled from taking
because he claims through or under his wrongdoing father?
Before coming to those questions I mention one matter in order to put it out of the way. The fact that the plaintiff is illegitimate is of no
consequence: he qualifies as issue of Mr S (and of Mrs S) for the purpose of the intestacy rules (see ss 1(1) and 18(1) of the Family Law Reform Act
1987).
I come then to the first question. The plaintiff’s entitlement arises, if at all, under the statutory trusts set out in s 47(1)(i). Under the terms of that
provision, however, the plaintiff, as the son of a child of the intestate, can only qualify if he is within the definition of ‘issue living at the death of the
intestate who attain the age of eighteen years or marry under that age of any child of the intestate who predeceases the intestate’.
On its face, therefore, s 47(1)(i) requires: (a) that as issue of a child of the intestate, the plaintiff should: (i) be living at the death of the intestate
(which he was); (ii) attain the age of 18, or marry under that age (which although not yet achieved, he may yet do); but (b) that his father, RS, being a
child of the intestate, should have predeceased the intestate (which RS did not). Literally applied, therefore, the plaintiff cannot satisfy the conditions laid
down for him to take. Mr Barker’s submission was, quite simply, that the section means what it says, and that the plaintiff’s claim therefore fails.
Mr Barlow submitted, however, that the position is not quite so simple. He submitted that in order to give effect to the forfeiture rule, at any rate for
the purpose of applying s 47, RS must be treated as having predeceased his parents. He accepted that there is no reported authority which goes so far as
to state that that is the effect of applying the forfeiture rule, but submitted that the approach of the courts, where the consequences of the application of the
rule have been discussed, has been to regard the offender as struck out, or left out of consideration, or notionally not in existence. This, he submitted,
means in effect that the wrongdoer is to be treated as having predeceased his victim.
Mr Barlow submitted that in legislating, by ss 46 and 47, for what was to happen to a person’s estate, if that person died intestate, Parliament did not
have the forfeiture rule in mind, or for that matter what should happen if the person, or persons, entitled under the statutory scheme should disclaim his or
their entitlement. In deciding, therefore, what the consequences are of the operation of the forfeiture rule, the court, he submitted, should mould the rule
to the situation which it finds and apply the statutory provisions accordingly. In approaching that task, he submitted, the court should bear in mind the
broad policy evinced by the intestacy rules, that an intestate’s issue are preferred to his or her collaterals. He submitted that it would be a bizarre result if,
through applying the statute in the literal way for which Mr Barker contended, Mr S’s collaterals should take rather than the plaintiff, his grandson and
only other issue. If the only way in which to avoid that consequence is to treat the offender as not in existence, the court, he said, should not shrink from
doing so. He emphasised that the forfeiture rule is judge-made, reflecting the policy explained in, among several other cases to which I was taken, the
passage from Fry LJ’s judgment in Cleaver’s case, which I have set out above. He submitted that a rational basis for ­ 88 treating the wrongdoer as
having predeceased the intestate is to regard the rule as operating from the very moment of the relevant event so that, in this case, RS is treated as not
being in existence from the moment of death of the relevant parent. Approaching the matter in this way, the wording of s 47(1)(i) is satisfied: RS can be
taken as having predeceased his father, with the result that, subject to attaining 18 or marrying under that age, the plaintiff will take.
Persuasively though the argument was put, and sympathetic though I am to the plaintiff’s plight, I cannot accept Mr Barlow’s submissions. In my
view, the relevant authorities do not justify such an approach. If anything they assume that, as happened of course, the offender must indeed be taken to
have survived his victim.
In Re Sigsworth, Bedford v Bedford [1935] Ch 89, [1934] All ER Rep 113, to which Mr Barlow referred me, a woman was murdered by her son.
The son subsequently committed suicide. Clauson J held that the son’s estate was disqualified from benefiting, both under the mother’s will and, as the
son had been her nearest next of kin, under her intestacy. Counsel for those who ranked next, after the son in the scheme of entitlement under s 46(1)
argued that ‘the distribution of [the deceased woman’s] estate under the statute must be upon the footing that the son had never been born’ (see [1935] Ch
89 at 91). In the absence of the Attorney General, Clauson J declined to decide the point.
The point, however, was taken up in the later case of Re Callaway (decd), Callaway v Treasury Solicitor [1956] 2 All ER 451, [1956] Ch 559.
There, a testatrix had been murdered by her daughter, to whom she had bequeathed the whole of her estate. Her only children were the daughter and a
son. Vaisey J stated:

‘… the rule in this country is that the interest of the criminal passes as if there had been a “lapse”, and in other cases it has been said that the
name of the wrongdoer must be treated as “struck out”.’ (See [1956] 2 All ER 451 at 453, [1956] Ch 559 at 563.)

He concluded that the whole of the estate passed to the son, the wrongdoer’s brother, and rejected the Crown’s claim to the wrongdoer’s half. In so
deciding he said:

‘The plaintiff and Mrs. Stone being the persons entitled equally under Mrs. Callaway’s intestacy, and Mrs. Stone being disentitled by the rule, I
have, I suppose, to choose between two views, which are, first, that the plaintiff is alone qualified to take under the intestacy and, accordingly, is
entitled to the whole estate, and, second, that Mrs. Stone’s half is forfeited and goes to the Crown. In the present state of the authorities, which is
far from satisfactory, I feel bound to adopt the former view. I do not consider the metaphorical expression “struck out” as being particularly happy
or helpful, but it is difficult to suggest a more appropriate expression, although in a simple case such as the present it would be sufficient to say that
the plaintiff must be treated as being the only qualified member of the class of Mrs. Callaway’s issue, Mrs. Stone being wholly disqualified and
therefore not to be reckoned or counted as a member of the class at all.’ (See [1956] 2 All ER 451 at 453–454, [1956] Ch 559 at 564.)

He went on to say how, in the absence of authority, he would have desired to deal with the matter, which was that the whole of the deceased’s estate
should have passed to the Crown as bona vacantia, alternatively, that the half share to which ­ 89 the wrongdoing daughter would have been entitled
under the Act should pass to the Crown as bona vacantia.
In Re Callaway (decd) [1956] Ch 599 at 561 counsel for the Crown had argued that: ‘Public policy cannot create new rights … The statutory powers
must be applied as nearly as possible.’
That was undoubtedly a reference to passages in the judgments in Cleaver’s case. In that case Lord Esher MR stated:

‘That the person who commits murder, or any person claiming under him or her, should be allowed to benefit by his or her criminal act, would
no doubt be contrary to public policy. But this doctrine ought not to be stretched beyond what is necessary for the protection of the public …’ (See
[1892] 1 QB 147 at 152–153, [1891–4] All ER Rep 335 at 338.)
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Lord Esher MR returned to the same point when he observed ‘the rule of public policy is not to be carried further than is necessary to ensure its object’
(see [1892] 1 QB 147 at 155, [1891–4] All ER Rep 335 at 339).

In the Scottish case of Hunter’s Exors, Petitioners 1992 SLT 1141, to which Mr Barker referred me, the testatrix had been murdered by her husband.
By her will, and in the events that had happened, the murdered testatrix bequeathed the whole of her estate to her husband. She provided, by cl 4, that if
he should predecease her, or they should die simultaneously, her estate should go to her sister and her husband’s son by an earlier marriage. It was argued
that, in the circumstances, the husband should be regarded as having predeceased his wife, whom he had murdered. The Lord Justice-Clerk, Lord Ross
(at 1143), delivering the opinion of a Second Division of the Inner House, disagreed with the passage on wills and succession contained in Report on
Succession (Scot Law Com no 24) para 7.15 that: ‘The effect of the common law rule is not clear, but it is probably to deem the killer to have predeceased
the deceased.’ After referring to Re Callaway (decd), he said (at 1143):

‘Whether part of the justification for the Scottish rule of disqualification of a murderer is his unworthiness as an heir, it is plain that another
justification for the rule is public policy, and the notion that a person may not benefit from his own crimes. Burns v. Secretary of State for Social
Services (1985 SLT 351) is clear authority for the view that the rule in Scotland is based at least partly upon considerations of public policy. We
agree with counsel for the heirs on intestacy that such a rule of public policy should be carried no further than is necessary to achieve its object. In
our opinion whilst considerations of public policy lead to the right of Andrew Hunter being forfeited, there is no consideration of public policy
which would support the deceased’s estate being then distributed as if Andrew Hunter had died. Counsel were agreed that there was no ambiguity
in cl. (fourth) of the will. That clause provided for the contingency of Andrew Hunter predeceasing the deceased or dying simultaneously with her
without there being any surviving child, and then expressly provided that in that event only the residue should pass to her sister and stepson. In our
opinion these provisions only come into play in the event of Andrew Hunter having predeceased the deceased, and there is no justification for
seeking to extend them to a situation where Andrew Hunter has not predeceased the deceased but has in fact survived her. In the present case we
see no reason why effect should not be given to the clear language used by the testatrix, and the provisions of ­ 90 cl. (fourth) ought to be
construed literally. We are aware of the suggestions made in the passage in the Stair Memorial Encyclopaedia which we have quoted, to the effect
that the rule of common law should be applied to the effect that the share which any person is precluded from taking should be distributed as if that
person had died before the deceased. No reason or justification is made for that statement in the article, and no authority is cited in support of it. In
our opinion the statement: “It is suggested that the rule to be applied is that the share which any person is precluded from taking must be distributed
as if that person had died before the deceased,” is unsound, and does not represent the law of Scotland. We are likewise of opinion that there is no
justification for the statement in para. 7.51 of the Scottish Law Commission report no. 124 to the effect that the effect of the common law rule is
probably to deem the killer to have predeceased the deceased. In Re Callaway (deceased), which is referred to in the Scottish Law Commission
report, Vaisey J. concluded that the killer should be treated as “struck out”. We are not satisfied that being “struck out” is the same as
predeceasing.’

That case, it is true, concerned the terms of a will, but it is of interest for three reasons: (1) it reaffirms the principle, clearly stated in Cleaver’s case,
that the rule of public policy ‘should be carried no further than is necessary to achieve its object’; (2) it questions the proposition that the wrongdoer
should be taken as having predeceased his victim; and (3) it illustrates the court’s unwillingness to disregard the clear wording of the relevant provisions
of the testator’s will and, in effect, construe the provision as having a meaning which it plainly does not possess.
Mr Barker draw my attention to other will cases. In Re Robertson (decd)’s Estate, Marsden v Marsden (1963) 107 SJ 318 Karminski J was not
willing, in order to admit a beneficial claim to the estate by the plaintiff, whose entitlement was dependent, under the terms of the will, on M having
predeceased the testator, to deem M, the person appointed sole executor and beneficiary of the will of the person whom M had murdered, as having
predeceased the testator. Karminski J (at 318) declined to do so, observing that the ‘testator’s words were clear and precise’.
In Re Sinclair (decd), Lloyds Bank plc v Imperial Cancer Research Fund [1985] 1 All ER 1066, [1985] Ch 446 the testator left his estate to his wife
or, if she predeceased him or did not survive him for one month, to a charity. The testator divorced his wife and later died without having revoked his
will. The former wife survived him by the required period. The Court of Appeal, affirming the decision of the court below, declined to construe the will
as if the former wife had predeceased the testator in order to enable the charity to take the testator’s estate. In the course of his judgment, Slade LJ said:

‘It would not, I think, be open to the court to rewrite the will by adding other specific contingencies to those clearly expressed in cl 4 on the
basis of mere intelligent speculation as to what the testator might have intended if his marriage were to end in divorce. It could only be done, if at
all, by a process of necessary implication …’ (See [1985] 1 All ER 1066 at 1072, [1985] Ch 446 at 455.)

To similar effect, also in the context of a will, was Re Jones (decd), Jones v Midland Bank Trust Co Ltd [1997] 3 FCR 697.
­ 91
The court, said Mr Barker, should approach s 47(1)(i) in the same way. Parliament could have provided for what should happen if the forfeiture rule
should disqualify a person from taking but it has failed to do so. It is not open to the court, by intelligent speculation as to what Parliament would have
done if it had thought about the matter, to rewrite what Parliament has provided.
On the basis of those authorities Mr Barker submitted that the rule of public policy which disqualifies a murderer from benefiting from his victim’s
death should not be carried further than to prevent the murderer, and those taking under him, from benefiting. He submitted that, in this case, this is
achieved by disqualifying RS from taking. It matters not whether one achieves that by leaving him out of account, or striking him out, or adopting some
other phrase which has this effect. He submitted that this is not the same as treating RS as having predeceased his father. He submitted that public policy
does not require this and the rules does not go that far.
In my view, Mr Barker is correct. While the rule of public policy obliges the court to disregard what would otherwise be the wrongdoer’s
entitlement under the statute, it does not require the court to go further. It does not enable the court, in the case of s 47(1)(i) any more than in the case of a
will, to disregard the plain meaning of the relevant provision with a view, having disregarded the wrongdoer, to enable one person (in this case the
plaintiff) to take rather than another or others. In a case such as the present it does not enable the court to ignore the requirement, if the plaintiff is to take,
that RS should predecease the intestate, or to construe it to mean something different from the meaning which it plainly bears.
Mr Barlow submitted that the will cases provide no assistance: wills, he said, stand on a different footing from the provisions of a statute. A will, he
said, is a privilege which the law grants to a person of sound mind, enabling him, subject to certain limits, to dispose of his estate as he pleases. The
court’s concern with construing the will is simply to establish the testator’s intention. There are limits to that process. Sympathy with the result urged is
not enough, nor is it sufficient to speculate as to the testator’s intention. It is different, he submitted, where a statute is in question. In such a case the
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court’s function is to ascertain and give effect to the policy underlying the statutory provision.
Although, of course, I accept that construing a will is not the same as construing an Act of Parliament, I am not persuaded that the two processes are
sufficiently different to enable me to disregard the clear wording of a statutory provision in order to avoid a perceived unfairness in its application, any
more than it is permissible to do so when construing a will. To that extent, in my view, the will cases are in point.
Mr Barker went further. He challenged Mr Barlow’s submission, which lay at the root of his approach to the application of s 47(1)(i), that
Parliament’s policy is to prefer issue to collateral in matters of intestacy. That, submitted Mr Barker, is to state the position too broadly. I agree.
Parliament’s policy, as evinced in ss 46 and 47, is not to prefer the remoter issue of an intestate where the intestate’s child has survived the intestate, and
only to prefer remoter issue where they were alive at the intestate’s death.
In any event, submitted Mr Barker, the fiction of assuming, contrary to the fact, that the wrongdoer has predeceased his victim has within it a
contradiction which undermines its validity. By assuming, for the purposes of working out the consequences of the forfeiture rule, that the wrongdoer
predeceased his victim, the fiction assumes a state of affairs which denies the very event, the wrongdoer’s ­ 92 murder of his victim, which triggers the
application of the rule. I agree. I would only add that to treat the wrongdoer as ceasing to exist from the moment of his victim’s death does not help
where, as here, the relevant statutory provision requires that the child should have predeceased his intestate parent.
I find support for my rejection of Mr Barlow’s approach in Re Peacock (decd), Midland Bank Exor and Trustee Co Ltd v Peacock [1957] 2 All ER
98, [1957] Ch 310. In that case the testator had left his entire estate, in the events that had happened, equally between such of his wife, his stepson and his
son as should survive him and, if only one should survive him, then the whole to that one. The testator was killed by his wife. She was convicted of his
manslaughter.
It was not disputed that the wife’s share of residue lapsed, owing to her felonious conduct. The question was whether her share was divisible equally
between the stepson and son, or went, as on intestacy, to his next of kin so that the son would, overall, take two shares and the stepson only one share.
Upjohn J held that, although the gift was to a group, for the purposes of lapse it had all of the characteristics of a class gift. He went on to hold that the
rule that in the case of class gift the share of a person excluded did not lapse but went to swell the shares of the remaining members of the class applied
where, as there, a member of a class is prevented from taking on the grounds of public policy. Accordingly, he held that the wife’s share was divisible
equally between the stepson and the son. After quoting from Fry LJ in Cleaver’s case, Upjohn J said:

‘One must therefore see what claim the felon can establish and, when it is established, public policy steps in as a personal bar. Applying that to
this case, the felon by reason of survivorship establishes a claim to membership of the class or group and therefore to a vested share of residue; but
being debarred from taking that share, it is undisposed of.’ (See [1957] 2 All ER 98 at 100, [1957] Ch 310 at 315.)

There is no question, according to that approach, of treating the felon as having predeceased his victim. On the contrary, he is regarded as having
survived him (as indeed was the case there and as is the case here) with the consequence that the forfeiture rule operates as a personal bar so that, in the
result, the share in question is undisposed of.
This brings me to the second question, which is whether, even if the plaintiff does not take, Winifred’s estate is entitled. Winifred’s executors, by
counterclaim, seek a declaration to this effect. It does not, of course, follow that because the plaintiff is excluded Winifred, even though her brother’s
nearest next of kin after RS and the plaintiff, became entitled. Whether, now that she has died, her executors’ claim succeeds depends on the true
construction of s 46(1)(v). If it applies, they take under the first of the five classes set out under that paragraph.
Section 46(1)(v) only applies, however, ‘If the intestate leaves no husband or wife and no issue and no parent’.
It is common ground between counsel that the intestate here did leave issue, ie RS and the plaintiff. That being so, Mr Barker submitted that there
were effectively only two possibilities: (1) the conditions set out in s 46(1)(v) not having been satisfied, Winifred’s estate cannot take (any more than RS
or the plaintiff can) in which event Mr S’s estate belongs to the Crown as bona vacantia; or (2) notwithstanding the non-satisfaction of the conditions
precedent to the operation of s 46(1)(v), the next available class can nevertheless take where, as here, the earlier class, ie RS, although in existence, is
disabled from taking.
­ 93
Although the situation which prompts the second question is not one which, according to counsel’s researches, has been the subject of a decision in
any reported case, the second question has arisen and been considered in the past, although in the context of a disclaimer rather than as a result of the
application of the forfeiture rule. It arose in Re Scott (decd), Widdows v Friends of the Clergy Corp [1975] 2 All ER 1033, [1975] 1 WLR 1260. In that
case the court held that there was an intestacy as to income arising on the testatrix’s death pending the birth of a child to the testatrix’s brother. However,
the testatrix’s nearest next of kin, her brother (Colonel Scott) and sister (Miss Scott), had both disclaimed any interest under her intestacy. The question
was whether the income passed to the Crown as bona vacantia or to the next available class of next of kin, under s 46(1)(v). Walton J dealt with the
position in the following passage:

‘The nearest case, in my judgment, to the present case was one which was cited to me by counsel for the plaintiff of (Re Callaway, Callaway v
Treasury Solicitor [1956] 2 All ER 451, [1956] Ch 559), a decision of Vaisey J and what happened there was that the testatrix by her will appointed
her daughter sole executrix and gave the whole of her estate to the daughter absolutely …’ (See [1975] 2 All ER 1033 at 1043, [1975] 1 WLR 1260
at 1270–1271.)

He then read out the headnote of that case and continued:

‘So there is a case where you have a class of two, the daughter and the son, as issue of the deceased parent, and the daughter could not take; the
son took the lot to the exclusion of the Crown. In that case, Vaisey J expressed considerable diffidence as to how he really ought to have decided
the case, because there would be a good case for saying that the Crown really ought to stand in the shoes of the daughter and you should construe
the matter by saying that the whole estate went to the daughter, but she could not take, and therefore it ought to go to the Crown as bona vacantia.
That doubt expressed by Vaisey J echoes doubts going back to (Re Sigsworth, Bedford v Bedford [1935] Ch 89, [1934] All ER Rep 113), a decision
of Clauson J. I do not think I really have anything to do with those doubts because I think they all arise out of the question of public policy. After
all, if a person is disentitled to take because of some offence against the Queen’s peace, it is by no means a surprising conclusion that the Queen
should be entitled to take the interest which the person is thus debarred from taking. But, be that as it may, I return to the present case, and the
question I have to solve is what happens if all the members of a class, or, if there is only one member of the class, that single member of the class,
under any of the heads, first, secondly, thirdly, fourthly, or fifthly, being otherwise entitled under the Administration of Estates Act 1925 disclaims,
and I approach the matter in this way. Disclaimer is a refusal to accept an interest. As the old Year Books had it, nobody can put an estate into
another in spite of his teeth, and here Colonel Scott and Miss Scott have shown their teeth by executing the deeds of disclaimer. Now, what effect
does that have? It seems to me that it leaves the executor of the will of the deceased still holding the interest attempted to be disposed of under the
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statute, and still holding it as part of the estate of the deceased. If somebody refuses to accept a slice of the estate of the deceased, then it still
remains, in my judgment, part of the estate of the deceased. Then the question comes, how is that to be disposed of? Well, it is to be disposed of in
accordance with the Administration of Estates Act 1925, but the executor has ­ 94 tried once to dispose of it and the intended beneficiaries have
refused to accept it. What happens? It seems to me that the absolutely inevitable result, where all the members of any one particular class have
disclaimed, is to say, “Very well, for the purposes of the distribution of this estate, that class must simply be left out of consideration”. And in the
present case, that means that when applying s 46(1)(v) of the 1925 Act to the estate of the deceased, one must leave out first, because all the
members of that class have disclaimed. Secondly and thirdly will go because there are no members of those classes anyway, and one then will land
up on fourthly. And it seems to me that that is the sensible and logical and intelligible way of dealing with the matter. It would seem to me to be
quite extraordinary that if some of the members, but not all, of a class disclaim, there could be no doubt but that the remaining member of the class
takes the whole of the estate of the testatrix, whereas if, in fact, all the members of the class disclaim, instead of going to the next-of-kin down the
line, the Crown, which is expressly postponed to all of them, comes in and says “This is now property which is ownerless”. I think the fallacy in
the Crown’s case is that at no stage does the property become ownerless. The effect of a disclaimer is not to throw the property on to the scrap
heap, but to refuse to accept it in the first place, leaving the ownership with the people or the interest, or the estate, or whatever, from which it was
derived in the first place.’ (See [1975] 2 All ER 1033 at 1044–1045, [1975] 1 WLR 1260 at 1270–1271.)

That decision provides a precise analogy. The fact that it concerned a case of disclaimer rather than forfeiture does not seem to me to be a material
point of distinction. Mr Barlow did not suggest it was wrong: on the contrary he relied on this decision, albeit in relation to a different point. In my view,
it provides a commonsense, if not entirely logical, answer to the problem posed by RS’s disqualification from benefit. I propose to follow it in this case.
If necessary (I do not think that it is) the same result is achieved by implying the words ‘capable of taking’ after the words ‘no issue’ in s 46(1)(v). The
alternative, that Mr S’s estate passes to the Crown as bona vacantia, would seem all the more perverse, given that the Crown in this case has indicated that
it asserts no claim.
Mr Barlow submitted that, if it is permissible to ignore the strict wording of s 46(1)(v) to ensure that one of the classes in that section takes rather
than the Crown as bona vacantia, it must equally be permissible to ignore the requirement that RS should have predeceased the intestate, by assuming that
RS did predecease the intestate, or somehow adopting the meaning of s 47(1)(i) to enable the plaintiff to take. I do not agree. The second question is
quite distinct from the first. The fact that it is possible to imply something into the language of s 46(1) to avoid the estate passing to the Crown as bona
vacantia where next of kin are capable of taking does not mean that it is permissible to ignore, much less to distort, the clear language of s 47(1)(i) to
achieve the result for which Mr Barlow contends.
In my view, Winifred’s executors establish their claim to Mr S’s estate.
It is just worth noting the decision in Re Jones (decd). In that case a son killed his mother, and thereby became disqualified from taking her net
estate, both as the sole beneficiary under her will and as the nearest next of kin on her intestacy. The Court of Appeal held that there was an intestacy
and, it would seem, that the estate passed to the deceased woman’s surviving sister, who later died. This result was achieved notwithstanding that the
deceased was also survived by her ­ 95 son, her killer. Although the point does not appeared to have been argued, a literal reading of s 46(1)(v) would
have prevented that result.
Although the question does not now arise, I will deal briefly with Mr Barker’s further point, which was that even if the plaintiff could establish an
entitlement to his grandfather’s estate, it would offend against the forfeiture rule for him, the plaintiff, to have the benefit of that entitlement. The
submission was founded on the submission that the plaintiff claims ‘through or under’ RS, the grandfather’s killer. Mr Barker submitted that the
plaintiff’s claim was of this nature: (1) because it is dependent on the plaintiff being RS’s son; and (2) because it is limited by the terms of s 47(1)(i) to the
share that RS would have received if he had not predeceased, or is to be taken not to have predeceased, his father.
I do not agree. As Mr Barlow pointed out, the mere fact that the plaintiff’s claim is dependent on his being RS’s son and is to what his father would
otherwise have taken, does not mean that the plaintiff takes ‘through’ or ‘under’ his father. Only if it can be said that the plaintiff claims through the
estate of his father (for example as a beneficiary, whether directly or derivatively, as was Miss Le Neve’s claim to the murdered Mrs Crippen’s estate in
Re Crippen (decd)’s Estate [1911] P 108, [1911–13] All ER Rep 207) or as an assignee of his father’s rights would this further objection be made good.
The plaintiff’s claim is not of this nature. It derives, if at all, by force of the wording of s 47(1)(i). It arises independently of RS. The plaintiff’s
beneficial title, if established, would not in any sense derive through his father. If the question had arisen, I would therefore have accepted Mr Barlow’s
submissions on this point.
In the result, the counterclaim of Winifred’s executors succeeds. Although I have not heard argument on the similar points which arise in relation to
Mrs S’s estate, the result, I think, must be the same, except of course that the issues lie between the plaintiff on the one hand, and John and Alan and, I
suppose, Debbie, on the other.
At the conclusion of counsels’ submissions, I heard brief argument on costs. I propose to order a legal aid taxation of the plaintiff’s costs, and direct
that the costs of both sides should be raised and paid out of Mr S’s estate. In the case of the plaintiff, I direct that the costs so to be raised and paid be half
of his costs (as so taxed) up to 22 May 1996 (when his claim against John and Alan was stayed), and all of his costs (as so taxed) after that date. I am not
asked to make any order in respect of the costs of the proceedings so far as they relate to the plaintiff’s claim against John and Alan.

Order accordingly. Leave to appeal granted.

Celia Fox Barrister.

[2000] 2 All ER 97

Lancashire County Council and another v A (a child)

FAMILY; FAMILY Proceedings, Children

HOUSE OF LORDS
LORD SLYNN OF HADLEY, LORD NOLAN, LORD NICHOLLS OF BIRKENHEAD, LORD HOFFMANN AND LORD CLYDE
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31 JANUARY, 1 FEBRUARY, 16 MARCH 2000

Family proceedings – Orders in family proceedings – Care order – Conditions to be satisfied before making care order – Harm attributable to care given
to child – Care of child being shared between parents and paid child-minder – Child suffering injuries but court unable to determine whether injuries
inflicted by parents or child-minder – Whether court having jurisdiction to make care order – Children Act 1989, s 31(2)(b)(i).

A, a baby girl, was cared for by a paid child-minder while her parents were at work. After that arrangement had been in place for two months, A, who
was then seven months old, was found to have sustained serious non-accidental head injuries. The local authority applied for a care order, relying on s
31(2)(b)(i)a of the Children Act 1989 which empowered the court to make such an order where ‘the harm … is attributable to … the care given to the
child’. In seeking to satisfy that condition, the authority relied solely on the injuries sustained by A during the two-month period in which the child’s care
had been shared between her parents and the child-minder. At a finding of fact hearing, the judge concluded that the injuries had been inflicted either by
a member of A’s household or of the child-minder’s household, but not both, and that it was impossible to tell whether A’s parents or the child-minder
were the perpetrators. He proceeded to dismiss the application, holding that, for the purposes of s 31, the court had to be satisfied that the significant
harm suffered by the child was attributable to the care, or absence of care, given to the child by the parent against whom the order was sought. That
decision was reversed by the Court of Appeal which held that the s 31(2)(b)(i) condition was satisfied if the harm was attributable to an absence of proper
care to the objective standard laid down in that condition. On appeal to the House of Lords, A’s parents contended that ‘the care given to the child’ in s
31(2)(b)(i) meant the care given to the child by the parents or other primary carers. In response, the local authority contended that that phrase meant the
care given by anyone who played a part in the child’s care arrangements.
________________________________________
a Section 31(2) is set out at p 99 d e, post
________________________________________

Held – Although the phrase ‘care given to the child’ in s 31(2)(b)(i) of the 1989 Act referred primarily to the care given by the parents or other primary
carers, it also embraced the care given by any of the carers in a case of shared caring where the child had suffered harm as a result of the deficient care
given by one or other of the carers, but the court was unable to identify which one had provided the deficient care. Such a construction fell between the
two extreme constructions put forward by the parties, which were both wrong. On the one hand, the local authority’s construction, which had been
upheld by the Court of Appeal, was too wide and loose since it would mean that an injury inflicted by a one-off carer would satisfy the threshold
conditions. On the other hand, the parents’ ­ 97 construction was too rigid since it would mean that the child’s future health, or even its life, would be
hazarded on the chance that the non-parental carer, rather than one of the parents, had inflicted the injuries. Such a manner of proceeding could be
dangerously irresponsible where it had been proved that a child had suffered serious injury on more than one occasion. In contrast, the correct
construction avoided such unacceptable consequences, while encroaching to the minimum extent on the general principles underpinning s 31(2).
Although that construction would mean that the s 31(2)(b)(i) condition could be satisfied even when there was no more than a possibility that the parents
had been responsible for inflicting the injuries, the judge, in exercising his discretion, would keep firmly in mind the fact that the parents had not been
shown to be responsible for those injuries. In the instant case the threshold conditions had been satisfied, and accordingly the appeal would be dismissed
(see p 99 a b, p 103 b c f to p 104 c and p 105 e f post).

Notes
For the threshold conditions for the making of a care order, see 5(2) Halsbury’s Laws (4th edn reissue) para 787.
For the Children Act 1989, s 31, see 6 Halsbury’s Statutes (4th edn) (1999 reissue) 415.

Cases referred to in opinions

Hackney London BC v G [1994] 2 FCR 216; sub nom Re G (a minor) (care order: threshold conditions) [1995] Fam 16, [1994] 3 WLR 1211.
H and ors (minors) (sexual abuse: standard of proof), Re [1996] 1 All ER 1, [1996] AC 563, [1996] 2 WLR 8, HL.
M (a minor) (care order: threshold conditions), Re [1994] 3 All ER 298, [1994] 2 AC 424, [1994] 3 WLR 558, HL.
Northamptonshire CC v S [1993] 1 FCR 351, [1993] Fam 136, [1992] 3 WLR 1010.
Walsh v Rother DC [1978] 1 All ER 510, [1978] ICR 1216; affd [1978] 3 All ER 881, [1978] ICR 1216, CA.

Appeal
The parents of a child known as A appealed with permission of the Appeal Committee of the House of Lords given on 25 November 1999 from the
decision of the Court of Appeal (Lord Woolf MR, Butler-Sloss and Robert Walker LJJ) on 27 July 1999 ([1999] 3 FCR 241, [2000] 2 WLR 346) allowing
an appeal by the first respondent, Lancashire County Council, from the order of Judge Gee made at the Blackburn County Court on 28 April 1999
dismissing its application for a care order in respect of A. On the parents’ appeal, the local authority was supported by the second respondent, A’s
guardian ad litem (litigation friend). The facts are set out in the opinion of Lord Nicholls of Birkenhead.

David Harris QC (instructed by Sharpe Pritchard agents for Ryan Heatons, Chorley), Paul Hart (instructed by Kevills, Chorley) and Jacqueline Wall
(instructed by Sharpe Pritchard agents for Ryan Heatons, Chorley) for the parents.
Ernest Ryder QC and Robert Dodds (instructed by Max Winterbottom, Preston) for the local authority.
David Hershman QC (instructed by John Whittle Robinson, Preston) for the guardian.
­ 98

Their Lordships took time for consideration.

16 March 2000. The following opinions were delivered.

LORD SLYNN OF HADLEY. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord
Nicholls of Birkenhead. For the reasons he gives, I too would dismiss this appeal.
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LORD NOLAN. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Nicholls of
Birkenhead. For the reasons he gives, I too would dismiss this appeal.

LORD NICHOLLS OF BIRKENHEAD. My Lords, s 31(1) of the Children Act 1989 empowers the court to make an order placing a child in the care
of a local authority or putting him under the supervision of a local authority or a probation officer. Before the court may make such an order certain
minimum conditions, familiarly known as threshold conditions, must be satisfied. These are set out in s 31(2), which reads:

‘A court may only make a care order or supervision order if it is satisfied—(a) that the child concerned is suffering, or is likely to suffer,
significant harm; and (b) that the harm, or likelihood of harm, is attributable to—(i) the care given to the child, or likely to be given to him if the
order were not made, not being what it would be reasonable to expect a parent to give to him; or (ii) the child’s being beyond parental control.’

Harm is defined in wide terms in s 31(9). When the threshold conditions are satisfied, and the court proceeds to consider whether to exercise its
discretionary power to make a care order or a supervision order, the child’s welfare is the court’s paramount consideration. The court has regard in
particular to the matters itemised on the welfare checklist set out in s 1(3) of the Act, including any harm the child has suffered or is at risk of suffering
and how capable each of his parents is of meeting his needs. Thus, the findings made by the court regarding the threshold conditions are carried forward
to the consideration of the child’s welfare needs. The court will not make an order unless it considers that doing so would be better for the child than
making no order (see s 1(5)).
On this appeal the House is called upon, for the third time, to interpret the threshold conditions. In the previous case of Re M (a minor) (care order:
threshold conditions) [1994] 3 All ER 298, [1994] 2 AC 424 the House considered what was the date at which the threshold conditions must be satisfied.
In the case of Re H and ors (minors) (sexual abuse: standard of proof) [1996] 1 All ER 1, [1996] AC 563 attention was focused on the first threshold
condition, sometimes referred to as the ‘significant harm’ condition, set out in s 31(2)(a). On the present occasion the point at issue concerns the second
threshold condition (the ‘attributable’ condition), set out in s 31(2)(b), and in particular the phrase ‘the care given to the child’. This appeal is another
illustration of what Lord Templeman, in the Re M case, aptly referred to as the tyranny of language.
Before identifying the issue I should mention two preliminary points which attracted little, if any, controversy between the parties. First, the phrase
‘attributable to’ in s 31(2)(b) connotes a causal connection between the harm or likelihood of harm on the one hand and the care or likely care or the
child’s being beyond parental control on the other hand. Echoing the language of Donaldson J ­ 99 in a different context (in Walsh v Rother DC [1978]
1 All ER 510 at 514, [1978] ICR 1216 at 1220), the connection need not be that of a sole or dominant or direct cause and effect; a contributory causal
connection suffices. For instance, if a parent entrusts a child to a third party without taking the precautionary steps a reasonable parent would take to
check the suitability of the third party, and subsequently the third party injures or sexually abuses the child, the harm suffered by the child may be
regarded as attributable to the inadequate care of the parent as well as the third party.
The second preliminary point is that to be within s 31(2)(b)(i) the care given or likely to be given must fall below an objectively acceptable level.
That level is the care a reasonable parent would provide for the child concerned. Thus an absence of a reasonable standard of parental care need not
imply that the parents are at fault. It may be, for instance, that for reasons beyond their control the parents are not able to provide a reasonable standard of
care for the child.
The issue between the parties is best explained by reference to the unhappy facts of this case. They are set out in the judgment of the Court of
Appeal (reported at [1999] 3 FCR 241, [2000] 2 WLR 346). The essential features are these. Child ‘A’, a baby girl, was born on 30 March 1998. Her
parents were living together. A’s mother returned to work three months later, on 13 July, and for the next two months A was looked after by several
people. On 7 September 1998 a paid child-minder, with a child of her own (child ‘B’, born on 26 February 1998), took over responsibility for looking
after A while A’s parents were at work. During the day A was looked after by B’s mother in her (B’s mother’s) home. Otherwise A’s parents looked
after A in their own home.
After this arrangement had been in place for two months, on 2 November 1998 A was found to have sustained serious non-accidental head injuries.
She was then seven months old. The local authority applied for a care order in respect of A, and subsequently in respect also of B. On 3 December A
was discharged from hospital to foster carers. At a finding of fact hearing which commenced in court on 1 March 1999 the local authority, in respect of
both A and B, sought to satisfy the threshold conditions by relying exclusively on the injuries sustained by A between September and November 1998.
The local authority did not seek to rely upon any other incident which might have amounted to poor or deficient care by A’s parents, nor did it suggest
that the choice of B’s mother as child-minder constituted deficient care on the part of A’s parents.
Judge Gee, sitting in the Blackburn County Court, found that in the period of six weeks prior to 2 November A had suffered at least two episodes of
violent shaking, resulting in serious non-accidental injuries. The injuries comprised subdural haemorrhages, retinal haemorrhages and cerebral atrophy.
They constituted significant harm for the purpose of s 31. The injuries had been inflicted by a member of household A or household B, but not both. The
father of B was not the perpetrator of any of the injuries, but the evidence was such that it was not possible to decide which of A’s mother, A’s father, or
B’s mother was the perpetrator. Judge Gee expressed the dilemma confronting him in these stark terms:
‘If the criteria are met and orders are made I am exposing one child to the possibility of removal from parents who are no risk and have done no
wrong … If the applications are dismissed then I will undoubtedly be causing one child to be returned to a parent or parents, one or both of whom
are an obvious and serious unassessed risk.’
­ 100
The judge then applied to the facts of this case an observation of Wall J in Hackney London BC v G [1994] 2 FCR 216 at 222, [1995] Fam 16 at 20:
‘The inescapable construction of s.31, in my judgment, is that the court has to be satisfied by evidence that the significant harm suffered by the
child is attributable to the care, or absence of care, given to the child by the parent against whom the order is sought.’ (My emphasis.)
Since he was unable to conclude that the harm suffered by A was attributable to A’s mother or father, Judge Gee dismissed the care order application
regarding A. As to B, this child had suffered no harm. Nor could B be regarded as at risk of harm in the future because it had not been established that
B’s mother had caused the injuries to A. The judge therefore also dismissed the care order application regarding B. Judge Gee reached these conclusions
with evident reluctance. He said that the case called out for at least a supervision order which would give the local authority, to an extent, the right to
keep an eye on the situation. He made an interim care order in respect of both children pending the hearing of an appeal.
The Court of Appeal (Lord Woolf MR, Butler-Sloss and Robert Walker LJJ) reversed the judge’s decision regarding A and upheld his decision
regarding B. The court held that Judge Gee had interpreted the language of the threshold conditions too narrowly. The ‘attributable’ condition is satisfied
if the harm is attributable to an absence of proper care to the objective standard laid down in that condition. Giving the judgment of the court, Robert
Walker LJ said:
‘With the rise in broken marriages and unmarried relationships, and the economic pressure on mothers to remain in employment even while
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their children are young, the task of caring for children is often shared between parents who are living apart, grandparents and other relatives, and
official and unofficial child-minders. Where the task is shared in that way and a child suffers serious harm through lack of proper care, that child
must not be left at risk simply because it is not possible for the court to be sure which part of the care network has failed.’ (See [1999] 3 FCR 241
at 252, [2000] 2 WLR 346 at 356.)
The court added, regarding such a case, that ‘apportionment of responsibility as between the various carers is both imponderable and irrelevant, even if
they are … alternate rather than joint carers’. Before the House is an appeal by A’s parents against this decision. The Court of Appeal’s decision
regarding B is not the subject of an appeal to this House. Accordingly, the correctness of the latter decision is not a matter before your Lordships.
I can now identify the issue of interpretation arising on this appeal. In a case based on present harm (‘is suffering … significant harm’) the
attributable condition requires the court to be satisfied that the harm is attributable to the care given to the child or, which is not this case, to the child’s
being beyond parental control. That nexus must be established on the basis of proved facts. But that prompts the question: care by whom? The
contention of A’s parents is that, having regard to the statutory context and the legislative policy behind Pt IV of the 1989 Act, ‘the care given to the
child’ in s 31(2)(b)(i) means the care given to the child by the parents or other primary carers. The contrary contention, advanced by the local authority
and A’s guardian, is that no such limiting words are to be read into the statute: the relevant phrase means the care given by anyone who plays a part in the
care arrangements for the child.
­ 101
Stated more fully, the submission made by Mr Harris on behalf of A’s parents was that at the heart of the Act is the belief that the welfare and
development of children are in general best secured if they are brought up within the family by both parents playing a full part in their upbringing. The
same philosophy applies, correspondingly, where substitute primary carers are bringing up a child in a settled home. The state, acting through a local
authority, should only be permitted to intervene in the family life of the child by means of a care order if it can demonstrate that intervention is necessary
for the child’s protection by reason of some serious deficiency in care on the part of the parents or other primary carers, as the case may be, and that no
other course is appropriate. Counsel submitted that a strictly literal interpretation of the phrase under consideration would lead to an absurdity.
Parliament cannot have intended that a child should be at risk of being removed from his family, and the parents at risk of losing their child, because of an
unforeseeable failure of care by a third party to whom the parents, wholly unexceptionably, had temporarily entrusted the child.
Counsel further submitted that the statutory phrase is ambiguous, and invited your Lordships’ attention to observations made by Lord Mackay of
Clashfern LC in this House when promoting the Children Bill. Two instances will suffice. On the second reading of the Bill Lord Mackay stated:
‘… as a matter of principle it is important for the law in a free society expressly to protect the integrity and independence of families save where
there is at least likelihood of significant harm to the child from within the family.’ (See 502 HL Official Report (5th series) col 493, 6 December
1988.)
At the committee stage Lord Mackay said:
‘I entirely agree that I have often said that where discretion is given it is wise to make it as flexible as possible. However, I do not think that
that is an appropriate approach where the discretion will allow one of the most serious possible interventions in family life. Therefore, I think it is
necessary to specify the grounds with reasonable particularity. That is what we seek to do in the Bill … The purpose of this care order is to
substitute the local authority for the parent in the sense of the local authority having parental responsibility for the child. That should only happen
where something concerning the parent has gone wrong. That appears to me to be essential.’ (See 503 HL Official Report (5th series) cols
349–350, 19 January 1989.)
This is a forceful argument, up to a point. I accept that the interpretation of the attributable condition urged on behalf of the respondents and upheld
by the Court of Appeal is too wide and loose. For this one needs to look no further than Mr Harris’ example of the one-off temporary entrustment of the
child to a person reasonably believed by the parents to be suitable. Injury inflicted by the temporary carer would satisfy the threshold conditions. But the
parents’ argument goes too far in the other direction. The interpretation urged on behalf of the parents is too rigid. As with the respondents’ submission,
so also with the parents’ submission: the conclusion to which it leads cannot be right. As the present case exemplifies, the parents’ argument, if accepted,
produces the result that where a child has repeatedly sustained non-accidental injuries the court may nevertheless be unable to intervene to protect the
child by making a care order or, even, a supervision order. In the present case the child is proved to have sustained significant harm at the hands of one or
both of her parents or at the hands of a daytime carer. But, according to this argument, if the court is ­ 102 unable to identify which of the child’s
carers was responsible for inflicting the injuries, the child remains outside the threshold prescribed by Parliament as the threshold which must be crossed
before the court can proceed to consider whether it is in the best interests of the child to make a care order or supervision order. The child must, for the
time being, remain unprotected, since s 31 of the 1989 Act and its associated emergency and interim provisions now provide the only court mechanism
available to a local authority to protect a child from risk of further harm.
I cannot believe Parliament intended that the attributable condition in s 31(2)(b) should operate in this way. Such an interpretation would mean that
the child’s future health, or even her life, would have to be hazarded on the chance that, after all, the non-parental carer rather than one of the parents
inflicted the injuries. Self-evidently, to proceed in such a way when a child is proved to have suffered serious injury on more than one occasion could be
dangerously irresponsible.
There is a further factor which weighs with me. Sadly, the unhappy facts of the present case are far from being exceptional. As the Court of Appeal
observed, the task of caring for children is often shared nowadays between parents and others. When questions of non-accidental injury or abuse arise,
the court is frequently unable to discover precisely what happened. This is not surprising. And yet, on the parents’ construction of the attributable
condition, in this common form situation of shared caring the court is powerless to make even a supervision order if the judge is unable to penetrate the
fog of denials, evasions, lies and half-truths which all too often descends in court at fact-finding hearings. Indeed, in the present case the judge observed,
regarding the evidence of one witness, that it was impossible to identify what was or might have been fact and what was or might have been fiction.
Against this background, I consider that a permissible and preferable interpretation of s 31(2)(b)(i), between the two extremes, is as follows. The
phrase ‘care given to the child’ refers primarily to the care given to the child by a parent or parents or other primary carers. That is the norm. The matter
stands differently in a case such as the present one, where care is shared and the court is unable to distinguish in a crucial respect between the care given
by the parents or primary carers and the care given by other carers. Different considerations from the norm apply in a case of shared caring where the
care given by one or other of the carers is proved to have been deficient, with the child suffering harm in consequence, but the court is unable to identify
which of the carers provided the deficient care. In such a case, the phrase ‘care given to the child’ is apt to embrace not merely the care given by the
parents or other primary carers; it is apt to embrace the care given by any of the carers. Some such meaning has to be given to the phrase if the
unacceptable consequences already mentioned are to be avoided. This interpretation achieves that necessary result while, at the same time, encroaching to
the minimum extent on the general principles underpinning s 31(2). Parliament seems not to have foreseen this particular problem. The courts must
therefore apply the statutory language to the unforeseen situation in the manner which best gives effect to the purposes the legislation was enacted to
achieve.
I recognise that the effect of this construction is that the attributable condition may be satisfied when there is no more than a possibility that the
parents were responsible for inflicting the injuries which the child has undoubtedly suffered. That is a consequence which flows from giving the phrase,
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in the limited ­ 103 circumstances mentioned above, the wider meaning those circumstances require. I appreciate also that in such circumstances, when
the court proceeds to the next stage and considers whether to exercise its discretionary power to make a care order or supervision order, the judge may be
faced with a particularly difficult problem. The judge will not know which individual was responsible for inflicting the injuries. The child may suffer
harm if left in a situation of risk with his parents. The child may also suffer harm if removed from parental care where, if the truth were known, the
parents present no risk. Above all, I recognise that this interpretation of the attributable condition means that parents who may be wholly innocent, and
whose care may not have fallen below that of a reasonable parent, will face the possibility of losing their child, with all the pain and distress this involves.
That is a possibility, once the threshold conditions are satisfied, although by no means a certainty. It by no means follows that because the threshold
conditions are satisfied the court will go on to make a care order. And it goes without saying that when considering how to exercise their discretionary
powers in this type of case judges will keep firmly in mind that the parents have not been shown to be responsible for the child’s injuries.
I recognise all these difficulties. This is indeed a most unfortunate situation for everyone involved: the child, the parents, the child-minder, the local
authority and the court. But, so far as the threshold conditions are concerned, the factor which seems to me to outweigh all others is the prospect that an
unidentified, and unidentifiable, carer may inflict further injury on a child he or she has already severely damaged.
In reaching this decision I have not overlooked the observations made by Lord Mackay when promoting the Children Bill. Nor have I overlooked
the numerous passages from books and government publications drawn to your Lordships’ attention. Many of these appear to take for granted that the
deficient care referred to in the attributable condition is that of a parent. Sometimes this is stated expressly; for instance, in Cretney and Masson
Principles of Family Law (6th edn, 1997) p 805 (‘Significant harm must be attributable to care given by the parent to the child’). In none of these
publications do the authors express a view contrary to the parents’ construction of the key phrase in s 31(2)(b).
In the present context all these observations and passages suffer from the drawback that they do not address the particular problem raised in the
present type of case. For the most part they are concerned with the straightforward distinction between harm caused by deficient care given by the
parents (which satisfies the attributable condition) and harm caused solely by a third party (which does not, unless the parent failed to prevent it). As a
proposition of general principle that is correct. But this leaves unresolved the case where, in practice, application of the general principle is thwarted: care
is shared between the parents and others, the child has sustained harm from deficient care given by one or other of the carers, but in practice it is
impossible to identify which carer is responsible. As discussed above, there are particular difficulties and risks in such a case. Generalised statements,
not dealing with this special type of case, provide little or no assistance.
Nor can the parents gain any succour from previous judicial utterances. None of the judicial dicta to which your Lordships’ attention was drawn can
properly be read as expressions of judicial view on the point now under consideration. I mention the two statements which were the high-water marks of
this part of the parents’ case. In Northamptonshire CC v S [1993] 1 FCR 351, [1993] Fam 136 two children had suffered physical abuse while in the care
of their parents. The father ­ 104 proposed that if a care order were not made the children should be cared for by his mother. The father submitted that,
this being so, the threshold conditions were not satisfied: the harm caused by the parents could not be attributed to the care ‘likely to be given to [the
child] if the order were not made’, viz, the care of the grandmother. In rejecting this misconceived submission Ewbank J said ([1993] 1 FCR 351 at 355,
[1993] Fam 136 at 141) that the ‘threshold test relates to the parent or other carer whose lack of care has caused the harm referred to in s.31(2)(a)’.
Similarly with regard to the dictum of Wall J in Hackney London BC v G [1994] 2 FCR 216 at 222, [1995] Fam 16 at 20, relied upon by Judge Gee in the
present case: there, the point at which Wall J directed his observation, quoted above, was that a parent’s consent to a care order is not enough for the
purpose of satisfying the threshold conditions. The judge rightly said that no agreement between the parties can relieve the court of its duty to satisfy
itself by evidence that the conditions have been met.
The parents also advanced an argument that the continuation of the care proceedings, with the result that A remained in foster care, infringed the
rights of A and her parents to respect for their family life guaranteed by art 8(1) of the European Convention for the Protection of Human Rights and
Fundamental Freedoms (Rome, 4 November 1950; TS 71) (1953); Cmd 8969). Once the local authority realised, or should have realised, that it could not
prove A was injured by either of her parents, it should have discontinued the proceedings and restored A to her parents’ care. I do not agree. The steps
taken so far have been no more than those reasonably necessary to pursue the legitimate aim of protecting A from further injury. They are within the
exception set out in art 8(2).
I would dismiss this appeal. On the facts found by the judge the threshold conditions were met.

LORD HOFFMANN. My Lords, I have had the advantage of reading a draft of the speech of my noble and learned friend Lord Nicholls of Birkenhead.
For the reasons he has given, I too would dismiss this appeal.

LORD CLYDE. My Lords, I agree that this appeal should be dismissed.

The question here is one of the application of s 31(2)(b)(i) of the Children Act 1989 to the somewhat special circumstances of the case where the
precise source of the harm suffered by the child has not been identified. That subsection relates to the harm or likelihood of harm being attributable to the
care given or likely to be given to the child. Harm is more likely to be caused by a deficiency of care rather than its existence. But the word ‘care’ here
must be being used in quite a general sense, indicating a standard of care, the standard being, as the section explains, that which it would be reasonable to
expect a parent to give him. The section is seeking to exclude harm which is attributable to other factors than the care given to the child, or, as the final
part of the subsection says, the child’s being beyond parental control. Subject to that situation, harm which is not attributable to the care given to the
child, for example, harm which has come about through some unforeseeable event against which no one could have taken any precaution, will not fall
within the scope of the section. On the other hand the care which a parent would reasonably be expected to give to a child may include the need to
confirm that a child may safely be entrusted to the care of some other person, before handing over the child into the care of that other person.
­ 105
The principal proposition advanced for the parents was to the effect that the section requires the court to be satisfied that the harm or likelihood of
harm to the child is attributable to the care given to the child by someone who had the care of the child in the sense of being a parent or in the position of
a parent. I have not been persuaded that the section should be so construed. In the present case, where the child was certainly harmed by someone and
that person was either her father or her mother or a person who acted as a child-minder for certain hours of the day I see no necessity for the court to have
to be satisfied for the purposes of the section precisely which of the three contributed to the harm. I do not consider that such a restricted construction of
the section is appropriate and I reach this view for three reasons.
In the first place the language of the subsection does not point to the necessity of identifying the individual who caused or would be likely to cause
the harm to the child. The harm, or the likelihood of harm, must be attributable to the care given, or likely to be given, to the child. There is no mention
of the author of the harm. It is true that the subsection refers to the care as ‘not being what it would be reasonable to expect a parent to give to him’. But
that phrase simply defines the standard or level of care. It is an objective test. The selection of that standard does not restrict the scope of the persons
who may be responsible for the care given to the child in the particular case. What the subsection requires is the identification of the incidence of harm,
or the risk of harm, attributable to the care of the child, not the identification of the hand which caused, or may be likely to cause, it. That the harm must
be attributable to the care given to the child requires that the harm must be attributable to the acts or omissions of someone who has the care of the child
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and the acts or omissions must occur in the course of the exercise of that care. To have the care of a child comprises more than being in a position where
a duty of care towards the child may exist. It involves the undertaking of the task of looking after the child. No formal step is necessarily involved in the
taking on of that task, and it is not necessarily taken on by anyone who engages with the child. The section appears to relate to anyone who at least at
some period is giving care to the child. That responsibility may be possessed by others than the child’s parents or persons who are acting as parents. The
question whether a person is giving care to a child is a question of fact.
In this connection I should add that I have found no sufficient guidance for the particular problem raised in the present case from the various
quotations to which we were referred whether in debate or commentary prior to the passing of the Act or thereafter or from the reported decisions,
because they were dealing with the matter in a more general way than the present case requires. It is no doubt usually the care of the parents which alone
is in issue in the context of care proceedings and it is understandable that it is to the care of parents that reference is naturally made. But that is not to
mean that it is their care alone with which the section is concerned.
Secondly, the construction for which the parents contend involves reading in to the subsection some restriction on its scope so as to limit it to care
given by particular kinds of people. A restriction to care given by parents would obviously be too narrow since it would exclude any case where a child
was in the care of someone other than a parent, such as a close relative, perhaps because of the absence or the death of the parents. So the parents seek to
include in those giving the care persons referred to as ‘primary carers’. That would at least avoid too restrictive a construction but one looks in vain in the
statute for the need to read in such a restriction. Moreover, while in practice the term may be conveniently ­ 106 adopted as a term of reference, there
may well be problems of definition in determining for the purposes of the statutory provision the precise persons who would qualify as a ‘primary carer’.
In a provision such as the present it would be desirable to avoid difficult questions of application.
Thirdly, it has to be remembered that the function of the section is to define the jurisdiction of the court in entertaining an application for a care order
or a supervision order. In terms of sub-s (2) the court may only make such an order if it is satisfied that the circumstances specified in the subsection
exist. The section merely opens the way to the possibility that an order may be made. The making of the order requires a much more careful
consideration of the case with regard in particular to the matters specified in s 1(3) of the Act, subject always to the paramount consideration of the child’s
welfare, as specified in s 1(1). So it is reasonable to allow a degree of latitude in the scope of the jurisdictional provision, leaving the critical question of
whether the circumstances require the making of an order to a detailed assessment of the welfare of the child. The definition of the occasions on which the
court may entertain an application for a care order or a supervision order may usefully be wider than the definition of the circumstances in which the court
will take the actual step of handing over the upbringing of the child to a local authority or requiring some supervision of the child’s continued care. Even
if the court has jurisdiction to make an order it by no means follows that an order will be made.
I would make two further observations. The first is, and the matter cannot be too often repeated, that the intervention by the state into matters of
family life may often call for immense caution and restraint. The policy of the Act is to secure the welfare of children. But that policy recognises that
that object will very often be best served by retaining the child in the custody of his or her parents and that very considerable harm may be done by an
intervention, however well intentioned. The court may be able to provide an eventual safeguard against inappropriate steps taken in the belief of
necessity, but even the making of an application is a step not lightly to be embarked upon. The stress which care proceedings may well impose on the
parents may even itself be damaging to the child. If the parents are themselves in fact innocent of any harm to the child the proceedings may simply be
defeating the basic purpose and the policy of the Act. The initiating of proceedings may in some cases be readily and immediately a matter of obvious
necessity. But in other cases it may be something not to be embarked upon without careful deliberation and a professional objectivity. The granting of a
care order will only be done by the court after consideration of the matters detailed in s 1 and in particular the requirement in s 1(5) that the order is only
to be made if the making of it would be better for the child than the making of no order at all. The need for caution and restraint is underlined by the
provisions of art 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953);
Cmd 8969).
Secondly, while there is a necessity to resolve questions of law in the construction of statutory powers, a matter which involves adversarial debate,
the operation of the Act should ideally be matter of co-operation between all those bearing responsibility for the welfare of the child, working together to
secure that the child’s interests are best served. To that end it is obviously desirable so far as possible to minimise formality and to avoid delay in the
procedures which require to be followed. Indeed, s 32 of the Act expressly recognises that latter necessity. The part played by the court, where it is
necessary to have recourse to ­ 107 court proceedings, is vital in securing an impartial and objective resolution of the problem. But even there a degree
of flexibility in the management of each case may be appropriate. While the present case has concerned the resolution of what is logically a preliminary
point of jurisdiction, a point which in some cases may determine the outcome, it is not to be concluded that this should necessarily constitute a separable
episode in the management of a case. But how each case is to be handled, within the scope of the prescribed procedural rules, must be a matter for the
judge to whom it has been entrusted.

Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 109

Inco Europe Ltd and others v First Choice Distribution (a firm) and others

ADMINISTRATION OF JUSTICE; Arbitration, Courts

HOUSE OF LORDS
LORD NICHOLLS OF BIRKENHEAD, LORD JAUNCEY OF TULLICHETTLE, LORD STEYN, LORD CLYDE AND LORD MILLETT
11 FEBRUARY, 9 MARCH 2000

Arbitration – Stay of court proceedings – Refusal of stay – Leave to appeal against refusal – Appeal to Court of Appeal – Jurisdiction – Whether Court of
Appeal having jurisdiction to entertain appeal from refusal of stay – Supreme Court Act 1981, s 18(1)(g) – Arbitration Act 1996, ss 9, 107, Sch 3.
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Statute – Construction – Anomalies – Correction of obvious drafting error – Conditions for giving rectifying construction to statutory provision.

S, a Dutch company, applied to the High Court for an order under s 9a of the Arbitration Act 1996 (a provision contained in Pt I of that Act), staying
proceedings brought against it by I Ltd on the grounds that they had been brought in respect of a matter that the parties had agreed to refer to arbitration.
The judge dismissed that application, and refused permission to appeal. Accordingly, S asked the Court of Appeal to grant such permission. On the
application, I Ltd contended that there was no right of appeal from a decision of the High Court under s 9 of the 1996 Act. In so contending, it relied on s
18(1)b of the Supreme Court Act 1981 (as amended by s 107(1) of, and Sch 3 to, the 1996 Act), which provided that ‘No appeal shall lie to the Court of
Appeal … (g) except as provided by Part I of the [1996 Act], from any decision of the High Court under that Part’. Part I made no provision for an appeal
from a decision under s 9. Prior to the amendment, which was enacted under a provision making amendments consequential on the provisions of the 1996
Act, s 18(1)(g) of the 1981 Act had provided that no appeal lay to the Court of Appeal, except as provided by the Arbitration Act 1979, from any decision
of the High Court under two sections which contained restrictions on appeals in respect of certain decisions. The Court of Appeal held that the amended s
18(1)(g) had not removed the pre-existing right of appeal from a decision whether or not to stay litigation covered by an arbitration clause. It then granted
permission to appeal and allowed that appeal. I Ltd appealed to the House of Lords, contending that the Court of Appeal had been wrong to hold that it
had jurisdiction to hear an appeal from a decision under s 9 of the 1996 Act.
________________________________________
a Section 9, so far as material, provides: ‘(1) A party to an arbitration agreement against whom legal proceedings are brought … in respect of a matter which under the
agreement is to be referred to arbitration may … apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter
…’
b Section 18(1) (as amended), so far as material, is set out at p 111 f, post
________________________________________

Held – On its true construction, s 18(1)(g) of the 1981 Act did not exclude a right of appeal from a decision of the High Court made under s 9 of the 1996
Act. Rather, the new s 18(1)(g) as amended was confined to decisions of the High Court under those sections of Pt I of the 1996 Act which made
provision ­ 1 regarding an appeal from such decisions. In other words, the phrase ‘from any decision of the High Court under that Part’ was to be read
as meaning ‘from any decision of the High Court under a section in that Part which provides for an appeal from such decision’. Although such a
construction involved reading words into para (g), that approach to statutory interpretation was permissible where the court was abundantly sure of three
matters, namely (i) the intended purpose of the statute or provision in question, (ii) that the draftsman had inadvertently failed to give effect to that
purpose and (iii) the substance of the provision Parliament would have made, although not necessarily the precise words it would have used, if the error
had been noticed. Those conditions were fulfilled in respect of s 18(1)(g) since it was plain that the sole purpose of the amendment was to substitute a
new para (g) that would serve the same purpose regarding the 1996 Act as the original para (g) had served regarding the 1979 Act. Due to a slip by the
draftsman, the language used had not been apt to achieve that result, and had instead, read literally, introduced a major legislative change which was not
consequential on any provision of the 1996 Act. In those circumstances, the new para (g) had to be read in a manner which gave effect to the
parliamentary intention, and the appeal would therefore be dismissed (see p 114 e to p 115 g, j to p 116 c, post).
Decision of the Court of Appeal [1999] 1 All ER 820 affirmed.

Notes
For stays of proceedings pending arbitration and for rectifying construction of statutory provisions, see respectively 2 Halsbury’s Laws (4th edn reissue)
para 616 and 44(1) Halsbury’s Laws (4th edn reissue) para 1472.
For the Supreme Court Act 1981, s 18 (prior to amendment), see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 983.
For the Arbitration Act 1996, ss 9, 107, Sch 3, see 2 Halsbury’s Statutes (4th edn) (1999 reissue) 573, 630, 634.

Cases referred to in opinions

Jones v Wrotham Park Settled Estates [1979] 1 All ER 286, [1980] AC 74, [1979] 2 WLR 132, HL.
Western Bank Ltd v Schindler [1976] 2 All ER 393, [1977] Ch 1, [1976] 3 WLR 341, CA.

Appeal
The plaintiffs, Inco Europe Ltd, Inco Alloys Ltd and Inco Ltd (Inco), appealed with leave of the Appeal Committee of the House of Lords given on 21
April 1999 from the decision of the Court of Appeal (Hobhouse, Thorpe and Mummery LJJ) on 30 September 1998 ([1999] 1 All ER 820, [1999] 1 WLR
270) allowing an appeal by the third defendant, Steinweg (Handelsveem BV) (Steinweg), from the decision of Judge Hegarty QC sitting as a judge of the
High Court in Manchester on 19 January 1998 dismissing its application under s 9 of the Arbitration Act 1996 for a stay of the proceedings against it.
The other defendants, First Choice Distribution, Logistic Planning Services Ltd and Smeet Ferry BV, took no part in the appeal or the proceedings below.
The facts are set out in the opinion of Lord Nicholls of Birkenhead.

Dominic Kendrick QC and Mark Halliwell (instructed by Hill Dickinson, Manchester) for Inco.
Peter Gross QC and Arshad Ghaffar (instructed by Holman Fenwick & Willan) for Steinweg.
­ 2

Their Lordships took time for consideration.

9 March 2000. The following opinions were delivered.

LORD NICHOLLS OF BIRKENHEAD. My Lords, s 9 of the Arbitration Act 1996 empowers the court to stay legal proceedings brought against a
party to an arbitration agreement in respect of a matter which under the agreement is to be referred to arbitration. The issue on this appeal is whether an
appeal lies to the Court of Appeal from a decision of the first instance court made under s 9. Section 9 is silent on the point.
The circumstances in which this question has arisen are set out in the judgment of Hobhouse LJ in the Court of Appeal ([1999] 1 All ER 820 at 822,
[1999] 1 WLR 270 at 271). Nothing turns on the particular facts, so I can be appropriately economical in my rehearsal of them. On 24 June 1997 the
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plaintiffs issued a writ in the Manchester District Registry of the High Court claiming damages in respect of the loss of a consignment of nickel cathodes
being carried from Rotterdam to Hereford. One of the defendants, Steinweg (Handelsveem BV) (Steinweg), made an application for an order under s 9 of
the 1996 Act staying the legal proceedings, on the ground that the proceedings had been brought in respect of a matter the parties had agreed by their
contract to refer to arbitration in the Netherlands. Judge Hegarty QC, sitting as a judge of the Queen’s Bench Division, dismissed the application. He
held that the arbitration agreement was ‘null and void, or inoperative’. In order to appeal against this interlocutory order Steinweg needed permission to
appeal. Steinweg sought permission from the judge, but this was refused. Steinweg renewed its application to the Court of Appeal. One of the questions
the Court of Appeal had to consider was whether it had any jurisdiction to entertain the appeal. The doubt arose from a provision in s 18 of the Supreme
Court Act 1981. The material part of s 18(1), as amended by s 107 of and Sch 3 to the 1996 Act, reads:
‘No appeal shall lie to the Court of Appeal … (g) except as provided by Part I of the Arbitration Act 1996, from any decision of the High Court
under that Part …’
Inco’s case was an extremely simple one. Judge Hegarty’s decision was a decision of the High Court under Pt I of the 1996 Act. The saving exception
does not apply, because nowhere in s 9, or indeed anywhere else in Pt I, is there provision for an appeal from a decision of the court under s 9. Ergo, so
the argument runs, the decision sought to be appealed falls four-square within s 18(1)(g): no appeal lies to the Court of Appeal.
If s 18(1)(g) as amended by the 1996 Act is read literally and in isolation from its context, this argument is unanswerable. However, the Court of
Appeal, comprising Hobhouse, Thorpe and Mummery LJJ, rejected the submission. Hobhouse LJ examined with care the development of the status of
arbitration clauses in English law, the genesis of the 1996 Act and the statutory context of the amendment. The amendment made by the 1996 Act to s
18(1)(g) of the 1981 Act was made by s 107 of the 1996 Act. Section 107 was concerned with ‘consequential’ amendments. The conclusion of Hobhouse
LJ ([1999] 1 All ER 820 at 826, [1999] 1 WLR 270 at 276) was that a removal of the pre-existing right of appeal (with leave) from a decision whether or
not to stay litigation covered by ­ 3 an arbitration clause would not be consequential upon anything contained in the 1996 Act. It would, he said, be a
radical and additional provision. He continued:
‘In my judgment such a change in the pre-existing law is not achieved by wording such as that used in s 107 of the 1996 Act. In my judgment
the effect is that the amendment to s 18(1) of the 1981 Act must be understood as giving effect to the exclusions (and restrictions) on the right of
appeal to the Court of Appeal laid down in Pt I of the 1996 Act and no more. Thus, as is self-evident from the wording of the amendment, it is
necessary to look at the provisions in Pt I of the 1996 Act to ascertain to what extent the right of appeal to the Court of Appeal is excluded. If some
provision of Pt I does not exclude it, the right of appeal remains.’
Thorpe and Mummery LJJ agreed. The Court of Appeal granted permission to appeal from the decision of Judge Hegarty. Having considered the
substantive grounds of appeal, the court then allowed the appeal and stayed further proceedings in the action brought by the plaintiffs against Steinweg.
Before this House is an appeal by the plaintiffs on the jurisdictional point. The plaintiffs do not seek to challenge the decision of the Court of Appeal
if, contrary to their submissions, the Court of Appeal had jurisdiction to hear the appeal.
In my view the decision of the Court of Appeal was correct. Several features make it plain beyond a peradventure that on this occasion Homer, in
the person of the draftsman of Sch 3 to the 1996 Act, nodded. Something went awry in the drafting of para 37(2) of Sch 3. Paragraph 37(2) is the
paragraph which set out the amendment made to s 18(1)(g) of the 1981 Act. Moreover, what para 37(2) was seeking to do, but on a literal reading of the
language failed to achieve, is also abundantly plain.
The starting point is to consider what was the purpose of s 18(1)(g) of the 1981 Act as originally enacted. Sections 15 to 18 of the 1981 Act are the
statutory provisions regarding the jurisdiction of the Court of Appeal. Section 16 is the basic source of the Court of Appeal’s jurisdiction to hear appeals
from decisions of the High Court. Section 16(1) provides that ‘Subject as otherwise provided by this or any other Act’ the Court of Appeal ‘shall have
jurisdiction to hear and determine appeals from any judgment or order of the High Court’. Section 18 is concerned with restrictions on appeals to the
Court of Appeal. As originally enacted, the relevant part of s 18(1)(g) read:

‘No appeal shall lie to the Court of Appeal … (g) except as provided by the Arbitration Act 1979, from any decision of the High Court—(i) on
an appeal under section 1 of that Act on a question of law arising out of an arbitration award; or (ii) under section 2 of that Act on a question of law
arising in the course of a reference …’

As para (g) indicates, ss 1 and 2 of the 1979 Act enabled the High Court to make decisions on questions of law arising out of arbitration awards or in the
course of references to arbitration. These two sections contained restrictions on appeals to the Court of Appeal in respect of certain decisions. For
instance, s 1(7) excluded an appeal to the Court of Appeal unless the High Court or the Court of Appeal gave leave and the High Court certified that the
decision raised a point of law of general public importance. Thus, and this is the first feature to note regarding s 18(1)(g) in its original form, the phrase
‘except as provided by the Arbitration Act 1979’ did not mean ‘except as enabled by the Arbitration Act 1979’. The 1979 Act did not contain provisions
empowering the Court of Appeal to hear appeals ­ 4 from decisions of the High Court on arbitration matters. As already noted, the source of the
statutory power enabling the Court of Appeal to hear such appeals lies elsewhere, in the 1981 Act itself. Rather, in this context the word ‘provided’
meant envisaged, or permitted. In more legalistic language, the phrase meant ‘except in accordance with the provisions of the Arbitration Act 1979’,
those provisions being restrictions on appeal.
A second feature should also be noted. Section 18(1)(g) did not impose additional restrictions on the right to appeal to the Court of Appeal from
decisions of the High Court mentioned in sub-paras (i) and (ii) of s 18(1)(g). Section 18(1)(g) merely brought forward into s 18(1) restrictions on rights of
appeal already expressed in the relevant sections of the 1979 Act. Presumably it was thought convenient and desirable that these restrictions, set out in
another statute, should be expressly mentioned in Pt II of the 1981 Act, concerned as it is with the jurisdiction of the Court of Appeal.
I now turn to the 1996 Act. Many sections in Pt I provide for applications to the court. Some of them restrict appeals from decisions of the court.
Typical is s 12, which concerns the power of the court to extend time for beginning arbitral proceedings. Section 12(6) provides that the ‘leave of the
court is required for any appeal from a decision of the court under this section’. The ‘court’ means the High Court or a county court (see s 105). Other
sections are wholly silent about appeals. Section 9 is such a section.
I derive two impressions from these sections. First, the draftsman was well aware that the source of any right to appeal lay elsewhere. Nowhere do
the sections create a right of appeal. References to appeals are confined to restricting a right whose existence is assumed. Second, when the draftsman
wished to limit the right of appeal he said so. In section after section in Pt I, restrictions similar to the restriction in s 12(6) are set out expressly. In some
sections, such as s 32, the restriction on appeals is even more tightly framed. This style of drafting points strongly to the conclusion that where a section is
silent about an appeal from a decision of the court, no restriction was intended. The draftsman must have intended that, save to the extent that an appeal
was expressly circumscribed, parties to court decisions under the various sections would be able to exercise whatever rights of appeal were available to
them from sources outside the Act itself.
This, then, is the scheme of the 1996 Act, so far as appeals are concerned. The absence, from s 9 and other sections, of restrictions on appeal is not
surprising. The principal purpose of the Act, as recited in its preamble, was to restate and improve the law relating to arbitration pursuant to an arbitration
agreement. Its genesis was several reports of a Departmental Advisory Committee on Arbitration Law. In its report of June 1989 the committee
concluded that current statute law was not serving business well, but advised against adopting the United Nations Commission on International Trade Law
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(UNCITRAL) Model Law on International Commercial Arbitration. The committee recommended that, instead, there should be a new and improved
Arbitration Act, not limited to the subject matter of the model law. In February 1994 the Department of Trade and Industry published a consultation
document and a draft Bill (A Consultation Paper on Draft Clauses and Schedules of an Arbitration Bill). In July 1995 the department published a further
consultation paper and a revised draft Bill (Consultative Paper on an Arbitration Bill). In February 1996 the departmental advisory committee, in a
further report, discussed the Bill introduced into Parliament in December 1995 and recommended some changes (Departmental Advisory Committee on
Arbitration Law Report on the Arbitration Bill).
­ 5
The committee published a supplementary report in January 1997 (Departmental Advisory Committee on Arbitration Law Supplementary Report on
the Arbitration Act 1996). These reports and consultation papers commented in detail on each clause of the Bill or draft Bill and drew attention to
changes in the law. For instance, the report of February 1996 noted that under cl 12 leave to appeal from a court decision would require the leave of that
court (see para 74(iii)). None of these reports and consultation papers contained any criticism of the existing right of appeal against court decisions on
stay applications. None of them suggested this right should be abolished or restricted. Nor was there any suggestion or indication that any concern had
been expressed to the committee or the department on this matter, or regarding any of the other clauses in the Bill which as enacted contain no restrictions
on appeals from court decisions.
Mr Kendrick placed some reliance on s 1(c) of the 1996 Act. The provisions of Pt I are founded on three principles and are to be construed
accordingly. The third principle is that in matters governed by Pt I the court should not intervene except as provided in that Part. I do not think s 1(c)
assists the plaintiffs. Section 9 does not empower the court to intervene in the arbitral process. When a stay application is made under s 9 court
proceedings are already on foot. The question raised by the stay application is whether those existing legal proceedings shall be stayed or permitted to
continue. Further, s 1(c) does not touch upon the question of appeals from court decisions. Section 1(c) is concerned with a different question: whether
the court should intervene at all. Section 1(c) throws no light on the present question.
Against this background one comes to s 107. Section 107 bears the heading ‘Consequential amendments and repeals’. Section 107(1) provides that
the enactments specified in Sch 3 are amended in accordance with that Schedule, ‘the amendments being consequential on the provisions of this Act’.
Schedule 3 contains 62 paragraphs of consequential statutory amendments. One of the consequential amendments necessitated by the 1996 Act was an
amendment to s 18(1)(g) of the 1981 Act. The 1996 Act repealed the 1979 Act, and Pt I of the 1996 Act contained its own restrictions on appeals to the
Court of Appeal in certain cases. The consequential amendment called for was replacement of the existing s 18(1)(g) by a new para (g) which carried
forward into s 18(1) the restrictions on appeals set out in Pt I of the 1996 Act. As drafted and enacted, the new para (g), read literally, went much wider
than this. The new para (g) carried these restrictions into s 18(1). Unfortunately, the new para (g), read literally, also made a major legislative change
which was not consequential on any provision of the 1996 Act. By including within its scope every court decision under Pt I, the new paragraph
abolished an appeal to the Court of Appeal from all court decisions made under Pt I of the Act save for decisions made under sections containing
restrictions on such an appeal. This abolition, moreover, was achieved by a paradoxical drafting technique: when the draftsman intended to restrict the
right of appeal, he did so expressly, but when taking the more far-reaching step of wholly excluding a right of appeal he said nothing about this in the
section. Instead, on the literal reading of the new para (g), the abolition was effected by an obscure provision, supposedly no more than consequential, in
one of the Schedules to the Act.
I am left in no doubt that, for once, the draftsman slipped up. The sole object of para 37(2) in Sch 3 was to amend s 18(1)(g) by substituting a new
para (g) that would serve the same purpose regarding the 1996 Act as the original para (g) had ­ 6 served regarding the 1979 Act. The language used
was not apt to achieve this result. Given that the intended object of para 37(2) is so plain, the paragraph should be read in a manner which gives effect to
the parliamentary intention. Thus the new s 18(1)(g), substituted by para 37(2), should be read as confined to decisions of the High Court under sections
of Pt I which make provision regarding an appeal from such decisions. In other words, ‘from any decision of the High Court under that Part’ is to be read
as meaning ‘from any decision of the High Court under a section in that Part which provides for an appeal from such decision’.
I freely acknowledge that this interpretation of s 18(1)(g) involves reading words into the paragraph. It has long been established that the role of the
courts in construing legislation is not confined to resolving ambiguities in statutory language. The court must be able to correct obvious drafting errors.
In suitable cases, in discharging its interpretative function the court will add words, or omit words or substitute words. Some notable instances are given
in Professor Sir Rupert Cross’ admirable opuscule, Statutory Interpretation (3rd edn, 1995) pp 93–105. He comments (p 103):

‘In omitting or inserting words the judge is not really engaged in a hypothetical reconstruction of the intentions of the drafter or the legislature,
but is simply making as much sense as he can of the text of the statutory provision read in its appropriate context and within the limits of the
judicial role.’

This power is confined to plain cases of drafting mistakes. The courts are ever mindful that their constitutional role in this field is interpretative. They
must abstain from any course which might have the appearance of judicial legislation. A statute is expressed in language approved and enacted by the
legislature. So the courts exercise considerable caution before adding or omitting or substituting words. Before interpreting a statute in this way the court
must be abundantly sure of three matters: (1) the intended purpose of the statute or provision in question; (2) that by inadvertence the draftsman and
Parliament failed to give effect to that purpose in the provision in question; and (3) the substance of the provision Parliament would have made, although
not necessarily the precise words Parliament would have used, had the error in the Bill been noticed. The third of these conditions is of crucial
importance. Otherwise any attempt to determine the meaning of the enactment would cross the boundary between construction and legislation (see per
Lord Diplock in Jones v Wrotham Park Settled Estates [1979] 1 All ER 286 at 289, [1980] AC 74 at 105–106). In the present case these three conditions
are fulfilled.
Sometimes, even when these conditions are met, the court may find itself inhibited from interpreting the statutory provision in accordance with what
it is satisfied was the underlying intention of Parliament. The alteration in language may be too far-reaching. In Western Bank Ltd v Schindler [1976] 2
All ER 393 at 404, [1977] Ch 1 at 18 Scarman LJ observed that the insertion must not be too big, or too much at variance with the language used by the
legislature. Or the subject matter may call for a strict interpretation of the statutory language, as in penal legislation. None of these considerations apply
in the present case. Here, the court is able to give effect to a construction of the statute which accords with the intention of the legislature.
For these reasons, which are substantially the same as those of the Court of Appeal, I would dismiss this appeal.
­ 7

LORD JAUNCEY OF TULLICHETTLE. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord
Nicholls of Birkenhead. For the reasons he has given I would also dismiss the appeal.

LORD STEYN. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Nicholls of Birkenhead. For the
reasons he has given I would also dismiss the appeal.
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LORD CLYDE. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Nicholls of Birkenhead. I agree
with it, and for the reasons he gives I too would dismiss the appeal.

LORD MILLETT. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Nicholls of Birkenhead. I
agree with it, and for the reasons he gives I too would dismiss the appeal.

Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 117

Banner Homes Group plc v Luff Developments Ltd and another

TRUSTS

COURT OF APPEAL, CIVIL DIVISION

STUART-SMITH, EVANS AND CHADWICK LJJ
25, 26, 27 OCTOBER 1999, 28 JANUARY 2000

Trust and trustee – Constructive trust – Oral arrangements – Parties agreeing in principle to form joint venture to acquire development site but not
finalising agreement – Defendant acquiring company as joint venture vehicle but having doubts about claimant as partner – Defendant not informing
claimant about doubts and acquiring site for itself through proposed joint venture company – Whether circumstances giving rise to constructive trust.

L Ltd was interested in acquiring a development site, but wanted to share the risk of the acquisition with a partner. It therefore entered into negotiations
with B plc to form a joint venture for the purpose of acquiring the site. The parties reached agreement in principle to acquire the site through a new
company which they would own in equal shares. On the basis of that understanding, L Ltd acquired an off-the-shelf company, S Ltd, with the intention
that it should be the vehicle for the joint venture. Subsequently, L Ltd had second thoughts about the proposed joint venture, and began to look for a
different partner. However, it failed to inform B plc of its doubts because it feared that the latter would itself bid for the site if the joint venture was
abandoned. Accordingly, B plc continued to act on the basis that the joint venture proposal was proceeding and that there would be a formal agreement
setting out the terms of their relationship with L Ltd. It was not until after S Ltd had acquired the site, with funds provided by L Ltd, that the latter
informed B plc that it was withdrawing from the proposed joint venture. In subsequent proceedings, B plc contended, inter alia, that the circumstances in
which the site had been acquired gave rise to a constructive trust in its favour over half the shares in S Ltd. That contention was rejected by the judge
who held that equity could not turn a common arrangement, which was implicitly qualified by the right of either side to withdraw, into an unqualified
arrangement which denied any such right. He further concluded that, in any event, B plc had suffered no detriment, dismissing as speculation a
contention that it might have entered the market if it had been aware of L Ltd’s intention to abandon the proposed joint venture. Accordingly, he
dismissed the claim, and B plc appealed.

Held – An equity arose where it would be inequitable to allow one party to treat, as its own, property that had been acquired in furtherance of a
pre-acquisition arrangement or understanding with another party. Such an arrangement did not have to be contractually enforceable, and indeed there
would probably be no need to invoke the equity if it were so enforceable. Rather, the arrangment had to contemplate that the acquiring party would take
steps to acquire the relevant property and that, if it did so, the other party would obtain some interest in that property. Furthermore, it was necessary that
the acquiring party, whatever its private reservations, had failed to inform the non-acquiring party before the acquisition (or, more accurately, before it
was too late for the parties to be restored to a position of no advantage/no detriment) that he no longer intended ­ 8 to honour the arrangement or
understanding. It was also necessary that, in reliance on the arrangement or understanding, the non-acquiring party should do, or omit to do, something
which conferred an advantage on the acquiring party in relation to the acquisition of the property, or was detrimental to the ability of the non-acquiring
party to acquire the property on equal terms. In many cases that advantage/detriment would be found in the non-acquiring party’s agreement to stay out of
the market, but that was not a necessary feature. Moreover, although there would usually be advantage to the one and co-relative disadvantage to the
other, it was not necessary that there should be both advantage and detriment; either would do. In the instant case L Ltd had obtained advantages from the
understanding, namely keeping B plc out of the market and knowing that it had the latter’s support in an acquisition on which it had not been willing to
embark by itself. In those circumstances it would be inequitable to allow it to treat the property as its own, and the appeal would therefore be allowed
(see p 137 f g, p 138 c to p 139 g and p 140 e to p 141 e g, post).
Pallant v Morgan [1952] 2 All ER 951 applied.

Notes
For constructive trusts, see 48 Halsbury’s Laws (4th edn reissue) paras 585–586.

Cases referred to in judgments

Chattock v Muller (1878) 8 Ch D 177.
Gissing v Gissing [1970] 2 All ER 780, [1971] AC 886, [1970] 3 WLR 255, HL.
Grant v Edwards [1986] 2 All ER 426, [1986] Ch 638, [1986] 3 WLR 114, CA.
Greasley v Cooke [1980] 3 All ER 710, [1980] 1 WLR 1306, CA.
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Holiday Inns Inc v Broadhead (19 December 1969, unreported), Ch D.

Holiday Inns Inc v Broadhead, Holiday Inns Inc v Yorkstone Properties (Harlington) Ltd (1974) 232 EG 951.
Hussey v Palmer [1972] 3 All ER 744, [1972] 1 WLR 1286, CA.
Inwards v Baker [1965] 1 All ER 446, [1965] 2 QB 29, [1965] 2 WLR 212, CA.
Island Holdings Ltd v Birchington Engineering Ltd (7 July 1981, unreported), Ch D.
Lloyds Bank plc v Rosset [1990] 1 All ER 1111, [1991] 1 AC 107, [1990] 2 WLR 867, HL.
Lonrho plc v Fayed (No 2) [1991] 4 All ER 961, [1992] 1 WLR 1.
McCormick v Grogan (1869) LR 4 HL 82.
Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43.
Paragon Finance plc v D B Thakerar & Co (a firm), Paragon Finance plc v Thimblely & Co (a firm) [1999] 1 All ER 400, CA.
Plimmer v Wellington Corp (1884) 9 App Cas 699, PC.
Ramsden v Dyson (1866) LR 1 HL 129.
Rochefoucald v Boustead [1897] 1 Ch 196, CA.
Time Products Ltd v Combined English Stores Group Ltd (2 December 1974, unreported), Ch D.
Ward v Kirkland [1966] 1 All ER 609, [1967] Ch 194, [1966] 1 WLR 601.
Yaxley v Gotts [2000] 1 All ER 711, [1999] 3 WLR 1217, CA.

Appeal
Banner Homes Group plc (Banner), the claimant in proceedings concerning the ownership of a development site at White Waltham, Berkshire, appealed
from the order of Blackburne J on 1 July 1998 dismissing, inter alia, its claim to be entitled, under a constructive trust, to half the shares of the purchaser
of the site, ­ 9 the second defendant, Stowhelm Ltd, which was at the material time a wholly-owned subsidiary of the first defendant, Luff
Developments Ltd. The facts are set out in the judgment of Chadwick LJ.

Charles Purle QC and Mark Warwick (instructed by Titmuss Sainer Dechert) for Banner.
John Brisby QC and Paul McGrath (instructed by LeBoeuf Lamb Greene & Macrae) for Luff and Stowhelm.

Cur adv vult

28 January 2000. The following judgments were delivered.

CHADWICK LJ (giving the first judgment at the invitation of Stuart-Smith LJ). This is an appeal from an order made on 1 July 1998 by Blackburne J
in proceedings brought by the appellant, Banner Homes Group plc (Banner), in relation to a development site at White Waltham, Berkshire. The site was
acquired, in November 1995, by the second respondent, Stowhelm Ltd (Stowhelm). Stowhelm was then a wholly owned subsidiary of the first
respondent, Luff Developments Ltd (Luff). Banner’s principal claim in the action was that, prior to the acquisition of the site by Stowhelm, an oral
agreement had been made between Banner and Luff, for the acquisition and development of the site as a joint venture. The judge dismissed that claim;
holding that there had been no concluded agreement. There is no appeal against that part of his decision. He dismissed, also, a claim in the alternative
that, notwithstanding the absence of any concluded agreement, the circumstances in which the site was acquired by Stowhelm gave rise to a constructive
trust in favour of Banner over one half of the shares in Stowhelm held by Luff. It is against the judge’s dismissal of the constructive trust claim that
Banner appeals to this court.

The primary facts

The judge’s findings of primary fact—against which there is no appeal—may be summarised as follows.
(1) At all material times prior to November 1995 the site, comprising some 6ÿ8 acres, was vested in M L Aviation Ltd subject to an uncompleted
contract with M L Holdings plc (MLH) as purchaser. The site was ripe for redevelopment and MLH wished to dispose of it.
(2) Hewland Engineering Ltd (Hewland) was an interested purchaser for its own use and occupation; but only in respect of some two acres of the
site. MLH wished to sell the site as a single lot to a single purchaser. In October 1994 Hewland was introduced to Luff as a prospective development
partner. In January 1995 agents for Luff approached MLH on behalf of Luff and Hewland as co-purchasers with an offer for the site. The basis of the
offer was subsequently modified to accommodate MLH’s requirement that it would deal with a single purchaser, Luff, with Hewland becoming a
sub-purchaser of the two acres in which it was interested.
(3) The scale and nature of the purchase and subsequent redevelopment were such that Luff looked for a joint venture partner in relation to the
balance of the site (some 4ÿ8 acres) that would remain after the sub-sale to Hewland. In March 1995 Luff was introduced to Banner. Banner had, itself,
known of and been interested in the site in 1994; but that interest had not been pursued at that ­ 10 time in the light of actual or perceived planning
constraints. The introduction led to a meeting on 20 March 1995 between Mr Stuart Crossley, Banner’s chairman and chief executive, and Mr Bob
Pattison, a chartered surveyor who was employed as Luff’s development manager.
(4) Immediately following that meeting: (a) Luff’s agents wrote to the agents for MLH with a revised offer to purchase the whole site at a price of
£3ÿ4m, subject to satisfactory detailed planning permission for the erection of a factory for occupation by Hewland and for the development of the
remainder of the site as office accommodation; and (b) Mr Crossley wrote to Luff’s agents, with a copy to Mr Pattison, confirming Banner’s interest in a
joint venture in which both parties would contribute equal equity and would share profits and losses equally.
(5) Mr Pattison replied to Mr Crossley on 3 April 1995. The letter included the following paragraph:

‘The terms referred to in your letter of 22 March are in line with our own views on this scheme and should provide the basis for a mutually
successful project. We have looked at previous J V agreements we have entered into but on balance and following brief discussions with our legal
advisors and Midland Bank plc, it would appear that the simplest solution may be the formation of a Joint Venture Company with each party
holding 50% of the share capital. The company’s Memorandum and Articles of Association will outline the agreement between the shareholders.’

(6) There was little further progress towards the acquisition of the site, or the proposed joint venture, until the end of June 1995. But, by the end of
June, the price for the whole site had been agreed between agents for Luff and MLH at £3ÿ4m (subject to contact) with the sub-sale of two acres to
Hewland at a price of £1ÿ2m. It was against that background that there was a further meeting between Mr Crossley and Mr Pattison on 14 July 1995. At
that meeting there was agreement in principle as to matters recorded by Mr Crossley in a contemporaneous manuscript note. Those matters were: (a) that
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the site should be purchased from MLH at a price of £3ÿ4m with a sub-sale to Hewland at £1ÿ2m—leaving a balance of £2ÿ2m to be funded by Luff and
Banner as joint venturers; (b) that up to £100,000 would be spent on initial work, to include demolition, marketing, roads and any requirement imposed by
the local authority; (c) that the purchase and initial work would be effected through a new single enterprise company to be acquired for the purpose and to
be owned 50:50 by Luff and Banner; (d) that, at the end of nine months from the acquisition, unless Luff and Banner had reached agreement as to the
development of that part of the site remaining after the sub-sale to Hewland, that remaining part of the site would be the subject of a ‘Texas shoot out’ or
disposed of on the open market at the best price that could be obtained. A ‘Texas shoot out’ was understood to mean an arrangement under which either
party could offer put and call options at a specified price or prices which the other could accept or refuse.
(7) On 20 July 1995 Mr Pattison wrote to Mr Crossley expressing the hope that a forthcoming meeting with Mr Peter Luff, his chairman, ‘will prove
to be the start of a successful and profitable joint venture’. On the same day Mr Pattison wrote to Mr Peter Vass, Luff’s solicitor. The letter included the
following paragraph:
­ 11
‘We propose to form a 50/50 joint venture company with Banner Homes plc of [address] to acquire the above property [the White Waltham site]
from M L Aviation at a figure of £3ÿ4M.’
The letter went on to give Mr Vass the name of Banner’s solicitor; and to inform him of the proposed sub-sale to Hewland.
(8) The meeting with Mr Peter Luff took place, as arranged, on 24 July 1995. There was a brief discussion of the matters which had been agreed
between Mr Crossley and Mr Pattison on 14 July. It was agreed that both Banner and Luff would instruct solicitors to prepare a written document.
(9) On 24 July 1995 Mr Vass wrote to Banner’s solicitor ‘in connection with the proposed joint venture with Luff’. He referred to ‘a purchase in the
name of a newly formed limited company’; as to which, he said, he would be getting instructions in due course. Mr Vass received those instructions in
the course of a telephone call from Mr Pattison on the following day. In his witness statement, which stood as his evidence-in-chief, he said:

‘11. In my file, dated 25 July 1995, is my hand written note of my telephone conversation with Robert Pattison of Luff. He instructed me to
form a new company which was to be a single asset company just for this one project as they have done from time to time in the past. This could
also be a suitable vehicle for the joint venture agreement. If there was a joint venture agreement the directors were eventually to be Stuart Crossley
from Banner Homes and Peter Luff of Luff who was also to be the secretary. 12. Accordingly I bought a company called Stowhelm Limited off the
shelf.’

(10) Between late July and late August 1995 Mr Vass corresponded with Banner’s solicitor in relation to the purchase of the site from MLH.
Banner’s solicitor made a number of minor amendments to the draft purchase contract. Mr Vass sent him the preliminary inquiries which he had raised
with MLH’s solicitors.
(11) On 11 August 1995 Mr Neville Bailey, Banner’s technical director, visited the site with a view to identifying any potential features which might
affect its future use—in particular, possible asbestos contamination. Following that visit, and a favourable report from environmental consultants, there
was a meeting between Mr Bailey, Mr Crossley and Mr Pattison on 16 August 1995. That evening Mr Pattison sent to Mr Crossley by fax what he
described on the cover sheet as ‘The White Waltham J V agreement’:

‘MEMORANDUM OF HEADS OF TERMS FOR JOINT VENTURE COMPANY

1. 50/50 deadlocked Company each having a board member. 2. A 9 month period during which we renew outline consent and we market site
via agents. 3. We spend jointly up to £100,000 on demolition, preparatory works, subsequent to receipt of renewed planning consent. 4. After 9
months from completion of purchase, if no agreement on how to proceed we have a ‘Texas Shootout’, either party can buy out the other, ie one
party makes a bid and the other party can buy or sell. In the event that this doesn’t work the site can be put on the market and sold at best price. 5.
All expenses/costs are to be mutually agreed and shared.’

Mr Pattison sent a copy of that memorandum, described in his covering note as a ‘draft memorandum on the J V Company’, to Mr Vass on 17
August 1995, with the instruction that Mr Vass was to speak to Banner’s solicitor ‘and sharpen ­ 12 up the wording if appropriate’. Before Mr Vass
had done so, Banner’s solicitor had prepared a lengthy draft of a shareholders’ agreement which he sent to Mr Vass on 24 August 1995.
(12) The draft shareholders’ agreement received little or no attention from either side until it was produced at a meeting at Banner’s offices on 18
October 1995. The delay in the meantime had been caused, in part at least, by the need for a site investigation into the existence of services running under
the site. There was, by this stage, growing pressure from both MLH and Hewland to exchange contracts.
(13) The draft shareholders’ agreement was produced, but not discussed in detail, at the meeting on 18 October 1995. By that time Luff was
beginning to have second thoughts as to the wisdom of having Banner as a joint venturer. But it did not share those thoughts with Banner. It was willing
to keep Banner ‘on board until someone or something better turned up’. Luff was aware that, if dropped, Banner might emerge as a rival for the site.
(14) There was a lengthy meeting at Luff’s offices on 23 October 1995. The purpose of the meeting was to agree (if possible) the shareholders’
agreement. Extensive amendments were made to the draft which had been prepared by Banner’s solicitor; but, by the end of the meeting, further work
was still needed. Time was pressing: firstly, because exchange of contracts with MLH and Hewland was imminent; and, secondly, because Mr Vass
(Luff’s solicitor) was about to go on holiday. Banner’s solicitor was concerned that there should be some documentation in place between Banner and
Luff before contracts were exchanged for the acquisition of the site. There was, also, of course, a question as to how the acquisition would be funded.
The judge set out, in some detail, the conversations and correspondence which took place—and the proposals and counter-proposals which were
advanced—in the last week of October. It is unnecessary to rehearse them in this summary. It is sufficient to adopt the description by the judge of the
position as at the exchange of contracts for the purchase and sub-sale on 1 November 1995. It is clear, therefore, that, to Banner’s knowledge, exchange
of contracts was to occur, and did occur, before the parties were signed up to any formal written agreement. It is equally clear that Luff had given Banner
to understand that it was content to exchange contracts without requiring any form of separate guarantee committing Banner to contribute one half of the
costs of the net site and that the reason for this was that the mutual rights and obligations of the parties would be set out in the shareholder agreement. It
is also clear that both sides intended to enter into the shareholder agreement as soon as possible, the only reason for the delay being Mr Vass’s absence on
holiday. At no stage was any indication given that reasons existed why the agreement should not be entered into. Specifically nothing was said on either
side to indicate that any difference of principle existed which would prevent the parties from agreeing terms.
(15) Completion of the site acquisition, and of the sub-sale to Hewland, was due to take place on 22 November 1995. Mr Vass returned from holiday
on 6 November 1995. There was an obvious need to reach agreement as to the terms of the joint venture agreement. The remaining points of difference
were resolved at a meeting on 16 November 1995; but subject to further consideration by Luff’s representatives as to the way in which one clause of the
agreement—cl 19, which provided for the transfer of the shares in Stowhelm by one party to the other in the event of breach or insolvency—would
operate in practice. The judge found that Banner was left in the belief that Luff had every ­ 13 intention of wanting to proceed with the joint venture.
But Luff, itself, was having further thoughts. On 21 November 1995 it sought advice from a solicitor who was thought to have special expertise in
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relation to joint ventures. He expressed serious doubts as to the commercial benefit to Luff of the agreement in the form negotiated. On receipt of that
advice, on or shortly after 23 November 1995, Luff decided to withdraw. That decision was not communicated to Banner until, at the earliest, 15
December 1995; and not in unequivocal terms until 4 January 1996.
(16) In the meantime, on 22 November 1995, Stowhelm completed the purchase of the site from M L Aviation Ltd; and completed its sub-sale to
Hewland. Stowhelm’s purchase was funded by moneys made available by Luff. Banner learnt that completion had taken place a few days thereafter.

The judgment below

The judge addressed, first, the question whether Banner and Luff had entered into a binding contract. He held that no binding contract had come into
existence. First, he was satisfied that there was no intention, on either side, to enter into an agreement binding in law unless and until the terms of that
agreement were set out in a formal document and signed by the parties. It was intended that that document should be the shareholders’ agreement. In the
event, no shareholders’ agreement (or any other agreement) was signed. Secondly, there was no certainty as to the terms of the proposed shareholders’
agreement until the meeting of 16 November 1995. Thirdly, even after that meeting, the agreement as to terms remained conditional on Luff’s acceptance
of cl 19. The judge expressed his view on the first—and, perhaps, decisive—point in the following passage of his judgment:

‘Banner’s whole approach to the need to have a detailed shareholder agreement signed and in place together with its actions from and after 23
October to bring this about, make it reasonably plain that it regarded the signing of a formal shareholder agreement as the trigger for the payment of
its share of the site acquisition and other costs, the acquisition of its shareholding in Stowhelm and the appointment of its nominees to Stowhelm’s
board. This conduct is difficult to reconcile with the view that the parties were already contractually bound to each other. On the other hand it is
entirely consistent with the view that, until a signed agreement was in place, neither side was contractually bound to the other.’

As I have already mentioned, there is no appeal against that finding. The judge then considered a submission that Luff was estopped from denying
the existence of a binding contract for a joint venture. He rejected that submission on the ground that ‘on the facts as I have found them, there never was
any assumption common to both sides (a necessary ingredient of the estoppel if it is to be established) that a binding contract was already in existence’.
There is no appeal against that finding. But the judge went on to say:

‘Banner’s belief, encouraged by Luff’s conduct and representations leading up to and in the days following exchange of contracts for the White
Waltham site on 1 November, that the joint venture proposal was proceeding and that there would be a formal agreement setting out the terms of
their relationship is rather different and is relevant to the question ­ 14 whether, in the circumstances, Banner can establish that the net site (or
Luff’s shareholding in Stowhelm) is subject to a constructive trust in its favour.’

He returned to that point when giving the first of two reasons for rejecting the constructive trust claim. He said:

‘First, although from 14 July until 16 November (if not later) Luff gave Banner to understand that there would be a joint venture and that it
intended to enter into a shareholder agreement to regulate their relationship and although, for its part, Banner continued throughout to have every
intention of entering into a joint venture with Luff and of agreeing and signing a shareholder agreement, the communications between them
proceeded on the footing, as I have mentioned, that, unless and until a shareholder agreement was entered into, neither side was legally committed.
Implicit in this was that either side had the right to withdraw … That being the position, I do not see how Banner’s hope and expectation, however
much Luff may have encouraged it, that a formal agreement would be entered into following which Banner would discharge the obligations and
take the benefits arising under the joint venture, can give rise to the common arrangement or understanding which is a necessary foundation for the
establishment of the equity. I do not see how equity can turn a common arrangement or understanding, which is implicitly qualified by the right of
either side to withdraw, into an unqualified arrangement or undertaking which denied any such right. It is equity’s function, where it can, to give
effect to the parties’ bargain, but not to make or alter it for them.’

The judge gave as a second reason for rejecting the constructive trust claim that (even if the necessary arrangement or understanding had existed)
Banner had failed to show that it had acted to its detriment in reliance on that arrangement or understanding. He referred to the evidence of Mr Crossley
(Banner’s chairman and chief executive) that Banner would have considered seriously making its own bid for the site:

‘Q. … When precisely do you say that you would have been serious about making a bid for the site? A. It never arose. We never thought
about it at the time. I am simply saying that the size of the transaction, the level of confidence by—and I cannot be precise because it is
hypothetical and it is historic and the question never arose at the time—but by September or October the property market, especially the housing
market (which is the main source of our well-being) had moved to such a degree that we could well have been able to afford the whole site … It
was our ambition during this time to expand our activities in commercial property …’

He dismissed the contention that, but for its understanding that there was to be a joint venture, Banner would have entered the market as ‘a
speculation’. He said:

‘A speculation as to what Banner might have done (let alone what it would have done) in September or October 1995—not if there had been no
common arrangement or understanding at all but if, having come to some arrangement or understanding with Banner, Luff had subsequently
withdrawn—does not seem to me to [be] an act of detriment which enables Banner to establish its equity if otherwise the conditions for its
establishment are present.’
­ 15
In reaching the conclusion that Banner had failed to establish a constructive trust over the shares in Stowhelm, the judge expressed ‘some regret
because I consider that Banner was somewhat ill-used by Luff’. Nevertheless, given the findings of fact which he had made, it was a conclusion at which,
as he said, he felt bound to arrive.

The law: constructive trusts

The judge was referred—as we have been—to a number of cases at first instance which illustrate the circumstances in which equity will impose a
constructive trust on property acquired by one person, say A, in furtherance of some pre-acquisition arrangement or understanding with another, say B,
that, upon the acquisition of the property by A in circumstances in which B kept out of the market, B would be granted some interest in the property;
notwithstanding that the arrangement or understanding falls short of creating contractual obligations enforceable at law. It is helpful, I think, to preface an
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examination of those cases with the overview, recently provided by Millett LJ in Paragon Finance plc v D B Thakerar & Co (a firm), Paragon Finance
plc v Thimblely & Co (a firm) [1999] 1 All ER 400, of the underlying principles applicable in this area. He said (at 408–409):

‘… the expressions “constructive trust” and “constructive trustee” have been used by equity lawyers to describe two entirely different situations.
The first covers those cases … where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful
transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where
the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff. A constructive trust arises by
operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the
legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the
constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to
create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and
confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. Well-known
examples of such a constructive trust are McCormick v Grogan (1869) LR 4 HL 82 (a case of a secret trust) and Rochefoucald v Boustead [1897] 1
Ch 196 (where the defendant agreed to buy property for the plaintiff but the trust was imperfectly recorded). Pallant v Morgan [1952] 2 All ER
951, [1953] Ch 43 (where the defendant sought to keep for himself property which the plaintiff trusted him to buy for both parties) is another. In
these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances
in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.’

Robert Walker LJ pointed out in Yaxley v Gotts [2000] 1 All ER 711 at 721, [1999] 3 WLR 1217 at 1227 that the principles upon which equity acts
in what Millett LJ ­ 16 had described, in the Paragon Finance case, as the first class of constructive trust case have much in common with those of
proprietary estoppel. He said:

‘Plainly there are large areas where the two concepts do not overlap … But in the area of a joint enterprise for the acquisition of land (which
may be, but is not necessarily, the matrimonial home) the two concepts coincide. Lord Diplock’s very well-known statement in Gissing v Gissing
[1970] 2 All ER 780 at 790, [1971] AC 886 at 905 brings this out: “A resulting, implied or constructive trust—and it is unnecessary for present
purposes to distinguish between these three classes of trust—is created by a transaction between the trustee and the cestui que trust in connection
with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him
to deny to the cestui que trust a beneficial interest in the land acquired. And he will be held to have so conducted himself if by his words or conduct
he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the
land.”’ (See [2000] 1 All ER 711 at 721, [1999] 3 WLR 1217 at 1227–1228.)

Robert Walker LJ drew attention to the observations of Lord Bridge of Harwich in Lloyds Bank plc v Rosset [1990] 1 All ER 1111 at 1118–1119, [1991] 1
AC 107 at 132—also a matrimonial home case. Lord Bridge identified the need, first, to find ‘at any time prior to acquisition, or exceptionally at some
later date … an agreement, arrangement or understanding reached between them that the property is to be shared beneficially’. He went on:

‘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 proprietary estoppel.’

Browne-Wilkinson V-C had expressed the same view as to the common foundation on which proprietary estoppel and this class of constructive trust
are based in Grant v Edwards [1986] 2 All ER 426, [1986] Ch 638. In a passage to which Robert Walker LJ was to refer in Yaxley v Gotts,
Browne-Wilkinson V-C said:

‘I suggest that in other cases of this kind, useful guidance may in the future be obtained from the principles underlying the law of proprietary
estoppel which in my judgment are closely akin to those laid down in Gissing v Gissing [1970] 2 All ER 780, [1971] AC 886. In both, the claimant
must to the knowledge of the legal owner have acted in the belief that the claimant has or will obtain an interest in the property. In both, the
claimant must have acted to his or her detriment in reliance on such belief. In both, equity acts on the conscience of the legal owner to prevent him
from acting in an unconscionable manner by defeating the common intention. The two principles have been developed separately without
cross-fertilisation between them; but they rest on the same foundation and have on all other matters reached the same conclusions.’ (See [1986] 2
All ER 426 at 439, [1986] Ch 638 at 656.)
­ 17
Browne-Wilkinson V-C went on to consider the extent to which the burden was on the claimant to establish the link between the acts done by the
claimant and her belief that she had, or would obtain, an interest in the property. He said:

‘As at present advised, once it has been shown that there was a common intention that the claimant should have an interest in the house any act
done by her to her detriment relating to the joint lives of the parties is, in my judgment, sufficient detriment to qualify. The acts do not have to be
inherently referable to the house … The holding out to the claimant that she had a beneficial interest in the house is an act of such nature as to be
part of the inducement to her to do the acts relied on. Accordingly, in the absence of evidence to the contrary, the right inference is that the claimant
acted in reliance on such holding out and the burden lies on the legal owner to show that she did not do so: see Greasley v Cooke [1980] 3 All ER
710, [1980] 1 WLR 1306.’ (See [1986] 2 All ER 426 at 439, [1986] Ch 638 at 657.)

The decisions at first instance

With those principles in mind, I turn to examine the first instance decisions in which equity has imposed a constructive trust on property acquired by
one person in furtherance of some arrangement or understanding with another that, by keeping out of the market, that other would, nevertheless, be able to
acquire some interest in the property. The principal cases are Chattock v Muller (1878) 8 Ch D 177, Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43,
Holiday Inns Inc v Broadhead (19 December 1969, unreported), Holiday Inns Inc v Broadhead, Holiday Inns Inc v Yorkstone Properties (Harlington) Ltd
(1974) 232 EG 951, Time Products Ltd v Combined English Stores Group Ltd (2 December 1974, unreported) and Island Holdings Ltd v Birchington
Engineering Ltd (7 July 1981, unreported).
In Chattock v Muller the defendant, whose estate immediately adjoined a property which was to be offered for sale by auction, agreed with the
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plaintiff, who was a prospective purchaser interested in that property, that only one of them should bid; and that, if that bid were successful, the property
should be divided between them. In the event, the defendant bid at the auction, but was unsuccessful. The property was bought in by the vendor at the
reserve price. Subsequently the parties came to a further oral arrangement, under which the defendant was to buy the property if he could by private
contract; and, if he did so, the plaintiff would have from him the mansion house and the 80 or 90 acres which he wanted. On 4 July 1876 the defendant
wrote to the plaintiff that he had had an offer from the auctioneer; adding ‘I have held off more in your interest than in mine, but you are quite at liberty to
offer for the property’. The plaintiff replied that, in the light of the defendant’s letter he would not think of making an offer or interfering in any way.
The defendant purchased the property; but, having decided to keep it for his son, refused to convey any part to the plaintiff. The plaintiff claimed specific
performance. He was met with the defence that the arrangement was too uncertain—in that, it was said, there was no certainty as to the part of the
property that the plaintiff was to have or the price that he was to pay for it. At the close of argument, Malins V-C reserved judgment on the issue of
certainty; but a note to the report, records (at 180–181):

‘… the Vice-Chancellor intimated his opinion that the Defendant had lulled the Plaintiff into not making an offer for the estate; that the letter of
the 4th of July was conclusive that the Defendant was all the time leading the ­ 18 Plaintiff to believe that if he bought the property the Plaintiff
should have the part he wanted. Otherwise he ought to have told the Plaintiff not to rely upon him, and that if he wanted any part of the estate he
must bid in competition with him; and that having, so to speak, warned the Plaintiff off from the purchase, the Defendant was, in his opinion, no
longer at liberty to change his mind; that there was clearly an arrangement that the Defendant was to buy the estate so far as he wanted it, for
himself, and so far as he did not want it, for the Plaintiff; so that if the agreement had been to buy the whole estate for the benefit of the Plaintiff,
the Defendant could not have bought it for himself, he would have been a trustee …’

When he came to give judgment Malins V-C was satisfied that the uncertainty could be resolved by reference to a memorandum and plan, on the
basis of which the original, pre-auction, arrangement had been made; but, as is clear from his observations at the close of argument, he would have been
willing to overcome any lack of certainty if he had found it necessary to do so. In the course of his judgment he said (at 181–182):

‘It is clear that the Defendant attended the auction partly on his own account and partly as the Plaintiff’s agent, and if he had then purchased the
estate, he must have been held to be a trustee for the Plaintiff of the house and the eighty or ninety acres which it had been arranged that he should
have. The subsequent negotiations were treated as carried on by the Defendant on behalf of himself and the Plaintiff, and he treated the purchase as
a joint purchase in various letters until the 25th of July, when he appears to have become enamoured with the estate, and astonished the Plaintiff by
his letter of that date, in which he assumed to be the owner of the estate, part of which he had unquestionably purchased as the agent of the Plaintiff.
This was a flagrant breach of duty, which in this Court has always been considered as a fraud … But it was strongly argued … for the Defendant,
that the Plaintiff cannot have a decree because there was no certainty as to what part of the estate the Plaintiff was to have, or as to the price to be
paid for it. In a case like this, where the Defendant has acquired the estate or part of it by a fraud on the Plaintiff, I think that the Court would be
bound, if possible, to overcome all technical difficulties in order to defeat the unfair course of dealing of the Defendant, and I should not, in my
opinion, be going too far if I compelled the Defendant to give the whole estate to the Plaintiff at the price given for it, rather than that he should
succeed in retaining it on account of any uncertainty as to the part which the Plaintiff is entitled to have. But I think the memorandum in the
handwriting of the Defendant, which was given to the Plaintiff at the interview of the 20th of June, relieves the Court in this case from any
difficulty.’

Although Malins V-C was able to satisfy himself, on the facts in Chattock v Muller, that there was a memorandum in writing which contained, with
sufficient certainty to satisfy the Statute of Frauds 1677, the terms of the agreement between the parties, it is plain that it was not the existence of the
memorandum which led him to treat the defendant as a trustee of the property. The defendant was a trustee because, having ‘so to speak, warned the
Plaintiff off from the purchase’, he was no longer to be allowed, in equity, to treat the property as his own. The defendant had led the plaintiff to think
that, if he did not compete with him for the property, the defendant would deal with the ­ 19 property (when acquired) for their common benefit. In
reliance on that understanding the plaintiff had refrained from attempting to acquire the property for himself. It would be unconscionable for the
defendant, having acquired the property in those circumstances, to act inconsistently with the understanding on which the plaintiff had relied.
Chattock v Muller was applied, some 75 years later, in Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43. The plaintiff and the defendant,
neighbouring landowners, were each concerned to protect nearby woodland (which they did not own). On learning that the woodland was to be offered at
auction, they sought to agree which parts each should acquire; on the basis that, if agreement could be reached, they would not compete against each other
at the auction. No concluded agreement was reached before the day of the auction. Their agents met at the sale. The plaintiff’s agent had instructions to
bid up to £2,000 for lot 16; the defendant’s agent had instructions to bid up to £3,000 for that lot. It was agreed between the agents that the plaintiff’s
agent would refrain from bidding for lot 16 on the basis that the defendant’s agent would bid for both lot 16 and lot 15 (in respect of which he also had
instructions). The agents agreed that, if the defendant acquired both lots at the auction, he would sell on to the plaintiff part of lot 16 (marked A on a
plan)—save to the extent (if any) which that part affected certain water rights about which the defendant was concerned—and also part of lot 15 (marked
C on the plan). The price was to be ascertained in accordance with a formula which had been agreed in the course of earlier discussions; but that formula
had itself left the values of land and timber on which it was based to be agreed. In the event, the defendant’s agent bought both lot 15 and lot 16 at the
auction; the latter for a sum which was less than that to which the plaintiff’s agent had had instructions to go, if he had been bidding. The defendant
refused to convey any part of the land to the plaintiff. The plaintiff sought specific performance of the agreement; alternatively, a declaration that the
defendant held the property in trust for himself and the plaintiff jointly and an order for sale.
Harman J ([1952] 2 All ER 951 at 954, [1953] Ch 43 at 48) held that there could be no order for specific performance. There was too much left to be
agreed. There was the margin between £3 and £5 an acre for the land; there was the exact method of valuing the timber; and there was the question what
part, if any, of portion A affected the defendant’s water rights. But he went on:

‘Is the result, then, that the plaintiff must fail? In my judgment, not so. To allow the defendant to retain lot 16 under these circumstances would
be tantamount to sanctioning a fraud on his part …’ (See [1952] 2 All ER 951 at 954, [1953] Ch 43 at 48.)

Harman J then referred to the judgment of Malins V-C in Chattock v Muller (1878) 8 Ch D 177 at 181–182, which I have already set out, and said:

‘The present case is, if anything, stronger than that one, but I do not follow the Vice-Chancellor in his suggestion that the defendant could
become bound to hand over the whole property to the plaintiff at the price he gave for it. In my judgment, the proper inference from the facts is that
the defendant’s agent, when he bid for lot 16, was bidding for both parties on an agreement that there should be an arrangement between the parties
on the division of the lot if he were successful. The plaintiff and the defendant have failed to reach such an agreement, and the court cannot compel
them to one. The best it can do is to decree that the property is held by the defendant for ­ 20 himself and the plaintiff jointly, and, if they still
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fail to agree on a division, the property must be re-sold, either party being at liberty to bid, and the proceeds of sale being divided equally after
repaying to the defendant the £1,000 which he paid with interest at 4 per cent. It is true that the suggested agreement would have involved the
transfer to the plaintiff of a portion of lot 15, but, in default of an agreement, he cannot obtain that, for his agent had no instructions to bid for that
lot in any event.’ (See [1952] 2 All ER 951 at 955, [1953] Ch 43 at 50.)

It is, I think, important to note three points. First, that the plaintiff did not, in fact, suffer any detriment as a consequence of his agent’s agreement
not to bid for lot 16. If the plaintiff’s agent had bid for that lot, up to the amount (£2,000) prescribed by his instructions, he would have been outbid by
the defendant’s agent, whose instructions permitted him to go to a substantially higher figure (£3,000). But the defendant obtained an advantage from the
agreement. By keeping the plaintiff out of the market his agent was able to obtain lot 16 for £1,000; whereas, if he had been bidding against the
plaintiff’s agent, he would have had to go to a figure in excess of £2,000. Second, that the trust did not attach to any part of lot 15, notwithstanding that
portion C, which had been included in the arrangement made between the agents, was within that lot. The reason, as Harman J explained, was that the
plaintiff had done (or omitted to do) nothing in relation to lot 15. He had not refrained from bidding for lot 15 in reliance on any assurance from the
defendant. On the facts, he had already decided not to bid for that lot before any assurance was given by the defendant’s agent at the auction. So the
plaintiff suffered no detriment in relation to lot 15; and the defendant obtained no advantage in relation to that lot. It was not enough that the plaintiff had
been led to think that he would obtain an interest in lot 15 if he refrained from bidding for lot 16. Third, it is important to note that the plaintiff’s claim to
an interest in lot 16 was not defeated by the fact that, as the judge found, his agent knew at the time when he refrained from bidding that the arrangement
which had been reached that day left certain details to be agreed. Harman J, after referring to a letter written by the plaintiff’s agent after the auction,
said:

‘It was urged upon me that this [letter] showed that the plaintiff’s agent knew that there had been no agreement before the sale. I think it does
show that he realized that the details of the agreement had been left in doubt, but this, in my judgment, is not fatal to the plaintiff’s case, which rests
on the fact that his agent was kept out of the ring at the auction by a promise that, if he did not bid, an agreement would be reached.’ (See [1952] 2
All ER 951 at 956, [1953] Ch 43 at 50.)

As Millett J put it, when commenting upon Pallant v Morgan in the course of a discussion of the principles upon which equity acts in cases of this
nature in Lonrho plc v Fayed (No 2) [1991] 4 All ER 961 at 970, [1992] 1 WLR 1 at 10:

‘The plaintiff’s claim [in Pallant v Morgan] rested on the fact that his agent had been kept out of the bidding by the arrangement which the
defendant later repudiated. Since it was too late to restore the plaintiff to his former position, the defendant was held to the arrangement he had
made.’

In Holiday Inns Inc v Broadhead, Holiday Inns Inc v Yorkstone Properties (Harlington) Ltd (1974) 232 EG 951 the plaintiff company—a major
international hotel operator—entered into discussions with the defendant, Mr Broadhead, with a ­ 21 view to a joint venture in relation to a hotel to be
constructed on a site near Heathrow Airport. The joint venture was to take the form of an arrangement under which the hotel company would construct
the hotel on land owned by Mr Broadhead (or a company which he controlled) in return for a lease (described as a ‘3 and 1 lease’) under which the rent
payable by the hotel company would be the relevant percentage (3% and 1% respectively) of gross accommodation receipts and gross food and beverage
receipts. The initial discussions took place at a time when the only site which Mr Broadhead could offer was a five-acre site. That site was less than
satisfactory to the plaintiff company; and, with a view to meeting its requirements, Mr Broadhead acquired an option over a neighbouring 15-acre site.
The plaintiff company spent time and money in seeking planning permission in relation to that 15-acre site. In the event planning permission was granted
following an appeal to the minister and a public inquiry. The position thereafter was described by Goff J in the following passage of his judgment (at
955):

‘The plaintiffs’ case is that they did all this and incurred this expenditure on the faith of a firm understanding, arrangement or bargain which
they at all material times believed existed between them and Mr Broadhead that if planning permission could be obtained he would grant them a 3
and 1 lease of the 15-acre site on the standard terms. They say that Mr Broadhead knew this and nevertheless encouraged or allowed them to go on
under this belief, and yet when permission had been obtained he would not grant them such a lease, but required terms much more favourable to
himself, and although they went a long way to try to meet him, and indeed probably would have reached an agreement on the lines he was
requiring, he suddenly broke off these new negotiations and caused a lease of the 15-acre site to be granted to Trust Houses Group Ltd. Thus they
say Mr Broadhead took an unconscionable advantage of them, and while they have never suggested that the understanding, arrangement or bargain
was sufficiently precise to be enforceable as a contract, they claim to be entitled to relief in equity. Mr Broadhead’s case on this main issue is not
that no such equity exists. Indeed, Mr Waite [counsel for Mr Broadhead] very properly conceded in argument that it does in proper cases, but he
submits that there was here no such understanding, arrangement or bargain as would enable the plaintiffs to succeed.’

The proceedings had come before Megarry J on an application for interlocutory relief. In a judgment delivered on 19 December 1969 (unreported)
he referred to Chattock v Muller (1878) 8 Ch D 177 and Pallant v Morgan; and to a passage in Fry on Specific Performance (6th edn, 1921) p 184, para
386 which had, itself, been set out in Pallant v Morgan [1952] 2 All ER 951 at 954, [1953] Ch 43 at 48. In relation to Harman J’s decision in the latter
case he said:

‘First, the decision seems to me to go a good deal farther than Chattock v Muller or Fry on Specific Performance. The opening sentence in the
quotation from Fry appears in part III of the book, entitled “Defences to the Action”, that is, the action for specific performance, and in ch IV of that
part, entitled “Uncertainty of the Contract”. When, then it is said that “The same certainty will not be required in cases where there is any element
of fraud, as in simple cases of specific performance of a contract”, that sentence and the following word, “Thus”, indicate that what follows is a case
where specific ­ 22 performance will be decreed, despite a lesser degree of certainty. In fact, in Pallant v Morgan specific performance was in
terms refused. Instead, as I understand it, the court enforced against the defendant an innominate equity of an entirely different nature. In place of
the agreement for division which the parties failed to make, equity compelled the defendant who had acquired the property to hold it not for himself
alone, but for himself and the plaintiff; and in default of any other basis the property was held for the parties in equal shares, presumably on the
basis that equality is equity. If Chattock v Muller represents the requirements of specific performance being modified in the case of fraud, Pallant v
Morgan represents the substitution of an alternative remedy for specific performance. The doctrine is interesting and important and, had
circumstances permitted, I should have preferred to have taken time to consider my judgment. Second, I would not regard equality as being of the
essence of the Pallant v Morgan equity. If, for instance, the arrangement between the parties is for a division in other fractions, such as one-quarter
and three-quarters, or one-tenth and nine-tenths, and specific performance is impossible because too much of the detail is left undecided, I do not
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see why equity should not make a Pallant v Morgan decree in corresponding fractions, such as are well known in the case of joint purchases made
with purchase money that has been provided in unequal shares. Where a reasonable certainty as to the fractions is unattainable then no doubt equity
will delight in equality. In the case before me the disparity and uncertainty in the interests of lessor and lessee in respect of a lease with rents
varying with the takings of a hotel would, I think, in the absence of valuation evidence as to the values of the respective interests, indicate equality
as the basis of the equity.’

Megarry J rejected the submission that Pallant v Morgan had been wrongly decided. He said:

‘It seems to me that if A and B agree that A shall acquire some specific property for the joint benefit of A and B on terms yet to be agreed, and
B, in reliance on A’s agreement, is thereby induced to refrain from attempting to acquire the property, equity ought not to permit A, when he
acquires the property, to insist on retaining the whole benefit for himself to the exclusion of B. If on the facts it would be inequitable for the
quantum of B’s interest to be a moiety, I do not doubt that equity could determine what justice required the quantum to be; but where the facts
suggest no other basis, then there should be equality.’

He went on to express the view, subsequently voiced by Browne-Wilkinson V-C in Grant v Edwards [1986] 2 All ER 426, [1986] Ch 638 and by
Robert Walker LJ in Yaxley v Gotts [2000] 1 All ER 711, [1999] 3 WLR 1217, that the Pallant v Morgan equity had much in common with proprietary
estoppel, as exemplified in Ramsden v Dyson (1866) LR 1 HL 129 and the other cases in that line of authority.
Holiday Inns Inc v Broadhead came on for trial, some three years later, before Goff J. His judgment is reported at (1974) 232 EG 951. He adopted
the analogy with proprietary estoppel. He said (at 1087):

‘In my judgment the authorities clearly establish that there is a head of equity under which relief will be given where the owner of property
seeks to take an unconscionable advantage of another by allowing or encouraging him to spend money, whether or not on the owner’s property, in
the belief, ­ 23 known to the owner, that the person expending the money will enjoy some right or benefit over the owner’s property which the
owner then denies him. This arises where the person expending the money does so under a mistaken belief that the property is his own, that belief
being known to the other, as in Ramsden v Dyson (1866) LR 1 HL 129, but mistake is not an essential element of a claim to relief of this nature.
The authorities also establish, in my judgment, that this relief can be granted although the arrangement or understanding between the parties was
not sufficiently certain to be enforceable as a contract, and that the court has a wide, albeit of course judicial, discretion to what extent relief should
be given and what form it should take. These principles are in my judgment plainly deducible from the case just cited and the cases of Plimmer v
Wellington Corporation (1884) 9 App Cas 699; Inwards v Baker ([1965] 1 All ER 446, [1965] 2 QB 29); Ward v Kirkland ([1966] 1 All ER 609,
[1967] Ch 194), in which the authorities, including Plimmer’s case, were very thoroughly and carefully reviewed by Ungoed-Thomas J; Pallant v
Morgan ([1952] 2 All ER 951, [1953] Ch 43), and the recent case in the Court of Appeal, Hussey v Palmer ([1972] 3 All ER 744, [1972] 1 WLR
1286). There has been much questioning what is the rationale of this equity, and even in Hussey’s case that exercise was not finally completed.
Lord Denning ([1972] 3 All ER 744 at 748, [1972] 1 WLR 1286 at 1290) said: “In those cases it was emphasised that the court must look at the
circumstances of each case to decide in what way the equity can be satisfied. In some by an equitable lien. In others by a constructive trust. But in
either case it is because justice and good conscience so require.” Phillimore LJ, on the other hand, said ([1972] 3 All ER 744 at 748, [1972] 1 WLR
1286 at 1291): “I should have thought it was more appropriate to regard it as an example of a resulting trust.” I do not think it matters, really. The
principle on which it rests is clearly, as Lord Denning said, “because justice and good conscience so require,” and the cases fully show the
conditions which have to be satisfied to give rise to it, and as I have said, they leave a wide discretion in the court.’

It may be noted that Goff J includes Pallant v Morgan in the line of cases which, as he says, clearly establish the head of equity under which he is to
grant relief.
The principal issue at the trial in Holiday Inns Inc v Broadhead was whether the plaintiff company was entitled to rely on any assurance that it would
obtain an interest in the 15-acre site in circumstances in which it knew that there was no concluded agreement. That reflects an issue in the present case.
The first ground upon which Blackburne J held against Banner on the constructive trust point was, as he put it, because:

‘I do not see how equity can turn a common arrangement or understanding, which is implicitly qualified by the right of either side to withdraw,
into an unqualified arrangement or undertaking which denied any such right.’

It is relevant, therefore, to see how Goff J viewed the point. This appears from the following passage in his judgment:

‘Mr Waite therefore rested his case on what he described, and rightly described, as the crucial question whether there was present a belief on the
part of the plaintiffs, induced by Mr Broadhead’s words or silence, that they would receive a sufficient interest in the land to justify the expenditure.
­ 24
He said this was an arrangement between commercial men dealing with each other at arm’s length with their eyes open, and so the plaintiffs
must be taken to have elected as a matter of commercial judgment to run the risk that Mr Broadhead might, as I add he clearly did, have private
reservations undisclosed at the date of the expenditure which might frustrate the conclusion of the anticipated bargain, and indeed that they might
have had similar reservations themselves. I am wholly unable to draw any such inference or conclusion. Mr Wilson’s evidence, which I accept,
was that he thought this was a gentleman’s agreement which would be honoured. Mr Tigrett in his evidence, which I also accept, said that no
reservations or thought of backing out ever occurred to him, and the whole tenor of Mr Broadhead’s conduct and letters was calculated to make the
plaintiffs believe that if planning permission were obtained they would have a straight 3 and 1 lease on the standard terms. I am satisfied and find
as a fact that both Mr Wilson and Mr Tigrett believed that and Mr Broadhead well knew that they did. His failure to inform them of his true state of
mind was deceitful and unconscionable.’ (See (1974) 232 EG 951 at 1089.)

A further feature of Holiday Inns Inc v Broadhead was the need of Mr Broadhead, as the person who was to acquire the option over the 15-acre
site—and, subsequently, the site itself—for the support of a joint venturer if the potential of the site were to be realised. Goff J explained the position in
the following passage (at 1091):

‘It is clear that Mr Broadhead had no real chance of securing planning permission himself. He needed the support of an hotelier, and he
encouraged the plaintiffs to lend him theirs. The application was put before the local authority and fought before the Minister’s inspector on the
basis that the plaintiffs would run an hotel on the site, and much reliance was placed on their expertise and their American connection which should
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bring in American tourist trade. It was suggested another hotelier might have served instead, but no other was contemplated, and I need not
consider whether another would or would not have succeeded in obtaining planning permission. I have to take the case as it is and consider the
position which in fact obtained.’

Goff J was satisfied that the hotel company had made out a case calling for the intervention of equity within the principles laid down in the cases to
which he had referred. In working out that equity, he adopted the principle of equal division, after allowing each party credit in respect of their actual
expenditure.
Shortly after Goff J’s decision in Holiday Inns Inc v Broadhead, similar issues arose before Oliver J in Time Products Ltd v Combined English Stores
Group Ltd (2 December 1974, unreported). The claim arose out of the acquisition by the first defendant (CES) of the business of retail jewellers formerly
carried on by the Collingwood Group Ltd (Collingwoods). The plaintiff (TP) was, itself, engaged in the wholesale and retail jewellery trade and was also
interested in acquiring the Collingwoods’ business. TP’s claim was that it had agreed not to offer for the Collingwoods’ business in competition with
CES on the understanding that, following acquisition by CES, the business would be run as a joint venture for the benefit of both CES and TP. The
crucial meeting took place on 14 June 1972. As Oliver J put it:
­ 25
‘The events and discussions which took place at this meeting have formed the storm-centre of the controversy which has arisen between the
parties, and one of the difficulties of this case is that I have to choose between two diametrically opposed accounts from prima facie reliable
witnesses of the real substance of the meeting with but scant assistance from any contemporary document or record.’

After a detailed examination of the evidence, he reached the following conclusions:

‘Accordingly, I find that there was reached on 14 June 1972 an agreement between TP and CES that Collingwoods should, if possible, be
acquired at the lowest possible price as a joint venture in equal shares, the business so acquired to be conducted under TP’s management for the
joint benefit of the parties … I find that the actions of the parties subsequent to the meeting in or about the negotiations [with the vendor’s agents]
leading up to the acquisition by CES were done in pursuance of that common understanding. And I find that it was in reliance upon this and in the
belief (which was known to Mr Gordon [the chairman of CES]) that the CES bid was being advanced on behalf of both parties that TP desisted
itself from pursuing further negotiations with Mr Kellner [the vendor’s agent] and thus enabled CES to acquire Collingwoods at the price at which it
was acquired.’

In the light of those findings, Oliver J went on to say:

‘What then is the result? The plaintiffs claim specific performance of the agreement. This, however, raises immediate difficulties, for the
agreement made bristles with practical questions of definition. In particular how is effect to be given to the term—an essential term—that the
management of the joint enterprise should lie with TP? Was a company to be formed on the board of which TP’s nominees were to have voting
control? Was TP to have the controlling voice in the appointment of each shop manager? Was TP to take all management staff into its employ?
And was the management to be carried out by TP free of charge or was some and if so what management fee to be charged in the accounts between
the parties … This really underlines the uncertainty of the agreement alleged—a difficulty which clearly oppressed Mr Hayman [counsel for TP]
when he came to address me on the law applicable. There are, as it seems to me, so many imponderables in the broad agreement to which the
parties came that it is really impossible for the court to see with precision what is to be performed and to give the necessary directions. Nor does it
seem to me that these imponderables are matters which can be cured by reference to chambers as was done by Malins V-C in Chattock v Muller
(1878) 8 Ch D 177; for in the instant case this would involve not finding out for certain what the agreement was, but making for the parties an
agreement that they did not make for themselves. On the other hand it would be clearly inequitable to permit the defendants to retain the whole
fruits of an acquisition made in these circumstances …’

Oliver J then referred to the passages in the judgments of Harman J in Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43 and of Megarry and
Goff JJ in Holiday Inns Inc v Broadhead which I have already set out. He went on:

‘Mr Sparrow [counsel for CES] has submitted that this case [Holiday Inns Inc v Broadhead] is not directly in point. It was, he says, directed to
a rather ­ 26 different state of affairs where A induces B into some expenditure by encouraging an erroneous belief that a certain state of affairs
exists. The instant case, he says is not such a case and had not been pleaded as such. It is, of course, true that in the instant case, it has not been
pleaded that the plaintiffs acted upon any erroneous belief encouraged by the defendants. But I am far from convinced that the case is so readily
distinguishable from that before Goff J on those grounds. The principle applicable is in my judgment the same. In this case (as indeed in Pallant v
Morgan itself) the plaintiffs’ case is, in a sense, a strong one, for they say there was no erroneous belief. There was a perfectly correct belief.
There was an agreement. And in reliance on that agreement they did, with the defendants’ concurrence, perform services for the defendants.
Whether those services were, as Mr Gordon alleges, of little value is, in my judgment, immaterial, although, as I have said I am far from convinced
that they were as valueless as he has asserted. They did perform them and he did accept them and make use of them. More important he obtained
from them the details of their offer from UKP [the vendors] and he obtained the benefit of their abstaining from further pursuing their own
negotiations. All this was not on the erroneous basis that an agreement existed. It was performance of the agreement. I cannot, however, see why
this should make any difference to the principle applicable. It is a fraud in the defendant to retain for himself the benefit of the bargain obtained
with the plaintiffs’ assistance whether that assistance was obtained by the defendant through the plaintiffs’ erroneous belief in a given state of facts
or through a promise, contractual or otherwise, given by the defendant. It is, in my judgment, equally unconscionable for the defendants, having
reaped the benefit of the transaction, now to seek to retain the property and to disregard the rights which under the agreement the plaintiffs
stipulated even though the agreement may lack certainty or be a mere gentlemen’s agreement not enforceable as a contract.’

It was on that basis that Oliver J applied the principle of Pallant v Morgan to the facts in Time Products Ltd v Combined English Stores Group Ltd
and declared that the business of Collingwoods was, and had been at all times since 12 September 1972 (the date on which the business was acquired by a
CES subsidiary), vested in that subsidiary (the second defendant to the proceedings) upon trust for TP and CES in equal shares.
We were referred, also, to the decision of Goulding J in Island Holdings Ltd v Birchington Engineering Ltd (7 July 1981, unreported). In that case
the parties had agreed that each would tender (in apparent competition) for the grant of a long lease of land owned by the local authority; but that the
defendant’s tender would be the higher of the two. On the basis that those tenders would lead to the grant of the lease to the defendant, the parties agreed
in writing that the defendant would sell part of the demised premises to the plaintiff. The defendant’s tender was accepted by the local authority; but,
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before any lease was granted, the local authority indicated that it was willing to offer the freehold of the site at a small extra cost and the defendant
accepted that offer. The defendant then offered the plaintiff the freehold (in place of a leasehold interest) of the part of the site which it had been agreed
the plaintiff was to have, again at a small extra cost. The plaintiff accepted that offer ‘subject to contract’. The parties failed to agree on the grant of
certain rights of way; and the defendant withdrew from further negotiations. The plaintiff sued for specific performance of the original ­ 27 agreement,
varied (as alleged) to take account of the offer of the freehold. The judge held that that contractual claim must fail; on the basis that the original
agreement had been discharged and replaced by a new agreement which was subject to contract and so unenforceable. But he held in favour of the
plaintiff on an alternate equitable claim.
Goulding J does not appear to have been referred to Pallant v Morgan—although he was referred to Holiday Inns Inc v Broadhead—and his
reasoning does not follow closely the analysis in the judgments of Megarry J and Goff J in the latter case. But the principle which he applied is familiar.
He said:

‘I am well aware that among the siren songs with which hard cases tempt judges onto the fatal coasts of bad law one of the most seductive is the
song whose words tell of unjust enrichment and whose music is the plaintive melody of constructive trust. Nevertheless, I am in the end of opinion
that it is contrary to justice and good conscience that the defendant retain for itself the whole benefit of the site which it obtained in consequence of
a joint venture whereby the plaintiff forewent its original opportunity of competing for any chance of acquiring that site.’

He gave effect to that view by treating the defendant as trustee of the site for the plaintiff and itself. It is pertinent to note that he did not seek to give
effect to the original agreement—under which the plaintiff was to have a defined portion of the site at a price equal to three-fifths of the price which the
defendant was to pay the local authority—but held that they should be entitled to the property in equal shares, credit being given to the defendant by way
of charge for the acquisition costs which it had borne.

The Pallant v Morgan equity

I have thought it appropriate to analyse the decisions at first instance in more detail than might otherwise have been necessary in the circumstances
that the present appeal provides the first opportunity, so far as I am aware, for this court to consider the basis and scope of what may be called the Pallant
v Morgan equity in a case in which reliance has to be placed upon it by the appellant. In my view there is no doubt that such an equity does exist and is
firmly based. It is an example of the wider equity to which Millett J referred in Lonrho plc v Fayed (No 2) [1991] 4 All ER 961 at 969–970, [1992] 1
WLR 1 at 9–10:
‘Equity will intervene by way of constructive trust, not only to compel the defendant to restore the plaintiff’s property to him, but also to require
the defendant to disgorge property which he should have acquired, if at all, for the plaintiff. In the latter category of case, the defendant’s wrong
lies not in the acquisition of the property, which may or may not have been lawful, but in his subsequent denial of the plaintiff’s beneficial interest.
For such to be the case, however, the defendant must either have acquired property which but for his wrongdoing would have belonged to the
plaintiff, or he must have acquired property in circumstances in which he cannot conscientiously retain it as against the plaintiff.’
Or, as the same judge was to say in this court, in the passage in Paragon Finance plc v D B Thakerar & Co (a firm), Paragon Finance plc v
Thimblely & Co (a firm) [1999] 1 All ER 400 at 408–409, to which I have already referred:
­ 28
‘His [the defendant’s] possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his
subsequent appropriation of the property to his own use is a breach of that trust.’
It is important, however, to identify the features which will give rise to a Pallant v Morgan equity and to define its scope; while keeping in mind that
it is undesirable to attempt anything in the nature of an exhaustive classification. As Millett J pointed out in Lonrho plc v Fayed (No 2) [1991] 4 All ER
961 at 969, [1992] 1 WLR 1 at 9, in a reference to the work of distinguished Australian commentators, equity must retain its ‘inherent flexibility and
capacity to adjust to new situations by reference to mainsprings of the equitable jurisdiction’. Equity must never be deterred by the absence of a precise
analogy, provided that the principle invoked is sound. Mindful of this caution, it is, nevertheless, possible to advance the following propositions. (1) A
Pallant v Morgan equity may arise where the arrangement or understanding on which it is based precedes the acquisition of the relevant property by one
of those parties to that arrangement. It is the pre-acquisition arrangement which colours the subsequent acquisition by the defendant and leads to his
being treated as a trustee if he seeks to act inconsistently with it. Where the arrangement or understanding is reached in relation to property already
owned by one of the parties, he may (if the arrangement is of sufficient certainty to be enforced specifically) thereby constitute himself trustee on the
basis that ‘equity looks on that as done which ought to be done’; or an equity may arise under the principles developed in the proprietary estoppel cases.
As I have sought to point out, the concepts of constructive trust and proprietary estoppel have much in common in this area. Holiday Inns Inc v
Broadhead may, perhaps, best be regarded as a proprietary estoppel case; although it might be said that the arrangement or understanding, made at the
time when only the five-acre site was owned by the defendant, did, in fact, precede the defendant’s acquisition of the option over the 15-acre site. (2) It is
unnecessary that the arrangement or understanding should be contractually enforceable. Indeed, if there is an agreement which is enforceable as a
contract, there is unlikely to be any need to invoke the Pallant v Morgan equity; equity can act through the remedy of specific performance and will
recognise the existence of a corresponding trust. On its facts Chattock v Muller (1878) 8 Ch D 177 is, perhaps, best regarded as a specific performance
case. In particular, it is no bar to a Pallant v Morgan equity that the pre-acquisition arrangement is too uncertain to be enforced as a contract—see Pallant
v Morgan itself, and Time Products Ltd v Combined English Stores Group Ltd—nor that it is plainly not intended to have contractual effect—see Island
Holdings Ltd v Birchington Engineering Ltd (7 July 1981, unreported). (3) It is necessary that the pre-acquisition arrangement or understanding should
contemplate that one party (the acquiring party) will take steps to acquire the relevant property; and that, if he does so, the other party (the non-acquiring
party) will obtain some interest in that property. Further it is necessary, that (whatever private reservations the acquiring party may have) he has not
informed the non-acquiring party before the acquisition (or, more accurately, before it is too late for the parties to be restored to a position of no
advantage/no detriment) that he no longer intends to honour the arrangement or understanding. (4) It is necessary that, in reliance on the arrangement or
understanding, the non-acquiring party should do (or omit to do) something which confers an advantage on the acquiring party in relation ­ 29 to the
acquisition of the property; or is detrimental to the ability of the non-acquiring party to acquire the property on equal terms. It is the existence of the
advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclusion
that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the
arrangement or understanding which enabled him to acquire it. Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43 itself provides an illustration of this
principle. There was nothing inequitable in allowing the defendant to retain for himself the lot (lot 15) in respect to which the plaintiff’s agent had no
instructions to bid. In many cases the advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market. That will
usually be both to the advantage of the acquiring party—in that he can bid without competition from the non-acquiring party—and to the detriment of the
non-acquiring party—in that he loses the opportunity to acquire the property for himself. But there may be advantage to the one without corresponding
detriment to the other. Again, Pallant v Morgan provides an illustration. The plaintiff’s agreement (through his agent) to keep out of the bidding gave an
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advantage to the defendant—in that he was able to obtain the property for a lower price than would otherwise have been possible; but the failure of the
plaintiff’s agent to bid did not, in fact, cause detriment to the plaintiff—because, on the facts, the agent’s instructions would not have permitted him to
outbid the defendant. Nevertheless, the equity was invoked. (5) That leads, I think, to the further conclusions: (i) that, although, in many cases, the
advantage/detriment will be found in the agreement of the non-acquiring party to keep out of the market, that is not a necessary feature; and (ii) that,
although there will usually be advantage to the one and co-relative disadvantage to the other, the existence of both advantage and detriment is not
essential—either will do. What is essential is that the circumstances make it inequitable for the acquiring party to retain the property for himself in a
manner inconsistent with the arrangement or understanding on which the non-acquiring party has acted. Those circumstances may arise where the
non-acquiring party was never ‘in the market’ for the whole of the property to be acquired; but (on the faith of an arrangement or understanding that he
shall have a part of that property) provides support in relation to the acquisition of the whole which is of advantage to the acquiring party. They may arise
where the assistance provided to the acquiring party (in pursuance of the arrangement or understanding) involves no detriment to the non-acquiring party;
or where the non-acquiring party acts to his detriment (in pursuance of the arrangement or understanding) without the acquiring party obtaining any
advantage therefrom.

The present appeal

With these considerations in mind, I turn to the issues raised in the present appeal. The significant findings of fact, in the context of the constructive
trust claim, are these. (1) That, in March 1995, Luff began looking for a joint developer or partner (in addition to the sub-purchaser, Hewland) with
whom to bid for the site. Luff was keen to acquire the site, but preferred to share the risk of the acquisition—given the substantial amount involved, the
speculative nature of the acquisition and the still uncertain state of the commercial property market. It was in that context that Luff was introduced to
Banner. (2) That, by 14 July 1995, Banner and Luff had reached agreement in principle for the purchase and development of the site through a single
enterprise company which was to be ­ 30 jointly owned. (3) That, following that agreement, Stowhelm—an ‘off-the-shelf’ company—was acquired by
Luff as the corporate vehicle for the purchase and development of the site and with the intention that it should be the joint venture company. (4) That,
although by mid-October Luff had begun to have second thoughts over the wisdom of having Banner as a joint venture partner—and was looking for
another partner—those second thoughts were never mentioned to Banner. Banner was to be ‘kept on board … until someone or something better turned
up’. Luff was aware that ‘if dropped, Banner might emerge as Luff’s rival for the site’. (5) That, as late as 27 October 1995, (shortly before the exchange
of contracts with the vendors of the site) it was clear that both sides intended to enter into the shareholder agreement as soon as possible; there was no
indication that any difference of principle existed between them. The judge summarised those findings in two passages in his judgment which I have
already set out. First, he referred to:

‘Banner’s belief, encouraged by Luff’s conduct and representations leading up to and in the days following exchange of contracts for the White
Waltham site on 1 November, that the joint venture proposal was proceeding and that there would be a formal agreement setting out the terms of
their relationship …’

Secondly, he said:

‘… from 14 July until 16 November (if not later) Luff gave Banner to understand that there would be a joint venture and that it intended to enter
into a shareholder agreement to regulate their relationship …’

In my view the judge misunderstood the principles upon which equity intervenes in cases of this nature when he held that ‘Banner’s hope and
expectation, however much Luff may have encouraged it, that a formal agreement would be entered into following which Banner would discharge the
obligations and take the benefits arising under the joint venture’ could not ‘give rise to the common arrangement or understanding which is a necessary
foundation for the establishment of the equity’. He was wrong to reject the constructive trust claim on the grounds that Banner was seeking to invoke the
assistance of equity in order to ‘turn a common arrangement or understanding, which is implicitly qualified by the right of either side to withdraw, into an
unqualified arrangement or undertaking which denied any such right’. The Pallant v Morgan equity does not seek to give effect to the parties’
bargain—still less to make for them some bargain which they have not themselves made—as the cases to which I have referred make clear. The equity is
invoked where the defendant has acquired property in circumstances where it would be inequitable to allow him to treat it as his own; and where, because
it would be inequitable to allow him to treat the property as his own, it is necessary to impose on him the obligations of a trustee in relation to it. It is
invoked because there is no bargain which is capable of being enforced. If there were an enforceable bargain there would have been no need for equity to
intervene in the way that it has done in the cases to which I have referred.
I am satisfied, also, that the judge was wrong to reject the constructive trust claim on the grounds that Banner had failed to show that it had acted to
its detriment in reliance on the arrangement agreed on 14 July 1995. There was evidence, to which I have referred, that the existence of the arrangement
led Banner to regard the site as ‘out of play’; that is to say, the existence of the ­ 31 arrangement made it unnecessary, and inappropriate, for Banner to
consider the site as a potential acquisition for its own commercial portfolio. But, as the judge himself recognised, one of the reasons why Luff wanted
Banner kept ‘on board’—and so did not disclose its own doubts as to the future of the joint venture—was that, ‘if dropped, Banner might emerge as a
rival for the site’. In other words, Luff saw it as an advantage that Banner’s belief that the site was out of play should be maintained. Luff wanted to keep
Banner out of the market. In those circumstances, it does not lie easily in Luff’s mouth to say that Banner suffered no detriment. But whether or not
Banner suffered detriment from the fact that it never regarded itself as free to consider the site as a potential acquisition of its own does not seem to me
conclusive. Luff obtained the advantage which it sought. Further, Luff obtained the advantage of knowing that it had Banner’s support, as a potential
joint venturer whose commitment was not in doubt, in an acquisition on which it had not been willing to embark on its own.
As I have sought to show, the Pallant v Morgan equity is invoked where it would be inequitable to allow the defendant to treat the property acquired
in furtherance of the arrangement or understanding as his own. It may be just as inequitable to allow the defendant to treat the property as his own when
it has been acquired by the use of some advantage which he has obtained under the arrangement or understanding as it is to allow him to treat the property
as his own when the plaintiff has suffered some detriment under the arrangement or understanding. That, as it seems to me, is this case.
For those reasons I would allow this appeal. In the circumstances that it was always in contemplation that a single enterprise company—which, in
the event, was Stowhelm—should acquire the site as its own asset, so that the parties should participate as the holders of shares in that company rather
than as the joint owners of the site itself, my present view is that the appropriate order is that sought in the notice of appeal; namely that the shares in
Stowhelm are held, as to one half, upon trust for Banner. If necessary, I would order a sale of all the shares in Stowhelm held by Luff and a division of
the proceeds. But I am conscious that there may have been dealings in the shares in Stowhelm since the acquisition of the site; and (if the parties cannot
agree on the appropriate form of order in the light of the decision of this court) I would think it right to hear further submissions on that question before
reaching a concluded view.
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EVANS LJ. I agree.

STUART-SMITH LJ. I also agree.

Appeal allowed.

Kate O’Hanlon Barrister.

[2000] 2 All ER 142

R v Dimsey
R v Allen

CRIMINAL; Criminal Law

COURT OF APPEAL, CRIMINAL DIVISION

LAWS LJ, MOSES J AND JUDGE CRANE
11 OCTOBER 1999

Criminal law – Confiscation order – Tax evasion – Pecuniary advantage – Whether evasion or deferral of debt capable of constituting pecuniary
advantage – Criminal Justice Act 1988, s 71(5).

A fraudulently evaded payment of £4m tax. He was convicted of a number of offences of cheating the public revenue, and the court made a confiscation
order against him in the sum of £3·1m, the amount of his realisable assets. He appealed against that order, contending, inter alia, that the tax remained
due and payable and that accordingly he had received no pecuniary advantage from the offences within the meaning of s 71(5)a of the Criminal Justice
Act 1988.
________________________________________
a Section 71(5) is set out at p 144 c, post
________________________________________

Held – On the true construction of s 71(5) of the 1988 Act, the term ‘pecuniary advantage’ extended to cases where a debt had been evaded or deferred.
Thus the fact that tax remained due did not mean that its evasion failed to confer a pecuniary advantage. In the instant case, the tax evaded by A
constituted the proceeds of the offence, and he would have been better off to the tune of £4m if the frauds had succeeded. Accordingly, that sum
represented the measure of his pecuniary advantage, and the appeal would be dismissed (see p 145 c d f g, and p 147 a, post).
DPP v Turner [1973] 3 All ER 124 considered.

Notes
For confiscation orders, see 11(2) Halsbury’s Laws (4th edn reissue) para 1284.
For the Criminal Justice Act 1988, s 71, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 1025.

Cases referred to in judgment

DPP v Turner [1973] 3 All ER 124, [1974] AC 357, [1973] 3 WLR 352, HL.
R v Martin, R v White [1998] 2 Cr App R 385, CA.
R v Tighe [1996] 1 Cr App R (S) 314, CA.
R v Travers [1998] Crim LR 655, CA.
US Government v Montgomery [1999] 1 All ER 84, CA.
Vestey v IRC [1977] 3 All ER 1073.

Appeal and applications for permission to appeal

Brian Roger Allen appealed with permission of the Court of Appeal given on 7 July 1999 from a confiscation order made by Judge Hordern in the Crown
Court at Knightsbridge on 20 February 1998, in the sum of £3,137,165 with seven years’ imprisonment in default. He also applied for permission to
appeal against the sentence of seven years’ imprisonment for 13 offences of cheating the public revenue imposed upon him by Judge Hordern on the same
day, and from the ­ 32 decision of the Court of Appeal (Laws LJ, Moses J and Judge Crane) on 7 July 1999 ([1999] STC 846) dismissing his appeal
against his conviction for those offences. Dermot Jeremy Dimsey applied for permission to appeal from the decision of the Court of Appeal in the same
judgment dismissing his appeal against his conviction before Judge Addision in the Crown Court at Guildford on 21 March 1997 for an offence of
conspiracy to cheat the public revenue. The facts are set out in the judgment of the court.

Alan Newman QC and James Kessler (instructed by Gouldens) for Allen.

Amanda Hardy and Tina Davey (instructed by Saunders & Co) for Dimsey.
Peter Rook QC and Jonathan Fisher (instructed by the Solicitor of Inland Revenue) for the Crown.
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11 October 1999. The following judgment of the court was delivered.

LAWS LJ. On 7 July 1999 this court dismissed appeals brought by Brian Roger Allen and Dermot Jeremy Dimsey against their convictions, in Dimsey’s
case of an offence of conspiracy to cheat the public revenue, and in Allen’s case of 13 substantive counts of cheating the public revenue (see [1999] STC
846). On that occasion the court also granted permission to appeal in Allen’s case against a confiscation order, made in the Crown Court at Knightsbridge
on 20 February 1998, in the sum of £3,137,165 with seven years’ imprisonment in default. The court ordered that should the default sentence fall to be
served it should be consecutive to the term of seven years’ imprisonment imposed for the 13 offences of which Allen had been found guilty.
Allen’s appeal relating to the confiscation order is now before this court together with his renewed application for permission to appeal against the
substantive sentence of seven years. In addition, both appellants ask the court to certify a point of law of general importance, in Allen’s case a series of
points, said to arise out of the court’s judgment of 7 July 1999 and to grant permission to appeal to the House of Lords.
The facts of these cases are described in detail in our judgment of 7 July 1999 and we do not repeat them now.
We turn first to the appeal relating to the confiscation order. In the Crown Court it was agreed between counsel that the amount of the appellant’s
benefit arising from his offences was £4m and that his realisable assets amounted to £3,137,195. In addition, the Crown gave an undertaking that upon a
confiscation order being made it would not pursue the appellant for pre-existing tax liabilities, in effect the shortfall of £900,000, out of any income which
he might acquire in the future. The judge accepted these figures and the Crown’s undertaking and made the confiscation order in the sum we have stated
of just over £3m.
Mr Newman QC, for the appellant Allen, submits that the confiscation order is unlawful essentially because a statutory precondition required to be
met before a confiscation order can be made has not been fulfilled. He says that the appellant has not obtained a pecuniary advantage by his fraudulent
failure to pay or declare tax due. At least he has certainly not obtained a pecuniary advantage to the tune of £4m; and a pecuniary advantage has to be
shown if the confiscation order is to be a lawful one.
The power to make confiscation orders was first introduced into the law by the Drug Trafficking Offences Act 1986 and extended so as to cover
offences other than drug trafficking by the Criminal Justice Act 1988. The relevant provisions of ­ 33 that statute were amended by the Proceeds of
Crime Act 1995, which, so far as material, came into effect on 1 November 1995. The appellant’s offending straddled periods before and after that date.
The essential change in the legislation was that, whereas under the original 1988 Act the court was empowered to make a confiscation order if certain
conditions were met, under the 1995 Act it was, subject to exceptions, required to do so.
The central provisions for present purposes are s 71(4) and (5) of the 1988 Act, which were not amended in 1995 and which provide:

‘(4) For the purposes of this Part of this Act a person benefits from an offence if he obtains property as a result of or in connection with its
commission and his benefit is the value of the property so obtained.’
(5) Where a person derives a pecuniary advantage as a result of or in connection with the commission of an offence, he is to be treated for the
purposes of this Part of this Act as if he had obtained as a result of or in connection with the commission of the offence a sum of money equal to the
value of the pecuniary advantage.’

In the light of counsel’s argument we should also note s 72(3) of the unamended statute and s 71(1C) of the amended Act which is the substitute of s
72(3). Section 72(3) provided:

‘When considering whether to make a confiscation order the court may take into account any information that has been placed before it showing
that a victim of an offence to which the proceedings relate has instituted, or intends to institute, civil proceedings against the defendant in respect of
loss, injury or damage sustained in connection with the offence.’

Section 71(1C) of the amended Act provided:

‘If, in a case falling within subsection (1B) above, the court is satisfied that a victim of any relevant criminal conduct has instituted, or intends
to institute, civil proceedings against the defendant in respect of loss, injury or damage sustained in connection with that conduct—(a) the court
shall have a power, instead of a duty, to make an order under this section; (b) subsection (6) below shall not apply for determining the amount to be
recovered in that case by virtue of this section; and (c) where the court makes an order in exercise of that power, the sum required to be paid under
that order shall be of such amount, not exceeding the amount which (but for paragraph (b) above) would apply by virtue of subsection (6) below, as
the court thinks fit.’

We should add that s 71(1B) and sub-s (6) require the court to make an order in a sum equal to the benefit derived by the offender from his offence or his
realisable assets whichever is the less. Those provisions are thus modified in a case to which s 71(1C) applies.
Section 72(7), which was not amended in 1995, is also to be borne in mind:
‘Where—(a) a court makes both a confiscation order and an order for the payment of compensation under section 35 of the Powers of Criminal
Courts Act 1973 against the same person in the same proceedings; and (b) it appears to the court that he will not have sufficient means to satisfy
both the orders in full, it shall direct that so much of the compensation as will not in its opinion be recoverable because of the insufficiency of his
means shall be paid out of any sums recovered under the confiscation order.’
­ 34
Mr Newman in essence advances two arguments. (1) The appellant’s failure to pay or declare tax due did not, on the facts of the case, offer him any
pecuniary advantage because the tax remains due and payable. Had he, perhaps between the commission of the offence or one of the offences and its
coming to light, gained interest on the money withheld, that might have been a pecuniary advantage, but the principal sum of tax due, says Mr Newman,
cannot amount to a pecuniary advantage. It remains due and payable to the Revenue. (2) As regards the corporation tax liability evaded by the appellant,
counts 1 to 7 in the indictment, the tax liability was that of the offshore companies in the case. The only pecuniary advantage which the appellant might
have gained would have been an increase in the value of the shares by virtue of the non-payment of corporation tax, but, Mr Newman submits by his
skeleton argument, the evasion scheme reduced the value of the shares.
We turn to the first of these arguments. Pecuniary advantage is not defined in the 1988 Act and should, in our judgment, be accorded its ordinary
meaning. In US Government v Montgomery [1999] 1 All ER 84 at 96 Stuart-Smith LJ indicated that there was no reason to accord a restricted meaning to
the expression in s 71(5) of the 1988 Act. So much, I think, would not be disputed by Mr Newman. The ordinary and natural meaning of pecuniary
advantage must surely include the case where a debt is evaded or deferred. The sense of the expression matches, in our judgment, with that accorded to
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the same phrase in another statutory setting, namely s 16(2)(a), now repealed, of the Theft Act 1968 under which a pecuniary advantage arose where:
‘Any debt or charge for which he makes himself liable or is or may be liable (including one not legally enforceable) is reduced or in whole or in part
evaded or deferred’. Discussing this subsection Lord Reid said in DPP v Turner [1973] 3 All ER 124 at 127, [1974] AC 357 at 365: ‘An obligation is
evaded if by some contrivance the debtor avoids or gets out of fulfilling or performing his obligation’. In short, the fact that the tax remains due does not
mean that its evasion did not confer a pecuniary advantage, nor indeed that that pecuniary advantage consisted of the whole of the tax withheld, the value
of the liability that was evaded. By his crime the appellant evaded payment of £4m tax. That sum constituted the proceeds of the offence. On the agreed
figures, as we have indicated, he had realisable assets of £3ÿ1m. The fact that he remained in law liable to pay the tax, the fact even, were it so, that the
Revenue might later recover it, does not, in our judgment, yield the proposition that the proceeds of his crime were one penny less than the whole of the
tax evaded.
It is of interest to note what was also said in Turner’s case, to which we have briefly referred. Lord Reid said:
‘An obligation is reduced if the creditor agrees with the debtor that the amount owed shall be reduced. An obligation is deferred if creditor and
debtor agree that the date of performance shall be postponed. An obligation is evaded if by some contrivance the debtor avoids or gets out of
fulfilling or performing his obligation. In the days when such things happened, a welshing bookmaker not only evaded his pursuers, he also evaded
his obligations. Evasion does not necessarily mean permanent escape. If the bookmaker evaded his pursuers on Monday, the fact that he is caught
and made to pay up on Tuesday does not alter the fact that he evaded his obligations on Monday. Unlike reducing and deferring an obligation,
evading an obligation is a unilateral operation. It leaves the obligation untouched and does not connote any activity on the part of the creditor.
­ 35
When the evasion ceases he can seek to recover the debt in any way open to him.’ (See [1973] 3 All ER 124 at 127, [1974] AC 357 at
365–366.)
We bear in mind, as was emphasised by Mr Newman, that s 16(2)(a) of the 1968 Act was regarded by the House of Lords as a deeming provision, and it
bears no analogue in the 1988 Act. But Lord Reid’s remarks about the nature of the evasion of a debt, with great respect, seem to us to be wholly
apposite to a case of the present kind. Had these very grave frauds succeeded then, in crude terms, Mr Allen would have been better off to the tune of
£4m. That represents, in our judgment, the measure of his pecuniary advantage.
We also consider that there is force in the Crown’s submission that a confiscation order falls to be clearly distinguished from a compensation order
which may be made under s 35 of the Powers of Criminal Courts Act 1973. The amount of a confiscation order is referrable to the applicant’s benefit
arising from the commission of his crime, not the loss suffered by the victim. As the Revenue’s skeleton argument, para 28, puts it: ‘The confiscation
order is made to deprive the offender of the proceeds of his crime. A compensation order is made to compensate the victim of the crime’.
Section 72(3) of the 1988 Act in its original form, s 71(1C), which was its substitute in 1995, and also s 72(7)—all of which we have set
out—demonstrate to our mind that the legislator intended that confiscation orders should, or at any rate, might be made in cases where the sum
confiscated in reality represented a debt or part of a debt which was not forgiven and remained outstanding.
Mr Newman has urged upon us the proposition that if the Crown’s arguments are accepted the way is open, in theory at least, to double recovery on
the part of the Revenue against a person in Mr Allen’s position in relation to the sum of money due. He has referred us to some authorities of the
European Court of Human Rights which—we hope without injustice—we may fairly summarise as indicating the emphasis placed by that court on the
need for certainty in the law.
In our judgment, whether or not the Revenue may hereafter seek to recover tax against the appellant which forms all or part of the tax due
represented by the confiscation order simply does not go to the scope of s 71(5) of the 1988 Act. Questions that may arise if the Revenue were to seek to
take such action hereafter would fall to be decided in different proceedings in a different court. We bear in mind the fact of the Revenue’s undertaking, to
which we have already referred, given on 20 February 1998.
Accordingly, as it seems to us, Mr Newman’s complaint as to the possibility of double recovery, his reference to the well-known passage in Walton
J’s judgment in Vestey v IRC [1977] 3 All ER 1073 at 1098, ‘One should be taxed by law, and not be untaxed by concession’ are not here in point.
In short, there is, in our judgment, nothing in Mr Newman’s first argument.
Moreover, it is to be noted that there are a number of cases where the Court of Appeal has upheld confiscation orders in relation to Revenue offences
where payment of tax has been dishonestly withheld. They are referred towards the close of the Crown’s skeleton argument where there are cited, R v
Tighe [1996] 1 Cr App R(S) 314, R v Travers [1998] Crim LR 655, 9 July 1997 and R v Martin, R v White [1998] 2 Cr App R 385.
The second point taken by Mr Newman in his skeleton argument was, as we have indicated, that the corporation tax liability, which in fact formed
the greater part of the sum of more than £4m, was a liability of the offshore companies in the case, so that any pecuniary advantage arising from its
withholding would be their advantage and not the appellant’s. However, it is plain from authorities cited by ­ 36 the Crown that the corporate veil may
fall to be lifted where companies are used as a vehicle for fraud. Here the companies in question were the appellant’s alter ego: we refer to our judgment
of 7 July 1999 for the full facts.
On this part of the case it seems to us that the Crown’s position is simply incontestable. In those circumstances the appeal against the making of the
confiscation order will be dismissed.
Mr Newman has also advanced short argument in support of his application for permission to appeal against the concurrent substantive sentences of
seven years’ imprisonment, passed for the 13 offences of which the jury found his client guilty.
The appellant is a man of 51, married, with a previous good character. All of those matters of course, go in mitigation. Obviously he has not the
mitigation of a plea of guilty. These offences were conducted in a determined and sophisticated manner over a long period of time and involved colossal
sums of money. In those circumstances, it seems to us wholly beyond argument to suggest that the sentence of seven years was one with which there
would be any justification for this court’s interference. In the circumstances, that application will also be refused.
We indicated at the outset of this judgment that applications were before us to certify points of general importance. We do not propose to give a
narrative judgment relating to any of the points. They were all canvassed at some length and, we hope, with sufficient clarity in the judgment of 7 July.
Suffice it to say, we have concluded that it would be right to certify for their Lordships’ House two points of general public importance. The first is this,
and I will cite the words of the question which were drafted by the Crown in each case but counsel will ensure that the exact wording is agreed between
the parties and lodged with the court. The words I have from earlier correspondence with counsel are as follows:
‘(1) Whether s 145 and/or s 154 of the Income and Corporation Taxes Act 1988 impose a charge to tax under Schedule E in respect of relevant
benefits received from a company by an individual who, while having no actual office or employment with that company, nonetheless falls within
the extended meaning of director under s 168(8) of the Act.
(2) Whether s 739(2) of the Income and Corporation Taxes Act 1988 has either of the additional effects in relation to income which it requires
to be deemed to be income of an individual ordinarily resident in the United Kingdom: (a) of requiring for corporation tax purposes that same
income to be deemed not to be the income of a company incorporated outside the United Kingdom whose income it actually is; (b) of requiring for
income tax purposes that same income to be deemed not to be the income of the person whether an individual or a company resident or domiciled
outside the United Kingdom whose income it actually is.’
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Counsel will kindly check the wording.

Those two questions will be certified by this court. We refuse leave to appeal to the House of Lords.

Allen’s appeal dismissed. Permission to appeal against sentence in Allen’s case refused. Applications by Dimsey and Allen for permission to appeal
against conviction refused, but court certifying that two points of law of general public importance were involved in the decision.

Caroline Stomberg Barrister.

[2000] 2 All ER 148

Akewushola v Secretary of State for the Home Department

IMMIGRATION: CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

PETER GIBSON, LAWS AND SEDLEY LJJ
22, 27 APRIL, 20 AUGUST 1999

Immigration – Appeal – Evidence – Appellant arriving at port of entry with expired United Kingdom passport and claiming right of abode – Immigration
officer refusing appellant leave to enter – Statutory provision confining appeal on grounds of right of abode to those producing United Kingdom passport
or certificate of entitlement – Whether passport having to be current – Whether right of abode provable on appeal by means other than those prescribed –
Immigration Act 1971, ss 3, 13, 33.

The appellant, A, presented herself at a United Kingdom port of entry with a current Nigerian passport and an expired United Kingdom passport. Under s
3(9)a of the Immigration Act 1971, a person seeking to enter the United Kingdom and claiming the right of abode was required to prove that right by
means either of a United Kingdom passport describing that person as a British citizen or a citizen of the United Kingdom and Colonies having the right of
abode, or by means of a certificate of entitlement issued by the United Kingdom government. Section 33b of the 1971 Act defined a United Kingdom
passport as a current passport issued by the United Kingdom government, except in so far as the context otherwise required. The immigration officer
refused A leave to enter, and she appealed to an adjudicator pursuant to s 13c of the Act. Under s 13(3), a person was not entitled to appeal, on the
ground that he had a right of abode in the United Kingdom, against a decision that he required leave to enter unless he held such a passport or certificate
as was mentioned in s 3(9). On the appeal, A contended that the s 33(1) definition was not applicable to s 3(9) and therefore did not apply to s 13(3)
either. The adjudicator rejected that contention and accordingly dismissed A’s appeal. That decision was upheld by the Immigration Appeal Tribunal,
and A appealed to the Court of Appeal, contending that the right of appeal under s 13 would be illusory unless an appellant was entitled to prove a right of
abode by means other than those prescribed in s 3(9).
________________________________________
a Section 3(9) is set out at p 150 j, post
b Section 33, so far as material, is set out at p 151 a, post
c Section 13 is set out at p 151 d e, post
________________________________________

Held – The right of appeal under s 13 of the 1971 Act was limited to those who could prove that they held a current United Kingdom passport or a
certificate of entitlement. Such a conclusion did not deprive s 13(3) of content since appealable questions could arise over whether a document, though
apparently current, was a forgery, whether the person seeking to enter was the person described in an undoubtedly genuine and current passport, or
whether a passport was in fact current. In the instant case, A’s United Kingdom passport failed to meet the statutory requirements, and therefore she
lacked the required means of proof of right of abode. Accordingly, the appeal would be dismissed (see p 151 g h, p 152 c d h j and and p 154 h, post).
­ 37
Per curiam. An Immigration Appeal Tribunal does not have the power to rescind it own decision or that of another tribunal. Rather, recourse must be
had to the High Court, if necessary on a consensual application, to correct a procedural error which is capable of having affected the outcome (see p 154 c
h j, post).

Notes
For appeals against exclusion from the United Kingdom, see 4(2) Halsbury’s Laws (4th edn reissue) para 129.
For the Immigration Act 1971, ss 3, 13, 33, see 31 Halsbury’s Statutes (4th edn) (1994 reissue) 57, 74, 95.

Case referred to in judgments

Hip Foong Hong v H Neotia & Co [1918] AC 888, PC.

Appeal
Falilat Akewushola appealed, with permission of Buxton LJ granted on 27 April 1999, from (i) the decision of the Immigration Appeal Tribunal (IAT)
(chair: J A O’Brien Quinn QC, vice-president) on 23 February 1998 dismissing her appeal from the decision of an adjudicator, Mrs H S Coleman, on 12
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June 1997 upholding the decision of an immigration officer that she required leave to enter the United Kingdom, and (ii) the decision of a differently
constituted IAT (chair: Judge Pearl, president) on 4 September 1998 that it had no jurisdiction to consider the same appeal following the purported
rescission of the decision of the first IAT by Mr O’Brien Quinn, the second IAT having declared that rescission to be a nullity. The facts are set out in the
judgment of Sedley LJ.

Alper Riza QC and Abiud Kaihiva (instructed by Tayo Arowojolu) for the appellant.
Angus McCullough (instructed by the Treasury Solicitor) for the respondent.

Cur adv vult

20 August 1999. The following judgments were delivered.

SEDLEY LJ (giving the first judgment at the invitation of Peter Gibson LJ).

History
The appellant is a young woman born, according to the birth certificate which she has produced, in the United Kingdom on 4 January 1976. On 12
April 1977 a United Kingdom passport was issued to a child of her name and age. It expired five years later. Ten years after that the appellant applied to
the British High Commission in Lagos for a new passport, which was refused because of doubt about her entitlement to it.
In January 1995 the appellant presented herself at a United Kingdom port of entry with a current Nigerian passport and the expired United Kingdom
passport. After prolonged consideration, on 24 June 1995, an immigration officer refused her leave to enter on the ground that the United Kingdom
passport did not describe her and that, for the rest, she had no entry clearance. She was, however, granted temporary admission pursuant, presumably, to
para 21(1) of Sch 2 to the Immigration Act 1971.
The appellant appealed to an adjudicator, Mrs H S Coleman, who by a decision dated 12 June 1997 rejected her appeal. By common consent the
appeal was conducted not on the question whether the passport referred to the appellant but ­ 38 on the question whether it was a United Kingdom
passport within the meaning of the legislation. I will come in a moment to the significance of this, but it is first necessary to recount the rest of the
procedural history.
The appellant, who was represented, was granted leave to appeal to the Immigration Appeal Tribunal (IAT). It sat on 26 January 1998, with a
vice-president, Mr O’Brien Quinn QC, in the chair. By now the appellant was pregnant and the hearing date happened to be her expected date of
confinement. Her representatives applied for an adjournment of the hearing, but because of an administrative error the tribunal was not made aware of
this. No representative attended on her behalf, even though no adjournment had yet been granted. The tribunal, as it was entitled to do, proceeded in her
and their absence. In a determination given on 23 February 1998 it upheld the decision of the adjudicator.
Some time afterwards it came to the IAT’s notice that the adjournment application had been entirely overlooked. Accordingly the chairman of the
tribunal which had sat in January, Mr O’Brien Quinn, purported to rescind his own tribunal’s determination on the ground that it would in all probability
have granted the adjournment had the application been placed before it. He directed a fresh hearing before a differently constituted tribunal.
The new tribunal, chaired by the president, Judge Pearl, sat on 17 August 1998. It took as a preliminary point the question whether Mr O’Brien
Quinn had had any power to rescind his own tribunal’s decision and order a fresh hearing. Without needing to address the question whether a full tribunal
possessed the power, it concluded that a chairman sitting alone certainly did not, and accordingly declared Mr O’Brien Quinn’s rescinding order a nullity.
On 27 April 1999 Buxton LJ enlarged the time for appealing and gave permission to appeal against both decisions of the IAT: that of 23 February
1998 (the Quinn decision) and that of 4 September 1998 (the Pearl decision).

Issues
The case as presented by Mr Alper Riza QC for the appellant and Mr Angus McCullough for the respondent Secretary of State raises two distinct
questions: (i) Is the right of appeal, in a case such as the present, limited to the preliminary issue of proving the production of a current United Kingdom
passport describing the bearer as a British citizen having the right of abode in the United Kingdom, or does it entitle the appellant to prove her right of
abode by any admissible means? (ii) What power, if any, does a chairman or a full tribunal possess to rescind a determination once given?

The passport question

Since the passage of the 1971 Act a number of complexities have been removed from the law governing admission as of right at ports of entry. The
present provision is to be found in s 3(9), as amended by the Immigration Act 1988:
‘A person seeking to enter the United Kingdom and claiming to have the right of abode there shall prove that he has that right by means of
either—(a) a United Kingdom passport describing him as a British citizen or as a citizen of the United Kingdom and Colonies having the right of
abode in the United Kingdom; or (b) a certificate of entitlement issued by or on behalf of the Government of the United Kingdom certifying that he
has such a right of abode.’
­ 39
A United Kingdom passport is defined by s 33 of the 1971 Act, as amended by the 1988 Act, ‘except in so far as the context otherwise requires’, as
meaning ‘a current passport issued by the Government of the United Kingdom’.
Since the appellant’s United Kingdom passport was not current, it did not, on the face of it, rank as a passport for the purpose of proving the right of
abode under s 3(9). The passport being the prescribed means by which the appellant was seeking entry as of right, the immigration officer will have had
no option but to refuse her entry.
Mr Riza offers two objections to this reasoning. The first is that the context in which the phrase ‘United Kingdom passport’ is used in s 3(9) requires
it to be given a meaning which differs from that set out in s 33(1) by omitting the requirement that it be a current passport. The second is that the appeal
afforded by s 13 of the 1971 Act as amended by the 1988 Act can have reality only if it is open to the applicant to prove her right of abode otherwise than
as prescribed in s 3(9). If the second proposition is right, the first is unnecessary; if it is wrong, there is no conceivable ground for disapplying the s 33(1)
definition. I turn therefore directly to the second proposition.
Section 13 of the 1971 Act, as amended, provides:

‘(1) Subject to the provisions of this Part of this Act, a person who is refused leave to enter the United Kingdom under this Act may appeal to an
adjudicator against the decision that he requires leave or against the refusal …
(3) A person shall not be entitled to appeal, on the ground that he has a right of abode in the United Kingdom, against a decision that he requires
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leave to enter the United Kingdom unless he holds such a passport or certificate as is mentioned in section 3(9) above …’

The part of sub-s (3) quoted above was introduced by the Immigration Act 1988.
If, Mr Riza submits, the right of appeal is limited to a s 3(9) passport or certificate holder, and if in addition a passport is limited to a current
passport, the right of appeal given by s 13(3) is illusory: the holder of a current passport will enter as of right, with no need of an appeal, and nobody else
will have a right of appeal.
But at least two classes of potential issue can be discerned in the words ‘a [current] United Kingdom passport describing him as a British citizen
having the right of abode in the United Kingdom’. A question may arise whether the document, though apparently current, is a forgery. Or a question
may arise whether the person seeking to enter is the person described in an undoubtedly genuine and current passport. These might legitimately have
been treated as grounds of appeal within s 13(3); but the Immigration Appeals (Procedure) Rules 1984, SI 1984/2040, made by the Lord Chancellor under
the powers conferred by s 22 of the 1971 Act, by r 8(3), provide:

‘Where the respondent to an appeal alleges that—(a) the appellant is not entitled to appeal … (ii) by reason that a passport … on which the
appellant relies is a forgery or was issued to, and relates to, a person other than the appellant … the written statement referred to in paragraph (1)
above [the Home Office statement of facts] shall include that allegation but it shall not be necessary for the respondent to include in the statement
facts which are not relevant to the allegation.’
­ 40
Rule 11(1), captioned ‘Determination of preliminary issues’, provides:
‘Where the respondent to an appeal makes such an allegation as is mentioned in Rule 8(3), the appellant authority may, and at the request of the
respondent shall, determine the validity of the allegation as a preliminary issue.’
The intention, it appears, is to maintain the integrity of the process prescribed by s 3(9) for proving entitlement to enter the United Kingdom. It may
be that it was not necessary to do so, since s 22(4) explicitly recognises the possibility of an appeal on the question whether a passport is forged. But the
effect of rr 8(3) and 11(1) is not to exclude issues of forgery or impersonation from the appeals system: it is to treat them as preliminary issues, with the
consequence that if they are determined in the applicant’s favour the appeal will ordinarily succeed without more.
The present case was not argued as a case of forgery or impersonation. It nevertheless went before an adjudicator, rightly, on the contention that the
s 33(1) definition of a United Kingdom passport was not applicable to s 3(9) or therefore to s 13(3). The point, having gone against the applicant, was
considered sufficiently substantial to merit the grant of leave to appeal. If an issue of fact arose as to whether a passport was current, this too would be an
appealable question. All of this illustrates, as Mr McCullough submits, that s 13(3) is not without content, and that rr 8(3) and 11(1) do not starve it of
content.
Mr Riza makes the worthwhile point that the right of abode is too important a right to be without a remedy, so that an appeal confined to proof of
documents rather than to proof of the facts underlying the necessary documents is inadequate. For my part I agree with his premise but not with his
conclusion. The responsibility of the executive for issuing passports or certificates of entitlement, whether at home or abroad, is subject to the
supervisory jurisdiction of the High Court. Such documents cannot be unlawfully or arbitrarily refused to a person who is entitled to them. It is here that
Mr Riza’s remedy can if necessary be found, together perhaps with the power to grant temporary admission—such as was granted to the applicant in the
present case—so that curable deficiencies in the necessary documentation (for example a recently expired United Kingdom passport) can be put right.
There is and can be no suggestion that different standards may be applied depending on the ethnicity or appearance of the intending entrant. The
Secretary of State, through Mr McCullough, readily accepts this. As to his further submission that a person whose passport has expired can be ‘waved
through’ in the exercise of some extra-statutory dispensing power, I prefer to make no comment whatever. The issue is too large, and the proper way of
proceeding too evident, to justify further discussion.
In these circumstances there is in my judgment no contextual reason for disapplying the definition of a United Kingdom passport set out in s 33(1).
In the present case Ms Akewushola, lacking a current United Kingdom passport, did not have the required means of proof of a right of abode. The only
evidence required for the appeal was the expired passport itself, and both the adjudicator and the Quinn tribunal were correct in holding that it failed to
meet the requirements of the Immigration Acts.
I would therefore dismiss the appeal against the determination of the IAT given on 23 February 1998 on the preliminary issue.
­ 41

The procedure question

Although, as Mr Riza came to acknowledge, a critique of what followed the Quinn tribunal’s decision cannot now help him if that decision was right,
we have heard argument from both sides upon it since our view may be of assistance to the Immigration Appellate Authority in the future.
The Pearl tribunal decided that it had no jurisdiction on the narrow ground that Mr O’Brien Quinn, sitting alone, had no power to undo his own
tribunal’s decision. This was plainly right. The powers of chairmen are exhaustively spelt out in r 42 of the 1984 rules. They relate to stays on removal
pending appeal, bail, leave to appeal and—
‘(c) any function conferred on the Tribunal to—(i) determine a preliminary issue, or to make a determination in consequence thereof, pursuant
to Rule 11 above; (ii) remit an appeal to an adjudicator pursuant to Rule 21(1) above; or (iii) require the attendance of witnesses at the hearing of an
appeal, pursuant to Rule 27 above.’
Even though para (c)(i) would have enabled Mr O’Brien Quinn to decide the appeal from the adjudicator by himself (something which, though
apparently lawful, I would for my part not have thought desirable), the rule gives a chairman no power in any circumstances to rescind a decision of his
own or another tribunal.
But there is a larger issue: can even a full tribunal rescind its own or another tribunal’s decision? I can find no explicit power to do so in the 1984
rules and I see a number of reasons why no such power should be inferred or implied.
Rule 38 provides:
‘Any irregularity resulting from failure to comply with these Rules before an appellate authority has reached its decision shall not by itself
render the proceedings void, but the appellate authority may, and shall if it considers that any person may have been prejudiced, take such steps as it
thinks fit before reaching its decision to cure the irregularity, whether by amendment of any document, the giving of any notice or otherwise.’
The limit in point of time of this power to cure irregularities is thus the point at which a decision is reached. From then on the maximum power must
be to correct accidental errors which do not substantively affect the rights of the parties or the decision arrived at. Mr Riza has drawn our attention to a
passage in the current edition of Wade and Forsyth Administrative Law (7th edn, 1994) p 262. Having instanced cases where powers of review are
expressly conferred on administrative tribunals, the authors say:
‘Even where such powers are not conferred, it is possible that statutory tribunals would have power, as has the High Court, to correct accidental
mistakes; to set aside judgments obtained by fraud; and to review a decision where facts subsequently discovered have revealed a miscarriage of
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justice.’
The footnote to this sentence cites the slip rule (RSC Ord 20, r 11) [now CPR 3.10] and the decision of the Privy Council in Hip Foong Hong v H Neotia
& Co [1918] AC 888, a case concerning the power of His Britannic Majesty’s Supreme Court for China, sitting at Shanghai, to order a new trial for the
admission of fresh evidence in a dispute between two firms of opium merchants encountering difficulties with China’s attempts to ban importation of the
drug. For my part I do not think that, slips apart, a statutory tribunal—in contrast to a superior court—ordinarily possesses any inherent power to rescind
or review its own decisions. Except ­ 42 where the High Court’s jurisdiction is unequivocally excluded by privative legislation, it is there that the
power of correction resides.
This is particularly so where, as is the case with the 1984 rules, repeated provision is made for the circumstances in which a tribunal can decide for
itself what steps to take. Rule 28 sets minimum standards for the conduct of proceedings and gives the appellate authority, for the rest, express power to
‘conduct the proceedings in such manner as it considers appropriate in the circumstances’. Rule 34(2) and (3) lay down specific provisions for conducting
a hearing in the absence of a party. Rule 37, captioned ‘Miscellaneous powers’, gives an appellate authority powers to postpone, give directions,
adjudicate by consent, adjourn and ‘subject to the provisions of the Act and these Rules, regulate its own procedure’. Although there may be further
powers which arise by necessary implication from those spelt out in the rules—for example, to make provision for interpreters—it is not feasible to
deduce from them the interstitial existence of an internal power of rescission or review. If something has gone procedurally wrong which is capable of
having affected the outcome, it is to the High Court—if necessary on a consensual application—that recourse must be had.
I say ‘which is capable of having affected the outcome’ because it is strongly arguable, although not necessary to decide, that in the present case an
application to the High Court at the point at which Mr O’Brien Quinn purported to set aside his tribunal’s decision would not have succeeded. First, no
response having been received to the application for an adjournment, there was, on the face of it, no reason why the applicant’s representatives should not
have attended the hearing. Secondly, had they done so, there would have been no need for the applicant to attend, since the facts were straightforward
and undisputed and the issue purely one of law. Mr O’Brien Quinn took a different view of what his tribunal would probably have done had it
appreciated the situation; but the difference is now history.
It follows logically that the Pearl tribunal had no more power to declare Mr O’Brien Quinn’s decision a nullity than Mr O’Brien Quinn (or for that
matter the Quinn tribunal) had to rescind the original decision. But nothing now turns on this. In any case, the Pearl tribunal, assembled to conduct a
purported de novo hearing, had to do something about the situation with which it was presented. Without embarking on the troubled question whether a
purported decision plainly made without power can be ignored or must first be quashed by the High Court, it is sufficient to say that the Pearl tribunal was
right in the event, both for the reason it gave and for the larger reason which I have given, to regard itself as without jurisdiction. This is so even if its
purported declaration that Mr O’Brien Quinn’s decision was void itself had no visible means of support in law.
I would therefore dismiss the appeal on this issue too.

LAWS LJ. I agree.

PETER GIBSON LJ. I also agree.

Appeal dismissed. Application for permission to appeal to the House of Lords refused.

Caroline Stomberg Barrister.

[2000] 2 All ER 155

R v Hemmings and others

CRIMINAL; Criminal Procedure

COURT OF APPEAL, CRIMINAL DIVISION

CLARKE LJ, BELL AND NELSON JJ
16 SEPTEMBER, 6 OCTOBER 1999

Indictment – Amendment – Retrial – Amendment of fresh indictment on retrial – Court of Appeal ordering retrial and preferring fresh indictment – Trial
judge amending fresh indictment with consent of parties – Amendment resulting in defendants being tried for offences for which no retrial could have
been ordered – Whether judge having power to amend indictment in such circumstances – Indictments Act 1915, s 5(1) – Criminal Appeal Act 1968, s
7(2).

The defendants were convicted of a number of offences, including a count of conspiracy to steal. Their convictions were quashed by the Court of Appeal
which ordered the defendants to be retried on a fresh indictment. Such an indictment was prepared, containing the same counts as on the original
indictment. Before the retrial began, counsel for one of the defendants formed the view that it was in his client’s interests to be tried on substantive
counts of theft rather than on the count of conspiracy to steal. Subsequently, with the consent of all the parties, the judge amended the fresh indictment,
replacing the count of conspiracy to steal with substantive counts of theft. The defendants were convicted on the counts of theft and appealed, contending
that the terms of s 7(2)a of the Criminal Appeal Act 1968 would have precluded the Court of Appeal from ordering their retrial for the theft offences. The
Crown did not oppose that submission, but contended that the judge had nevertheless been entitled to make the amendment under the power to amend
defective indictments conferred on trial judges by s 5(1)b of the Indictments Act 1915. The issues arose as to whether a fresh indictment preferred by the
Court of Appeal could ever be a defective indictment within the meaning of s 5(1) of the 1915 Act, and, if so, whether the power to amend was excluded
by s 7(2) of the 1968 Act in a case where the amendment resulted in the defendant being tried for an offence in respect of which no retrial could have
been ordered.
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a Section 7, so far as material, is set out at p 158 g to j, post

b Section 5, so far as material, is set out at p 160 c d, post
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Held – On a retrial, the trial judge had power in an appropriate case to permit an amendment to the fresh indictment, even if that amendment resulted in
the defendant being retried for offences for which the Court of Appeal had no power to order a retrial. Such an indictment could be held to be defective
even though it had been preferred by the Court of Appeal, and accordingly it fell within the scope of the power to amend a defective indictment conferred
by s 5(1) of the 1915 Act. Moreover, that power was not excluded by s 7(2) of the 1968 Act, provided that it was exercised in accordance with the
underlying purpose of s 7, namely to permit the court to order a retrial to ensure that justice was done while at the same time protecting the defendant by
ensuring that he was not put in a worse position than at the original trial. In the instant case the criteria in s 5(1) of the 1915 Act had been satisfied, and
the amendment had been consistent with the purpose of s 7 of the 1968 Act. Accordingly, the judge had the power to make the ­ 43 amendment, and
the appeals would therefore be dismissed (see p 164 c e f j to p 165 g, post); R v Wells [1995] 2 Cr App R 417 and R v Osieh [1996] 1 WLR 1260
considered.
Per curiam. When the powers of the court are next viewed, consideration should be given to amending s 7 of the Criminal Appeal Act 1968 so as to
give the Court of Appeal power to order the retrial of a defendant on a substantive count in which the alleged offence had formed the basis of a conspiracy
count at the original trial (see p 161 a b, post).

Notes
For the amendment of defective indictments and the power of the Court of Appeal to order a retrial, see 11(2) Halsbury’s Laws (4th edn reissue) paras
937, 1406 respectively.
For the Indictments Act 1915, s 5, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 177.
For the Criminal Appeal Act 1968, s 7, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 379.

Cases referred to in judgment

R v Dixon (1989) 92 Cr App R 43, CA.
R v Ismail (1991) 92 Cr App R 92, CA.
R v Jones [1974] ICR 310, CA.
R v Ofori, R v Tackie (No 2) (1994) 99 Cr App R 223, CA.
R v Osieh [1996] 1 WLR 1260, CA.
R v Walters (1979) 69 Cr App R 115, CA.
R v Wells [1995] 2 Cr App R 417, CA.
Williams v Bedwellty Justices [1996] 3 All ER 737, [1997] AC 225, [1996] 3 WLR 361, HL.

Appeals against conviction

Raymond George Hemmings, Michael Alan Robert Miller and Patrick Michael Hoines appealed with leave of Mitchell J granted on 14 May 1999 against
their convictions on various counts of theft before Judge Morris and a jury at the Crown Court at Newport between 4 and 6 November 1998. The facts are
set out in the judgment of the court.

David Nathan (assigned by the Registrar of Criminal Appeals) for the appellants.
Martyn Alexander Kelly and Richard Edwards (instructed by the Crown Prosecution Service, Cardiff) for the Crown.

Cur adv vult

6 October 1999. The following judgment of the court was delivered.

CLARKE LJ.
1. On 26 March 1997 the appellants Hoines and Hemmings were convicted of robbery (count 1) and kidnapping (count 2), the appellant Miller was
convicted of theft (count 3) and all three appellants were convicted of conspiracy to steal (count 4). Hoines and Hemmings received sentences totalling
ten years and Miller, four years. They all appealed against conviction and on 8 May 1998 this court, comprising Hutchison LJ, Hughes J and Judge
Hyam, allowed the appeals, quashed the convictions and ordered a new trial. It gave its reasons on 2 July 1998. In each case the order of the court was
that the appellant be retried on a ­ 44 fresh indictment. Pursuant to that order, a fresh indictment was prepared containing the same counts as on the
original indictment. Thus count 1 alleged robbery against Hoines and Hemmings, count 2 alleged kidnapping against Hoines and Hemmings, count 3
alleged theft against Miller and count 4 alleged conspiracy to steal against all three appellants and was based on their alleged involvement in a number of
thefts other than the theft alleged in count 3.
2. As we understand it, the retrial was due to begin on 24 September 1998 on that fresh indictment. Mr Kelly represented the Crown and Mr Nathan,
who had not appeared at the original trial or before this court, represented Hemmings. The other appellants were represented as they had been previously.
Before the retrial began, Mr Nathan formed the view that it was in Hemmings’ interest to be tried on substantive counts of theft rather than the
conspiracy to steal which had been count 4 of the original indictment upon which he had originally been tried and in respect of which a retrial had been
ordered. Mr Nathan took the view that in the event of conviction, it was important to know upon what allegations of theft the jury had found Hemmings
guilty. In those circumstances, having discussed the matter with the other defence counsel, he approached Mr Kelly and, on the basis that the defence
wanted the amendment in the interests of the appellants, Mr Kelly drew up appropriate theft counts. The judge, Judge Morris, approved the amendments
on the basis that all parties agreed to them. The trial then proceeded on the amended fresh indictment until the close of the Crown case. All concerned
consented to that course. Counts 1 to 3 were in the same form as in both the original indictment and the fresh indictment, but count 4 of the fresh
indictment (which alleged conspiracy to steal on the part of all three appellants) was replaced by counts 4 to 9 which made substantive allegations of theft.
The alleged thefts were the same as those which had formed the basis of the conspiracy to steal. Counts 5 to 7 concerned all three appellants, while count
4 involved only Hoines and Miller and counts 8 and 9 concerned only Hemmings.
3. At the close of the Crown’s case, the judge invited Mr Kelly to consider whether it was appropriate to add a count of dishonest handling against
Miller. He subsequently ruled that it was not, but in the course of the argument he was troubled as to whether the original amendment was legally
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possible. Subsequently, with a view to giving the defence the opportunity of appealing in the event of a conviction, he considered the matter briefly and
ruled that it was. The trial continued.
4. Between 4 and 6 November 1998 the appellants were convicted and sentenced as follows. Hemmings was convicted of robbery on count 1 and
sentenced to six years’ imprisonment. He was convicted of kidnapping on count 2 and sentenced to six years’ imprisonment concurrent. He was not
concerned with counts 3 and 4, but he was convicted of theft on counts 5, 6, 7 and 9 and sentenced to four years’ imprisonment on each count to be served
concurrently, both as between themselves and with the sentences of six years for robbery and kidnapping. He was acquitted of count 8. Hoines was
convicted of theft on counts 4, 5, 6, 7 and 9 and sentenced to four years’ imprisonment on each to be served concurrently. Miller was convicted of theft
on counts 3, 4, 5, 6, 7 and 9 and was sentenced to 42 months’ imprisonment on each count to be served concurrently. It should be noted that (as already
stated) count 3 was on the original indictment at the first trial and concerned only Miller.
5. Hemmings now appeals against conviction on counts 5, 6, 7 and 9, but not on counts 1 and 2. Miller and Hoines appeal against conviction on
counts 4, 5, 6, 7 and 9. Those appeals are all brought by leave of the single judge, who directed that the appeals be expedited. The single judge refused
Hemmings leave to ­ 45 appeal against conviction on counts 1 and 2 and he has not sought to renew his application on those counts. As we understand
Miller’s notice of appeal, and as was confirmed by Mr Nathan, Miller has never sought to appeal against his conviction on count 3, which was not of
course affected by the amendments to the fresh indictment.
6. It follows that if the appeals are successful, the position will be as follows. Hemmings’ convictions on counts 1 and 2 will be unaffected, as will
the concurrent sentences of six years’ imprisonment imposed on those counts. Miller’s conviction on count 3 will also be unaffected, as will his sentence
of 42 months’ imprisonment imposed on that count. It further follows that the outcome of this appeal will have no practical effect upon the terms of
imprisonment imposed upon Hemmings and Miller. The position of Hoines is different because not guilty verdicts were entered against him on counts 1
and 2 by direction of the judge, so that he was convicted only on the theft counts which were substituted for the conspiracy count by amendment.
However, we were told by Mr Nathan that Hoines has now been released from prison in the ordinary way.
7. No problem would have arisen in this case if the theft counts had been substituted for the conspiracy count at the first trial. Although any
convictions on those counts would no doubt have been quashed by this court, a new trial on the original indictment including those counts would have
been ordered and would have taken place. In the event Mr Nathan suggested that the theft counts be substituted for the conspiracy count for very good
reason. The amendment enabled the jury to focus on the substantive thefts (which were precisely the same as those considered by the jury at the first
trial) and it enabled the jury to consider the part played or alleged to have been played by each appellant in the various thefts. Moreover, it would assist
the judge if and when he came to pass sentence. Thus (as we have described earlier) not all the appellants were concerned in all the thefts and indeed
Hemmings was acquitted of count 8. In short the suggestion made by Mr Nathan that the indictment be amended was eminently sensible, as evidenced by
the fact that the other defendants, the Crown and the judge all agreed to it.
8. It is not suggested that the indictment could not have been amended in this way at the original trial. Plainly it could. Moreover it is not now
suggested that if there was power to amend the fresh indictment the convictions were in any way unsafe. The question is, however, whether the
amendment of the fresh indictment and the trial of the appellants on counts 4 to 9 is prohibited by s 7 of the Criminal Appeal Act 1968, which (in its
present form) provides as follows:

‘(1) Where the Court of Appeal allow an appeal against conviction º and it appears to the Court that the interests of justice so require, they may
order the appellant to be retried.
(2) A person shall not under this section be ordered to be retried for any offence other than—(a) the offence of which he was convicted at the
original trial and in respect of which his appeal is allowed as mentioned in subsection (1) above; (b) an offence of which he could have been
convicted at the original trial on an indictment for the first-mentioned offence; or (c) an offence charged in an alternative count of the indictment in
respect of which the jury were discharged from giving a verdict in consequence of convicting him of the first-mentioned offence.’
We shall call the alleged theft offences which form counts 4 to 9 of the amended indictment ‘the theft offences’. It is submitted that the theft
offences do ­ 46 not fall within any of the categories of offence described in s 7(2)(a), (b) or (c) and that it follows that this court could not have
ordered a retrial of the theft offences and that the judge therefore had no power to conduct a trial on those offences.
9. It is convenient first to consider whether the theft offences fall within any of the categories of events in s 7(2). They are plainly not within s
7(2)(a) because the offence for which the appellants were convicted was not theft but conspiracy to steal. They are equally outside para (c) because the
appellants were not charged in an alternative count or counts of the indictment in respect of which the jury were discharged from giving a verdict in
consequence of convicting the appellants of conspiracy to steal. The question is whether they are within para (b), that is whether the theft offences are
offences for which the appellants could have been convicted on an indictment for conspiracy to steal. It is submitted by Mr Nathan that they were not.
We agree. In our judgment para (b) was concerned with, say, an offence of theft where the original indictment had alleged robbery. In such a case the
jury could have returned a verdict of not guilty of robbery but guilty of theft. By contrast, a jury cannot return a verdict of not guilty of conspiracy to
steal, but guilty of theft. Moreover, we do not understand Mr Kelly to argue the contrary or, indeed, to argue that this case falls within s 7(2)(b). It was
not, for example, suggested that, as a matter of construction, s 7(2)(b) is wide enough to include an offence of which the defendant could have been
convicted as a result of an amendment to the indictment which could properly have been permitted by the trial judge.
10. It is possible in principle to have both a conspiracy count and substantive counts of, say, theft, on the same indictment, although in practice the
Crown is often asked to elect between them. Lord Widgery CJ issued the following practice direction in May 1977 (see [1977] 2 All ER 540, [1977] 1
WLR 537 and Archbold’s Criminal Pleading, Evidence and Practice (1999 edn) para 33-53):

‘1. In any case where an indictment contains substantive counts and a related conspiracy count, the judge should require the prosecution to
justify the joinder, or, failing justification, to elect whether to proceed on the substantive or on the conspiracy counts. 2. A joinder is justified for
this purpose if the judge considers that the interests of justice demand it.’

Thus at the original trial the conspiracy counts could have been replaced by the theft counts (which would have been a sensible step to take) or, perhaps
(if the judge considered that the interests of justice demanded it), the theft counts could have been added. In the event neither such step was taken.
11. In these circumstances we have reached the conclusion that the theft offences (1) were not the offence for which the appellants were originally
convicted because that was conspiracy to steal, (2) were not offences for which they could have been convicted on the indictment alleging conspiracy to
steal and (3) were not offences charged in alternative counts on the indictment. It follows that we accept the submission that they were not within any of
the categories of offence in s 7(2)(a), (b) or (c) of the 1968 Act.
12. What is the effect of that conclusion? It is that by the express terms of s 7(2) this court could not have ordered the appellants to be retried for the
theft offences under s 7(1) of the 1968 Act. In fact this court did not order or purport to order the appellants to be tried or retried for the theft offences.
As already stated, it simply made the standard order in each case that the appellant be retried on a fresh indictment. That was correctly taken to mean a
fresh indictment on the same terms as the old. The court was not asked to make an order in any other ­ 47 terms and it did not do so. As we see it, this
court could not have ordered that the appellants be tried or retried for the theft offences for the reasons already given, namely that by the express terms of
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s 7(2) a person shall not under s 7 be ordered to be retried for any offence other than the specified offences, which did not include the theft offences.
13. The question which then arises is whether, on a retrial ordered by this court, the trial judge has power to permit an amendment of the fresh
indictment in an appropriate case; and in particular whether he has power to permit an amendment which has the effect of the appellant being retried for
offences for which this court has no power to order a retrial. Mr Kelly submits that he has. He submits that once the fresh indictment has been preferred
and has been pleaded to, the parties are in the same position as they would have been if the retrial was a completely new trial starting from scratch. He
submits that the court retains its power to amend contained in s 5 of the Indictments Act 1915, which provides as follows:

‘(1) Where, before trial, or at any stage of a trial, it appears to the court that the indictment is defective, the court shall make such order for the
amendment of the indictment as the court thinks necessary to meet the circumstances of the case, unless, having regard to the merits of the case, the
required amendments cannot be made without injustice º’

Mr Kelly submits that s 5 is in broad terms and that there is nothing in any other statute including s 7 of the 1968 Act, to deprive the court of the power
(or indeed duty) which is conferred upon it by s 5.
14. In our opinion the law certainly ought to permit an amendment of the kind which was made in this case. It was made at the suggestion of the
defence and was both to the advantage of the defendants and in the interests of justice. Indeed that was so obviously the case that it did not occur either to
defence counsel or to the judge to check the relevant statutory provisions. It is perhaps ironical that it seems likely that if the judge had not suggested an
amendment to add a count of handling, the point would not have occurred to anyone. How then is it that this sensible result cannot be achieved?
15. As already indicated, Mr Nathan submits that if this court would have had no power to order a retrial on an indictment alleging a particular new
offence (in this case the theft offences) it must follow that a defendant cannot be tried on such an indictment. There is undoubted force in that submission,
especially in the light of s 8(1) of the 1968 Act, which provides, so far as relevant:

‘A person who is to be retried for an offence in pursuance of an order under section 7 of this Act shall be tried on a fresh indictment preferred
by direction of the Court of Appeal º [but after the end of two months from the date of the order for his retrial he may not be arraigned on an
indictment preferred in pursuance of such a direction unless the Court of Appeal give leave].’

It is submitted that only this court can order a retrial, that the powers of this court are limited by s 7(2) and that it follows that the Crown Court can have
no power to permit an amendment to an indictment which would have the effect of the defendant being tried or retried for an offence for which this court
could not lawfully order such a retrial. It is submitted that it is inconceivable that Parliament could have intended to give a power to the judge at the
retrial which it did not give to the Court of Appeal.
­ 48
16. That is a powerful argument, but there is a strong argument to the contrary. There is no evidence that Parliament gave consideration to the
problem which has occurred here. It seems very likely that if it had, it would have expressed s 7 in somewhat wider terms in order to give this court
power to order a retrial in circumstances such as occurred here. Thus in a case like this, it would have given this court power to order a retrial on an
indictment containing substantive counts if it was just to do so. Indeed, we recommend that consideration be given to this problem when the powers of
the court are next reconsidered.
17. Section 7 of the 1968 Act does not expressly proscribe or limit the powers of the trial judge to allow amendments under s 5 of the 1915 Act
because it does not address the possibility of amendment at all. Section 5(1) is in wide terms. While it might be argued that an indictment preferred
pursuant to the express order of the Court of Appeal could not be defective, indictments have been held to be defective within the meaning of s 5(1) in a
wide range of circumstances: see Archbold para 1-150. One example given in that paragraph is where the evidence led in support of the indictment
disclosed more than one offence: R v Jones [1974] ICR 310. If this had been a trial and not a retrial and it had been sought to amend the indictment by
substituting the theft offences for the conspiracy to steal, the amendment could have been made under s 5 on the basis that the indictment was defective
within the meaning of s 5. We did not understand Mr Kelly to argue the contrary.
18. Moreover, that would have been so even if the indictment had, for example, been preferred as a voluntary bill pursuant to leave granted by a
High Court judge. In R v Wells [1995] 2 Cr App R 417 the trial judge had permitted the amendment of a voluntary bill of indictment preferred pursuant to
the leave of a High Court judge. It was argued that he had no power to do so by reason of s 2(2) of the Administration of Justice (Miscellaneous
Provisions) Act 1933, which provides, so far as relevant, as follows:

‘Subject as hereinafter provided no bill of indictment charging any person with an indictable offence shall be preferred unless either—(a) the
person charged has been committed for trial for the offence; or (b) the bill is preferred by the direction or with the consent of a judge of the High
Court º Provided that—i) where the person charged has been committed for trial, the bill of indictment against him may include, either in
substitution for or in addition to counts charging the offence for which he was committed, any counts founded on facts or evidence disclosed in any
examination or deposition taken before a justice in his presence, being counts which may lawfully be joined in the same indictment º’

In R v Wells the indictment had been preferred by the direction of a High Court judge just in the same way as the fresh indictment here was preferred
pursuant to the order of this court. The court in R v Wells (at 421) rejected the submission that the judge had no power under s 5 of the 1915 Act to order
the amendments in these terms:

‘The question of amendment of an indictment only arises at a later stage once the bill of indictment has been signed and become an indictment.
The power to amend is the power pursuant to section 5 of the 1915 Act and that power is the same whatever the course taken by which the
indictment came in to existence. That conclusion is entirely consistent with the decision of ­ 49 this Court in Walters, Tovey & Others ((1979) 69
Cr App R 115 at 119) where Lord Widgery C.J. said: “We think that, once an indictment is in existence, the power to amend it is the power
contained in the Indictments Act 1915 and Rules made thereunder, and there is absolutely no distinction from the point of view of the power of the
judge to amend whether the indictment owes its authority to the High Court judge giving leave for it to be preferred or whether it has come up
through the more conventional channels”. That passage was cited and followed by this Court in Ismail & Others ((1991) 92 Cr App R 92) and
although Mr Kark seeks to distinguish the nature of the amendment in this case from those in the two earlier cases and argues that the proposition
was wider than was necessary to decide either of those two cases, we are entirely satisfied that the observation of the Lord Chief Justice to which
we have referred accurately reflects the law.’

R v Ismail (1991) 92 Cr App R 92 was similar to R v Wells. It is submitted that the position here is the same. Thus it is submitted that once the
indictment has been preferred in accordance with the order of the Court of Appeal, the trial judge has the same powers of amendment as he would have
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had at the original trial.
19. There is force in that submission. It seems to us that the reasoning in R v Wells does provide some support for Mr Kelly’s submission, subject to
this. In R v Wells the High Court judge would have had jurisdiction to give leave to prefer a voluntary bill containing the allegations which the trial judge
permitted by amendment, whereas here this court would have had no such power. Nevertheless, R v Wells does seem to us to support at least the narrower
proposition that there is a distinction between both the power to prefer the indictment and the power to give leave to prefer it on the one hand and the
power to amend it on the other. So too does both R v Walters and R v Ismail, upon both of which the court relied in R v Wells.
20. There is a further decision of this court which is of some relevance, namely R v Osieh [1996] 1 WLR 1260 at 1265, where Schiemann LJ said,
giving the judgment of the court:

‘It was first submitted by Mr. McNulty that the words of section 2 of the Act of 1933 prevented the judge from permitting an amendment unless
the requirements set out in the proviso of section 2(2) were fulfilled. We regard that submission as unarguable. The prohibition in section 2(2) is
an inhibition on the preferment of bills of indictment and the prohibition in section 2(1) is a prohibition on signing bills of indictment. The problem
we are considering relates to a stage subsequent to this and relates, not to bills of indictment, but to indictments themselves. It was then submitted
by Mr. McNulty that it was always impermissible for a judge to permit an amendment º when that amendment amounted to adding a count in
respect of which the requirements set out in section 2(2) of the Act of 1933 had not been fulfilled. He suggested that, were it otherwise, the
safeguards imposed by statute requiring a committal could be bypassed.’

The court then considered R v Dixon (1989) 92 Cr App R 43, found it of little assistance and expressed the following conclusion ([1996] 1 WLR 1260 at
1266):

‘We regard the suggestion that it is never permissible for a judge to give leave for the making of an amendment to an indictment when that
amendment amounts to adding a count in respect of which the requirements set out in section 2(2) of the Act of 1933 º as wrong, and indeed
unarguable.
­ 50
There is no statutory warrant for it. The statutory regimes applicable to the proper officer on the one hand, and the judge considering an
amendment on the other, are wholly different. The former is carrying out a largely administrative function and if he gets it wrong then the
indictment, or a count in it, can be quashed by a judge. The latter is exercising a wide discretion. The fact, if it be a fact, that the proposed
amendment raises for the first time something not foreshadowed in the committal documents may be a potential ground for not permitting the
amendment or, alternatively, only permitting it on terms as to an adjournment. It does not, however, operate as an absolute bar preventing a judge
from permitting the amendment. The protection for an accused which is given by section 2 of the Act of 1933 is, in effect, replaced by the judge’s
discretion which, of course, has to be exercised within the confines of the Indictments Act 1915 and the rules made thereunder.’

21. Those seem to us to be very sensible conclusions. Some of them have, however, been doubted. Indeed the following views are expressed by the
editors of Archbold para 1-149:

‘In R. v. Osieh º it was said that, notwithstanding the restrictions imposed by section 2(2) of the [1933 Act], the power to amend an indictment,
once it has been preferred, extends to the addition of a count or counts charging offences that are not disclosed in the committal evidence but which
are disclosed by evidence subsequently served. If this is correct it means that a count may be added to an indictment which could not lawfully have
been included in that indictment when it was preferred. How, in such circumstances, the original indictment could be described as “defective”, so
as to give the court jurisdiction to amend it, is not clear. It is submitted that the dictum is obiter and incorrect and that it is inconsistent with the
decisions in R. v. Dixon ((1989) 92 Cr App R 43), R. v. Ofori and Tackie (No 2) ((1994) 99 Cr App R 223), and with certain observations in R.v.
Wells ([1995] 2 Cr App R 417 at 423); and Bedwellty JJ. ex p Williams ([1996] 3 All ER 737, [1997] AC 225). In any event, as acknowledged in
Osieh, an amendment will only be permitted if it can be made without injustice and the fact that a proposed amendment raises, for the first time, a
charge not foreshadowed in the committal evidence may provide a basis for refusing to permit it, or for permitting it only subject to the grant of an
adjournment.’

It is not necessary for us to express a view upon the question whether the obiter dicta in R v Osieh are inconsistent with any of the cases referred to in that
paragraph in Archbold. We are not here concerned with the question in what, if any, circumstances it is permissible to amend an indictment to include a
charge not foreshadowed in the committal documents. Except for the passage in R v Wells referred to in Archbold, none of the other cases discusses
whether in such circumstances an indictment would be defective within the meaning of s 5(1) of the Indictments Act 1915. In R v Wells [1995] 2 Cr App
R 417 at 423 Kay J said:

‘It is also to be observed that the decision as to whether the indictment is defective by reason of an omission to charge offences disclosed, is one
made by reference to the depositions or the material placed before the High Court judge and not to any notice of additional evidence. Thus the
questions to be asked will usually be the same as those to be asked in deciding whether the count could have been included in the bill of indictment
that was preferred.
­ 51
It is this similarity of consideration that perhaps explains the confusion as to the relevance of section 2(2) of the 1933 Act to an application to
amend the indictment to which we earlier referred.’

22. We agree that the question whether an indictment is defective may often be made by reference to the depositions or to the material placed before
a High Court judge considering whether to give leave to prefer a voluntary bill. However whether an indictment is defective within the meaning of s 5(1)
of the 1915 Act will depend upon all the circumstances of the case. As stated in para 17 above, indictments have been held to be defective within the
meaning of s 5(1) in a wide range of circumstances. It is clear from the decision in R v Wells that those circumstances may include a case where the
amendment is to an indictment preferred pursuant to leave granted by a High Court judge and that in an appropriate case the amended indictment may
include adding a count for which leave has not been granted. In our judgment, if an indictment can be held to be defective in such a case, there is no
reason why it cannot be held to be defective in a case like the present, or (notwithstanding the views of the editors of Archbold) in a case such as that
envisaged in R v Osieh.
23. As stated in para 17 above, it is not in dispute that if an application had been made to amend the indictment at the trial to substitute the theft
offences for the conspiracy to steal, the indictment could properly have been held to have been defective within the meaning of the section. The reason
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why it could properly be so held is essentially that advanced by Mr Nathan before the judge in support of the amendment, namely that the interests of
justice and fairness (and in particular the interests of the defendants) required that it should be amended. It is for those same reasons that the fresh
indictment can properly be held to be defective. We do not think that it should be held that the fresh indictment cannot be held to be defective because it
was ordered to be preferred by this court. Much the same could be said in a case like R v Wells, at least until a High Court judge had given leave to prefer
a new or amended voluntary bill. In our judgment such a view would be to adopt too narrow a construction of the concept of a defective indictment in s
5(1) and would be inconsistent with the general approach of this court to amendments.
24. In our judgment if it is to be held that there is no power to order the amendment which was permitted in this case, it must be on the basis, not that
the fresh indictment was not defective, but on the basis that the effect of s 7(2) of the 1968 Act is to deprive the trial judge of the power which he would
otherwise have had under s 5(1) of the 1915 Act to permit the indictment to be amended. As indicated earlier, it is common ground that s 7(2) does not
expressly so provide. The question is whether it does so by necessary implication. On the one hand, it is submitted that it does, because Parliament
cannot have intended the trial judge to have power to order the trial of a defendant which this court could not have ordered. Mr Nathan observes in this
connection that s 7(2) could have given this court a much wider power than it in fact did. On the other hand, it is submitted that it does not, because every
statute must be construed in accordance with its legislative purpose and the purpose of s 7 was simply to permit the court to order a retrial in order to
ensure that justice is done while at the same time protecting the defendant by ensuring that he is not put in a worse position than he was at the original
trial. In these circumstances, provided that no amendment is permitted which would offend the underlying purpose of s 7, it is submitted that there is no
reason to hold that s 7 implicitly limits the power of ­ 52 the trial judge which he would otherwise have under s 5 of the 1915 Act. Thus it is submitted
that an amendment such as permitted here cannot be implicitly prohibited by s 7.
25. We have found this a difficult question to decide. There seems to us to be much to be said for either view, but we have reached the conclusion
that Mr Kelly’s submissions are to be preferred to those of Mr Nathan. We summarise our reasons as follows. (1) Section 5(1) of the 1915 Act is in wide
terms. If it is construed by reference to its terms, the judge had power to permit the amendment. The indictment was defective within the meaning of s
5(1) for the same reason as it was defective at the first trial. At the first trial the amendment would have been ‘necessary to meet the circumstances of the
case’ within the meaning of s 5(1) for the reasons given in para 7 above. Further it could not have been said that the amendment could not have been
made without injustice. (2) This court could not have ordered a retrial under s 7(1) of the 1968 Act on an indictment containing the theft offences because
of the terms of s 7(2). However, there is nothing in s 7 or s 8 of the 1968 Act which expressly affects the power of the trial judge at a trial (which
logically must include a retrial) to permit the amendment of the indictment preferred pursuant to an order of this court under s 7. Neither section is
concerned with amendment. Section 7(2) is concerned with the order and s 8 with the subsequent procedure. (3) It is not implicit in s 7(2) that the trial
judge’s power to permit any amendment under s 5(1) is proscribed. There is no reason why the trial judge should not permit an amendment under s 5(1)
if the criteria in that section are satisfied. (4) In the instant case those criteria are satisfied because the amendment was ‘necessary to meet the
circumstances of the case’ and, not only could the amendment be made without injustice, but the amendment served the interests of justice for the reasons
given above. (5) The position would almost certainly have been different if the proposed amendment had put the appellants in a worse position than they
had been in at the original trial. As we see it at present, it would not be permissible to permit the amendment of an indictment if to do so would put the
defendant in a worse position than he had been after the original trial because any decision on an application to amend must respect the statutory purpose
behind s 7 of the 1968. (6) In this case the amendment was consistent with that statutory purpose and not inconsistent with it. In our judgment, s 7 should
not be construed as impliedly limiting the powers which the trial judge would otherwise have under s 5(1) of the 1915 Act. (7) It follows that the appeals
must be dismissed.

Appeals dismissed.

Caroline Stomberg Barrister.

[2000] 2 All ER 166

R v Crown Court at Manchester, ex parte H and another

ADMINISTRATION OF JUSTICE; Courts

QUEEN’S BENCH DIVISION

ROSE LJ AND FORBES J
30 JULY 1999

Crown Court – Supervisory jurisdiction of High Court – Trial on indictment – Court having no supervisory jurisdiction in matters relating to trial on
indictment – Child defendants being convicted of murder – Crown Court discharging order restricting publication of material calculated to identify
defendants – Whether decision amenable to judicial review – Whether judge erring in discharging order – Children and Young Persons Act 1933, s 39 –
Supreme Court Act 1981, s 29(3).

H and D, two 15-year-old girls, were convicted of the murder of an elderly woman. At a plea and directions hearing prior to the trial, an order had been
made under s 39(1)a of the Children and Young Persons Act 1933 prohibiting the publication of material calculated to lead to their identification. That
order had been renewed at the beginning of the trial, but was discharged by the judge after the trial. In reaching that decision, the judge concluded that it
was not necessary for him to look at the grounds of appeal since they were forecastable. H and D challenged the judge’s decision in judicial review
proceedings. The issue arose as to whether s 29(3)b of the Supreme Court Act 1981, which precluded judicial review in ‘matters relating to trial on
indictment’, applied to the judge’s decision.
________________________________________
a Section 39, so far as material, is set out at p 168 g h, post
b Section 29(3) is set out at p 168 f, post
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________________________________________

Held – Where, following the conclusion of a trial, the Crown Court discharged an order made under s 39 of the 1933 Act, the decision to discharge the
order was amenable to judicial review. Such a decision could have no possible effect upon the conduct of the trial, and could not be said to be an integral
part of the trial process in the same way as the verdict, sentence and costs. Although the power to make a direction under s 39 had to be related to
proceedings in a court, it was a separate child protection power, distinct from the trial and collateral to it. It followed that in the instant case the court had
jurisdiction to entertain the applications. Moreover, while it would have been inappropriate for the judge to assess the merits of the grounds of appeal in
any detailed sense, he had erred in concluding that it was unnecessary to look at the grounds because they were forecastable. At least one of the grounds
related to the summing up and such a ground could not be forecastable. Furthermore, if the judge had looked at the grounds he would have discovered not
only that they were not forecastable, but also that they were by no means frivolous. The existence of such non-frivolous grounds was highly relevant and
meant that there was a possibility of a retrial being ordered. The judge had not paid sufficient regard to that matter, and his decision was therefore flawed.
Accordingly, the application would be allowed, and the court, reconstituting itself as the Court of Appeal, Criminal Division, would give a direction and
make an order under s 39 of the 1933 Act prohibiting disclosure of material calculated to identify either of the applicants until further order (see p 169 b
to h, p 173 d f and p 174 g to p 175 c e to h, post).
­ 53
R v Lee [1993] 2 All ER 170 and R v Harrow Crown Court, ex p Perkins, R v Cardiff Crown Court, ex p M (a minor) (1998) Times, 28 April applied.
R v Crown Court at Winchester, ex p B (a minor) [1999] 4 All ER 53 not followed.

Notes
For the supervisory jurisdiction of the High Court over the Crown Court, see 10 Halsbury’s Laws (4th edn) paras 710, 717, 870.
For the Children and Young Persons Act 1933, s 39, see 6 Halsbury’s Statutes (4th edn) (1999 reissue) 51.
For the Supreme Court Act 1981, s 29, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 990.

Cases referred to in judgments

A-G v Leveller Magazine Ltd [1979] 1 All ER 745, [1979] AC 440, [1979] 2 WLR 247, HL.
Brind v Secretary of State for the Home Dept [1991] 1 All ER 720, [1991] 1 AC 696, [1991] 2 WLR 588, HL.
DPP v Crown Court at Manchester and Ashton [1993] 2 All ER 663, [1994] 1 AC 9, [1993] 2 WLR 846, HL.
DPP v Crown Court at Manchester and Huckfield [1993] 4 All ER 928, [1993] 1 WLR 1524, HL.
R v Central Criminal Court, ex p Crook (1984) Times, 8 November, DC.
R v Central Criminal Court, ex p Randle [1992] 1 All ER 370, [1991] 1 WLR 1087, DC.
R v Central Criminal Court, ex p S [1999] 1 FLR 480, DC.
R v Crown Court at Leicester, ex p S (a minor) [1992] 2 All ER 659, [1993] 1 WLR 111, DC.
R v Crown Court at Maidstone, ex p Harrow London BC [1999] 3 All ER 542, [2000] 2 WLR 237, DC.
R v Crown Court at Winchester, ex p B (a minor) [1999] 4 All ER 53, [1999] 1 WLR 788, DC.
R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB 67, [1984] 3 WLR 643, DC.
R v Harrow Crown Court, ex p Perkins, R v Cardiff Crown Court, ex p M (a minor) (1998) Times, 28 April, DC.
R v Lee [1993] 2 All ER 170, [1993] 1 WLR 103, CA.
R v Salvin (19 August 1998, unreported), CA.
Sampson v Crown Court at Croydon [1987] 1 All ER 609, [1987] 1 WLR 194, HL.
Scott v Scott [1913] AC 417, [1911–13] All ER Rep 1, HL.
Smalley v Crown Court at Warwick [1985] 1 All ER 769, [1985] AC 622, [1985] 2 WLR 538, HL.
V v UK (Applications No 24274/94 and No 24888/94) (unreported).

Application for judicial review

H and D, two children convicted of murder, applied, with permission granted respectively by Keene J on 29 July 1999 and the Divisional Court on 30
July 1999, for judicial review of the decision of Sachs J sitting in the Crown Court at Manchester on 28 July 1999 whereby he discharged an order made
under s 39 of the Children and Young Persons Act 1933 prohibiting the publication of material calculated to lead to the identification of the applicants.
The facts are set out in the judgment of Rose LJ.
­ 54

Vera Baird and Hugh Southey (instructed by Kristina Harrison, Salford) for H and (instructed by Betesh Fox & Co, Manchester) for D.
David Smith (instructed by the Treasury Solicitor) for the Crown Court at Manchester.
Lisa Judge (instructed by the Crown Prosecution Service, Oldham) for the Crown Prosecution Service.

ROSE LJ. The applicants are two 15-year-old females. Following a trial of substantial length at the Crown Court at Manchester, before Sachs J, they
were convicted on Tuesday this week, 27 July, of murder. The victim was an elderly woman. The case has understandably attracted very considerable
attention from the media.
At a plea and directions hearing prior to the trial, an order had been made under s 39(1) of the Children and Young Persons Act 1933, prohibiting the
publication of material calculated to lead to the identification of the applicants. That order was renewed by Sachs J at the beginning of the trial.
On Wednesday this week, 28 July, following representations to the trial judge by representatives of the press and submissions by counsel for the
prosecution and the applicants, the judge discharged that order, but stayed the discharge until 4.30 pm today.
Yesterday, Keene J granted the applicant H permission to challenge that decision by way of judicial review. At the outset of today’s hearing, this
court granted the applicant D like permission. It is apparent that this matter requires more urgent resolution than is sometimes necessary.
The relevant statutory provisions are as follows. By virtue of the Supreme Court Act 1981, s 29(3) provides:
‘In relation to the jurisdiction of the Crown Court, other than its jurisdiction in matters relating to trial on indictment, the High Court shall have
all such jurisdiction to make orders of mandamus, prohibition or certiorari as the High Court possesses in relation to the jurisdiction of an inferior
court.’
Section 39 of the 1933 Act (to which I have referred) provides in sub-s (1):
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‘In relation to any proceedings in any court … the court may direct that—(a) no newspaper report of the proceedings shall reveal the name,
address, or school, or include any particulars calculated to lead to the identification, of any child or young person concerned in the proceedings,
either as being the person by or against or in respect of whom the proceedings are taken, or as being a witness therein … except in so far (if at all)
as may be permitted by the direction of the court.’
Section 44 of the 1933 Act imposes a duty on all courts to have regard to the welfare of a child or young person.
Section 11 of the Contempt of Court Act 1981 is in these terms:
‘In any case where a court (having power to do so) allows a name or other matter to be withheld from the public in proceedings before the court,
the court may give such directions prohibiting the publication of that name or matter in connection with the proceedings as appear to the court to be
necessary for the purpose for which it was so withheld.’
On behalf of both applicants, Miss Baird, who represented the applicant H at trial, submits that there is jurisdiction in this court to entertain
applications for ­ 55 judicial review in relation to orders made under s 39. The only Court of Appeal decision on the subject is R v Lee [1993] 2 All ER
170, [1993] 1 WLR 103 which held that there was such jurisdiction.
Miss Baird referred to a decision of the Divisional Court (differently constituted) in R v Harrow Crown Court, ex p Perkins, R v Cardiff Crown
Court, ex p M (a minor) (1998) Times, 28 April (which I shall refer to as Ex p M).
In the course of giving the first judgment (with which I expressed agreement) Sullivan J said, by reference to the facts in that case:
‘But if the Crown Court had jurisdiction to make a direction on 7 July, because it was “in relation to” the proceedings which had concluded on 4
July, does that mean by the same token that this court has no jurisdiction to consider an application for judicial review because the Crown Court in
making a direction will be exercising its jurisdiction in a matter relating to trial on indictment? In my view, such a conclusion does not follow.
Whilst s 39 is a power of very general application, conferred in the interests of children and young persons on any court and in relation to any
proceedings, the words “relating to trial on indictment” in s 29(3) should not be given an extended meaning: see the speech of Lord Bridge in
(Smalley v Crown Court at Warwick [1985] 1 All ER 769 at 779, [1985] AC 622 at 643) which I have already read … Considering the first of Lord
Bridge’s “pointers”, a decision to make a direction under s 39 after the conclusion of a trial will have no possible effect upon the conduct of that
trial. Nor, in my view, can it be said to be an “integral part of the trial process”, in the same way that verdict, sentence and costs are regarded as
part of the trial process: see Lord Bridge’s speech in (Sampson v Crown Court at Croydon [1987] 1 All ER 609 at 611, [1987] 1 WLR 194 at 196)
which I have read. True it is that the judge will use the information gleaned in the trial to help him to decide whether to make a direction under s 39
if it is made at a later stage. But the power to make a direction, whilst it must be related to proceedings in a court, is a separate child protection
power, which is distinct from those proceedings. It is, in my view, fairly described as collateral to those proceedings [I interpose that I shall
comment later on the use of that word “proceedings” in that context rather than “trial”] … see the guidance in Smalley’s case and Sampson’s case
which was indorsed in (DPP v Crown Court at Manchester and Ashton [1993] 2 All ER 663, [1994] 1 AC 9). Moving on to the “further pointer”
suggested by Lord Browne-Wilkinson in (DPP v Crown Court at Manchester and Huckfield [1993] 4 All ER 928 at 934, [1993] 1 WLR 1524 at
1530): “Is the decision [to make a direction under s 39 one which arises] in the issue between the Crown and the defendant formulated by the
indictment (including the costs of such issue)?” In my view, the answer to that is plainly No. It is a separate collateral issue which is concerned
with the welfare of any party or witness who happens to be a young person.’
Miss Baird submits that, with one exception (to which in a moment I shall come), the other Divisional Court authorities, of which there are a number,
have, as she put it, ‘taken jurisdiction as read’.
By way of example, she refers to R v Crown Court at Leicester, ex p S (a minor) [1992] 2 All ER 659, [1993] 1 WLR 111 and R v Central Criminal
Court, ex p S [1999] 1 FLR 480.
The exception to that line of authority is R v Crown Court at Winchester, ex p B (a minor) [1999] 4 All ER 53, [1999] 1 WLR 788 (which I shall
refer to as Ex p B).
­ 56
The leading judgment in that case, with which Astill J agreed, was given by Simon Brown LJ.
Simon Brown LJ (see [1999] 4 All ER 53 at 57, [1999] 1 WLR 788 at 792) referred to Lord Diplock’s speech in A-G v Leveller Magazine Ltd [1979]
1 All ER 745 at 749–750, [1979] AC 440 at 449–450. Lord Diplock said:
‘As a general rule the English system of administering justice does require that it be done in public: Scott v Scott [1913] AC 417, [1911–13] All
ER Rep 1. If the way that courts behave cannot be hidden from the public ear and eye this provides a safeguard against judicial arbitrariness or
idiosyncrasy and maintains the public confidence in the administration of justice. The application of this principle of open justice has two aspects:
as respects proceedings in the court itself it requires that they should be held in open court to which the Press and public are admitted and that, in
criminal cases at any rate, all evidence communicated to the court is communicated publicly. As respects the publication to a wider public of fair
and accurate reports of proceedings that have taken place in court the principle requires that nothing should be done to discourage this. However,
since the purpose of the general rule is to serve the ends of justice it may be necessary to depart from it where the nature or circumstances of the
particular proceeding are such that the application of the general rule in its entirety would frustrate or render impracticable the administration of
justice or would damage some other public interest for whose protection Parliament has made some statutory derogation from the rule.’
Miss Baird submits that, although publicity is integral to the administration of justice, regard also has to be paid (as one of the exceptions
contemplated by Lord Diplock) to the considerations contained in ss 39 and 44 of the 1933 Act.
She points out, as Simon Brown LJ himself recognised, that if there is no jurisdiction to entertain an application by way of judicial review in relation
to a s 39 order, there is no means at all of challenging that decision.
Next, Miss Baird referred to R v Central Criminal Court, ex p Crook (1984) Times, 8 November. It is to the judgment of Stephen Brown LJ in that
case that Simon Brown LJ had particular regard in Ex p B. Ex p Crook related to an order made under s 11 of the Contempt of Court Act 1981. Stephen
Brown LJ, giving the first judgment of the Divisional Court, said this:
‘… the judge’s order … was made in relation to a trial on indictment … [the judge] made his order intending it to influence the conduct of the
trial by ensuring that the witness in question, who was the principal witness for the Crown, should be protected by an order designed to safeguard
her anonymity outside the court.’
The court went on to hold that, by virtue of s 29(3), there was no jurisdiction in the Divisional Court in relation to that order.
Miss Baird submits that there is, on the face of the statutory provisions, a material distinction between ss 11 and 39, because a s 11 order can only be
made if the name of the person protected by the order has been withheld in court. That, of course, is not the situation under s 39. Furthermore, Miss
Baird submits that a s 39 order is intended to protect the vulnerable young.
On behalf of the Crown Court (instructed by the Treasury Solicitor) Mr Smith submits that the pointers referred to in the decisions of the House of
Lords and in the judgment of Sullivan J (from which I have just quoted) are no more than pointers and they may point in the wrong direction.
­ 57
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It is necessary, he submits, to consider each case on its own basis and the making of an order for anonymity and the discharge of such an order both
affect the welfare of the young.
Lord Diplock’s speech in the Leveller case makes it clear that there are exceptions to the general principle of full publicity.
He further submits, that the Leveller approach, in reflecting the general rule and the ability to make orders of anonymity under s 39, both serve the
same end. But, he submits, it is the proceedings themselves which, by virtue of s 39, confer jurisdiction on the court to make an order. He concedes that
the word ‘proceedings’ in that section may well be capable of a wider construction than the word ‘trial’ in s 29.
He also concedes that the nature of the order made, which is sought to be challenged, is not the only factor when considering whether s 29(3) applies.
It is also material to consider when the order in question was made.
He submits that the various factors, which go to the decision whether or not to lift a s 39 order, would include an appreciation of the facts established
during the course of the trial, the conduct of the defendant and the result of the trial, all of which constitute an integral part of the proceedings. The
weight to be attributed to the various factors may shift at different stages of the proceedings. Given that the weight may well shift at different stages, then
the discretion must be regarded as an integral part of the trial process.
He referred to the factors identified by Simon Brown LJ:
‘The principles to be distilled from the various authorities can, I think, fairly be summarised in this way (and substantially I use the language of
the earlier judgments). (i) In deciding whether to impose or thereafter to lift reporting restrictions, the court will consider whether there are good
reasons for naming the defendant. (ii) In reaching that decision, the court will give considerable weight to the age of the offender and to the
potential damage to any young person of public identification as a criminal before the offender has the benefit or burden of adulthood. (iii) By
virtue of s 44 of the 1933 Act, the court must “have regard to the welfare of the child or young person”. (iv) The prospect of being named in court
with the accompanying disgrace is a powerful deterrent and the naming of a defendant in the context of his punishment serves as a deterrent to
others. These deterrents are proper objectives for the court to seek. (v) There is a strong public interest in open justice and in the public knowing as
much as possible about what has happened in court, including the identity of those who have committed crime. (vi) The weight to be attributed to
the different factors may shift at different stages of the proceedings and, in particular, after the defendant has been found, or pleads, guilty and is
sentenced. It may then be appropriate to place greater weight on the interest of the public in knowing the identity of those who have committed
crimes, particularly serious and detestable crimes. (vii) The fact that an appeal has been made may be a material consideration.’ (See Ex p B
[1999] 4 All ER 53 at 55, [1999] 1 WLR 788 at 790.)
For the Crown Prosecution Service, Miss Judge submits that the s 39 order originally made in the present case was such as to have an impact on the
conduct of the trial, because it was necessary during the course of the trial, and, indeed, at the pre-trial directions hearing to refer to the various witnesses
by name.
She, too, concedes that, when an order sought to be challenged is made is a material factor when considering the application of s 29(3).
­ 58
The arguments in relation to jurisdiction arise from a statutory problem which the courts have done their best to resolve. It is, as it seems to me, now
time for Parliament to introduce, as a matter of urgency, clarifying legislation which addresses the problems arising not only from s 29(3) itself, but also
from its relationship with other legislation, in particular, s 39 of the 1933 Act, and the provisions of s 159 of the Criminal Justice Act 1988 (to which
Simon Brown LJ referred) which confer, solely in relation to orders restricting publication, a right of appeal to the Court of Appeal, Criminal Division.
There is no such right of appeal conferred against a refusal to restrict publication or a decision discharging publication.
It may well be, if Parliament considers these matters, that it will also be necessary for them to consider the impact of art 6 of the Convention for the
Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969). That is an aspect of this matter which has
not been argued before this court. It may be that, if the decision of the Divisional Court in Ex p B is correct, so that there is no right of challenge even on
behalf of a young person to a decision which may affect his or her welfare, there will be consequences by virtue of art 6.
For present purposes, the starting point is s 29(3). The meaning of the words in that subsection, ‘matters relating to trial on indictment’, has, in
recent years, attracted perhaps more judicial consideration, in not always apparently reconcilable decisions, than any other statutory provision. The
House of Lords has addressed the matter no less than four times in a decade in Smalley’s case, Sampson’s case, DPP v Crown Court at Manchester and
Ashton and DPP v Crown Court at Manchester and Huckfield, not to mention the six other decisions of the Court of Appeal, Criminal Division and the
Divisional Court referred to in the judgment of Simon Brown LJ in Ex p B [1999] 4 All ER 53 at 59–60, [1999] 1 WLR 788 at 794–795. Indeed, those
authorities can be further supplemented by another Divisional Court decision in R v Crown Court at Maidstone, ex p Harrow London BC [1999] 3 All ER
542, [2000] 2 WLR 237. There Mitchell J, in a judgment with which Kennedy LJ agreed, held that a Crown Court judge’s order for supervision and
treatment, made under s 5 of the Criminal Procedure (Insanity) Act 1964 when there was no jurisdiction in the Crown Court judge to make that order, was
not excluded from judicial review by s 29(3).
It is because of these authorities that I made the comment that I did, in relation to the desirability of Parliamentary intervention.
To my mind, the crucial question presently for determination is whether the analysis of Sullivan J in Ex p M (with which I ventured to agree) or that
of Simon Brown LJ in Ex p B is preferable. This, in terms, seems to me to depend, in part at least, on whether the decision of the Divisional Court in Ex p
Crook, in relation to s 11 of the Contempt of Court Act 1981, is determinative of jurisdiction in relation to an order made in the circumstances of the
present case.
In Ex p B [1999] 4 All ER 53 at 60, [1999] 1 WLR 788 at 795, Simon Brown LJ concluded that Stephen Brown LJ’s observations (which I have
already cited) were equally apt in relation to s 39 orders as in relation to s 11 orders. Even on the assumption that that is correct, it does not, to my mind,
necessarily follow, as Simon Brown LJ appears to have assumed, that all s 11 and s 39 orders are free from challenge by way of judicial review.
The subject matter of the order sought to be challenged is obviously a very important factor when considering whether s 29(3) applies. But, it is not,
as it seems to me, the sole determinative factor. Indeed, as I have indicated, both Mr Smith and Miss Judge rightly, as it seems to me, concede that there
are other ­ 59 factors for consideration, including when, in relation to the course of the trial or proceedings, a s 39 order is made.
It is true that in Ex p M, Ex p Crook was not cited or considered. It is also true that in R v Salvin (19 August 1998, unreported) a decision of the
Court of Appeal, Criminal Division, to which, in his judgment, Simon Brown LJ referred, although Ex p Crook was cited, Ex p M was not. In the passage
cited by Simon Brown LJ from the court’s judgment in R v Salvin, we expressed the view that R v Lee [1993] 2 All ER 170, [1993] 1 WLR 103 and R v
Crown Court at Leicester, ex p S (a minor) [1992] 2 All ER 659, [1993] 1 WLR 111 might have to be reconsidered because Ex p Crook had not been cited
in those cases, and because R v Central Criminal Court, ex p Randle [1992] 1 All ER 370, [1991] 1 WLR 1087 (which was referred to in R v Crown
Court at Leicester, ex p S) had been overruled by the House of Lords in DPP v Crown Court at Manchester and Ashton. But, it seems to me that a
significant feature of the order under consideration in Ex p Crook was that the trial judge made it at the outset of the trial to safeguard the anonymity of a
witness, intending (in the words of Stephen Brown LJ) ‘to influence the conduct of the trial’ by affording protection to the witness outside the court.
For my part, I have no difficulty in identifying such an order as one relating to trial on indictment. The present order, lifting anonymity, was made
not at the beginning of the trial to influence its conduct, but after verdict and sentence.
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To my mind, the analysis of Sullivan J in Ex p M, in the passage from his judgment which I have read, not only appeared to me at the time, because I
agreed with it, to be correct, but appears to me now, on reflection, to be correct.
It is to be noted that, in Ex p M, the failure to make the order which was the subject of challenge, occurred after a young person had been convicted
and sentenced and it was to that situation that the judgment of Sullivan J was specifically directed.
There is, as it seems to me, however, in the interests of maximum clarity, one amendment which could profitably be made to the judgment of
Sullivan J in the passage which I have cited, at the point which, in citing it, I highlighted; that is to say, the reference by him to the guidance in Smalley v
Crown Court at Warwick and Sampson v Crown Court at Croydon indorsed in DPP v Crown Court at Manchester and Ashton, to what is collateral could
perhaps more happily be expressed by the use of the words ‘collateral to the trial’ rather than ‘collateral to the proceedings’.
With the greatest of respect to Simon Brown LJ, there is, in his judgment in Ex p B, no critical analysis of the judgment of Sullivan J nor, indeed, any
reference to the fact in Ex p Crook the order was made at the outset of the trial whereas, in Ex p M, it was made after trial and sentence. It may be that
Simon Brown LJ regarded the timing as immaterial, but his judgment is silent on the point. He expressed a preference for the argument that the
observations of Stephen Brown LJ in Ex p Crook applied equally to s 39 as well as to s 11 and, hence, he concluded that this court was deprived of
jurisdiction.
In my judgment, this court is bound by the decision of the Court of Appeal in R v Lee [1993] 2 All ER 170, [1993] 1 WLR 103. It was a reserved
judgment delivered by Lloyd LJ (as he then was), and the Court of Appeal held that there was no jurisdiction in that court to review a s 39 order, but that
there is such jurisdiction by way of judicial review in the Divisional Court.
In my judgment, R v Crown Court at Leicester, ex p S cannot, despite the possibility canvassed when I gave the court’s judgment in R v Salvin, be
impeached because, as Sullivan J said, in Ex p M, although R v Central Criminal Court, ex p Randle has now been overruled, it was merely referred to
and not relied on in R v Crown Court at Leicester, ex p S.
­ 60
The order in the present case was, in my judgment, made in circumstances indistinguishable from Ex p M and this court should follow R v Lee and
Ex p M, relying, if it is necessary to do so, on R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB 67 to depart from Ex p B.
Accordingly, this court has, in my judgment, jurisdiction to entertain these applications.
As to the merits, Miss Baird submitted that there must be clear and intelligible reasons given by a judge for his or her decision and, if it is necessary,
there must be findings of fact made by the judge to support those reasons.
In the present case, the judge did not indicate any findings in relation to the extent of the vulnerability of applicant H who, Miss Baird submits, was
highly vulnerable in the light of the psychiatric evidence that was before the court. Furthermore, Miss Baird submits that Sachs J failed to consider the
excessive vulnerability of H, the well-being of her parents and grandparents, and the grounds of appeal which had already been drafted and which were
proffered for Sachs J’s consideration, although it is right to say that Miss Baird made no formal request to the judge that he should look at the drafted
grounds.
Miss Baird further submits that the judge took into account and ought not to have done—and certainly not to the extent that he appears to have
done—the objections made to him in letters from the press (which are referred to at the outset of his ruling) which included references to the defendants
not being ‘permitted to escape the full might of the court by being offered a cloak of anonymity’ and to the fact that convicted young people do not
deserve to retain such anonymity as Parliament clearly had envisaged.
It appears that those matters were in the forefront of Sachs J’s mind when, in his ruling, he referred to being ‘satisfied that it is appropriate for me to
lift this restriction on reporting for the reasons sought’.
For the Crown Prosecution Service, Miss Judge submits that the judge’s reasons were clear and proper. He rehearsed, early in his ruling, the seven
factors set out in the judgment of Simon Brown LJ. He had regard expressly to every one of those factors when reaching the conclusion which he
reached.
Miss Judge concedes that, in the light of R v Central Criminal Court, ex p S [1999] 1 FLR 480, the fact that an appeal has been lodged is a material
factor for the judge’s consideration. She submits that he did consider it and is not to be criticised for not looking at the grounds of appeal, because it
would not have been appropriate for him, as trial judge, to assess the merits of those grounds.
For my part, I agree that it would not have been appropriate for the trial judge to assess the merits of the grounds of appeal in any detailed sense. But
it does seem to me that the judge was wrong to say, as he did, that it was not necessary for him to look at the grounds because ‘I suspect they are
forecastable’. At least one of the grounds, common to both applicants, relates to the summing up and such a ground, clearly, could not be forecastable. It
would, in my judgment, have been preferable had the judge looked at the grounds. Had he done so he would have realised that they were not all
forecastable and, furthermore, it would, as it seems to me, have been apparent that they were by no means frivolous.
As to the ultimate success or otherwise of those grounds, it would be wholly inappropriate for this court to make any comment whatever. But it is
highly relevant that non-frivolous grounds of appeal had been lodged on behalf of one of these applicants and had been drafted on behalf of the other
applicant.
The fact that there are non-frivolous grounds of appeal in existence means that there is a possibility, if no more, that a retrial may be ordered in
relation to this case. Had Sachs J paid regard to the potential significance of the grounds of ­ 61 appeal, it seems to me inevitable that he would have
continued the s 39 order until, at the earliest, the application for leave to appeal had been determined.
For my part, I fully recognise the importance of open justice as expressed by Lord Diplock. I fully recognise the right of the media fully to report
what takes place in a criminal court. To those matters there have to be, as Lord Diplock recognised, exceptions. One is where the welfare of children
(albeit children convicted of the gravest possible criminal offence) are involved. Section 44 imposes a duty on all courts to have regard to the welfare of
children, and s 39 provides one possible mechanism to that end.
To my mind, the fact that there may be a retrial resulting from an appeal in a case of this kind, involving defendants of this age, is a matter of very
great importance in exercising the discretion as to whether anonymity should or should not be maintained by virtue of a s 39 order. To my mind, Sachs J
did not pay appropriate regard to that aspect of the matter. Therefore, his decision can properly be categorised as flawed and I, for my part, would quash
it.
The usual consequence in this court of quashing such a decision would be to order that the judge reconsider the matter in the light of the judgments
of this court. But, if Forbes J agrees, it seems to me that it is pragmatic in the present case to take a different course. I say this, having regard, first, to
what I have expressed as the inevitability of Sachs J’s reconsideration of this matter, if it were referred to him and secondly, to the particular
circumstances arising today, which is the last day of sittings: Sachs J is in Manchester and counsel involved in this case, or some of them, are in London.
That being so, if Forbes J agrees, the course that I propose is that we should reconstitute ourselves as a Court of Appeal, Criminal Division. We have
been told that grounds of appeal have already been lodged on behalf of H and counsel undertake to lodge drafted grounds of appeal forthwith on behalf of
D if, that has not already been done.
Having so reconstituted ourselves, I would propose that we give, in our capacity as the Court of Appeal, Criminal Division, a direction and make an
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order under s 39 of the 1933 Act prohibiting the disclosure of material calculated to identify either of the applicants until such time as the Court of
Appeal, Criminal Division, makes any further order. Such an order may, of course, fall to be made if, for example, the application for leave to appeal
fails. If that application succeeds then, no doubt, the matter can be dealt with appropriately, according to the outcome of any appeal before this court.

FORBES J. I entirely agree and would only add a few words of my own with regard to the question of this court’s jurisdiction to entertain this
application and grant relief.
Rose LJ’s passing reference to art 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS
71 (1953); Cmd 8969) (the European Convention on Human Rights) alerts me to the fact that there could have been another argument, with regard to the
proper construction of s 29(3) of Supreme Court Act 1981, which it would have been appropriate for this court to entertain had the extreme urgency of
this application not prevented the issue from being raised in these proceedings. However, I venture to make the following observations in order to draw
attention to this further important argument without in any way seeking to express a concluded view on how it should ultimately be determined. I
emphasise that it did not form any part of the submissions addressed to this court in the course of these proceedings, an omission for which no one can
possibly be criticised.
­ 62
If Simon Brown LJ’s interpretation of the words ‘relating to trial on indictment’ in s 29(3) of the 1981 Act is correct, then a consequence will be that
a juvenile defendant in a criminal trial will have no means of challenging any order of the judge whereby he discharges a s 39 order (Children and Young
Persons Act 1933) at the conclusion of the trial, whether by appeal to the Court of Appeal or by way of judicial review. It seems to me that to discharge a
s 39 order at the end of a criminal trial is plainly an order which concerns and impinges upon the welfare of the juvenile defendant. Almost certainly the
making of such an order at the end of a criminal trial forms part of the criminal trial process, which trial process is arguably a ‘trial’ within the meaning of
art 6 of the European Convention on Human Rights.
It follows that the absence of any right of challenge by a juvenile defendant, by way of appeal or by way of judicial review, against the discharge of
a s 39 order at the end of a criminal trial, is arguably an infringement of that defendant’s right to a fair trial under art 6 of the convention.
Since V v UK (Applications No 24274/94 and No 24888/94) (unreported), it appears clear that the proper consideration of and the appropriate
provision for the welfare of a juvenile defendant (who is being tried in an adult court on a serious criminal charge) is a relevant aspect of that juvenile’s
right to a fair trial under art 6. It is also clear that failure to give proper consideration to and/or make appropriate provision for the welfare of the juvenile
in such a trial process is capable of constituting an infringement of the juvenile defendant’s right to a fair trial under art 6. In my opinion, it is arguable
that excessive or inappropriate publicity concerning a juvenile defendant, who is the subject of a criminal trial in an adult court, may well adversely affect
that defendant’s welfare. Indeed, I can think of no sensible argument to the contrary.
In R v Harrow Crown Court, ex p Perkins, R v Cardiff Crown Court, ex p M (a minor) (1998) Times, 28 April, this court construed s 29(3) of the
1981 Act in such a fashion as not to bring it into conflict with art 6 in the manner I have just outlined. However, in R v Crown Court at Winchester, ex p
B (a minor) [1999] 4 All ER 53, [1999] 1 WLR 788 s 29(3) was construed so that arguably it is in conflict with art 6, because it leaves the juvenile
defendant with no right of appeal or challenge to an order which adversely affects that juvenile defendant’s welfare in the criminal trial process. In my
view, there is therefore an arguable ambiguity in the words of s 29(3), within the meaning of that expression as set out in the well-known speech of Lord
Bridge in Brind v Secretary of State for the Home Dept [1991] 1 All ER 720, [1991] 1 AC 696. Applying the principles of Brind’s case, arguably s 29(3)
of the 1981 Act should be construed so as to conform with art 6, as it was so construed in Ex p M.
I stress that this particular argument was not considered in Ex p B, nor was it drawn to the court’s attention in any form at all. Had the argument
been considered in Ex p B, it is possible that Simon Brown LJ would have been persuaded to construe s 29(3) differently and might, therefore, have found
himself in agreement with the decision of this court in Ex p M.

Application allowed. The court refused permission to appeal to the House of Lords but certified, under s 33(2) of the Criminal Appeal Act 1968, that a
point of law of general public importance was involved in the decision, namely whether the High Court had jurisdiction to entertain an application for
judicial review of a decision by the Crown Court, in relation to proceedings on indictment, not to restrict publication of certain matters.

Dilys Tausz Barrister.

[2000] 2 All ER 177

RvA
CRIMINAL; Criminal Law

COURT OF APPEAL, CRIMINAL DIVISION

CLARKE LJ, BELL AND NELSON JJ
14 SEPTEMBER 1999

Criminal law – Child abduction – Meaning of ‘taking’ a child – Child Abduction Act 1984, ss 2(1)(b), 3(a).

A, a man in his thirties, had a relationship with a 15-year-old girl. On two occasions, she went away with him, but was returned by the police. After the
second incident, the girl’s mother told A that she wanted her daughter at home. The following month, A arrived at the girl’s house in the early hours of
the morning. Her mother told A that he could not take the girl away, and he responded by saying that he did not intend to do so. Nevertheless, later that
morning he took her to London in his car, allegedly in response to the girl’s pleas. After living rough with A in his car for nine days, the girl was returned
to her parents by the police. A was charged with taking a child under the age of 16 without lawful authority or reasonable excuse, so as to remove her
from the lawful control of a person having such control over her, contrary to s 2(1)(b)a of the Child Abduction Act 1984. Under s 3(a)b of the 1984 Act,
a person was to be regarded as taking a child if he caused or induced that child to accompany him. At trial, A’s counsel submitted that there was no
evidence of ‘taking’ as defined by s 3(a) and that accordingly there was no case to answer. The judge rejected that submission, and A was subsequently
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convicted. On appeal, A contended that he had not taken the girl within the meaning of s 2(1)(b) because she had wanted to go with him.
________________________________________
a Section 2, so far as material, is set out a p 178 g h, post
b Section 3, so far as material, is set out a p 178 h, post
________________________________________

Held – For the purposes of ss 2(1)(b) and 3(a) of the 1984 Act, the defendant’s acts did not need to be the sole cause of the child accompanying him.
Rather, it was sufficient that those acts were an effective cause of the child accompanying him, and it was immaterial that there were also other causes,
such as the child’s state of mind. A conclusion to the contrary would render s 3(a) unworkable since, in many cases, the child’s consent was likely to be a
cause of the child accompanying the defendant. In the instant case, there was ample evidence to leave to the jury on the question of whether A’s acts
were a cause of the girl accompanying him. Accordingly, the judge had been correct to reject the submission of no case to answer, and the appeal would
therefore be dismissed. (see p 182 b to e j to p 183 c, post).

Notes
For child abduction by a person other than the child’s parents, see 11(1) Halsbury’s Laws (4th edn reissue) para 536.
For the Child Abduction Act 1984, ss 2, 3 see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 796, 797.
­ 63

Cases referred to in judgment

Empress Car Co (Abertillery) Ltd v National Rivers Authority [1998] 1 All ER 481, [1999] 2 AC 22, [1998] 2 WLR 350, HL.
Lovelace v DPP [1954] 3 All ER 481, [1954] 1 WLR 1468, DC.
R v Berry [1996] 2 Cr App R 226, CA.
R v Hennigan [1971] 3 All ER 133, CA.
R v Kimsey [1996] Crim LR 35, CA.
R v Leather (1993) 98 Cr App R 179, CA.
Redhead Freight Ltd v Shulman [1989] RTR 1, DC.

Appeal against conviction and application for leave to appeal against sentence
The defendant, A, appealed against his conviction before Judge Haworth and a jury at the Crown Court at Cambridge on 25 May 1999 for abducting a
child contrary to s 2(1)(b) of the Child Abduction Act 1984, and applied for leave to appeal against his sentence of two years’ imprisonment for that
offence. The facts are set out in the judgment of the court.

Michael Duffy (assigned by the Registrar of Criminal Appeals) for the appellant.
Robert O’Sullivan (instructed by the Crown Prosecution Service) for the Crown.

CLARKE LJ. This is the judgment of the court. The appellant is A, who is 38 years of age. On 25 May 1999 in the Crown Court at Cambridge before
Judge Haworth and a jury he was convicted of abducting a child, which was count 2 on the indictment, and sentenced to two years’ imprisonment. No
separate penalty, save for endorsement, was ordered for using a vehicle without insurance and the appellant was acquitted of theft of a motor car, which
was count 1 on the indictment. He appeals against conviction by leave of the single judge who directed expedition.
The single judge referred his application for leave to appeal against sentence to the full court and directed the Registrar to obtain a prison report. He
gave leave to appeal against conviction on the basis that, in the absence of authority on the point, it deserved the attention of the full court. The point
involves the true construction of s 2(1)(b) of the Child Abduction Act 1984.
Sections 2 and 3 of that Act (the Act) provide, so far as relevant:
‘2.—(1) Subject to subsection (3) below, a person, other than one mentioned in subsection (2) below commits an offence if, without lawful
authority or reasonable excuse, he takes or detains a child under the age of sixteen–(a) so as to remove him from the lawful control of any person
having lawful control of the child; or (b) so as to keep him out of the lawful control of any person entitled to lawful control of the child …
3. For the purposes of this Part of this Act—(a) a person shall be regarded as taking a child if he causes or induces the child to accompany him
or any other person or causes the child to be taken …’
Count 2 of the indictment, in the form which ultimately went before the jury without objection, contained the following particulars:
‘[A] between the 18th and 29th days of June 1998 without lawful authority or reasonable excuse took [a child] under the age of 16 years, so as
to keep the said child out of the lawful control of a person entitled to lawful control of the said child [her mother].’
­ 64
The essential question on this appeal is what is meant by ‘takes’ in s 2(1)(b) of the Act. The appeal has been argued on the basis that s 3(a) provides
a definition of ‘takes’ or ‘taking’ in s 2(1). We are content to decide this appeal on that assumption, but nothing in this judgment is intended to express
the conclusion that the definition in s 3(a) is exclusive.
The facts may be briefly stated in this way. On 19 June 1998 a 15-year-old girl left her home in Cambridgeshire with the appellant and travelled
with him to London. For nine days they lived rough together in the appellant’s car. The girl did not give evidence, but her mother did. She said that in
January 1998 she had become aware that the appellant and the girl had a relationship. She told him that she was unhappy about it because the girl was
only a schoolchild. There was a history of previous disappearances. In January 1998 the girl went away with the appellant. The police picked her up and
her parents went and collected her. In May 1998 she went away with him for a week and again the police returned her. After the incident in May, the
mother told the appellant that she wanted her daughter at home. His response was, ‘She doesn’t want to come home. I want to take her to Gretna Green
and marry her’. Her mother told him that he could not because she was only 15.
In the days leading up to the girl’s disappearance on Friday, 19 June 1998 there were a series of telephone conversations between them. The
appellant telephoned her again on Thursday evening and then at 3 am on Friday morning he arrived at her house in a car. The mother asked the father not
to let her out and then telephoned the police. Before the police arrived, the appellant came into the house and the mother told him not to take the girl
away. His response was, ‘I haven’t come to take her away. I came to tell her she can’t go away with me’. The police then arrived and spoke to the
appellant, who eventually left on his own between 4.30 am and 5 am.
The girl disappeared the next morning and her parents heard nothing from her until the following Wednesday when she telephoned her mother. The
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appellant told her, ‘If you try to get her back, the next time you see her will be in a hole or well after her 16th birthday’. The police were involved in
returning the girl to her family after a total absence of nine days.
In cross-examination the mother denied that there was daily telephone contact from the outset. She also denied an earlier meeting with the girl and
the appellant at King’s Cross station, which was said to have been followed by a three-hour shopping trip. A police officer gave evidence that he was
called to the mother’s house at 3.40 am on Friday, 19 June. He spoke to the appellant and advised him not to take the girl with him on his return to
London, which he agreed not to do.
The appellant’s account in interview was broadly consistent with his subsequent evidence. The interview was put before the jury as part of the
prosecution case. He said in the interview that he had taken the girl to London ‘to stop her doing harm to herself, like taking pills and trying to kill
herself’. He also said that they loved each other. She told him she wanted to leave because she had problems at home. Her mother drank and threw
things at her. She also told him that she had written a note for her mother when she left.
We were referred to a number of passages from the appellant’s interview, including the following:

‘Her head’s completely fucked. She’s only has trust in me. She can only trust me, you know what I mean. I mean, all right, you’re saying that
I abducted her then fair enough. I mean what do I say I took her to London ­ 65 to look after herself and stop doing harm to herself like taking
pills and trying to kill herself. What do I do if she goes to London and ends up in London on her own then you find her in the bush who gets the
blame for that? Me. I took her to look after her, nothing else, just look after her º Whatever you can say me and [her] will always love each other,
even if you were to stop me and [her] seeing each other ’til she’s 16. You can’t take away our love and that is as simple as that º I arrived at [her]
house about 3 o’clock in the morning, I think just after, maybe a bit later. We just talked. She was crying and cuddling me, saying that she’s had
enough. And I’m talking to her saying that “You’ve got to finish your exams” ’cause she was going to school doing her exams and coming back
home, but she wasn’t going to school all day. We just talked and chatted so I said, “Well, listen, I’ve got to go now, you know. I’ve got to go back
to London”. And she didn’t want me to leave and this. That I said, “Look, you’ve got to stay, yeah”. So we went outside and she said, “Look, just
do me a favour”. She said, “Will you meet me at 9 o’clock in the morning?” So I said, “Look, I can’t do this”. She said, “Oh please”. Then she
started going, “If you go I’m going to come to London”. I go, “All right then”. So I’ve let her and we ended up back in London. I’m sorry if I’ve
done wrong here, a bad decision º’
A little later:
‘She said that she can’t handle home. She can’t handle her mum. If it ain’t their drunkenness it’s something else. She can’t live without me.
She wants to be with me. I said, “Look, we’ve got to do that the way she’s told us. You’ve got the chance here, finish your exams º”’
There were a number of similar passages to like effect.
At the end of the prosecution case Mr Duffy, who has represented the appellant before us today, submitted to the judge that there was no case to
answer on the abduction count on the basis that there was no evidence of ‘taking’ as defined in s 3(a) of the Act. The judge rejected that submission. He
expressed the reasons for his decision in this way:
‘It seems to me that dealing with this element of the offence—the word “takes”—that by s 3(a), the word “takes” in section 2 means that the
jury must be satisfied that the defendant caused [the girl] to accompany him. It is my view that a number of different acts can each together cause a
particular result, and a jury do not have to be satisfied that the defendant’s action was the sole, or even the main, cause of [the girl] accompanying
him to London. They have to be satisfied that his actions were a cause of her doing so, not de minimis. I find it helpful to turn the question round,
and ask it in this way: would [the girl] have accompanied the defendant to London, or accompanied him for several days in London, if he had
refused to drive her there, or refused to permit her to live in the car with him? It seems to me that a jury may readily conclude that the defendant’s
driving of [the girl] to London, and his provision of the car as their home for several days, were both a substantial cause of her accompanying. It is
a factual matter for the jury, but it is one upon which there is plainly evidence for them to consider. I therefore reject the submission.’
When the judge subsequently summed the matter up to the jury he said this on this point:
­ 66
‘Thirdly, you must be sure that the defendant took [the girl]—that is, that he caused [the girl] to accompany him. Now members of the jury, a
number of different acts can each, together, cause a particular result. That is common sense. You do not have to be satisfied that the defendant’s
action was the sole, or even the main, cause of [the girl] accompanying him to London–just that his actions were a cause of her doing so; something
more than merely peripheral or inconsequential. The phrase has been used by Mr Duffy—“the cause”—in the course of his address to you.
Members of the jury, that is not the law. If it were, the whole purpose of this Act would be negated because it would reintroduce a requirement that
what was done was done without any instigation, support, or consent by the child. It is clear, and I direct you in law, that the consent or otherwise
of the child is wholly irrelevant to this charge. A taking of a child without her consent would, in fact, be a kidnapping. This charge—child
abduction–the question of whether the child consents, or even instigated what happened, is wholly irrelevant to the issue of whether the actions of
the defendant were a cause of the child accompanying him. It may help if you turn the question round: would she have accompanied him to
London, or accompanied him for several days in London, if he had refused to drive her there, or refused to permit her to live in the car with him? It
may be that you will readily conclude that his driving of her to London; his provision of his car as their home for several days were both a
substantial cause of her accompanying him. However, that is a factual issue for you to decide. The question for you is: did he cause [the girl] to
accompany him? You do not have to be satisfied that the defendant’s actions were the sole, or even the main, cause of [the girl] accompanying him
to London. You have to be satisfied that his actions were a cause of her doing so—something more than merely peripheral or inconsequential.’
As we read both the reasons given by the judge in the course of his ruling and the way he summed up the point to the jury, the judge is saying that a
person ‘takes’ a child within the meaning of s 2(1)(b) of the Act so as to keep him or her out of the lawful control of, say, his or her mother, if his actions
are an effective cause of the child accompanying him.
We agree. In the instant case it was not in dispute that the girl was under 16 and that she was in the lawful control of her mother, who was entitled to
lawful control of her. The question was whether the appellant took her so as to keep her out of the lawful control of her mother without lawful authority
or reasonable excuse. He certainly took her, in the sense that he drove her away in his car, in which they lived for the next nine days. However, it is
submitted by Mr Duffy that he did not ‘take’ her within the meaning of s 2(1)(b) as defined in s 3(a) because the girl wanted to go with him. He did not
instigate or even suggest her leaving, which was her own wish. Collecting the girl by car from her home and driving her to London was not a sufficiently
powerful factor in bringing about the result intended by her, namely leaving and staying away from home, as properly to be regarded by the law as a
cause of it. The appellant, it is submitted, was the means by which the girl chose to bring about the result and not the cause or even a cause of it. The
appellant provided that by which the result was brought about. He did not bring it about himself by causing it. Nor did he intend to do so. At no stage
did the appellant detain the girl since she could have left the car at any time and returned to her mother if she had wished.
­ 67
There is no doubt that the girl accompanied the appellant in his car. Assuming, as we have indicated earlier we are willing for present purposes to
assume, that the question depends upon s 3(a), the question was whether the appellant caused the girl to accompany him? If she did, it follows from the
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express provisions of s 3(a) that he took her within the meaning of s 2(1)(b) and that he was guilty of the offence provided by that subsection if the other
criteria were satisfied.
Section 3(a) does not expressly provide that the person concerned must solely cause the child to accompany him. As the judge observed, an event or
state of affairs may have many causes. If an event or state of affairs A is caused by B, C and D, it can, in our judgment, fairly be said that each of B, C
and D causes A. Section 3(a) does not provide that the person shall be regarded as taking a child if he is the sole cause of the child accompanying him. It
simply provides that he shall be so regarded if he causes the child to do so. As in the above example, there may, as it appears to us, be other causes. In
particular, one of those other causes may be and is often likely to be the child’s own decision or state of mind. Mr O’Sullivan submits that if it were
otherwise the section would in many cases be unworkable since in very many cases a cause of the child accompanying the defendant is likely to be the
child’s consent. In our judgment Parliament cannot have intended that where one of the causes of the accompanying was the child’s consent or the child’s
decision, the section could have no application. In our judgment the judge was right to hold that the question for the jury was whether the acts of the
appellant were a cause of the girl accompanying him. He was also right to hold that the alleged cause must be something more than, as he put it,
‘peripheral or inconsequential’. Another way of putting it would be to say that the act or acts of the appellant must be an effective cause of the child
accompanying him.
We have been referred to a number of cases on different statutes, including Redhead Freight Ltd v Shulman [1989] RTR 1, Lovelace v DPP [1954] 3
All ER 481, [1954] 1 WLR 1468, Empress Car Co (Abertillery) Ltd v National Rivers Authority [1998] 1 All ER 481, [1999] 2 AC 22, R v Hennigan
[1971] 3 All ER 133 and R v Kimsey [1996] Crim LR 35. In our judgment those cases are of very limited assistance because they all refer to different
statutes. It is common ground that there is no relevant authority on the Act itself. The only cases to which we were referred in this regard were R v
Leather (1993) 98 Cr App R 179 and R v Berry [1996] 2 Cr App R 226, neither of which is concerned with the true construction of s 2(1)(b) or s 3(a).
Of the cases to which we were referred, those of most assistance, albeit peripheral assistance, were the two cases of causing death by dangerous
driving, namely R v Hennigan and R v Kimsey. Those cases are examples of cases where it has been held, albeit in the context of a different statute which
provides that a person who causes the death of another person by dangerous driving commits an offence, that it is not necessary to prove that the
defendant’s dangerous driving was the sole cause of the death. In that context, any other conclusion would be plainly absurd. We have reached the same
conclusion on the true construction of the statute with which we are concerned. It appears to us that the literal meaning of the words used leads to the
conclusion that the acts of a defendant may cause the child to accompany him even if there is another cause. It follows that, in our judgment, the judge
was right for the reasons he gave.
The remaining question is whether there was evidence which the judge was entitled to leave to the jury. In our judgment there plainly was. There
was ample evidence upon which the jury could conclude that the decision of the child to accompany the appellant was not the sole cause of her doing so.
We have set out ­ 68 already the evidence of the child’s mother. The events of 19 June must be seen in their context. There was a history of the girl
leaving home to be with the appellant. On each of those previous occasions he played his part to the full. On the morning of 19 June the appellant went
to pick the girl up. On the mother’s evidence, he deceived her. On any ordinary meaning of the word, he took the girl away, albeit with her willing
consent. It is true, as Mr Duffy submits, that she wanted to be with him, but equally there is ample evidence that he wanted to be with her. In these
circumstances there was ample evidence upon which it was proper to leave to the jury the question: was a cause of her accompanying him the acts of the
appellant? It follows that the judge was right to reject the submission of no case to answer.
Having done so, it is not, as we understand it, suggested that the judge misdirected the jury in anyway, on the assumption, that is, that the conclusion
we have reached is correct. Nor is it suggested that it was not open to the jury to reach the verdicts that they did. It follows that the appeal against
conviction must be dismissed.
The appellant seeks leave to appeal against the sentence of two years’ imprisonment passed upon him by the trial judge. We have already outlined
the facts of the matter in connection with the appeal against conviction. The judge had the great advantage of listening to the trial and being able to form
a view as to the true criminality of these matters. Both the girl’s mother and the appellant gave evidence. The judge was thus in a good position to decide
who was telling the truth and who was not. It is plain from the careful sentencing remarks that the judge took a firm view of the evidence which he heard.
In the course of his sentencing remarks, he referred to the fact that the appellant had not been convicted of kidnapping. He pointed out that the taking of
a child from the care of her parents was the essence of the offence and that the Act was designed specifically to meet this kind of case. He observed that
the child was a girl of 15 who was herself having real difficulties in coping with her circumstances. The judge referred to the fact that in the course of his
evidence the appellant had said, ‘She should be with her mother and father’. The judge said:

‘On 19 June you attended at her house late at night at her request and you repeatedly reassured them that you were there for one reason, and one
reason only—to persuade that young girl to stay at home. That was an utter deception because in fact what you were there for was to take her away
from home. You did so the next morning as soon as her mother left home. It was a deliberate deception, I am quite satisfied on the evidence. You
took her to London. There was no contact with her parents or the authorities for as long as five days. The effect of that on her parents one does not
need to think about for very long to realise how devastating that must have been and how worried they must have been as to what had happened to
her. It was an action by you that was utterly selfish. You have claimed that you did it for the young girl’s welfare. I reject that. It was quite clear
what you should have done if you were thinking of her welfare. What you did, you did because of your own infatuation with that young girl.’

In our judgment the judge was entitled to reach those conclusions, with which we could not possibly interfere. It is clear that the judge took a serious
view of this matter. Mr Duffy, who has made cogent submissions on behalf of the appellant, observes that the girl was 15, and thus nearly 16—when she
would no longer be a child within the meaning of the Act. He draws our attention to the ­ 69 fact that there is no suggestion that any harm came to the
child during the nine days she was with the appellant. He relies upon the fact that she acquiesced in everything which happened; this was not a
kidnapping; nothing occurred against her will; and she could have left whenever she wanted to. Moreover, he submits that there is no evidence of any
risk to the girl and no evidence that there were any sexual relations between them. This is not a case in which there was any untoward sexual activity.
Moreover, this is not a case in which the appellant is a paedophile or anything of that nature, which is unfortunately so common in this class of case. He
submits that in these circumstances the sentence of two years is manifestly excessive.
The judge was referred to a detailed report from the Forensic Psychiatrist Service at Addenbrooke’s Hospital, which we too have seen, which shows,
as indeed does a prison report that we have seen, that the appellant has significant psychological problems with which he needs assistance.
We see the force of the submissions made by Mr Duffy on behalf of the appellant, but they have to be matched against the view which the judge
formed of this offence. Moreover, this is not an appellant who pleaded guilty; so he is not entitled to any credit for that. Moreover, he is not a man of
good character. On the contrary, he has a significant number of previous convictions, albeit primarily for offences of dishonesty. None of them, it is right
to say, is an offence of the kind with which this court is concerned, nor is any of them an offence of violence to the person.
The judge concluded that a sentence of two years’ imprisonment, after a contested trial, for taking this girl from her family and keeping her in
London with no contact for five days and for nine days in all was appropriate. In our judgment that sentence was at the top end of the permissible
bracket, but we have reached the conclusion that in all the circumstances of the case it cannot fairly be said that it was manifestly excessive. For these
reasons we refuse the application for leave to appeal against sentence.
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An order was made at the Crown Court under s 39 of the Children and Young Persons Act 1933 prohibiting publication of any particulars relating to
the girl that would lead to her identification in relation to these proceedings. That order remains in force.

Appeal dismissed. Application for leave to appeal against sentence refused.

Caroline Stomberg Barrister.

[2000] 2 All ER 185

R v Adkins
CRIMINAL; Criminal Law

COURT OF APPEAL, CRIMINAL DIVISION

ROCH LJ, HARRISON AND ELIAS JJ
6, 21 MAY 1999

Criminal law – Rape – Consent – Belief of accused – Whether direction as to honest belief required in every rape case where consent or recklessness in
issue.

A was charged with rape. He admitted having had sexual intercourse with the complainant, but claimed that intercourse had been consensual. At trial, the
judge directed the jury that the prosecution had to prove that the complainant had not consented, and that A had either known that she had not consented
or had been reckless as to whether or not she had been consenting. However, he did not instruct the jury that A should be acquitted if he had honestly, but
mistakenly, believed that the complainant had been consenting. A was convicted and appealed on the basis of the judge’s direction to the jury. He
contended that whenever the defendant in a rape case relied on consent, there was also an implicit defence that he had honestly believed that there had
been consent, and that accordingly the judge should direct the jury as to belief whenever consent was in issue. Alternatively, he submitted that such a
direction should be given whenever the question of reckless rape was in issue.

Held – It was not necessary to give a direction as to honest belief in every case of rape where consent was in issue. Rather, such a direction was required
only when, on the evidence in the case, there was room for the possibility of a genuine mistaken belief that the victim had consented. That conclusion
accorded with the basic principle that the jury should not be subjected to unnecessary and irrelevant directions. Equally, the question of honest belief did
not necessarily arise where reckless rape was in issue. The defendant might have failed to address his mind to the question whether or not there was
consent, or have been indifferent as to whether or not there was consent, in circumstances where, if he had addressed his mind to that question, he could
not genuinely have believed that there was consent. In the instant case it had not been open to the jury on the evidence to reach a verdict that A could
honestly, but mistakenly, have believed that the complainant had consented. Accordingly, the judge’s failure to direct the jury as to belief did not render
the conviction unsafe, and the appeal would therefore be dismissed (see p 191 b to e, post).
R v Taylor (1985) 80 Cr App R 327 applied.

Notes
For consent in relation to rape, see 11(1) Halsbury’s Laws (4th edn reissue) para 517.

Cases referred to in judgment

R v Haughian, R v Pearson (1985) 80 Cr App R 334, CA.
R v Satnam, R v Kewal (1984) 78 Cr App R 149, CA.
R v Taylor (1985) 80 Cr App R 327, CA.
R v Thomas (1983) 77 Cr App R 63, CA.
­ 70

Cases also cited or referred to in skeleton arguments

DPP v Morgan [1975] 2 All ER 347, [1976] AC 182, HL.
R v Bashir (1983) 77 Cr App R 59, CA.
R v Gardiner [1994] Crim LR 455, CA.

Appeal against conviction

The appellant Patrick Adkins, appealed with leave of the Court of Appeal granted on 18 January 1999 against his conviction on a charge of rape at the
Crown Court at Nottingham on 6 March 1998 before Bennett J and a jury. The facts are set out in the judgment of the court.

Stuart Trimmer (assigned by the Registrar of Criminal Appeals) for the appellant.
Paul Mann (instructed by the Crown Prosecution Service, Nottingham) for the Crown.

Cur adv vult

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21 May 1999. The following judgment of the court was delivered.

ROCH LJ. On 6 March 1998 at the Crown Court at Nottingham the appellant was convicted of rape and on 27 March sentenced to six years’
imprisonment. His applications for leave to appeal against conviction and sentence were refused by the single judge. On 18 January 1999 the full court
granted leave to appeal against conviction but refused leave to appeal against sentence.
The background to the case was that the appellant, a married man, was a regular customer at a club where the complainant worked as a barmaid. He
was attracted to the complainant and attempted to build an intimate relationship with her. The complainant was a married woman of 32 years of age who
had separated from her husband in 1995. She had reported her husband for rape but subsequently withdrew that allegation. At the material time she had a
male friend.
Her evidence was that when the appellant was at the club where she worked as a barmaid and had had drink he would ask her out. She always said
‘no’ because the appellant was married. The appellant when he gave evidence said that he considered that that answer was an indication that had he not
been married the complainant would have agreed to go out with him.
On 29 June 1997 the complainant agreed to allow the appellant to share her taxi. On that occasion he was very drunk. In the taxi he pestered her to go
out with him. As a consequence of his conduct she stopped the taxi at a public house near her home instead of going straight to her home. When she and
the appellant got out of the taxi the appellant had seized her wrist and held her against a wall and tried to kiss her. She had tried to push the appellant
away. The taxi driver’s statement, which was read to the jury, was that the couple appeared to be embracing and kissing in an ordinary way.
The complainant said that inside the public house she had bought herself and the appellant a drink. The appellant had continued to pester her and
followed her home. She had entered her home and locked herself in and the appellant had banged on the doors and windows and shouted at her through
the door. About a fortnight later the appellant had seen her in the street and had apologised for his behaviour. The appellant again asked her to go out
with him and she refused. There was a further occasion when they had met in the street and the appellant ­ 71 had tried to invite himself into her flat
for tea. She had refused and the appellant had seized her wrist.
On 17 August 1997 the complainant had been at the club with her boyfriend and had introduced her boyfriend to the appellant. The boyfriend when
he gave evidence confirmed that he had been introduced to the appellant. She had gone home from the club with her boyfriend who had spent the night at
her flat. In the morning the boyfriend had left and the complainant had ordered a taxi to take her to work for 10.45 am.
At about 10 am there had been a knock on the door. The complainant had just come out of the bathroom and was wearing a pair of panties and a
dressing gown. She opened the door to find that it was the appellant at the door. The appellant asked to come in for a cup of tea. She had told him that he
could not as she had to go to work. The appellant had pushed the front door open and stepped in. She had fallen back and he had pushed her again. She
told him to stop. The bedroom in the flat was at the end of the passageway leading from the front door and the door of the bedroom was open. The
appellant had seen the bed and had pushed the complainant into the bedroom and back on to the bed. He had then got on top of her and had undone her
dressing gown. She had said ‘No, P, stop it. You shouldn’t be doing this.’ She tried to get away by struggling but could not do so. He touched and
kissed her all over. He had pulled her panties down and he had pulled his own shorts down and tried to penetrate her. He did not have a sufficient
erection but he achieved an erection by masturbating himself whilst holding her down. He had then penetrated her and ejaculated. She had let him finish
rather than have anything else happen to her. After intercourse he had said ‘I better not get a knock on the door’ which she understood to refer to the
police. She had told him to get out. He also warned her not to tell his wife.
The appellant had left and she had then contacted her boyfriend. She told her boyfriend ‘It’s P, P’s been up’. She said that the appellant had put her
on the bed and the boyfriend had asked her if the appellant had raped her. She said ‘Yes’. The boyfriend had come round and when he arrived she had
telephoned the police. She had been reluctant to call the police as she did not think the police would believe her because of her previous allegation of
rape against her husband which she had withdrawn.
She was examined by a Dr Page. The findings of that doctor were consistent with consensual and non-consensual intercourse.
The boyfriend gave evidence that when he arrived at the complainant’s flat at 11.30 am on 18 August the complainant had appeared shocked.
The appellant was arrested at 4.25 pm on 18 August. He was cautioned and asked what he had been doing at 10 am. He told the police that he had been
looking after his children. When the allegation of rape was put to him he said, ‘I had sex with her but I didn’t rape her’. He said that the complainant had
given him ‘the come on’. Subsequently the appellant was interviewed and insisted that the sexual intercourse had been consensual. He told the police
that he had asked the complainant out a few times but that she had refused saying that she would have gone out with him but for the fact he was married.
He admitted being a nuisance on 29 June both in the taxi and by his behaviour outside the complainant’s flat. In relation to that evening he said that the
complainant had invited him into the public house and when outside the taxi he had seized her arm and they had kissed. He admitted that the complainant
had twice refused to let him into her flat for tea but said that he still felt he had a chance of a relationship with her. He admitted that his visit to her house
on 18 August had been uninvited. He said ­ 72 that the complainant had turned round when she opened the door and he had followed her into the
house. They had started kissing, had wandered into the bedroom and had had sex. At no time did she say ‘No’. In a second interview he maintained that
he had gone to the complainant’s flat that morning for tea and not for sex.
The appellant gave evidence before the jury consistent with the answers he had given in interview. In addition he told the jury that on 17 August he
had gone with his wife to the night-club where the complainant was a barmaid. He had seen the complainant with a man and had gone over. He had not
been introduced to that man and he did not know that that man was her boyfriend. On the following morning he had gone to the complainant’s home at
about 10 am to see if he could get a cup of tea. She had opened the door and looked surprised. She said she was going to work shortly, but did not tell
him to go away. She turned and walked into her flat leaving the door open and he had followed her. He had taken hold of her hips and kissed her. She
did not stop him. They had moved together into the bedroom. She had fallen on the bed and he fell on top of her. She was wearing just a bathrobe. She
was not wearing pants. He kissed her breast and she responded. She was enjoying it. He fingered her vagina. He stood up to take his clothes down and
while he did that she moved up on the bed. He started kissing her again but his penis would not go hard. He asked her to help him and she started
playing with him. They had had intercourse and he had ejaculated. When they were having intercourse her hands were on his hips and she was helping
him. Then she said she must go as she had to get ready for work. She walked him to the door and let him out. At no time had he threatened her. When
cross-examined the appellant did say that he would not take no for an answer and he had told the complainant that he wanted sex with her. Since June of
that year his ultimate objective had been to go to bed with her.
The appeal against conviction is based on the judge’s direction to the jury concerning the third element of the offence of rape. The judge, having
directed the jury that the first matter the prosecution had to prove was that the appellant had had sexual intercourse with the complainant, a fact which was
not in issue, went on:

‘The second thing the prosecution must prove is the woman was not consenting to it and that is the primary issue so far as this case is concerned
because, as you will appreciate, she says “I was not”, he says “Yes she was and what is more, she was responding.”’
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The judge directed the jury on the third element of the offence in this way:

‘Third, either that he knew that she was not consenting to the intercourse or that he was reckless as to whether she was consenting or not. A
man is reckless as to whether the woman consented to sexual intercourse if you are sure that he neither knew nor cared whether she was consenting
or not. In other words, his state of mind was that he could not have cared less.’

The principles are stated in Archbold’s Criminal Pleading, Evidence and Practice (2000 edn) para 17-58, p 1578, which is headed ‘Recklessness in sexual
offences’. After referring to various authorities and in particular R v Satnam, R v Kewal (1984) 78 Cr App R 149, the editors write:

‘Thus …, in summing-up a case of rape which involves the issue of consent, the judge should, in dealing with the state of mind of the defendant,
direct ­ 73 the jury that before they can convict, the Crown must have proved either that he knew the woman did not consent to sexual
intercourse, or that he was reckless as to whether she consented. If the jury are sure he knew she did not consent, they will find him guilty of rape
knowing there to be no consent. If they are not sure about that, they will go on to consider reckless rape. If he may genuinely have believed that
she did consent, even though he was mistaken in that belief he must be acquitted; see s. 1(2) of the 1976 Act. In considering whether his belief may
have been genuine, the jury should take into account all the relevant circumstances (including presence or absence of reasonable grounds: see s.
1(2)). If, after considering them, the jury are sure that the defendant had no genuine belief that the woman consented to have intercourse, then they
will convict. He will be guilty because that finding of fact would mean that his mental state was such that either he knew she was not consenting or
he was reckless as to whether she was consenting. If the jury are sure that he could not have cared less whether she wanted to have sexual
intercourse or not, but pressed on regardless, then he would have been reckless and could not have believed that she wanted to. In R. v. Taylor
(Robert) ((1985) 80 Cr App R 327), Lord Lane C.J. said at p. 332 that in rape, the defendant is reckless if he does not believe the woman is
consenting and could not care less whether she is consenting or not but presses on regardless.’

As rape is a statutory offence, it is sensible to set out s 1 of the Sexual Offences Act 1956. By s 1(2) of that Act:

‘A man commits rape if—(a) he has sexual intercourse with a person (whether vaginal or anal) who at the time of the intercourse does not
consent to it; and (b) at the time he knows that the person does not consent to the intercourse or is reckless as to whether that person consents to it.’

Section 1(2) of the Sexual Offences (Amendment) Act 1976 is to this effect:

‘It is hereby declared that if at a trial for a rape offence the jury has to consider whether a man believed that a woman [or man] was consenting
to sexual intercourse, the presence or absence of reasonable grounds for such a belief is a matter to which the jury is to have regard, in conjunction
with any other relevant matters, in considering whether he so believed.’

The passage in Archbold which we have cited is based on the judgment of this court in R v Satnam, R v Kewal (1984) 78 Cr App R 149 at 154–155.
Earlier in the judgment (at 152) this passage occurs:

‘Two grounds of appeal were relied on in this Court. (1) That the judge should have directed the jury that a genuine though mistaken belief that
the girl was consenting offered a defence to a charge of reckless rape; (2) that the judge erred in referring to an “ordinary observer” in his direction
as to recklessness, and that he should have directed the jury that it was necessary to prove that each appellant was actually aware of the possibility
that the girl was not consenting before they could find him reckless. So far as the first ground was concerned, it was accepted by Mr Smith for the
Crown that he could not support the summing-up in the absence of a direction as to belief. In THOMAS ((1983) 77 Cr App R 63) Lord Lane CJ
said (at 65): “In this particular case, the judge should have spelt out in terms that a mistaken belief that the woman was consenting, however
unreasonable it may appear ­ 74 to have been, is an answer to the charge, and that it is for the prosecution to eliminate the possibility of such a
mistake if they are to succeed. He should then have gone on to deal with the matters set out in s 1(2) of the 1976 Act. As it was the jury were left
without any guidance on the matter.”’

The submission of Mr Trimmer on behalf of the appellant is twofold. First, he says that in every case of rape when the defendant relies on consent,
there is also an implicit defence that the defendant honestly believed that there was consent. Accordingly, he says that a direction as to belief should be
given as a matter of course whenever consent is in issue. He contends that the need to give such a direction is recognised by s 1(2) of the 1976 Act
(reproduced above). Alternatively, he contends, as a more limited submission, that whenever the question of reckless rape is in issue, the direction ought
to be given. That this was a case of reckless rape is demonstrated by the judge’s direction quoted above. Despite that there is an absence of a direction as
to belief. The judge has not spelt out in terms that a mistaken belief that the complainant was consenting, unless eliminated by the prosecution as a
possibility, afforded the appellant a defence to this charge. The judge should have gone on to assist the jury by referring them to the matters set out in s
1(2) of the 1976 Act. The omission of those matters from the summing up meant that the jury were left without any guidance on the matter of belief and
as a consequence this appeal should be allowed.
Mr Mann for the respondents relied upon R v Taylor (1985) 80 Cr App R 327 where this court presided over by Lord Lane CJ said (at 330):

‘The first ground of appeal advanced by Mr. Engle is that the learned judge erred in failing to direct the jury that the appellant was not guilty, if
he genuinely believed that the complainant was consenting, although such belief might have been mistaken. He reinforces that complaint by telling
us, correctly, that at one stage during the trial he specifically requested the learned judge to give such a direction to the jury, but the learned judge
declined to accept that invitation. It should be plainly understood at the outset that there is no general requirement that such a direction should be
given in all cases of rape. The nature of the evidence, and of course particularly the evidence given by the complainant and the defendant, will
determine whether or not such a direction is advisable and whether to give such a direction would be fair. There must be room for mistake in the
case before such a direction is required.’

A little later Lord Lane CJ referring to R v Satnam, R v Kewal observed that in that case the Crown had conceded that the judge had been in error in
not giving the direction as to belief and accordingly, apart from a brief reference to the decision in R v Thomas the court gave no reason for the first part
of their decision. In R v Taylor the court went on to observe that once the jury came to the conclusion that the complainant had not consented and that she
was telling the truth about that, there was little, if any, room for any further conclusion that the defendant might have been labouring under any honest but
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mistaken belief despite his protestations. The second authority on which Mr Mann relied was R v Haughian, R v Pearson (1985) 80 Cr App R 334, which
follows the report of R v Taylor. In that case this court held that in cases in which the conflict of evidence between the complainant and the accused was
acute and in which, if the jury decided that the account given by the complainant was truthful, there was no room for a genuine but mistaken belief by the
accused that she was consenting, ­ 75 any over-elaborate direction to the jury on the question whether the prosecution had proved that the accused
knew that the complainant was not consenting could only tend to confuse them and would be unnecessary. Thus once the jury found that the complainant
had not consented to intercourse with either of the appellants, as the majority must have found, the facts were such that there was no room for mistaken
but genuine belief and accordingly the judge had been under no obligation to give a direction on mistaken belief.
In our judgment, these cases demonstrate that Mr Trimmer is wrong in his primary submission that whenever the issue of consent arises there must
be a direction as to honest belief. Such a direction need only be given when the evidence in the case is such that there is room for the possibility of a
genuine mistaken belief that the victim was consenting. In our view this accords with the basic principle that the jury should not be subjected to
unnecessary and irrelevant directions. Similarly, it is only when the issue of honesty arises on the evidence that the requirements of s 1(2) of the 1976 Act
apply. We also reject the alternative submissions. The question of honest belief does not necessarily arise where reckless rape is in issue. The defendant
may have failed to address his mind to the question whether or not there was consent, or be indifferent as to whether there was consent or not, in
circumstances where, had he addressed his mind to the question, he could not genuinely have believed that there was consent.
Accordingly the question we have to ask ourselves is whether, on the evidence in this case, it was open to the jury to reach a verdict that the
defendant could honestly, but mistakenly, have believed that there was consent. We are satisfied this was not a possible inference on the facts.
Despite the persuasive submissions of Mr Trimmer relying on evidence that, despite the frequent rebuffs he received from the complainant prior to
August 18, the appellant still believed that there was a chance he would establish a sexual relationship with the complainant, this case, in our judgment is
one which was akin to R v Taylor. With regard to the events of 18 August, the jury heard two sharply conflicting accounts. Once the jury were sure that
the complainant had not consented to having sexual intercourse with the appellant, it had to follow that they rejected the appellant’s account of what had
occurred in the complainant’s flat. The jury must have been sure that the complainant’s account was accurate and reliable.
In those circumstances there was no scope for a genuine but mistaken belief on the part of the appellant that the complainant was consenting to
intercourse. On the complainant’s account of what had occurred, the appellant must have either known that she was not consenting or, if he did not have
that knowledge, he must have been reckless as to whether she was consenting or not. It was never his case that he believed she was consenting to
intercourse. His case was that she had not merely consented; she had actively facilitated his having intercourse with her.
Mr Trimmer was not counsel at the appellant’s trial. It is significant that it did not occur either to the judge or to counsel at the trial that the judge
was wrong to omit from his directions to the jury a direction about honest but mistaken belief. It is significant that the judge told the jury that the primary
issue so far as this case was concerned was whether the complainant had been consenting to intercourse. Counsel and the judge who were present at the
trial are better placed than those who were not present and did not hear the evidence and the case develop to judge what were the issues and what
directions were appropriate for the particular case.
­ 76
We have looked carefully at this matter having heard the persuasive submissions by Mr Trimmer. The conclusion that we have reached is that there
was no failure to direct the jury properly in this case and that there is no ground for considering the jury’s verdict unsafe. In those circumstances this
appeal against conviction will be dismissed.

Appeal dismissed.

Kate O’Hanlon Barrister.

[2000] 2 All ER 193

Hurst v Bryk and others

COMPANY; Partnerships

HOUSE OF LORDS
LORD BROWNE-WILKINSON, LORD NICHOLLS OF BIRKENHEAD, LORD HOPE OF CRAIGHEAD, LORD CLYDE AND LORD MILLETT
13 JANUARY, 30 MARCH 2000

Partnership – Dissolution – Effect – Agreement signed by partners prematurely dissolving partnership without consent of one partner – Partner treating
agreement as repudiatory breach of partnership deed and accepting repudiation – Whether repudiatory breach of partnership deed discharging innocent
partner from obligation to contribute towards partnership liabilities.

H was a partner in a firm of solicitors. Relations between the partners broke down, and in the summer of 1990 all but one served notice terminating the
partnership on 31 May 1991. However, it soon became clear that the partnership could not continue until that date, and H’s fellow partners therefore
entered into an agreement dissolving the partnership on 31 October 1990. H refused to sign that agreement, and instead informed his partners that he
regarded their conduct as a repudiatory breach of the partnership agreement which he had no alternative but to accept. H subsequently brought
proceedings against his former partners, contending that their repudiatory breach of contract had discharged him from any obligation to contribute to the
firm’s liabilities as they had stood on 31 October 1990 or as they had accrued thereafter, including a continuing liability for rent on one of the firm’s
premises. The judge held that H’s partners had committed a repudiatory breach of the partnership agreement by entering into the dissolution agreement,
but concluded that that repudiatory breach had not discharged H from his obligation to contribute to the rent due on the premises accruing before and after
the dissolution of the partnership. That decision was affirmed by the Court of Appeal, and H appealed to the House of Lords.

Held – Although the acceptance by one party of a repudiatory breach of contract by the other party discharged both from further performance of their
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obligations, it did not operate to divest rights that had already been unconditionally acquired. Rather, rights and obligations which arose by the partial
execution of the contract continued unaffected. In the instant case, H’s liability to contribute to the accrued and accruing liabilities of the firm, and his
partners’ rights of contribution, arose from the fact that the liabilities were incurred by the firm when H was a partner. Once the firm had undertaken or
assumed liability for the rent, each partner in the firm was entitled to have the liability taken into account in ascertaining his share of the firm’s profit or
losses both before and after dissolution. That right was not lost merely because H’s partners afterwards repudiated the contract and H accepted that
repudiation. Thus H could neither avoid his joint liability to the creditors of the firm arising from past transactions entered into while he was a partner
nor, without rescinding the partnership agreement ab initio, throw his proportionate share of the liability onto his partners. Accordingly, the appeal would
be dismissed (see p 195 b to f, p 205 a to c, p 206 a b and p 207 a, post).
­ 193
Per Lord Millett. Although there is no reason why the doctrine of accepted repudiation should not apply to an agreement to enter into partnership or
to the contractual obligations which the partners mutually undertake to observe after the partnership has come to an end, it is doubtful whether it can be
employed to bring about the automatic dissolution of the partnership itself (see p 199 c d, post).
Decision of the Court of Appeal [1997] 2 All ER 283 affirmed.

Notes
For repudiatory breach of contract and for the dissolution of partnerships otherwise than by the court, see respectively 9(1) Halsbury’s Laws (4th edn
reissue) paras 997–1001 and 35 Halsbury’s Laws (4th edn reissue) paras 163–168.

Cases referred to in opinions

Bank of Boston Connecticut v European Grain and Shipping Ltd, The Dominique [1989] 1 All ER 545, [1989] AC 1056, [1989] 2 WLR 440, HL.
Barber v Wolfe [1945] 1 All ER 399, [1945] Ch 187.
Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339, [1886–90] All ER Rep 65, CA.
Daley v People’s Building Loan and Saving Association (1901) 178 Mass 13, Mass SC.
Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318, [1775–1802] All ER Rep 140, 29 ER 1184.
Freeman v Taylor (1831) 8 Bing 124, [1824–34] All ER Rep 688, 131 ER 348.
Green v Hertzog [1954] 1 WLR 1309, CA.
Henty v Schröder (1879) 12 Ch D 666.
Heyman v Darwins Ltd [1942] 1 All ER 337, [1942] AC 356, HL.
Hitchman v Crouch Butler Savage Associates (a firm) (1983) 80 LS Gaz 550; rvsd on other grounds (1983) 127 SJ 441, CA.
Horsler v Zorro [1975] 1 All ER 584, [1975] Ch 302, [1975] 2 WLR 183.
Johnson v Agnew [1979] 1 All ER 883, [1980] AC 367, [1979] 2 WLR 487, HL.
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, Aust HC.
Nitedals Taendstikfabrik v Bruster [1906] 2 Ch 671.
Park Air Services plc, Re, Christopher Moran Holdings Ltd v Bairstow [1999] 1 All ER 673, [1999] 2 WLR 396, HL.
Richardson v Bank of England (1838) 4 My & Cr 165, 41 ER 65.

Appeal
The plaintiff, Robert Alfred Hurst, appealed with leave of the Appeal Committee of the House of Lords given on 26 January 1998 from the decision of the
Court of Appeal (Simon Brown and Peter Gibson LJJ, Hobhouse LJ dissenting in part) on 4 February 1997 ([1997] 2 All ER 283, [1999] Ch 1) dismissing
his appeal from the decision of Carnwath J on 11 April 1995 dismissing his action against the defendants, Mr Hurst’s former partners in the firm of
Malkin Janners, and allowing their counterclaim. Of the 19 original defendants, only seven were respondents to the appeal in the House of Lords, namely
Raymond Alexander Bryk, Michael David Simmons, Margaret Heather Bennett, Kevin David Bichard, Derek Bluston (the first, fourth and tenth to
twelfth defendants), Peter William Smith (the eighteenth defendent) and Nicholas James Treppass (the nineteenth defendant). The facts are set out in the
opinion of Lord Millett.
­ 194

Clive Freedman QC and Charles Samek (instructed by Robert Hurst) for Mr Hurst.
Philip Hoser (instructed by Thomas Eggar Church Adams, Reigate) for the first, fourth and tenth to twelfth defendants.
Mr Smith did not appear.
Andrew Hochhauser QC (instructed by Howard Kennedy) for Mr Treppass.

Their Lordships took time for consideration.

30 March 2000. The following opinions were delivered.

LORD BROWNE-WILKINSON. My Lords, I have read the speech prepared by my noble and learned friend Lord Millett. For the reasons which he
gives I would dismiss the appeal.

LORD NICHOLLS OF BIRKENHEAD. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord
Millett. I agree that for the reasons he gives this appeal should be dismissed. I too prefer to keep open for another occasion the question whether a
partnership can be automatically dissolved by an innocent partner or partners treating the other partner’s or partners’ breach as repudiatory. That question
does not call for decision in the present case.

LORD HOPE OF CRAIGHEAD. My Lords, I have had the advantage of reading in draft the speech which has been prepared by my noble and learned
friend Lord Millett. I agree with it, and for the reasons which he has given I too would dismiss the appeal.

LORD CLYDE. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Millett and I agree, for the
reasons which he gives, that the appeal should be dismissed.
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LORD MILLETT. My Lords, it sometimes happens that a partnership is dissolved following a fundamental breach of the partnership agreement by one
or more of the partners. The question in this appeal is whether the innocent partner or partners are thereby discharged from all further liability to
contribute to the debts and obligations of the partnership, whether accrued at the date of dissolution or accruing thereafter.

The facts
Mr Hurst has been in practice as a solicitor since 1975. In 1986 he joined a firm of solicitors by the name of Malkin Cullis & Sumption (MCS) as a
salaried partner. The firm carried on practice from Inigo House, Covent Garden, London WC2 (Inigo House). On 1 June 1989, following a merger with
five of the partners of another firm by the name of Janners, MCS changed its name to Malkin Janners. On the same day Mr Hurst joined the firm as an
equity partner on the terms of a partnership deed dated 3 May 1989. There were 20 partners in all.
Shortly before this MCS had taken a 20-year lease of additional premises at 15 King Street (King Street) at an annual rent of £95,000. The terms of
the lease had been negotiated towards the end of 1988, and the lease was taken in the ­ 195 names of four of the equity partners of MCS as trustees for
the firm. Mr Hurst, who was not yet an equity partner, was not consulted on this transaction. Nothing, however, turns on this. Clause 3 of the
partnership deed of 3 May 1989 (which replaced a clause in almost identical terms in the MCS partnership deed) was in the following terms:

‘3.1 The Partnership Business shall be carried on under the firm name of “Malkin Janners” and the principal places of business shall be at Inigo
House, 29 Bedford Street, Covent Garden, London WC2E 9RT and additionally or alternately at such other place or places as the Partners may
from time to time determine (“the Partnership Premises”).
3.2 The Partnership Premises shall be held by the Partners as Partnership Property and the cost of all rent, rates, repairs and insurance and other
outgoings and expenses relating thereto or to any other property acquired for the purpose of the Partnership Business shall be borne by the
Partnership.
3.3 The legal estate in all freehold or leasehold property acquired for the purpose of the Partnership (including the leasehold property referred to
in Clause 3.1) shall be vested in the Partners upon trust for sale or in some of the Partners as trustees for all the Partners and the net proceeds of sale
and the rents and profits until sale shall form part of the Partnership assets and the Trustees shall be entitled to be indemnified by the Partnership
against the rent and all outgoings in respect of the said property and the costs and expenses of observing the covenants relating thereto.’

Clause 3.3 merely set out in terms what would be the legal position in the absence of express agreement. Malkin Janners was not the same firm as MCS
by a new name. It was a new partnership with new partners who included Mr Hurst. It took over King Street as well as Inigo House and assumed
liability for the rent of both properties. By becoming a partner in Malkin Janners Mr Hurst acquired a beneficial interest in both leases and became jointly
with his fellow partners liable for the rent.
By the spring of 1990 relations between the partners had deteriorated to such an extent that several of them were actively considering giving notice
of retirement with a view to moving elsewhere. At a partners’ meeting in July 1990 all five former Janners partners indicated their intention to serve
notices of retirement. During August all the remaining partners except one served such notices to take effect on 31 May 1991. Mr Hurst was among
those who served notice. Had these notices been allowed to take effect, the firm would have been dissolved on 31 May 1991.
It was clear that the firm had no future. By September most of the partners were in agreement that it would not be possible to continue the
partnership until the following May. Steps were put in hand to bring about its earlier dissolution. Staff were given notice. On 4 October 1990 all Mr
Hurst’s fellow partners entered into an agreement (the dissolution agreement) to dissolve the partnership on 31 October 1990. Under the terms of the
dissolution agreement five of the partners would form a new firm under the name Malkins with effect from 1 November 1990; Malkins would carry on
practice from Inigo House; Malkin Janners would assign Inigo House to Malkins; and any continuing liabilities in respect of King Street would remain the
responsibility of the partners of Malkin Janners.
Mr Hurst was invited to sign the dissolution agreement but refused to do so. The judge (Carnwath J) described his attitude as unrealistic. On 2
November 1990 ­ 196 Mr Hurst informed his partners that he regarded their conduct in entering into the dissolution agreement as a repudiatory breach
of the partnership agreement which he had had no alternative but to accept with effect from 31 October 1990. He had already accepted an offer to
become a partner of D J Freeman, and he joined that firm on 5 November 1990. Other partners moved to other firms.
It is obvious that the partnership did not survive these events, and it is common ground that, if it was not dissolved with effect from 31 October 1990
(as Mr Hurst alleges) by his acceptance of his partners’ repudiatory breach of contract, it was dissolved with effect from that date by mutual consent.
A steering committee was formed to wind up the firm’s affairs. Mr Hurst attended occasionally and received some of the papers, though not all of
them. The partners in Malkins duly took over Inigo House and assumed responsibility for the tenants’ obligations under the lease. They paid no premium
for the lease because it was considered to have no value. There had been a substantial fall in property values since the rent for King Street had been
negotiated at the end of 1988, and it proved impossible to dispose of the property or to sublet it except at a rent considerably below the rent payable to the
landlord. It has been sublet but remains undisposed of to this day. There is a continuing liability for rent.
In other respects the winding up of the affairs of Malkin Janners was completed without difficulty. An interim dissolution account was prepared by
the firm’s accountants. It contained no entries in relation to Inigo House or King Street. It has still not been possible to produce a final account because
of the continuing liability in respect of King Street. The interim account showed a small sum slightly in excess of £4,000 to be due to the firm from Mr
Hurst.
Mr Hurst began these proceedings against his former partners in 1992. His main object was to avoid the continuing liability under the King Street
lease. To this end he alleged that the partnership had been dissolved by his acceptance of his partners’ repudiatory breach of contract and sought a
declaration that he was thereby discharged from any obligation to contribute to the liabilities of the firm as they stood at 31 October 1990 or as they
accrued thereafter. In addition he asked for a general partnership account to be taken by the court. The defendants counterclaimed for payment by Mr
Hurst of his share of the partnership liabilities.
In 1993 the landlord of King Street brought proceedings for arrears of rent against the four partners in whose name the lease had been taken. They in
turn brought third party proceedings for contribution against their former partners including Mr Hurst. By his third party defence Mr Hurst denied
liability on the grounds (i) that any trust which might have been created by cl 3 of the partnership deed had come to an end on 31 October 1990; (ii) that
the claimants’ right to contribution was entirely dependent on cl 3.3 of the partnership deed; and (iii) that he was discharged from all obligations under the
partnership deed with effect from 1 November 1990 by reason of his acceptance of his partners’ repudiatory breach of contract.
Although the defendants denied that their conduct in entering into the dissolution agreement constituted a repudiatory breach of the partnership deed,
the judge found that it did and his conclusion was unanimously upheld by the Court of Appeal ([1997] 2 All ER 283, [1999] Ch 1). There has been no
further appeal to your Lordships’ House from this finding or from the underlying assumption in both courts below that it was this which brought about the
dissolution of the partnership.
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­ 197
The judge exercised his discretion by refusing to order the taking of a general partnership account, and in this respect also the Court of Appeal
unanimously upheld his decision. As the judge pointed out, it would be very unusual for the court to order a complete audit of the firm’s accounts to be
undertaken by an independent accountant. Where, as in the present case, detailed accounts had already been prepared by competent accountants, these
would normally form the basis for any further accounts and inquiries. Any partner would have the right to surcharge and falsify the accounts, but the
burden would be upon him to do so.
In the present case the only significant dispute concerned King Street and Inigo House. Mr Hurst challenged the terms on which Inigo House had
been transferred to Malkins, but it was incumbent upon him to show that the lease had a value which was not realised by the disposal. He failed to do so.
The judge found that the lease was regarded as burdensome and its acquisition by Malkins was a matter of intense negotiation with the other partners.
There was no evidence that any group of partners obtained any special advantage at the expense of the others. There were a number of groups with
different interests and the arrangements with Malkins were the result of hard bargaining between them. Mr Hurst adduced no valuation evidence, and the
judge concluded that he would not be justified in ordering an account on the speculative chance that there might be some additional value in Inigo House,
which had not been taken into account.
Mr Hurst’s main contention was that his partners’ repudiatory breach of the partnership agreement discharged him from all further obligations under
the partnership deed. These included his obligation to contribute to the liabilities of the partnership which had accrued prior to its dissolution as well as to
those which continued to accrue thereafter. The judge rejected both contentions. He held that partnership liabilities which arose prior to dissolution
remained liabilities of the partnership as a whole notwithstanding the repudiatory breach of contract and consequent dissolution. Mr Hurst’s
responsibility for his share of those liabilities depended, not on the continuation of the partnership, but on the fact that he was a partner at the time they
were incurred. The same principles, he reasoned, applied to the continuing liabilities accruing after dissolution which resulted from transactions entered
into prior to dissolution. It made no difference that the partnership was brought to an end by repudiation rather than by agreement. Mr Hurst was,
therefore, liable to contribute to the rent due in respect of King Street accruing after as well as before the dissolution of the partnership. The judge
dismissed the action and granted a declaration on the counterclaim that Mr Hurst was liable to pay his share of the partnership liabilities, including
continuing liabilities for rent. His decision was upheld by a majority of the Court of Appeal (Simon Brown and Peter Gibson LJJ, though for different
reasons). Hobhouse LJ (now Lord Hobhouse of Woodborough) dissented.
Mr Hurst now appeals to your Lordships’ House. He has succeeded in settling the dispute with 11 of the defendants. Another is believed to be
insolvent. Accordingly only seven of the original defendants remain as respondents to the present appeal. These include the nineteenth defendant, a Mr
Treppass, who has been separately represented before your Lordships.

Repudiatory breach of contract as an independent ground of dissolution

The consequences when a contract is brought to an end by the acceptance by one party to it of a repudiatory breach of contract by the other party are
well established. They were clearly stated by Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476–477 where he said:
­ 198
‘When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no
longer binding on him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the
contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the
partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected.’

This passage has been expressly approved by your Lordships’ House: see Johnson v Agnew [1979] 1 All ER 883 at 892, [1980] AC 367 at 396 per Lord
Wilberforce; and Bank of Boston Connecticut v European Grain and Shipping Ltd, The Dominique [1989] 1 All ER 545 at 549–550, [1989] AC 1056 at
1098–1099 per Lord Brandon of Oakbrook.
The doctrine of accepted repudiation is of general application in the law of contract, and there is no reason why it should not apply to an agreement
to enter into partnership or to the contractual obligations which the partners mutually undertake to observe after the partnership has come to an end. But I
have considerable doubt that it can be employed to bring about the automatic dissolution of the partnership itself.
The use of the doctrine for this purpose would certainly be unhistorical. In its modern form it is of relatively recent origin. There appears to be no
trace of it before Freeman v Taylor (1831) 8 Bing 124, [1824–34] All ER Rep 688, and it was not fully understood until much later. Of course, it had
long been recognised before then that the refusal or inability of one party to perform his part of the bargain should immediately excuse the other party
from performing or preparing to perform his part. As Williston on Contracts (3rd edn, 1970) vol 1 pointed out, the reason why the plaintiff must
ordinarily have performed his contract in order to recover is that the mutual performances in a bilateral contract are given in exchange for one another,
and if the exchange fails on one side the other party may likewise decline to perform. Before the middle of the nineteenth century, however, the common
law treated the innocent party as discharged from further performance, not because the other party had committed a breach of contract, but because he had
failed to perform a condition precedent to the obligation of the innocent party. Even where what was relied on was a breach of contract, therefore, the
critical question was whether the parties’ contractual obligations were mutually interdependent or independent. The question whether there has been a
mutual discharge of reciprocal obligations can arise only in a bilateral context.
Where one party was in breach of contract, the voluntary exercise by the innocent party of the right to refuse to perform his part of the bargain was
usually described as ‘bringing the contract to an end’ or ‘rescinding’ it, with the result that he could not also claim damages for the breach. This fallacy
was exposed by Bowen LJ in Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 Ch D 339 at 365, [1886–90] All ER Rep 65 at 73–74 and by
Holmes CJ in Daley v People’s Building Loan and Saving Association (1901) 178 Mass 13. But it persisted until modern times, particularly in the
Chancery Division: see Henty v Schröder (1879) 12 Ch D 666 and the cases which followed it down to Barber v Wolfe [1945] 1 All ER 399, [1945] Ch
187 and Horsler v Zorro [1975] 1 All ER 584, [1975] Ch 302. It was not finally laid to rest until Heyman v Darwins Ltd [1942] 1 All ER 337, [1942] AC
356 and (in relation to sales of land) Johnson v Agnew. The failure to distinguish between ­ 199 discharge by breach and rescission ab initio has led
many courts astray and continues to do so.
It is impossible to say whether the modern contractual doctrine of accepted repudiation might have infiltrated the law of partnership if partnership
had been treated as merely a particular species of contract enforceable in the common law courts. Disputes between partners and the dissolution and
winding up of partnerships, however, have always fallen within the jurisdiction of the Court of Chancery. This is because, while partnership is a
consensual arrangement based on agreement, it is more than a simple contract (to use the expression of Dixon J in McDonald v Dennys Lascelles Ltd); it
is a continuing personal as well as commercial relationship. Neither during the continuance of the relationship nor after its determination has any partner
any cause of action at law to recover moneys due to him from his fellow partners. The amount owing to a partner by his fellow partners is recoverable
only by the taking of an account in equity after the partnership has been dissolved: see Richardson v Bank of England (1838) 4 My & Cr 165, 41 ER 65,
Green v Hertzog [1954] 1 WLR 1309. Only the Court of Chancery was equipped with the machinery necessary to enable such an account to be taken,
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and the basis upon which the account was taken reflected equitable principles. These could be modified by agreement, but they did not find their source
in contract.
The basic principles of partnership law are set out in the Partnership Act 1890, which was drafted by Sir Frederick Pollock and is still in force today.
It codified (though not exhaustively) the law of partnership and reflected the pre-existing principles of equity which had been developed by the Court of
Chancery. These did not include the contractual doctrine of repudiation. It is noticeable that s 1 of the Act, which defines the concept of partnership,
makes no reference to contract. It defines partnership as ‘the relation which subsists between persons carrying on a business in common with a view of
profit’.
Given this history, it is not surprising to find that until recently there was no recorded case of the automatic dissolution of a partnership being
brought about by the acceptance of a repudiatory breach of contract, and no indication that this is a ground of dissolution in the Act or (except to doubt it)
in successive editions of Lindley on Partnership over a period of more than 100 years. Generations of Lord Chancellors in the eighteenth and nineteenth
centuries would have failed to recognise the concept. Thereafter, if the judges of the Court of Chancery had recognised the concept at all, it is likely that
they would have rejected the idea that the dissolution of a partnership at the instance of one partner, however wronged, and against the wishes of his
fellow partners can be withdrawn from the discretion of the court and left to the unilateral decision of the innocent partner.
Repudiation as a ground of dissolution first saw the light of day in Hitchman v Crouch Butler Savage Associates (a firm) (1983) 80 LS Gaz 550
where Harman J treated as axiomatic the proposition that the doctrine of repudiatory breach applies to partnership agreements as it applies to other
contracts. The question, however, is not whether the doctrine applies to the contract of partnership, but whether it operates to bring about the automatic
dissolution of the partnership relationship.
This is much more doubtful. In the first place, the Act expressly states the circumstances in which a partnership is dissolved (expiry of a fixed term
or termination of the adventure or undertaking, notice, bankruptcy or death of any ­ 200 partner, supervening illegality or order of the court). It makes
no mention of repudiatory breach of contract. It is true that a partnership may also be dissolved by mutual agreement, and it may be objected that this is
not mentioned either; but in fact it is catered for by s 19 taken in conjunction with s 32(a). This cannot be relied on to support the admission of an
accepted repudiation as an automatic ground of dissolution. The theory that a repudiatory breach of contract is an offer to terminate the contract which
can be accepted by the offeree, thereby bringing the contract to an end by mutual consent, is discredited. The contract is brought to an end by the exercise
of a right conferred by law on the parties to the contract from the outset, not by virtue of a new agreement between them.
The admission of a new ground of dissolution which is not mentioned in the Act and which would not have been recognised by the Court of
Chancery is far from axiomatic. But the supposed ground also sits uneasily with s 35(d) of the Act. This gives the court a discretionary power to decree
a dissolution of a partnership when a partner, other than the partner suing—

‘wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership
business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with him.’

It is difficult to envisage a case in which conduct of this description would not constitute a repudiatory breach of contract which the party suing could
accept by bringing proceedings.
Even if this brought about the automatic dissolution of the partnership, it would not follow that para (d) was altogether empty of content. It would
not be needed where there are only two partners, but it would still be needed where there are more than two partners and there is at least one partner who
is innocent of any wrongdoing and who does not accept the repudiation. It would also arguably be needed even in a case like the present where there are
numerous partners who fall into only two camps, those who are alleged to have committed a repudiatory breach and those who claim to have accepted it.
What is there to bring the contract to an end as between the parties who are in the same camp? It is noticeable that the Act expressly provides that the
death or bankruptcy of any partner operates to dissolve the partnership as regards all the partners. The contractual doctrine applies to multi-party as well
as to two-party contracts, but it merely effects the mutual discharge of reciprocal obligations. It necessarily operates bilaterally as between each party in
breach and each party accepting the breach as repudiatory by discharging them from their reciprocal obligations. It is difficult to see how it can operate to
discharge the parties in the same camp, whether guilty or innocent, from the obligations they owe each other. This can only be achieved by agreement.
This would lead to a very odd distinction between those (few) cases where dissolution was automatic and those cases where it was not. To my mind,
however, the strongest argument against admitting repudiatory breach as a further ground for the automatic dissolution of a partnership is that, wherever
applicable, it would circumvent the discretionary power of the court under s 35. Even where the plaintiff establishes conduct on the part of his fellow
partners which comes within s 35(d), the court is not bound to order a dissolution. This reflects equitable principles, but is in sharp contrast to the
approach of the common law.
­ 201
By entering into the relationship of partnership, the parties submit themselves to the jurisdiction of the court of equity and the general principles
developed by that court in the exercise of its equitable jurisdiction in respect of partnerships. There is much to be said for the view that they thereby
renounce their right by unilateral action to bring about the automatic dissolution of their relationship by acceptance of a repudiatory breach of the
partnership contract, and instead submit the question to the discretion of the court. For a similar principle in a different contractual context, see Johnson v
Agnew [1979] 1 All ER 883 at 895, [1980] AC 367 at 399 per Lord Wilberforce.
The courts below, however, found that the dissolution of the partnership was brought about by the acceptance by Mr Hurst of his partners’
repudiatory breach of contract and not by mutual agreement. That finding, and the assumption on which it is based, have not been challenged before your
Lordships. In these circumstances I am content to proceed on the basis of the same assumption while reserving for future consideration the question
whether it is correct.

Consequences of dissolution
When a partnership is dissolved, its affairs must be wound up. This is the responsibility of the partners themselves. There is no provision for it to be
undertaken by an office holder, though any of the parties can apply to the court for the appointment of a receiver if this is necessary to preserve the
partnership assets.
To enable the partners to wind up the affairs of the partnership, s 38 of the Act provides that after the dissolution of the firm the authority of each
partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution as far as may be necessary to wind
up the affairs of the firm and to complete transactions begun but unfinished at the date of dissolution, but not otherwise. Thus each of Mr Hurst’s fellow
partners had authority to negotiate for the disposal of the partnership premises or to instruct the partnership accountants. They did not need his consent to
dispose of Inigo House, though he had the right, as I have explained, to challenge the terms on which they disposed of it by surcharging the account.
Likewise the firm’s liability for the rent of King Street and its obligation to indemnify the persons (whether partners or not) in whose names the lease was
vested will continue until the lease is disposed of and the affairs of the partnership are finally wound up.
In the latter connection it is to be observed that, both under the general law and under cl 3.3 of the partnership deed, the lessees of King Street are
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trustees for the firm and are entitled to be indemnified by the firm, that is to say the partners jointly, and not by the individual partners. As Hobhouse LJ
([1997] 2 All ER 283 at 304, [1999] Ch 1 at 26) pointed out, Mr Hurst’s personal liability for the rent is indirect. Like any other liability of the firm it is a
joint liability of the partners and, if paid by his fellow partners, is recoverable by them from him in the course of taking the dissolution account. The
lessees’ right as trustees to be indemnified by their beneficiaries for liabilities undertaken by them in the course of their trust establishes the firm’s
liability but says nothing about Mr Hurst’s obligation to his fellow partners to contribute towards its discharge.
Partners are jointly and not severally liable for the debts of the firm incurred while they were partners (s 9 of the Act), and they are beneficially
entitled to the assets of the firm remaining after the liabilities have been discharged. The winding up of a partnership involves the realisation of the firm’s
assets, ­ 202 the ascertainment and discharge of its liabilities, and the adjustment of accounts between the partners so that the profits can be distributed
to them or the losses borne by them in the appropriate shares.
Section 44 of the Act sets out the rules which govern the final settlement of the partnership accounts. It is in the following terms:

‘In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed: (a)
Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners
individually in the proportion in which they were entitled to share profits: (b) The assets of the firm including the sums, if any, contributed by the
partners to make up losses or deficiencies of capital, shall be applied in the following manner and order: 1. In paying the debts and liabilities of the
firm to persons who are not partners therein: 2. In paying to each partner rateably what is due from the firm to him for advances as distinguished
from capital: 3. In paying to each partner rateably what is due from the firm to him in respect of capital: 4. The ultimate residue, if any, shall be
divided among the partners in the proportion in which profits are divisible.’

The application of the section may be varied by agreement, but it is quite general in its terms. It applies to the winding up of every partnership after a
dissolution whatever the ground of dissolution and regardless of the conduct of the parties. It applies where the partnership is ordered to be dissolved
under s 35(d) of the Act in the same manner as it applies in any other case, and no distinction is drawn between the rights and obligations of the partner or
partners whose wrongful conduct led to the dissolution and the other partners or partner who are innocent of any wrongdoing. It would lead to an
impossible situation if s 44 applied where the partnership was dissolved by the court under s 35(d) but not where the partnership was automatically
dissolved following a repudiatory breach of the partnership agreement.
It would, in any event, be wrong in principle to have regard to the parties’ conduct when taking the dissolution account. This is clearly the case
where the account is taken in order to determine their respective entitlements to the surplus assets. These are in the nature of rights of property, and no
matter how badly a partner may have behaved towards his partners he is not to be deprived of his accrued property rights. But the same must apply where
there is a net deficit. It would take very clear words in the partnership agreement to require liabilities to be taken into account in ascertaining a partner’s
entitlement to the partnership assets to the extent of reducing his entitlement to nil but no further. The injustice of exonerating the innocent partner from
his share of the firm’s liabilities and throwing it upon the wrongdoers may not be apparent in the present case where there are 19 wrongdoers and only
one innocent partner. But it would be very obvious in the converse (and probably more usual) case where there were 19 innocent partners and only one
wrongdoer.
Mr Hurst contends that, by accepting his partners’ repudiatory breach of contract, he was automatically discharged from his contractual obligation to
contribute to the deficit, which must be borne exclusively by his fellow partners. One difficulty with this argument is that, when properly understood, Mr
Hurst’s obligation is not contractual but equitable. It is, I think, important to understand the part which s 44 plays in the winding up. The partners are
jointly liable for all ­ 203 the debts of the firm. The firm’s creditors are not concerned to enquire whose conduct has brought about the dissolution of
the firm. However much an individual partner may have been wronged by his fellow partners, he remains jointly liable with them for the debts of the
firm. Judgment may be taken against the firm and executed not only against partnership property but also against any individual partner. Section 44 is
designed to ensure that, as between the partners themselves, any surplus is shared and any deficit is ultimately borne by the partners in the appropriate
proportions. If a partner is obliged to pay more than his proper share of the firm’s liabilities, s 44 entitles him to be reimbursed the excess through the
taking of the dissolution account. In relation to the firm’s liabilities it thus reflects the same equitable doctrine of contribution which applies between
co-sureties and other co-obligors. That is a doctrine which is ‘bottomed and fixed on general principles of justice, and does not spring from contract;
though contract may qualify it’ (per Eyre CB in Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318 at 321, [1775–1802] All ER Rep 140 at 142).
Mr Hurst does not, as I understand his argument, dispute any of this. He contends that the contractual doctrine of repudiation operates at an earlier
stage before s 44 or the equitable principles to which it gives effect come into play. He recognises that the contractual doctrine cannot affect his liability
to third parties, but he claims that, as between himself and his fellow partners, he is discharged from all further performance of those obligations which he
undertook by becoming a partner, and these include the obligation to contribute to the firm’s losses.
The difficulty with this argument is that it does not accurately reflect the contractual doctrine. As Hobhouse LJ recognised, the acceptance by one
party of a repudiatory breach of contract by the other operates to discharge both parties from further performance of their contractual obligations. If Mr
Hurst is discharged from the obligation he owes his fellow partners to contribute to the assets available to the creditors, then his fellow partners are
likewise discharged from the corresponding obligation they owe him. Since the creditors are unaffected, they can still recover judgment against the firm
and execute against any of the partners separately. Mr Hurst’s argument does not lead to the conclusion that he can walk away from the firm’s liabilities
and thereby reduce the security available to the creditors, but to the conclusion that the liability for the firm’s debts must rest wherever the creditors
choose to let it fall. The fact is that it is not enough for Mr Hurst to avoid his liability to contribute to the firm’s assets to make up any shortfall; he needs
an indemnity against his liability for the firm’s debts. This can only be obtained by agreement or by rescinding the partnership contract ab initio. The
contractual doctrine of repudiation is not sufficient.
It is no answer to say that, as the wronged party, Mr Hurst is entitled, as his fellow partners are not, to damages for the breach of contract which
brought about the dissolution of the partnership. If he can show that he was thereby deprived of income which he has been unable to earn elsewhere, he is
entitled to be compensated for his loss. But this cannot be measured by the contribution he must make to the accrued and continuing liabilities of the firm
pending the completion of the winding up. His liability to contribute to these had accrued before any breach of the partnership agreement occurred and
has in no sense been caused by his partners’ breach of contract. He would have continued to be liable for the King Street rent if his partners had
committed no breach of contract ­ 204 and the partnership had not been dissolved. To recover this head of damages he would have to show that the
acquisition of King Street was a breach of the partnership deed, and he has not alleged this.
This is only another way of saying that, although both parties are discharged from further performance of their obligations, rights are not divested
which have already been unconditionally acquired. Rights and obligations which arise by the partial execution of the contract continue unaffected. Mr
Hurst’s liability to contribute to the accrued and accruing liabilities of the firm, and his partners’ rights of contribution, arise from the fact that the
liabilities were incurred (or in the case of King Street assumed) by the firm when Mr Hurst was a partner. Once the firm had undertaken or assumed
liability for the rent, each partner in the firm was entitled to have the liability taken into account in ascertaining his share of the firm’s profits or losses
both before and after dissolution, and that right was not lost merely because Mr Hurst’s partners afterwards repudiated the contract and Mr Hurst accepted
it.
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Mr Hurst argues that the liability for rent is not unconditional, since it is consideration for the right to remain in possession. A tenant’s liability for
future rent is not a simple debt; its existence depends on counter-performance by the landlord: see Re Park Air Services plc, Christopher Moran Holdings
Ltd v Bairstow [1999] 1 All ER 673, [1999] 2 WLR 396. The short answer to this is that Mr Hurst does not claim to be discharged from his liability to the
landlord. He claims to be discharged from his liability to his fellow partners, and this is not conditional upon any future counter-performance by them.
This analysis can be tested by reference to the law of agency. Where an agent is in serious breach of his duty to his principal, the principal can
refuse to pay commission and the agent loses his right to be indemnified in respect of the transaction as to which the agent is in breach. But the agent
does not normally lose his rights to commission already earned and indemnity in respect of past transactions which were completed before the breach: see
Bowstead and Reynolds on Agency (16th edn, 1996), art 62 and the cases there cited. It may be otherwise where the agent has been guilty of fraud or
breach of fiduciary duty (but see Nitedals Taendstikfabrik v Bruster [1906] 2 Ch 671 for an example where commission on some transactions was
allowed); but there is no suggestion of either in the present case. The difference between the two cases is that in one the agency contract is discharged by
breach and in the other it is set aside or rescinded ab initio.
In the course of argument a distinction was drawn between pre-cessation and post-cessation losses. This terminology can be misleading. Mr Hurst is
not, of course, liable for the losses incurred by any other person or firm. He is not liable for the post-cessation rent of Inigo House, because this property
has been disposed of and the rent is a liability of the firm which acquired it. It will be taken into account in ascertaining the profits or losses of that firm.
But King Street has not been disposed of, and pending its disposal the rent is a continuing liability of Malkin Janners. Like the costs and expenses of the
winding up, it falls to be taken into account in ascertaining the losses of that firm incurred during the winding up for which the former partners remain
jointly liable. Section 38 of the Act continues the rights and obligations of the partners notwithstanding the dissolution as far as may be necessary to wind
up the firm. Mr Hurst’s liability to contribute his share of the rent continues unaffected by the dissolution unless he ­ 205 can demonstrate that it was
unnecessary to retain King Street, a proposition which is contradicted by the evidence.
My Lords, Mr Hurst has been wronged and is entitled to damages if he can show that the dissolution of the firm has occasioned him loss which he
would not otherwise have sustained. But he can neither avoid his joint liability to creditors of the firm arising from past transactions entered into while he
was a partner nor, without rescinding the contract of partnership ab initio, throw his proportionate share of that liability onto his partners.

Mr Treppass
After the conclusion of the trial and while Mr Hurst’s appeal to the Court of Appeal was pending Mr Treppass applied for a stay of the appeal against
him on the ground that Mr Hurst had failed to comply with an earlier order for costs. That order has not been complied with to this day. Mr Hurst
consented to the stay and an order was made staying the appeal against Mr Treppass and ordering Mr Hurst to pay the costs of the stay application.
Accordingly, when the appeal came on for hearing it was not effective against Mr Treppass, who had appeared in person at the trial but took no part
in the appeal. The Court of Appeal dismissed the appeal but made no order in respect of Mr Treppass. Wishing to have his costs of the stay application
taxed, and requiring a final order for this purpose, Mr Treppass wrote to the Court of Appeal and asked the court to include his name in the order. In his
letter he stated that he understood that Mr Hurst’s counsel had consented to the dismissal of the appeal against him. In the event the court merely
amended the order to include an order for payment of Mr Treppass’ costs, but it did not lift the stay on the proceedings against him and made no reference
to him (or any of the other respondents) in the order dismissing the appeal.
In the respondents’ case it is submitted that, as there has never been an effective appeal to the Court of Appeal as against Mr Treppass, Mr Hurst’s
appeal to your Lordships’ House as against him is incompetent and should be struck out. This seems to be correct. Mr Treppass has never waived his
right to be heard on the appeal to the Court of Appeal and the court did not lift the stay on the proceedings against him or in terms dismiss the appeal
against him, which could only be done by consent. It merely granted him an order for the payment of his costs so that they could be taxed. Although the
order of the court dismissed the appeal without distinguishing between Mr Treppass and the other respondents, this must refer to the appeal which was
before the court, and this did not include the appeal against Mr Trespass which had been stayed.
Mr Treppass asks for his costs to be taxed on an indemnity basis. Although I agree that, as against Mr Treppass, Mr Hurst’s appeal should be struck
out as incompetent, I can see no sufficient reason for awarding Mr Treppass indemnity costs. He did not lodge a separate objection to Mr Hurst’s
application for leave to appeal to your Lordships’ House, but contented himself with repeated assertions in correspondence with Mr Hurst’s solicitors that
the appeal was of no relevance to him because the proceedings against him had been stayed and were liable to be struck out. Having made no attempt to
object to the grant of leave, he instructed his own counsel to sign the respondents’ case on his behalf, and personally signed the agreed statement of facts
and issues. He appeared before the Appellate Committee by separate counsel, and lodged a skeleton argument which dealt with the merits as well as the
competency of the appeal. In the ­ 206 circumstances I think that he is entitled to his costs but taxed on the standard basis in the ordinary way.

Conclusion
I would dismiss the appeal as against all the respondents including Mr Treppass, with costs to be taxed on the standard basis.

Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 208

R v Antoine

CRIMINAL; Criminal Law, Criminal Procedure

HOUSE OF LORDS
LORD NICHOLLS OF BIRKENHEAD, LORD MACKAY OF CLASHFERN, LORD NOLAN, LORD HOPE OF CRAIGHEAD AND LORD HUTTON
9 DECEMBER 1999, 30 MARCH 2000
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Criminal law – Trial – Fitness to plead – Hearing to determine whether defendant had done act charged against him as the offence – Defendant charged
with murder but found unfit to plead – Hearing taking place to determine whether accused did act charged against him as murder – Whether defendant
entitled to raise defence of diminished responsibility – Homicide Act 1957, s 2 – Criminal Procedure (Insanity) Act 1964, s 4A.

The appellant, A, was charged with murder. After hearing psychiatric evidence, the jury found that he was unfit to plead by reason of mental disability.
A different jury subsequently proceeded to determine, under s 4A(2)a of the Criminal Procedure (Insanity) Act 1964, whether it was satisfied that A had
done ‘the act º charged against him as the offence’. Before the hearing commenced, A’s counsel asked the judge to determine whether A was entitled to
rely on the defence of diminished responsibility provided by s 2b of the Homicide Act 1957. The judge held that the wording of s 2 of the 1957 Act
precluded the raising of the diminished responsibility defence on a hearing under s 4A(2) of the 1964 Act. After hearing the evidence, the jury returned a
verdict that they were satisfied that A had done the act of murder charged against him. The judge therefore made an order that A was to be admitted to
hospital and that his discharge was to be restricted without limit of time. The Court of Appeal dismissed A’s appeal on the issue of diminished
responsibility, and he appealed to the House of Lords.
________________________________________
a Section 4A is set out at p 210 h to p 211 b, post
b Section 2, so far as material, is set out at p 212 h to p 213 a, post
________________________________________

Held – On a hearing under s 4A(2) of the 1964 Act, a defendant could not raise the defence of diminished responsibility provided by s 2 of the 1957 Act.
Section 2 only applied where, but for that section, the defendant ‘would be liable … to be convicted of murder’. Once, however, a jury had determined
that the defendant was under a disability, the trial terminated under s 4A(2) of the 1964 Act and the defendant was no longer liable to be convicted of
murder. It followed that the defence under s 2 of the 1957 Act did not arise. It was also clear that if a jury determined under s 4A(2) that the defendant
had done the act charged against him as the offence, that finding was not a conviction. Accordingly, the appeal would be dismissed (see 209 j to p 210 b,
p 213 b c, p 214 d and p 223 d, post).
Per curiam. Where a jury is considering, pursuant to s 4A(2) of the Criminal Procedure (Insanity) Act 1964, whether a defendant did the act or made
the omission charged against him as the offence, it need only be satisfied that the defendant had committed the actus reus of the offence, not the mens rea,
subject to the right of the defence to raise, by means of objective evidence, the defences of mistake, accident, self-defence or involuntariness (see p 209 j
to p 210 b, p 218 g h, p 220 c, p 221 a b, and p 222 d g to p 223 a e, post); A-G’s Reference (No 3 of 1998) [1999] 3 All ER 40 approved; R v Egan
[1996] 35 BMLR 103 disapproved.
­ 208

Notes
For diminished responsibility and for the function of the jury in determining fitness to plead, see respectively 11(1) Halsbury’s Laws (4th edn reissue)
para 440 and 26 Halsbury’s Laws (4th edn reissue) para 419.
For the Homicide Act 1957, s 2, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 267.
For the Criminal Procedure (Insanity) Act 1964, s 4A, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 304.

Cases referred to in opinions

A-G’s Reference (No 3 of 1998) [1999] 3 All ER 40, [1999] 3 WLR 1194, CA.
DPP for Northern Ireland v Lynch [1975] 1 All ER 913, [1975] AC 653, [1975] 2 WLR 641, HL.
Felstead v R [1914] AC 534, [1914–15] All ER Rep 41, HL.
M‘Naghten’s Case (1843) 10 Cl & Fin 200, [1843–60] All ER Rep 229, 8 ER 718, HL.
Palmer v R [1971] 1 All ER 1077, [1971] AC 814, [1971] 2 WLR 831, PC.
R v Cox (Maurice) [1968] 1 All ER 386, [1968] 1 WLR 308, CA.
R v Egan (1996) 35 BMLR 103, CA.
R v Ghosh [1982] 2 All ER 689, [1982] QB 1053, [1982] 3 WLR 110, CA.
R v Sullivan [1983] 2 All ER 673, [1984] AC 156, [1983] 3 WLR 123, HL.

Appeal
Pierre Harrison Antoine appealed, with leave of the Appeal Committee of the House of Lords given on 26 July 1999, from the decision of the Court of
Appeal (Lord Bingham of Cornhill CJ, McKinnon and Bracewell JJ) on 29 April 1999 ([1999] 3 WLR 1204) dismissing his appeal from a determination
made at a hearing before Judge van der Werff and a jury in the Crown Court at Inner London on 2 June 1997 under s 4A of the Criminal Procedure
(Insanity) Act 1964 that the appellant, having already been adjudged unfit to plead to a charge of murder by reason of mental disability, had done the act
charged against him as murder. The Court of Appeal certified a point of law of general public importance, set out at p 212 d e, post. The facts are set out
in the opinion of Lord Hutton.

David Spens QC and Gareth Branston (instructed by Kaim Todner) for the appellant.
James Curtis QC and Nicholas Hilliard (instructed by the Crown Prosecution Service) for the Crown.

Their Lordships took time for consideration.

30 March 2000. The following opinions were delivered.

LORD NICHOLLS OF BIRKENHEAD. My Lords, I have had the advantage of reading a draft of the speech of my noble and learned friend Lord
Hutton. For the reasons he gives I would dismiss this appeal.
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LORD MACKAY OF CLASHFERN. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hutton.
For the reasons he gives I would dismiss this appeal.
­ 209

LORD NOLAN. My Lords, I have had the advantage of reading a draft of the speech of my noble and learned friend Lord Hutton. For the reasons he
gives I would dismiss this appeal.

LORD HOPE OF CRAIGHEAD. My Lords, I have had the advantage of reading in draft the speech which has been prepared by my noble and learned
friend Lord Hutton. I agree with it, and for the reasons which he has given I too would dismiss the appeal.

LORD HUTTON. My Lords, the issue which arises on this appeal is whether an accused person charged with murder is entitled to rely on the defence
of diminished responsibility under s 2 of the Homicide Act 1957, when he has been found by a jury to be unfit to plead by reason of mental disability, and
a jury proceeds under s 4A(2) of the Criminal Procedure (Insanity) Act 1964 (as substituted by s 2 of the Criminal Procedure (Insanity and Unfitness to
Plead) Act 1991) to determine whether he did the act charged against him as the offence.
On 2 December 1995, Michael Earridge, aged 15, was brutally murdered by two other youths, David McCallum, aged 17, and the appellant, Pierre
Antoine, aged 16, in a room in a flat in South London, apparently as a sacrifice to the devil. McCallum plunged a knife into Michael Earridge’s chest a
number of times in the presence of the appellant after the appellant had prevented the victim from leaving and had struck him. The appellant and
McCallum were indicted on a count of murder and (by an unopposed amendment) on a second count of manslaughter. McCallum pleaded not guilty to
murder but guilty to manslaughter on the ground of diminished responsibility and his plea was accepted by the Crown. He was committed to hospital
under a hospital order subject to a restriction order without limit of time, pursuant to ss 37 and 41 of the Mental Health Act 1983.
The proceedings against the appellant took a different course. On 13 March 1997 the appellant appeared before Judge van der Werff in the Inner
London Crown Court and it was contended on his behalf that he was unfit to plead by reason of mental disability. On 18 March 1997 the jury heard
evidence from two psychiatrists called on behalf of the appellant and one psychiatrist called on behalf of the Crown and the jury found that the appellant
was under a disability so that he was not fit to stand trial. Their Lordships were informed by counsel that the evidence of the psychiatrists was that the
appellant was suffering from paranoid schizophrenia.
Upon the jury finding that the appellant was unfit to plead the procedure to be followed was that provided by s 4A of the 1964 Act as substituted.
Section 4A states:

‘(1) This section applies where in accordance with section 4(5) above it is determined by a jury that the accused is under a disability.
(2) The trial shall not proceed or further proceed but it shall be determined by a jury—(a) on the evidence (if any) already given in the trial; and
(b) on such evidence as may be adduced or further adduced by the prosecution, or adduced by a person appointed by the court under this section to
put the case for the defence, whether they are satisfied, as respects the count or each of the counts on which the accused was to be or was being
tried, that he did the act or made the omission charged against him as the offence.
­ 210
(3) If as respects that count or any of those counts the jury are satisfied as mentioned in subsection (2) above, they shall make a finding that the
accused did the act or made the omission charged against him.
(4) If as respects that count or any of those counts the jury are not so satisfied, they shall return a verdict of acquittal as if on the count in
question the trial had proceeded to a conclusion.
(5) A determination under subsection (2) above shall be made—(a) where the question of disability was determined on the arraignment of the
accused, by a jury other than that which determined that question; and (b) where that question was determined at any later time, by the jury by
whom the accused was being tried.’

Before the hearing under s 4A(2) was commenced by a different jury counsel for the appellant requested the judge to give a ruling on the question
whether the defendant was entitled to raise the issue of, and seek to prove, diminished responsibility in respect of the count of murder. Counsel sought
this ruling because if the jury found that the killing had been carried out when the appellant was suffering from diminished responsibility the judge would
not be obliged (as he would be on a finding that the appellant had done the act of murder) to make a hospital order directing that the appellant’s discharge
be restricted without limit of time. The judge, in a careful and clear ruling, stated that the question gave rise to two issues. The first issue was what did
the prosecution have to prove to cause the jury to make a finding under s 4A(3) that the accused did the act charged against him. The judge ruled,
following the judgment of the Court of Appeal in R v Egan (1996) 35 BMLR 103, that the Crown had to prove both the actus reus of murder and the
appropriate mens rea, and he observed: ‘If they cannot do that, then of course the defendant is to be acquitted.’ The second issue was that raised by
counsel, namely, was the defendant entitled to raise the issue of, and seek to prove, diminished responsibility in respect of the count charging murder. On
that issue the judge ruled against the appellant and held that on the wording of s 2 of the 1957 Act diminished responsibility could not be raised on the
hearing under s 4A(2). The jury then heard evidence on behalf of the Crown and the defence, the judge summed up, and on 2 June 1997, after a short
retirement, the jury returned a verdict that they were satisfied that the appellant had done the act of murder charged against him. The judge then made an
order that the appellant be admitted to hospital and that his discharge be restricted without limit of time.
On appeal to the Court of Appeal the appellant challenged the judge’s ruling that he could not raise the issue of diminished responsibility on the
hearing under s 4A(2), and this was the principal issue addressed by the judgment of the Court of Appeal delivered by Lord Bingham of Cornhill CJ
([1999] 3 WLR 1204). The Court of Appeal dismissed the appeal and held that the ruling of the judge was correct, and Lord Bingham CJ stated (at 1214):

‘[Section 2 of the 1957 Act] provided a tightly-drawn solution to a narrowly-defined problem, but it was a solution which applied only where
the case against the defendant established all the ingredients of murder, both as to actus reus and mens rea. Thus, as the only question arising under
section 4A(2) is whether the jury is satisfied that the defendant has done the act charged against him as murder, no question of diminished
responsibility could arise. On a determination under section 4A(2) the defendant would not, in any event, be liable to be convicted of murder
within the meaning of ­ 211 section 2(3) of the Act of 1957, since section 4A(1) and (2) provide that on a finding of unfitness the trial shall not
proceed, and it is not open to the jury to find the defendant guilty of murder but only that he did the act charged against him as murder: see also
section 5(1)(b) of the Act of 1964; and sections 15 and 16 of the Criminal Appeal Act 1968. The whole purpose of sections 4 and 4A is to protect a
person who is unfit to stand trial against the return of a verdict of guilty. The procedure under section 4A(2) for determining whether the defendant
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did the act or made the omission charged against him as the offence is to protect the defendant against the making of an order under section 5(2) of
the Act of 1964 in circumstances where he is not shown to have done the act charged against him. Section 2 of the Act of 1957 only comes into
play where all the ingredients of murder are established against the defendant.’

In the course of the judgment Lord Bingham CJ stated (at 1213), that the authority of R v Egan was not in issue before the Court of Appeal, but he
expressed doubts about the correctness of the judgment in that case.
The point of law of general public importance certified for the opinion of this House is:

‘Where, pursuant to section 4A of the Criminal Procedure (Insanity) Act 1964, a jury has to determine whether an accused person has done the
act of murder, is it open to the accused to rely on section 2 of the Homicide Act 1957?’

On the hearing of the appeal counsel for the appellant and for the Crown invited your Lordships to consider not only the certified question, but a wider
question which was formulated by counsel:

‘Where, pursuant to section 4A(2) of the Criminal Procedure (Insanity) Act 1964, a jury has to determine whether an accused did the act or
made the omission charged against him as the offence, must the jury be satisfied of more than the actus reus of the offence? Must the jury be
satisfied of mens rea?’

This question raises the issue whether the judgment in R v Egan is correct. Because the two questions are interrelated and the wider question raises an
important issue I think it right to express an opinion on it after having considered the certified question.

The certified question

Section 2 of the 1957 Act provides:

‘(1) Where a person kills or is a party to the killing of another, he shall not be convicted of murder if he was suffering from such abnormality of
mind (whether arising from a condition of arrested or retarded development of mind or any inherent causes or induced by disease or injury) as
substantially impaired his mental responsibility for his acts and omissions in doing or being a party to the killing.
(2) On a charge of murder, it shall be for the defence to prove that the person charged is by virtue of this section not liable to be convicted of
murder.
­ 212
(3) A person who but for this section would be liable, whether as principal or as accessory, to be convicted of murder shall be liable instead to
be convicted of manslaughter.’

The provisions of s 2 only apply where ‘but for this section [a person] would be liable º to be convicted of murder’. Section 4A(2) of the 1964 Act
provides that where it is determined by the jury that the accused is under a disability ‘the trial shall not proceed or further proceed’, but a jury shall
determine whether they are satisfied that the accused did the act charged against him as the offence. Therefore, once it has been determined by the jury
that the accused is under a disability the trial terminates and the accused is no longer liable within the procedure laid down by s 4A to be convicted of
murder, so that the defence under s 2 does not arise. It is also clear that if a jury determines under s 4(2) that the accused did the act charged against him
as the offence, that finding is not a conviction.
Mr Spens QC, for the appellant, submitted that the term ‘the act’ in s 4A(2) includes the mental element of the offence charged against the accused,
and that having regard to the provisions of s 2 of the 1957 Act the mental element in murder must be one without diminished responsibility. Therefore, if
the accused carried out the act of killing when he suffered from diminished responsibility, he did not do the act of murder. It will be necessary to give
further consideration to this submission when considering the second question, but at this point I would observe that if this submission were correct it
would mean that where a defendant, having killed another person, was charged on the sole count in the indictment with murder, and the jury having
embarked on a hearing under s 4A(2) found that the accused, although having done the act of killing, had not done the act of murder because he was
suffering from diminished responsibility, s 4A(4) would require the jury to return a verdict of acquittal and the defendant would be set at liberty—a result
which Parliament could not have intended.
Mr Spens further submitted that a plea of guilty of manslaughter on the ground of diminished responsibility can be accepted where there has not been
a full trial. In R v Cox (Maurice) [1968] 1 All ER 386 at 387, [1968] 1 WLR 308 at 310 delivering the judgment of the Court of Appeal, Winn LJ stated:

‘The court desires to say yet again, not at all for the first time in the experience of every member of the court, that there are cases where, on an
indictment for murder, it is perfectly proper, where the medical evidence is plainly to this effect, to treat the case as one of substantially diminished
responsibility, to accept a plea to manslaughter on that ground, if the plea be tendered, and to avoid a trial for murder.’

In such cases, where the plea of guilty of manslaughter on the ground of diminished responsibility is accepted, the accused is charged with murder
and would be liable to be convicted of murder if the trial proceeded. However under s 4A after a finding of disability the trial cannot proceed, it is
terminated, and the accused is no longer liable to be convicted of murder.
Lord Bingham CJ ([1999] 3 WLR 1204 at 1214) also stated that in the opinion of the court a striking anomaly would arise if the defendant could rely
on diminished responsibility on a determination under s 4A(2). In this case if the defendant were permitted to prove diminished responsibility and
established that defence the jury would acquit him of the act of murder charged in the first count under s 4A(4) but would find that he did the act of
manslaughter charged in the ­ 213 second count under s 4A(3), and he would be liable to a hospital order under s 5(2) of the 1964 Act. If, however,
while detained in hospital following the finding that he had done the act charged against him as manslaughter the defendant became fit to be tried, the
power of the Secretary of State to remit him for trial under para 4 of Sch 1 to the 1991 Act would be effectively frustrated. He could not be tried for
murder because the jury had previously acquitted him in respect of that count, and he could not be convicted of manslaughter under s 2(3) of the 1957 Act
on the basis of diminished responsibility as s 2(3) would not apply because he would not be a person ‘who but for this section would be liable º to be
convicted of murder’.
The appellant submitted that this anomaly is not conclusive against him and that it could be avoided by the Crown adopting the practical measure of
charging the accused with manslaughter by reason of diminished responsibility. I am unable to accept that submission because it does not surmount the
difficulty that diminished responsibility is a statutory defence which is only established where the defendant ‘but for this section would be liable º to be
convicted of murder’.
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Accordingly I am of opinion that the Court of Appeal was right to hold that the provisions of s 2 of the 1957 Act cannot apply to the hearing under s
4A(2) and that at such a hearing the defendant cannot raise the defence of diminished responsibility.

The wider question

In R v Egan (1996) 35 BMLR 103 the defendant was charged with the theft of a woman’s handbag. The Crown case was that he had snatched the
handbag from the woman when she was travelling on a train. The Court of Appeal described the evidence that he was the man who had snatched the
handbag as ‘compelling to a degree’. At the time of his arrest the defendant was strangely erratic in his behaviour, he maintained at all times to the police
that he had been arrested for no reason, and he denied snatching the handbag at all. He was unable to explain how property from the handbag had been
found either in his possession or close to him or where he had been on the train.
At the trial the question was raised whether the defendant was fit to plead and the jury found that he was under a disability—it being clear that the
disability was a mental one. The jury then proceeded to a determination under s 4A(2) and found that he had done the act charged against him as the
offence and the judge made a hospital order. An unusual feature of the case was that although found unfit to plead the defendant was permitted to give
evidence on the procedure under s 4A(2) and denied that he had taken the handbag. The Court of Appeal stated (at 105):

‘Thereafter his evidence, if it can be so characterised at all, consisted essentially of shaking of the head, gesticulating or giving no intelligible
answer to any further questions put to him.’

In my opinion, after a finding that the defendant is unfit to plead because of a mental disability the judge and counsel should always give careful
consideration to whether it is right that the defendant should be called to give evidence on the hearing under s 4A(2).
On appeal his counsel advanced the submission that in order for the jury to be satisfied that the defendant had done the act charged against him as the
offence, it was essential for the Crown to prove not only the physical act but also the mental elements in the offence of theft. This submission was not
challenged by ­ 214 the Crown and the Court of Appeal accepted it. In delivering the judgment of the court Ognall J stated (at 106–107):

‘With that submission this court readily agrees. It will be apparent that the use of the phrase “the act” in the statutory provision to which we
have already referred and in other sections of both the 1964 and 1991 Criminal Procedure Acts is to avoid a person being afflicted with the stigma
of a criminal conviction when at the time he or she was in fact under a disability. It would be wrong in those circumstances, manifestly for such
person to be the subject of a criminal record for the commission of that offence. But that in no way exonerates the Crown in an instance of this kind
for proving that the defendant’s conduct satisfied to the requisite extent all the ingredients of what otherwise, were it not for the disability, would be
properly characterised as an offence. Accordingly, we are satisfied, and indeed both counsel agree, that although the words “the act” are used in the
relevant legislation, the phrase means neither more nor less than proof of all the necessary ingredients of what otherwise would be an offence, in
this case theft. Thus it was necessary undoubtedly for the Crown in this case, in order to satisfy the jury that the appellant had committed the act in
question, to prove that his conduct surely fulfilled all the necessary ingredients of that offence. That meant that the prosecution had to satisfy the
jury that he had dishonestly taken the lady’s handbag, intending at the time of such taking, permanently to deprive her of it and its contents. In
those circumstances Mr Taylor makes this complaint. He submitted to the judge that he should be entitled to call before the jury evidence from a
psychiatrist directed to the question of whether or not this appellant was capable of forming a dishonest intent. The judge ruled against that
submission. Mr Taylor contends that he was wrong to do so. Secondly, it is complained that consonant with that ruling, the judge, in the course of
his summing up, confined himself to dealing with the evidence which went in proof objectively of what the Crown contended the appellant’s
intentions must have been. It is submitted by Mr Taylor that the judge fell into error in that regard; that there was a material failure by way of
non-direction, and that it was incumbent upon the judge specifically to invite the jury to consider on the evidence whether this man was himself
capable of acting dishonestly and forming the dishonest intention permanently to deprive.’

However, the Court of Appeal dismissed the appeal and held that as the defendant had never raised the point before the jury that he did not recognise
that what he was doing was dishonest and raised only the issue that he had not snatched the bag, it was not incumbent on the judge to give any direction to
the jury that the Crown must prove the mental ingredients of the offence of theft, and Ognall J stated (at 107–108):

‘As we have said, it was never contended on this appellant’s behalf as an issue before the jury, or at least properly before the jury, that this
appellant probably failed to recognise that what he was doing would by the ordinary standard of members of society be recognised as dishonesty.
The only defence on the evidence before the jury was “not me”. Accordingly, it was not for those reasons incumbent upon the trial judge to give
what is described as the second limb of the Ghosh direction (R v Ghosh [1982] 2 All ER 689, [1982] QB 1053) and accordingly there is nothing in
that point.’
­ 215
Therefore, the judgment of the Court of Appeal was to the effect that if the defendant had raised the issue that because of his mental condition he was
unable to recognise that snatching a woman’s handbag was dishonest or to form the intention permanently to deprive and if the jury had not been satisfied
beyond a reasonable doubt that he did recognise that it was dishonest and that he did form that intent, the jury would have had to acquit him under s 4A(4)
and he could not have been sent to hospital for treatment.
The judgment in R v Egan was considered by a differently constituted Court of Appeal in A-G’s Reference (No 3 of 1998) [1999] 3 All ER 40,
[1999] 3 WLR 1194. In that case the court was primarily concerned with s 2(1) of the Trial of Lunatics Act 1883, and it is therefore necessary to set out
the provisions of that section and also the earlier provisions of the Criminal Lunatics Act 1800. The preamble to the earlier Act began by noting that
individuals—
‘may have been or may be of unsound mind at the time of committing the offence wherewith they may have been or shall be charged, and by
reason of such insanity may have been or may be found not guilty of such offence, and it may be dangerous to permit persons so acquitted to go at
large º’
The Act provided:
‘That in all cases where it shall be given in evidence upon the trial of any person charged with treason, murder, or felony, that such person was
insane at the time of the commission of such offence, and such person shall be acquitted, the jury shall be required to find specially whether such
person was insane at the time of the commission of such offence, and to declare whether such person was acquitted by them on account of such
insanity; and if they shall find that such person was insane at the time of the committing such offence, the court before whom such trial shall be had,
shall order such person to be kept in strict custody, in such place and in such manner as to the court shall seem fit, until his Majesty’s pleasure shall
be known º’ (Emphasis added.)
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Section 2(1) of the 1883 Act provided:

‘Where in any indictment or information any act or omission is charged against any person as an offence, and it is given in evidence on the trial
of such person for that offence that he was insane, so as not to be responsible, according to law, for his actions at the time when the act was done or
omission made, then, if it appears to the jury before whom such person is tried that he did the act or made the omission charged, but was insane as
aforesaid at the time when he did or made the same, the jury shall return a special verdict to the effect that the accused was guilty of the act or
omission charged against him, but was insane as aforesaid at the time when he did the act or made the omission.’ (Emphasis added.)
Where such a special verdict was returned, the court was obliged to order that the accused be kept in custody as a ‘criminal lunatic’. Section 1 of the
1964 Act amended the special verdict under s 2(1) to one of ‘not guilty by reason of insanity’, and where a special verdict of not guilty of murder by
reason of insanity is returned the court is obliged under s 5 of the 1964 Act and s 5 of, and Sch 1 to, the 1991 Act to order the admission of the defendant
to hospital subject to an order restricting his discharge without limit of time. It is to be observed that in both s 2(1) of the 1883 Act and s 4A(2) of the
1964 Act the same words appear: ‘º did the act or made the omission charged.’
­ 216
The facts in A-G’s Reference (No 3 of 1998), briefly stated, were these. The indictment charged the defendant with the offence of aggravated
burglary. In the early hours of the morning the defendant, who was armed with a snooker cue, smashed open the front door of a dwelling house and
entered the hallway and attempted to strike the householder. Police officers arrived at the scene, and the defendant retreated to the front door and wedged
himself against it to prevent them from entering the house. The police officers eventually managed to enter the house and it took at least five of them to
handcuff and restrain him. The police officers noted that the defendant was extremely agitated, was sweating profusely, that his eyes were fixed and that
he did not appear to hear what they were saying.
At the trial the defendant was fit to plead but it was agreed on both sides that at the time when he entered the house he was legally insane. Three
psychiatrists were agreed that at that time he did not know that what he was doing was wrong. In addition, one of the psychiatrists considered that he did
not know the nature and quality of the act he was doing. The defendant believed that he was Jesus Christ, surrounded by evil and danger, and he was
looking for a house with a light on because that would be a safe house where he would be protected from evil.
At the beginning of the trial the judge was asked to rule on the question of what had to be proved to determine whether a defendant ‘did the act or
made the omission charged’ within the meaning of s 2(1) of the 1883 Act. Reluctantly, the judge felt that he was bound by the judgment in R v Egan to
rule that the Crown had the burden of proving all the relevant elements of the offence, including mens rea. After this ruling an application was
successfully made to amend the indictment to add a count of affray, contrary to s 3 of the Public Order Act 1986, and the case proceeded to trial.
The defendant gave evidence to the effect that he had gone to the house to save the occupier. Supported by the appropriate written psychiatric
material, the evidence of one of the psychiatrists was to the effect that at the material time the defendant had been unable to form a criminal intent.
Accordingly the judge ruled that there was no evidence of the required intent for either offence alleged in the indictment and he directed the jury to acquit
the defendant. Therefore, a man who had committed very violent acts at a time when he was insane and did not realise that his acts were wrong was set at
liberty.
The Attorney General brought a reference under s 36 of the Criminal Justice Act 1972 requesting the opinion of the Court of Appeal on the question:

‘What has to be proved when an inquiry is embarked upon under the Trial of Lunatics Act 1883 to determine whether the defendant “did the act
or made the omission charged”?’

The Court of Appeal answered the question as follows:

‘The answer to the question posed by the Attorney General is that when determining whether “the Defendant did the act or made the omission
charged” for the purposes of the 1883 Act, and assuming insanity: (a) the Crown is required to prove the ingredients which constitute the actus reus
of the crime. Although different language is used to describe this concept, for present purposes, we respectfully adopt the suggestion in Smith and
Hogan Criminal Law (8th edn, 1996) p 28, that it must be shown that the defendant—“has caused a certain event or that responsibility is to be
attributed to him for the existence of a certain state of affairs, which is forbidden by criminal law º” (b) The Crown is not required to prove the
mens rea of the crime alleged, and apart from insanity, the defendant’s state ­ 217 of mind ceases to be relevant.’ (See [1999] 3 All ER 40 at 49,
[1999] 3 WLR 1194 at 1203.)

The court observed ([1999] 3 All ER 40 at 43, 47–48, [1999] 3 WLR 1194 at 1197, 1201–1202) that in R v Egan there was no argument advanced by
the Crown against the defendant’s submission, that no authority was cited and no reference was made to the statutory history or framework, and that the
judgment appeared to have been given per incuriam.
In the full and careful judgment of the court, delivered by Judge LJ, two principal reasons were given for the court’s decision. The first reason was
the difference in wording between the 1800 Act and s 2(1) of the 1883 Act. Judge LJ stated:

‘The significant amendment was that the words “did the act or made the omission” replaced “committed the offence” in the 1800 Act. The
difference is material. The original phrase, “committed the offence”, appears to encompass the relevant act, together with the necessary intent. By
contrast, “act” and “omission” do not readily extend to intention. This change of language, apparently quite deliberate, has been left unamended for
over a century and for all present purposes remains in force.’ (See [1999] 3 All ER 40 at 44, [1999] 3 WLR 1194 at 1198.)

The second reason was that the Crown was not required to prove the mens rea of the crime alleged because in an insanity case the issue of mens rea
ceases to be relevant, Lord Reading having stated in Felstead v R [1914] AC 534 at 542, [1914–15] All ER Rep 41 at 44:

‘The indictment of the appellant was for “feloniously” and “maliciously” wounding Lilian Ann Felstead, with intent to do some grievous bodily
harm. It is obvious that if he was insane at the time of committing the act he could not have had a mens rea, and his state of mind could not then
have been that which is involved in the use of the term “feloniously” or “maliciously,” for “crimen non contrahitur, nisi voluntas nocendi
intercedat.”’

The judgment in R v Egan is inconsistent with the decision in A-G’s Reference (No 3 of 1998) and in my opinion the latter decision is correct and R
v Egan should not be followed. I consider that Judge LJ was right to state that the contrast between the words ‘committed the offence’ in the 1800 Act
and the words ‘did the act’ in the 1883 Act points to the conclusion that the word ‘act’ does not include intent. This view also gains some support from
the wording of ss 54 and 55 of the Criminal Procedure (Scotland) Act 1995 relating to the procedure in Scotland which is equivalent to the procedure
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under s 4A of the 1964 Act. Section 54 of the 1995 Act provides:

‘(1) Where the court is satisfied, on the written or oral evidence of two medical practitioners, that a person charged with the commission of an
offence is insane so that his trial cannot proceed or, if it has commenced, cannot continue, the court shall, subject to subsection (2) below—(a) make
a finding to that effect and state the reasons for that finding; (b) discharge the trial diet and order that a diet (in this Act referred to as an “an
examination of facts”) be held under section 55 of this Act º’

­ 218
Section 55 provides:

‘(1) At an examination of facts ordered under section 54(1)(b) of this Act the court shall, on the basis of the evidence (if any) already given in
the trial and such evidence, or further evidence, as may be led by either party, determine whether it is satisfied—(a) beyond reasonable doubt, as
respects any charge on the indictment or, as the case may be, the complaint in respect of which the accused was being or was to be tried, that he did
the act or made the omission constituting the offence; and (b) on the balance of probabilities, that there are no grounds for acquitting him.
(2) Where the court is satisfied as mentioned in subsection (1) above, it shall make a finding to that effect.
(3) Where the court is not so satisfied it shall, subject to subsection (4) below, acquit the person of the charge.
(4) Where, as respects a person acquitted under subsection (3) above, the court is satisfied as to the matter mentioned in subsection (1)(a) above
but it appears to the court that the person was insane at the time of doing the act or making the omission constituting the offence, the court shall
state whether the acquittal is on the ground of such insanity.’

It is therefore apparent that Parliament contemplates that under s 55(1)(a) the court may find that the accused ‘did the act º constituting the offence’ but
may also find that the accused was insane at the time of ‘doing the act º constituting the offence’, and in such a case where the accused does not know the
nature and quality of his act he will not have the requisite intent for the offence.
A further consideration to which I have earlier referred is that if the appellant’s submission as to the meaning of the word ‘act’ in s 4A(2) were
correct, very serious risk to the public would arise which Parliament could not have intended. The risk would be that if a defendant who killed another
person and was charged with murder was insane at the time of the killing and was unfit to plead at the time of his trial by reason of that insanity, then, if
the appellant’s submission were correct mens rea could not be proved because of the insanity existing at the time of the alleged offence, and the jury
would have to acquit the defendant and he would be released to the danger of the public.
Counsel for the appellant also submitted that it does not appear from the report of Felstead v R whether the defendant was found to be insane on the
ground that he did not know the nature and quality of his act or on the ground that he did not know that what he was doing was wrong. Therefore he
submitted that the statement of Lord Reading [1914] AC 534 at 542, [1914–15] All ER Rep 41 at 44 that, ‘It is obvious that if he was insane at the time of
committing the act he could not have had a mens rea’ required qualification and was not correct in all circumstances. If a defendant was insane under the
second limb of the McNaghten Rules (M‘Naghten’s Case (1843) 10 Cl & Fin 200, [1843–60] All ER Rep 229) so that, although he knew the nature and
quality of his act, he did not know that what he was doing was wrong, the defendant could still have the intent to kill or cause grievous bodily harm. This
view is supported by Professor Sir John Smith QC in Smith and Hogan Criminal Law (9th edn, 1999) p 206 where he says with reference to the
proposition that the defence of insanity is based on the absence of mens rea: ‘Awareness of “wrongness” is not an element in mens rea.’ Therefore
counsel submitted that if a defendant was insane because he did not know that his act of killing was wrong, it would still be appropriate for the jury
­ 219 to consider whether he had the intent to kill or cause grievous bodily harm on a hearing under s 4A(2).
My Lords, a person who kills when he is insane because he does not know that what he is doing is wrong may have the intention to kill, but I
consider that insanity under either limb of the McNaghten Rules negatives the mental responsibility of the defendant: see R v Sullivan [1983] 2 All ER
673 at 676, [1984] AC 156 at 170 per Lord Diplock. Moreover, in some cases it would be very difficult to decide if one limb of the McNaghten test
applied to the exclusion of the other, as is illustrated by the views of the three psychiatrists in A-G’s Reference (No 3 of 1998) where all were agreed that
the defendant did not know that what he was doing was wrong, and, in addition, one considered that he did not know the nature and quality of the act he
was doing. Accordingly where it is established that the defendant was insane under either limb of the McNaghten Rules at the time of the alleged offence
the jury should no longer be concerned with the mental responsibility of the defendant for that offence and a jury making a determination under s 4A(2)
should not consider the issue of mens rea.
Counsel further submitted that the Court of Appeal was correct in R v Egan to have regard to the importance of protecting an innocent person,
suffering from mental disability at the time of his trial, from being detained in hospital under a court order after being charged with a crime of which he
was not guilty because he lacked mens rea and of which he would have been acquitted if his trial could have proceeded, and that to give this protection it
was necessary to require the prosecution to prove the requisite mens rea in order to establish that the act charged against him as the offence had been done
by him. This submission is supported, as Judge LJ observes in A-G’s Reference (No 3 of 1998) [1999] 3 All ER 40 at 47, [1999] 3 WLR 1194 at 1201, by
the commentary on R v Egan [1997] Crim LR 225 by Professor Sir John Smith QC where he said (at 226):

‘In the present case the jury had to be satisfied that the appellant acted dishonestly and with intent permanently to deprive. The section could
have been more clearly worded, but there is no doubt that this is the meaning intended.’

Sir John then referred to a passage in the Report of the Committee on Mentally Abnormal Offenders (Cmnd 6244) (the Butler Committee). The relevant
paragraph is:

‘10.24. If the defendant is found to be under disability, there should nevertheless be a trial of the facts to the fullest extent possible having
regard to the medical condition of the defendant. The object of this proposal is primarily to enable the jury to return a verdict of not guilty where
the evidence is not sufficient for a conviction. If a normal verdict of not guilty is to be possible, the normal rules of evidence and burden of proof
must apply. It follows that on the trial of the facts the judge should direct the jury that if they are not satisfied that the defendant did the act with the
necessary mental state they must return a verdict of not guilty º the issues to be established by the prosecution include the defendant’s state of mind.
If this were not so, the defendant would not obtain his verdict of not guilty even though there was insufficient evidence that he had the requisite
intention or other mental state for the crime—indeed, he would not obtain it even though it was clear that the affair was an accident. This would
clearly be unsatisfactory.’
­ 220
However, the view of the Butler Committee was criticised on the ground that where a person is unfit to be tried in the normal way because of his
mental state, it would be unrealistic and contradictory that in carrying out the determination under s 4A(2) the jury should have to consider what intention
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that person had in his mind at the time of the alleged offence. I consider that this criticism is well founded and that by using the word ‘act’ and not the
word ‘offence’ in sub-s (2) Parliament made it clear that the jury was not to consider the mental ingredients of the offence.
Moreover, it is to be observed that a measure of protection is given to a person who suffers from mental disability at the time of his trial by s 4 of the
1964 Act (as substituted by s 2 of the 1991 Act). Section 4 provides:

‘(1) This section applies where on the trial of a person the question arises (at the instance of the defence or otherwise) whether the accused is
under a disability, that is to say, under any disability such that apart from this Act it would constitute a bar to his being tried.
(2) If, having regard to the nature of the supposed disability, the court are of opinion that it is expedient to do so and in the interests of the
accused, they may postpone consideration of the question of fitness to be tried until any time up to the opening of the case for the defence.
(3) If, before the question of fitness to be tried falls to be determined, the jury return a verdict of acquittal on the count or each of the counts on
which the accused is being tried, that question shall not be determined.’

In very many cases the prosecution seeks to prove the requisite mens rea for the offence by proving the actions of the defendant and asking the jury to
infer the mens rea from those actions. If the defence considers that the facts relied on by the prosecution do not give rise to the prima facie inference that
the defendant had the requisite mens rea for the offence charged, it may request the court under s 4(2) to permit the trial to proceed and at the conclusion
of the prosecution case it can then make a submission of no case to answer.
The purpose of s 4A, in my opinion, is to strike a fair balance between the need to protect a defendant who has, in fact, done nothing wrong and is
unfit to plead at his trial and the need to protect the public from a defendant who has committed an injurious act which would constitute a crime if done
with the requisite mens rea. The need to protect the public is particularly important where the act done has been one which caused death or physical
injury to another person and there is a risk that the defendant may carry out a similar act in the future. I consider that the section strikes this balance by
distinguishing between a person who has not carried out the actus reus of the crime charged against him and a person who has carried out an act (or made
an omission) which would constitute a crime if done (or made) with the requisite mens rea. As Judge LJ stated:

‘Where on an indictment for rape it is proved that sexual intercourse has taken place without the consent of the woman, and the defendant has
established insanity, he should not be entitled to an acquittal on the basis that he mistakenly, but insanely, understood or believed that she was
consenting.’ (See A-G’s Reference (No 3 of 1998) [1999] 3 All ER 40 at 48, [1999] 3 WLR 1194 at 1202.)

A number of learned authors have commented that it is difficult in some cases to distinguish precisely between the actus reus and the mens rea and
that the ­ 221 actus reus can include a mental element. In Smith and Hogan Criminal Law p 28, Professor Sir John Smith states: ‘It is not always
possible to separate actus reus from mens rea. Sometimes a word which describes the actus reus, or part of it, implies a mental element.’
In his speech in DPP for Northern Ireland v Lynch [1975] 1 All ER 913 at 933, [1975] AC 653 at 688 Lord Simon of Glaisdale recognised the
difficulties arising from what he termed ‘the chaotic terminology’ relating to the mental element in crime. Nevertheless, he recognised that actus reus and
mens rea are useful terms and said:
‘Both terms have, however, justified themselves by their usefulness; and I shall myself employ them in their traditional senses—namely, actus
reus to mean such conduct as constitutes a crime if the mental element involved in the definition of the crime is also present (or, more shortly,
conduct prohibited by law); and mens rea to mean such mental element, over and above volition, as is involved in the definition of the crime.’ (See
[1975] 1 All ER 913 at 934, [1975] AC 653 at 690.)
Therefore, I consider that the ruling of the Court of Appeal in A-G’s Reference (No 3 of 1998) was correct.
In their full and helpful submissions counsel raised a further issue on which they invited the guidance of your Lordships. The issue is this. If, on a
determination under s 4A(2), the jury are only concerned to decide whether the defendant did the ‘act’ and are not required to consider whether the
defendant had the requisite mens rea for the offence, should the jury nevertheless decide that the defendant did not do the ‘act’ if the defendant would
have had an arguable defence of accident or mistake or self-defence which he could have raised if he had not been under a disability and the trial had
proceeded in the normal way. The difficulty inherent in this issue is that such defences almost invariably involve some consideration of the mental state
of the defendant. Thus in Palmer v R [1971] 1 All ER 1077 at 1088, [1971] AC 814 at 832 when considering self-defence, Lord Morris of Borth-y-Gest
referred to the defendant doing ‘what he honestly and instinctively thought was necessary’ to defend himself. But on the determination under s 4A(2) the
defendant’s state of mind is not to be considered. How then is this difficulty to be resolved? I would hold that it should be resolved in this way. If there
is objective evidence which raises the issue of mistake or accident or self-defence, then the jury should not find that the defendant did the ‘act’ unless it is
satisfied beyond reasonable doubt on all the evidence that the prosecution has negatived that defence. For example, if the defendant had struck another
person with his fist and the blow had caused death, it would be open to the jury under s 4A(4) to acquit the defendant charged with manslaughter if a
witness gave evidence that the victim had attacked the defendant with a knife before the defendant struck him. Again, if a woman was charged with theft
of a handbag and a witness gave evidence that on sitting down at a table in a restaurant the defendant had placed her own handbag on the floor and, on
getting up to leave, picked up the handbag placed beside her by a woman at the next table, it would be open to the jury to acquit.
But what the defence cannot do, in the absence of a witness whose evidence raises the defence, is to suggest to the jury that the defendant may have
acted under a mistake, or by accident, or in self-defence, and to submit that the jury should acquit unless the prosecution satisfies them that there is no
reasonable possibility that that suggestion is correct. I consider that the same approach is to ­ 222 be taken if defence counsel wishes to advance the
defence that the defendant, in law, did not do the ‘act’ because his action was involuntary, as when a man kicks out and strikes another in the course of an
uncontrollable fit brought about by a medical condition. In such a case there would have to be evidence that the defendant suffered from the condition.
The defence of provocation to a charge of murder is only relevant when the jury are satisfied that the defendant had the requisite mens rea for
murder, and I wish to reserve my opinion on the question whether, on a determination under s 4A(2), it would be open to the defence to call witnesses to
raise the issue of provocation.
As I have observed at the commencement of this judgment, it was the co-accused of the appellant who killed the victim by stabbing him and it
appears that the appellant was charged as a principal in the second degree. No issue was raised before the Crown Court judge or before the Court of
Appeal or your Lordships in relation to the fact that the appellant was the secondary party, no doubt because it was clear that by his own actions in
preventing the victim from leaving and in striking him the appellant had played a part in the killing. However, on a determination under s 4A(2) where
the defendant had been charged with participation in a murder as a secondary party and another person had carried out the actual killing, difficult
questions could arise as to the meaning of the word ‘act’ in such a situation and as to the matters which the jury would have to consider, and I express no
opinion on such questions in this judgment.
Therefore, for the reasons which I have given, I would dismiss the appeal. I would answer the certified question in the negative, and I would answer
the wider question formulated by counsel in the negative, subject to the right of defence counsel to raise the defence of mistake, accident, self-defence or
involuntariness in the way which I have stated.
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Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 224

Hamilton v Al Fayed

TORTS; Defamation

HOUSE OF LORDS
LORD BROWNE-WILKINSON, LORD STEYN, LORD COOKE OF THORNDON, LORD HOPE OF CRAIGHEAD AND LORD CLYDE
15 JULY, 7 OCTOBER 1999, 23 MARCH 2000

Libel and slander – Privilege – Proceedings in Parliament – Questioning proceedings in Parliament – Committee of House of Commons – Former
member of Parliament claiming damages for defamatory allegations during television interview – Allegations subject of inquiry by Parliamentary
Commissioner for Standards and dealt with in report by Committee on Standards and Privileges – House of Commons approving report – Whether action
should be stayed on ground that issues could not be determined fairly because of parliamentary privilege – Defamation Act 1996, s 13.

At the request of the House of Commons Committee on Standards and Privileges, the Parliamentary Commissioner for Standards conducted an inquiry
into allegations that H, a member of Parliament, had received cash payments and other benefits from AF in return for tabling parliamentary questions on
the latter’s behalf. While the inquiry was being conducted, AF repeated the allegations in a television interview. Subsequently, the commissioner
submitted a report to the committee, concluding that H had received cash payments from AF for lobbying services. After receiving the report, the
committee held further hearings in which H, who had by then lost his seat, made oral representations. In its subsequent report, the committee concluded
that H’s conduct had fallen seriously and persistently below the standards which the House was entitled to expect, that it was satisfied that the
commissioner had carried out a thorough inquiry into the specific issue of cash payments and that it could not add to, or detract from, the commissioner’s
findings on that matter. After the House had approved the committee’s report, H brought libel proceedings against AF, based on the remarks made by
him in the television interview. AF applied, inter alia, to have the action stayed, contending that the issues raised could not be determined fairly by reason
of the exclusion of material because of parliamentary privilege. That application was dismissed by the judge. On AF’s appeal, the Court of Appeal held
that the trial of the action would not infringe parliamentary privilege since it involved no assertion by the court of any power to challenge the exercise of
authority by Parliament. It further held that, in any event, H had validly waived any claim to parliamentary privilege under s 13a of the Defamation Act
1996. Accordingly, the appeal was dismissed and AF appealed to the House of Lords.
________________________________________
a Section 13 is set out at p 232 d to f, post
________________________________________

Held – In the normal case involving parliamentary privilege, the court was not asked to make an order staying the whole action: the relief claimed in an
action did not normally itself conflict with the authority of the decision reached by Parliament. Rather, the normal impact of parliamentary privilege was
to prevent the court from entertaining any evidence, cross-examination or submissions which challenged the veracity or propriety of anything done in the
course of parliamentary proceedings. Thus it was not permissible to challenge ­ 224 by cross-examination in a later action the veracity of evidence
given to a parliamentary committee. If that approach had been adopted in the instant case, there could be no doubt that, apart from s 13 of the 1996 Act,
the trial of the action would have proved completely impossible from the outset. All evidence by H that he had not received money for questions would
have conflicted directly with the evidence of AF which had been accepted by parliamentary committees, and any attempt to cross-examine him to the
effect that he had lied to those committees would have been stopped as infringing parliamentary privilege. Similarly, AF could only have justified his
defamatory statements by detailed challenge to H’s conduct in Parliament, and that would have been precluded by parliamentary privilege. In those
circumstances, it would have been impossible for AF to have had a fair trial, and thus the court should have stayed the action if s 13 had not applied.
However, that section did apply and provided a complete answer to the case. Under s 13(1), H could waive his own protection from parliamentary
privilege, and as a result any privilege of Parliament as a whole would not be infringed by virtue of s 13(2)(b). Accordingly, the appeal would be
dismissed (see p 234 h to p 235 d g h and p 236 c to f, post.
Decision of the Court of Appeal [1999] 3 All ER 317 affirmed.

Notes
For parliamentary privilege in relation to freedom of speech and proceedings in Parliament, see 34 Halsbury’s Laws (4th edn reissue) para 1008.
For the Defamation Act 1996, s 13, see 24 Halsbury’s Statutes (4th edn) (1998 reissue) 133.

Cases referred to in opinions

Bradlaugh v Gossett (1884) 12 QBD 271.
British Railways Board v Pickin [1974] 1 All ER 609, [1974] AC 765, [1974] 2 WLR 208, HL.
Burdett v Abbott (1811) 14 East 1, 104 ER 501; affd (1817) 5 Dow 165, [1814–23] All ER Rep 101, 3 ER 1289, HL.
Church of Scientology of California v Johnson-Smith [1972] 1 All ER 378, [1972] 1 QB 522, [1971] 3 WLR 434.
Hunter v Chief Constable of West Midlands [1981] 3 All ER 727, [1982] AC 529, [1981] 3 WLR 906, HL.
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Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, [1992] 3 WLR 1032, HL.
Prebble v Television New Zealand Ltd [1994] 3 All ER 407, [1995] 1 AC 321, [1994] 3 WLR 970, PC; affg [1993] 3 NZLR 513, NZ CA.
R v Murphy (1986) 5 NSWLR 18, NSW SC.
Stockdale v Hansard (1839) 9 Ad & El 1, 112 ER 1112.

Appeal
The defendant, Mohamed Al Fayed, appealed with permission of the Appeal Committee of the House of Lords given on 15 July 1999 from the decision of
the Court of Appeal (Lord Woolf MR, Hirst and Laws LJJ) on 26 March 1999 ([1999] 3 All ER 317, [1999] 1 WLR 1569) dismissing his appeal from the
decision of Popplewell J on 31 July 1998 dismissing his application to strike out, alternatively stay, an action for libel that had been brought against him
by the claimant, Mostyn Neil Hamilton. The facts are set out in the opinion of Lord Browne-Wilkinson.
­ 225

Michael Beloff QC, James Price QC and Heather Rogers (instructed by D J Freeman) for Mr Al Fayed.
Desmond Browne QC and Adrienne Page QC (instructed by Crockers Oswald Hickson) for Mr Hamilton.
Ross Cranston QC, S-G and Philip Sales (instructed by the Treasury Solicitor) for the Speaker and Authorities of the House of Commons as interveners.

Their Lordships took time for consideration.

On 7 October 1999 Lord Browne-Wilkinson announced that the appeal would be dismissed for reasons to be given later.

23 March 2000. The following opinions were delivered.

LORD BROWNE-WILKINSON. My Lords, this appeal raised questions of parliamentary privilege in relation to defamation proceedings brought by a
member of Parliament against a defendant who had alleged that he had corruptly solicited and received payments and benefits in kind as a reward for
parliamentary services rendered. I will first set out the facts of the case, then summarise the relevant law, then consider the way in which the arguments
were put forward in the courts below, and finally explain my conclusions on the case.

THE FACTS
The story starts in October 1985 when the appellant Mohamed Al Fayed (Mr Al Fayed) employed a firm of parliamentary lobbyists, Ian Greer
Associates (IGA). At that time Mr Al Fayed was in dispute with Mr ‘Tiny’ Rowland over Mr Al Fayed’s take-over of the House of Fraser, including in
particular Harrods. IGA were engaged to conduct the lobbying operation on Mr Al Fayed’s behalf which they did most actively between 1987 and 1989.
In April 1987 the Department of Trade and Industry appointed inspectors to investigate the circumstances of the take-over; the inspectors’ report was
published in March 1990.
The respondent, Mr Hamilton, used to be the member of Parliament for Tatton. He became involved in the lobbying campaign in early November
1985 when he tabled parliamentary questions on behalf of Mr Al Fayed. It is common ground between the parties that during the relevant period Mr
Hamilton made a number of parliamentary interventions (including tabling questions and giving his support to early day motions), attended meetings with
ministers and wrote letters, in all of which activities he was pressing the views which were in Mr Al Fayed’s interests.
Mr Al Fayed contended that he made substantial cash payments directly to Mr Hamilton on a number of occasions between mid-1987 and late 1989.
It was Mr Al Fayed’s contention that he made these payments in return for Mr Hamilton’s services in Parliament. Mr Al Fayed also contended that, for
the same reason, he gave Harrods gift vouchers to Mr Hamilton. Mr Hamilton denied receiving either cash or vouchers. On the other hand, it is common
ground that in September 1987 Mr Hamilton and his wife did spend six nights at the Ritz in Paris at Mr Al Fayed’s expense. It is also common ground
that Mr Hamilton and his wife stayed for shorter periods as the guests of Mr Al Fayed at his house in Scotland and at his Paris apartment. Although Mr
Hamilton accepted that he received these benefits he contended that they were not a reward for services rendered or to be rendered.
­ 226
On 20 October 1994 The Guardian newspaper published a front page report alleging that Mr Al Fayed had paid Mr Hamilton and another member of
Parliament thousands of pounds through IGA in return for them asking questions in Parliament. That article also referred to the Hamiltons’ stay at the
Ritz. Mr Hamilton issued libel proceedings against The Guardian as did Mr Greer and IGA. The other member of Parliament implicated by The Guardian
admitted receiving fees from Mr Al Fayed and resigned from the government.
Following the publication of the article in The Guardian, the Prime Minister announced the setting up of the Standing Committee on Standards in
Public Life chaired by Lord Nolan (the Nolan Committee). In May 1995 the Nolan Committee recommended the appointment of a Parliamentary
Commissioner for Standards.
It was part of The Guardian’s defence in The Guardian action to allege that questions tabled in Parliament by Mr Hamilton were linked to the
payments received by him from Mr Al Fayed. This was denied by Mr Hamilton. It was therefore clear that questions of parliamentary privilege might
arise in the course of The Guardian action. On 21 July 1995, May J stayed The Guardian action because of parliamentary privilege on the grounds that
the claims and defences raised issues whose investigation would infringe Parliamentary privilege and that in the absence of the evidence excluded by
Parliamentary privilege the action could not be fairly tried. The result was that Mr Hamilton was prevented from clearing his name by an action in the
courts.
At about this time the Defamation Bill was passing through Parliament. On 4 July 1996 it received the Royal Assent. During its passage through the
House of Lords an amendment (prompted in part by the stay of The Guardian action) was tabled. That amendment in due course became s 13 of the
Defamation Act 1996 which came into force on 4 September 1996. Section 13 of the 1996 Act raises the decisive question in this case and I will set it out
later. For present purposes it is enough to say that it enabled a member of Parliament who considered that he had been defamed to waive his
Parliamentary privilege and bring proceedings for defamation even though such proceedings or the manner in which they were conducted would
otherwise amount to a breach of Parliamentary privilege. In consequence of the passing of the 1996 Act, Mr Hamilton applied to lift the stay on The
Guardian action. Mr Hamilton having waived his privilege, the stay was lifted and an early trial date fixed. However, very shortly before the trial of The
Guardian action (which was due to start at the beginning of October 1996) Mr Hamilton, Mr Greer and IGA withdrew their libel action against The
Guardian. Despite Mr Hamilton’s assertion that he had only been forced to withdraw his action because he could not afford to instruct fresh legal advisers
after Mr Greer and IGA had withdrawn, the fact that he had withdrawn his claim against The Guardian produced a great deal of publicity.
On 14 October 1996 the Speaker of the House of Commons referred to serious allegations which had been made about members of Parliament while
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the House was adjourned which allegations called into question the reputation of the House as a whole. She expressed the hope that the Committee on
Standards and Privileges would find it possible to make an early special report. Her announcement indicated that the issues to be considered ought at the
end to be resolved by a decision of the House of Commons as a whole.
The Parliamentary Commissioner for Standards (PCS) had been recommended by the Nolan Committee and provided for by the HC Standing Orders
(Public Business) (1995) no 150. His duties include:
­ 227
‘… (e) to receive and, if he thinks fit, investigate specific complaints from Members and from members of the public in respect of—(i) the
registration or declaration of interests, or (ii) other aspects of the propriety of a Member’s conduct, and to report to the Committee on Standards and
Privileges or to an appropriate sub-committee thereof.’
The Committee on Standards and Privileges (CSP) was established by HC Standing Orders (Public Business) (1995) no 149:
‘… (a) to consider specific matters relating to privileges referred to it by the House; (b) to oversee the work of the [PCS] … (c) to consider any
matter relating to the conduct of Members, including specific complaints in relation to alleged breaches in any code of conduct to which the House
has agreed and which have been drawn to the committee’s attention by the [PCS] …’
On 28 October 1996 the CSP asked the PCS to investigate as a matter of urgency the serious allegations about the conduct of members referred to by
the Speaker on 14 October 1996. His terms of reference were:
‘To enquire into allegations of misconduct against [Mr Hamilton] and other Members of Parliament with a view to establishing whether there
has been any breach of House of Commons rules, in the letter or in the spirit, and to report the findings to the [CSP].’
The PCS conducted a long and detailed inquiry involving the taking of evidence from 60 witnesses at 13 oral hearings and the consideration of some
14,000 pages of documents.
Whilst the PCS’s inquiry was still continuing and a week before Mr Al Fayed was due to give his evidence to the PCS, on 16 January 1997 Channel
4 broadcast a ‘Dispatches’ programme which included a filmed interview with Mr Al Fayed. In the course of that interview Mr Al Fayed made serious
allegations against Mr Hamilton including the allegation that he had received money, vouchers and the stay at the Ritz hotel as reward for his services in
asking parliamentary questions and otherwise lobbying on behalf of Mr Al Fayed. It is the remarks made by Mr Al Fayed in the course of that broadcast
which were the foundation of this action.
In the general election on 1 May 1997 Mr Hamilton lost his seat.
The PCS prepared a report, First Report of the Committee on Standards and Privileges (the Downey Report), which was submitted to the CSP and
published on 2 July 1997. That report found that there had been a concerted parliamentary lobbying operation on behalf of Mr Al Fayed between 1985
and 1989, mounted and to a large extent co-ordinated by Ian Greer, of which operation Mr Hamilton was one of the ‘core members’. The Downey Report
reached the following conclusions. (1) That the evidence of Mr Hamilton receiving cash payments directly from Mr Al Fayed in return for lobbying
services was compelling and the PCS concluded that he had received such moneys. He found that the sum was unlikely to have been less than £18,000 to
£25,000 received by another MP. (2) The PCS found that ‘the way in which these payments were received and concealed fell well below the standards
expected of Members of Parliament’. (3) That there was not sufficient evidence to show that Mr Hamilton had received Harrods gift vouchers. (4) That
the hospitality received from Mr Al Fayed at the Ritz and elsewhere was intended and accepted as part of Mr Hamilton’s reward for lobbying. It was not,
as it should have been, registered.
­ 228
The CSP having received the Downey Report held further hearings and on 14 October 1997 Mr Hamilton made oral representations challenging
some of the findings of the PCS. On 5 November 1997 the CSP, in its Eighth Report of the Committee on Standards and Privileges (HC Paper 261
(1997–98)), expressed its conclusions in respect of Mr Hamilton which were as follows. (1) That a previous investigation of Mr Hamilton’s stay at the
Ritz by the Select Committee on Members’ Interests had not elicited the detailed evidence on Mr Al Fayed’s relationship with Mr Hamilton and the
campaign managed by IGA which had now been established. (2) That the relationship between Mr Hamilton and Mr Al Fayed was essentially a business
relationship in which Mr Hamilton advocated Mr Al Fayed’s cause. He received material benefits. The visit to the Ritz should had been registered and
Mr Hamilton must have known it should have been. (3) Cumulatively the list of omissions added up ‘to a casualness bordering on indifference or
contempt towards the rules of the House on disclosure of interests’. (4) That Mr Hamilton’s conduct—

‘fell seriously and persistently below the standards which the House is entitled to expect of its Members. Had Mr Hamilton still been a Member
we would have recommended a substantial period of suspension from the service of the House.’

The specific question of direct cash payments made to Mr Hamilton caused the CSP considerable difficulty and eventually it reported that it was—

‘satisfied that the [PCS] has carried out a thorough inquiry which took the evidence presented to him fully into account. The [CSP] did not
arrive at a practicable way of reaching a judgment which adds to or subtracts from the [PCS’s] findings.’

On 17 November 1997 the House of Commons resolved to approve the CSP’s eighth report.
On 9 January 1998 Mr Hamilton issued the writ for libel in this case. The claim was based on Mr Al Fayed’s statements during his interview on
‘Dispatches’. The essence of the defamatory imputation of which Mr Hamilton complained is that he corruptly demanded and accepted material benefits
(in particular cash payments) in return for tabling parliamentary questions and other parliamentary services on behalf of Mr Al Fayed. Mr Al Fayed
sought to justify that meaning, relying on cash payments, gift vouchers and the hospitality provided by him for Mr Hamilton.
By a summons dated 29 May 1998 Mr Al Fayed applied for an order either dismissing the action on the ground that it constituted an abuse of the
process of the court, or, alternatively, an order staying the action on the ground that the issues raised could not be determined fairly by reason of the
exclusion of material because of Parliamentary privilege. The summons came first before Popplewell J who refused to grant Mr Al Fayed any relief. On
appeal to the Court of Appeal (Lord Woolf MR, Hirst and Laws LJJ) ([1999] 3 All ER 317, [1999] 1 WLR 1569) the court dismissed the appeal but on
different grounds from those relied upon by Popplewell J. Mr Al Fayed appealed to your Lordships’ House. At the conclusion of the argument your
Lordships announced that the appeal would be dismissed for reasons to be given later. These are those reasons.
Since that date the defamation action itself has been tried and Mr Hamilton’s claim dismissed.
­ 229

PARLIAMENTARY PRIVILEGE

1. Generally
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Article 9 of Bill of Rights 1688 provides: ‘That the freedome of speech and debates or proceedings in Parlyament ought not to be impeached or
questioned in any court or place out of Parlyament.’
It is well established that art 9 does not of itself provide a comprehensive definition of parliamentary privilege. In Prebble v Television New Zealand
Ltd [1994] 3 All ER 407 at 413, [1995] 1 AC 321 at 332, I said:

‘In addition to art 9 itself, there is a long line of authority which supports a wider principle, of which art 9 is merely one manifestation, viz that
the courts and Parliament are both astute to recognise their respective constitutional roles. So far as the courts are concerned they will not allow any
challenge to be made to what is said or done within the walls of Parliament in performance of its legislative functions and protection of its
established privileges: Burdett v Abbott (1811) 14 East 1, 104 ER 501, Stockdale v Hansard (1839) 9 Ad & El 1, 112 ER 1112, Bradlaugh v Gossett
(1884) 12 QBD 271, British Railways Board v Pickin [1974] 1 All ER 609, [1974] AC 765, Pepper v Hart [1993] 1 All ER 42, [1993] AC 593. As
Blackstone said (1 Bl Com (17th edn) 163): “The whole of the law and custom of Parliament has its original from this one maxim, ‘that whatever
matter arises concerning either House of Parliament ought to be examined, discussed, and adjudged in that House to which it relates, and not
elsewhere’.”’

The wide scope of parliamentary privilege was fully discussed in Prebble’s case which was not criticised before your Lordships. The New South
Wales decision in R v Murphy (1986) 5 NSWLR 18 was disapproved in Prebble’s case because it sought to limit parliamentary privilege so as to cover
only cases where makers of statements in Parliament were sought to be made legally liable. I said:

‘… to allow it to be suggested in cross-examination or submission that a member or witness was lying to the House could lead to exactly that
conflict between the courts and Parliament which the wider principle of non-intervention is designed to avoid. Misleading the House is a contempt
of the House punishable by the House: if a court were also to be permitted to decide whether or not a member or witness had misled the House there
would be a serious risk of conflicting decisions on the issue.’ (See [1994] 3 All ER 407 at 415, [1995] 1 AC 321 at 334.)

In Australia the Commonwealth Parliament reversed the views of the judge in R v Murphy by passing the Parliamentary Privileges Act 1987, s 16(3)
of which provided ‘for the avoidance of doubt’ as follows:
‘In proceedings in any court or tribunal, it is not lawful for evidence to be tendered or received, questions asked or statements, submissions or
comments made, concerning proceedings in Parliament, by way of, or for the purpose of—(a) questioning or relying on the truth, motive, intention
or good faith of anything forming part of those proceedings in Parliament; (b) otherwise questioning or establishing the credibility, motive,
intention or good faith of any person; or (c) drawing, or inviting the drawing of, inferences or conclusions wholly or partly from anything forming
part of those proceedings in Parliament.’
­ 230
In Prebble’s case it was stated that s 16(3) contains the true principles to be applied, a view shared by the Joint Committee on Parliamentary
Privilege (HL Paper (1998–1999) 43–I) which recommended a statutory provision confirming ‘as a general principle’ the traditional view of art 9, ie that
it is a blanket prohibition on the examination of parliamentary proceedings in court: ‘The prohibition applies whether or not legal liability would arise.’
(See p 28, para 85.)
It is in my judgment firmly established that courts are precluded from entertaining in any proceedings (whatever the issue which may be at stake in
those proceedings) evidence, questioning or submissions designed to show that a witness in parliamentary proceedings deliberately misled Parliament. To
mislead Parliament is itself a breach of the code of parliamentary behaviour and liable to be disciplined by Parliament: see Church of Scientology of
California v Johnson-Smith [1972] 1 All ER 378, [1972] 1 QB 522, British Railways Board v Pickin [1974] 1 All ER 609 at 629, [1974] AC 765 at 800
per Lord Simon of Glaisdale. For the courts to entertain a question whether Parliament had been deliberately misled would be for the courts to trespass
within the area in which Parliament has exclusive jurisdiction.
I have stressed this feature of parliamentary privilege because of the way in which this case has developed. As will appear, the Court of Appeal
seem to have taken the view that parliamentary privilege is mainly relevant to cases where a party applies to strike out a court action on the grounds that
the relief claimed in that action in some way trenches on conclusions reached in parliamentary proceedings. Although no doubt such cases may arise,
they are, I believe, rare compared with those in which a party to litigation wishes to challenge the accuracy or veracity of something said in parliamentary
proceedings. In such a case, the other party does not apply to strike out the whole of the plaintiff’s action: the action will often be about something quite
different to that under consideration in Parliament. The other party applies to prevent the giving of that specific evidence or the challenging of a
particular witness. If parliamentary privilege is held to exclude such evidence normally the only result (serious though it may be) is that the case is
decided in the absence of that evidence.

2. Defamation
In the field of defamation parliamentary privilege has its main impact in precluding the courts from entertaining a case alleging that a member of
Parliament or other participant in parliamentary proceedings is liable for defamatory statements made in the course of parliamentary proceedings.
However, recent experience has shown that the impact of parliamentary privilege is not all favourable to an individual MP. Say, as in the present case,
that an MP wishes to sue for defamatory remarks made by a third party outside Parliament, such defamatory remarks alleging breaches by the MP of his
parliamentary duties. If the defendant wishes to justify his defamatory remarks he will be precluded from leading evidence or cross-examining as to
matters which form part of the MP’s parliamentary functions. As a result in some such cases it might be grossly unfair to let the action proceed in
circumstances which would preclude the defendant from putting forward his defence. It was to deal with such a case that the court developed a procedure
(the fair trial stay) under which, unless the plaintiff could in some way waive the privilege which produced exceptional unfairness, the action by the MP
would be stayed. Since most Parliaments (including those of New Zealand and the United Kingdom) take the view that the privilege cannot be waived
either by the individual or by the House ­ 231 of Parliament itself, the result is that in such cases a stay is exceptionally granted. A fair trial stay of this
kind was, I believe, first devised by the Court of Appeal of New Zealand in Prebble v Television New Zealand Ltd [1993] 3 NZLR 513 and was approved
by the Privy Council ([1994] 3 All ER 407, [1995] 1 AC 321) in that case. It was also the basis of the stay granted in The Guardian action, May J being
satisfied that the action could not be fairly tried in the absence of evidence led by The Guardian to prove the alleged corrupt parliamentary acts of Mr
Hamilton.

3. The Defamation Act 1996

The impact of the fair trial stay on Mr Hamilton was, in the eyes of many, very unfair to him. He claimed that he had been gravely defamed by The
Guardian allegation but, because The Guardian was precluded by parliamentary privilege from proving the truth of the allegations, Mr Hamilton was
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himself precluded from clearing his own name if that were the truth of the matter. It was in an attempt to avoid this unfairness to a libelled MP, caused by
the attempt to avoid unfairness to the alleged libeller, that Parliament passed s 13 of the 1996 Act, which so far as relevant provides as follows:

‘(1) Where the conduct of a person in or in relation to proceedings in Parliament is in issue in defamation proceedings, he may waive for the
purposes of those proceedings, so far as concerns him, the protection of any enactment or rule of law which prevents proceedings in Parliament
being impeached or questioned in any court or place out of Parliament.
(2) Where a person waives that protection—(a) any such enactment or rule of law shall not apply to prevent evidence being given, questions
being asked or statements, submissions, comments or findings being made about his conduct, and (b) none of those things shall be regarded as
infringing the privilege of either House of Parliament.
(3) The waiver by one person of that protection does not affect its operation in relation to another person who has not waived it.’

THE HEARING BEFORE POPPLEWELL J

The summons before Popplewell J sought an order:

‘(1) dismissing this action in pursuance of RSC Order 18 rule 19 and/or the inherent jurisdiction of the Court on the ground that it is an abuse of
the process of this Court (a) by reason of its initiation for the purpose of mounting a collateral attack upon [the decision of the House on 17
November 1997 approving the report of the CSP] and/or (b) because this action infringes Parliamentary privilege by seeking to overturn or impugn
the Parliamentary inquiry into the Plaintiff’s conduct.
ALTERNATIVELY
(2) staying this action on the ground that the issues which will be raised cannot be determined fairly by reason of the exclusion of material
because of Parliamentary privilege.’

It appears that para 1(a) was not, in terms, a claim based on parliamentary privilege but sought to invoke the principle of ‘collateral attack’.
Paragraph 1(b) relies on Parliamentary privilege. Paragraph (2) sought a fair trial stay.
As to the claim based on collateral attack, Mr Al Fayed contended that the present action constituted a collateral attack on a final decision of Sir
Gordon Downey, or Parliament, and as such was an abuse of the process of the court:
­ 232
see Hunter v Chief Constable of West Midlands [1981] 3 All ER 727, [1982] AC 529. The judge rejected this argument on the basis that the
inquisitorial procedure adopted by Sir Gordon Downey did not provide Mr Hamilton with a fair opportunity to test the case made against him and
therefore could not be treated as a binding decision. Second, so far as the claim for a stay was based on breach of parliamentary privilege, the judge held
that such claim had to be based on a challenge to a decision of the House of Commons. The judge held that no decision had been made by the CSP and
therefore there could be no breach of privilege. Mr Al Fayed had also contended that Mr Hamilton’s action infringed parliamentary privilege by seeking
to overturn and impugn a parliamentary inquiry. On this issue the judge apparently held that the evidence before the PCS was so frail as not to justify
ousting the jurisdiction of the court. Finally, the judge declined to grant a fair trial stay under para 2 of the summons on the grounds that it was premature
to consider what would be the impact of parliamentary privilege on the trial and therefore impossible to say whether it would or would not be so unfair to
Mr Al Fayed as to justify a fair trial stay. Although the judge referred to the concept of a waiver of parliamentary privilege, he did not in terms refer to s
13 of the 1996 Act or its impact on the present case.

THE APPEAL TO THE COURT OF APPEAL

The Solicitor General, although invited to do so, had not appeared before Popplewell J. However the House of Commons and the Solicitor General
had become concerned with parts of the reasoning of the judge. The Solicitor General therefore appeared before the Court of Appeal to make
representations on behalf of the Speaker and Authorities of the House.
The Court of Appeal held, first, that apart from any question of parliamentary privilege the principle in Hunter’s case had no application: a
parliamentary decision was not analogous to a decision of the court. Next, the Court of Appeal held that the proceedings before the PCS, his report and
its acceptance by the CSP were all ‘parliamentary proceedings’ and therefore any attempt to investigate or challenge any of the procedures adopted
constituted a breach of parliamentary privilege: they constituted a ‘questioning’ of parliamentary procedures. They therefore held that the judge had been
in error and had himself breached parliamentary procedure by criticising the procedures adopted by the PCS. The conclusion of the Court of Appeal on
these two points met the concerns of the Solicitor General. The Court of Appeal were clearly correct on these points and they were not further challenged
on appeal to your Lordships’ House.
Thirdly, the Court of Appeal held that the trial of this action would not infringe parliamentary privilege unless the possibility of the court reaching a
conclusion contrary to that arrived at in the parliamentary proceedings ‘would be to undermine the authority of Parliament so that the action should on
that ground be condemned as abusive’ ([1999] 3 All ER 317 at 335, [1999] 1 WLR 1569 at 1589). The Court of Appeal held that only in cases which
would involve an ‘assertion by the court of any power to challenge the exercise of authority by Parliament’, would it be right to debar a person defamed
from pursuing an action to clear his name. This was not such a case.
It is to be noted that the Court of Appeal did not mention the relief claimed by para 2 of the summons, viz a fair trial stay.
Finally, the Court of Appeal held that, in any event, under s 13 of the 1996 Act Mr Hamilton had validly waived any claim to parliamentary privilege
and that accordingly the action should proceed.
­ 233

THE ISSUES BEFORE THE HOUSE

As I have said, the Court of Appeal rejected any argument based on collateral attack within the meaning of Hunter’s case. The argument was not
renewed before your Lordships. In consequence, s 13 of the 1996 Act became decisive. Whether or not there was, apart from the 1996 Act, any ground
on which it could be said that the action was an infringement of parliamentary privilege, Mr Hamilton had waived such privilege so far as it affected him.
Accordingly, if under s 13 he had power to make such a waiver, it did not matter what the position in relation to parliamentary privilege would have been
had there been no such waiver. For reasons which I will give hereafter, in my judgment Mr Hamilton did have power to waive his parliamentary privilege
under s 13. I believe that the rest of your Lordships share that view. Therefore, the question whether or not, apart from waiver under s 13, Mr Hamilton
would have enjoyed a parliamentary privilege which prevented the action from being tried becomes strictly irrelevant. However, the Court of Appeal
having held (contrary to my view) that no relevant parliamentary privilege would have been infringed if the action had gone forward, it is necessary for
me to deal first with that point so as to ensure so far as possible that the law on parliamentary privilege does not become confused.
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PARLIAMENTARY PRIVILEGE APART FROM S 13

My Lords, it appears from the judgment of the Court of Appeal that this point was argued before the Court of Appeal on behalf of Mr Al Fayed on
somewhat unconventional lines. Mr Beloff QC did not appear in the court below. The Court of Appeal seems to have thought that the only argument for a
stay on grounds of parliamentary privilege was that the action constituted a challenge to the jurisdiction of Parliament to make a decision on the matter at
issue. The Court of Appeal appear to have been treating the case as analogous to the prohibition of collateral attacks on earlier court decisions on the
Hunter v Chief Constable of West Midlands principle. Thus, having held that the judge was in breach of parliamentary privilege by criticising
parliamentary procedures, they went on to say:

‘This conclusion, however, provides no answer to the question whether this action for libel constitutes an impermissible collateral attack on
proceedings in Parliament. This question has now to be considered in the context of s 13 of the Defamation Act 1996.’ (See [1999] 3 All ER 317
at 333, [1999] 1 WLR 1569 at 1586.)

They then held that Mr Hamilton’s action did not fall within this wider concept of parliamentary privilege and therefore even apart from s 13 there
would be no impermissible interference with parliamentary privilege if the action proceeded.
I am far from satisfied that the views of the Court of Appeal on this point are correct. I have said above that, in the normal case involving
parliamentary privilege, the court is not asked to make an order staying the whole action: the relief claimed in an action does not normally itself conflict
with the authority of the decision reached by Parliament. The normal impact of parliamentary privilege is to prevent the court from entertaining any
evidence, cross-examination or submissions which challenge the veracity or propriety of anything done in the course of parliamentary proceedings. Thus,
it is not permissible to challenge by cross-examination in a later action the veracity of evidence given to a ­ 234 parliamentary committee. If that
approach had been adopted in the present case, there can be no doubt that, apart from s 13, the trial of the action would from the outset have proved
completely impossible. All evidence by Mr Hamilton that he had not received money for questions would have conflicted directly with the evidence of
Mr Al Fayed which was accepted by the parliamentary committees. Any attempt to cross-examine Mr Al Fayed to the effect that he was lying to the
parliamentary committees when he said that he had paid money for questions would have been stopped forthwith as an infringement of parliamentary
privilege.
Presumably because of the way the case was presented to them, the Court of Appeal never considered the relevant question (viz whether there
should be a fair trial stay) raised by question 2 of the summons. The only way in which Mr Al Fayed could justify his defamatory statements was by
detailed challenge to Mr Hamilton’s conduct in Parliament, which challenge would be precluded by parliamentary privilege. That being so it would in
my judgment have been impossible for Mr Al Fayed to have had a fair trial in this action if he had been precluded from challenging the evidence
produced to the parliamentary committees on behalf of Mr Hamilton. Had it not been for s 13, the court should, in my judgment, have stayed the libel
action brought by Mr Hamilton by making an order under para 2 of the summons. However, s 13 does apply to this case and provides a complete answer
to it.

SECTION 13 OF THE 1996 ACT

Before the passing of the 1996 Act, it was generally considered that parliamentary privilege could not be waived either by the member whose
parliamentary conduct was in issue or by the House itself. All parliamentary privilege exists for the better discharge of the function of Parliament as a
whole and belongs to Parliament as a whole. Under s 13, the individual member bringing defamation proceedings is given power to waive for the
purposes of those proceedings ‘the protection of any enactment or rule of law which prevents proceedings in Parliament being impeached or questioned in
any court or place out of Parliament’. The section then provides by sub-s (2) that such waiver operates so that evidence, cross-examination or
submissions made relative to the particular MP are not to be excluded by reason of parliamentary privilege. The MP thus having been given statutory
power to waive the protection afforded by the privilege so far as he is concerned, the section goes on to provide that the admission of such evidence,
questioning etc, should not be treated as infringing the privilege of either House of Parliament (see sub-s (2)(b)).
The effect of the section seems to me to be entirely clear. It deals specifically with the circumstances raised by Mr Hamilton’s case against The
Guardian. He could waive his own protection from parliamentary privilege and in consequence any privilege of Parliament as a whole would fall to be
regarded as not infringed. At least in part, s 13 was passed by Parliament to enable specifically Mr Hamilton to proceed with The Guardian action. The
issues in this present action against Mr Al Fayed are for the most part identical. It would, indeed, be very strange if the section had failed to enable Mr
Hamilton to bring this action.
Mr Beloff sought to escape this conclusion by submitting that there are a number of parliamentary privileges only some of which are enjoyed by the
individual MP as well as by the House itself. He submitted that amongst the privileges that belong to the House alone is its autonomous jurisdiction over
certain matters. Therefore, Mr Hamilton, as a former MP, could not effectively ­ 235 waive the privileges of the House based on its autonomous
jurisdiction as opposed to other privileges. In my judgment this argument is fallacious. The privileges of the House are just that. They all belong to the
House and not to the individual. They exist to enable the House to perform its functions. Thus sub-s (1) of s 13 accurately refers, not to the privileges of
the individual MP, but to ‘the protection of any enactment or rule of law’ which prevents the questioning of procedures in Parliament. The individual MP
enjoys the protection of Parliamentary privilege. If he waives such protection, then under sub-s (2) any questioning of parliamentary proceedings (even
by challenging ‘findings … made about his conduct’) is not to be treated as a breach of the privilege of Parliament. I can see no way, following the
waiver by Mr Hamilton of his parliamentary protection in relation to the parliamentary inquiry into his conduct, that it can be said that such waiver does
not also operate under sub-s 2(b) so as to override any privilege belonging to Parliament as a whole.
It was for these reasons that I dismissed this appeal.

LORD STEYN. My Lords, I am in complete agreement with the reasons given by my noble and learned friend, Lord Browne-Wilkinson.

LORD COOKE OF THORNDON. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord
Browne-Wilkinson. For the reasons which he has given as to the interpretation of s 13 of the Defamation Act 1996, I agree that this appeal should be
dismissed.

LORD HOPE OF CRAIGHEAD. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord
Browne-Wilkinson. For the reasons which he has given I also was of the opinion that the appeal should be dismissed.

LORD CLYDE. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Browne-Wilkinson. For the
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reasons which he has given I also was of the opinion that the appeal should be dismissed.

Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 237

W and others v Essex County Council and another

TORTS; Negligence: FAMILY; Children: LOCAL GOVERNMENT

HOUSE OF LORDS
LORD SLYNN OF HADLEY, LORD STEYN, LORD HOPE OF CRAIGHEAD, LORD HOBHOUSE OF WOODBOROUGH, LORD MILLETT
11, 12 JANUARY, 16 MARCH 2000

Damages – Personal injury – Nervous shock – Foster parents stipulating that they would not foster a known or suspected child abuser – Local authority
placing known child abuser with foster parents – Foster child sexually abusing foster parents’ children – Foster parents allegedly suffering psychiatric
illness after discovering abuse and bringing proceedings for negligence against local authority – Whether damages recoverable for alleged illness –
Whether claim should be struck out.

The claimant parents, who had four young children, were approved as specialist adolescent foster carers by the defendant local authority. They told the
authority that they were not willing to accept any child who was a known or suspected sexual abuser. Despite that, the authority placed with them a
15-year-old boy, G, who had admitted an indecent assault on his own sister and was being investigated for an alleged rape. Those facts were not
communicated to the parents, although they were recorded on the authority’s files. It was alleged that, after G arrived at the parents’ home, he committed
acts of severe sexual abuse on their children. In subsequent proceedings for negligence against the local authority, the parents claimed that they had
suffered psychiatric illness, including severe depression and post-traumatic stress disorder, after learning of the abuse, and claimed damages. On an
application by the local authority to strike out the proceedings, the judge held that the parents were claiming as secondary victims and that their alleged
illness failed to satisfy the test for the recovery of damages by such victims, namely that the injury had been the result of the sudden appreciation by sight
or sound of a horrifying event, which had violently agitated the mind. He therefore struck out the parents’ claim. The judge’s decision was affirmed by
the Court of Appeal which held that the authority had not, in any event, owed the parents a duty of care. On the parents’ appeal to the House of the Lords,
the authority contended, inter alia, that the parents could not ground a claim for damages on a feeling that they had participated in, or contributed to or
laid the foundation for, the acts of abuse by arranging for G to be brought into their home.

Held – Where the parents of abused children suffered psychiatric injury flowing from a feeling that they had brought the abuser and the abused together,
or from a feeling of responsibility for not having detected the abuse earlier, the existing case law did not conclusively show that the parents could not be
primary victims. Moreover, although there had to be some temporal and spatial limitation on the persons who could claim to be secondary victims, the
concept of ‘the immediate aftermath’ of the incident had to be assessed in the particular factual situation. Thus in a case such as the instant one, it was not
clear that the parents had to come across the abuser or the abused ‘immediately’ after the sexual incident had terminated.
­ 237

Furthermore, it was impossible to say that the psychiatric injury allegedly suffered by the parents was outside the range of psychiatric injury recognised
by the law, or that a person of reasonable fortitude would be bound to take in his stride being informed of the sexual abuse of his young children when
that person had innocently brought together the abuser and the abused. Nor was it unarguable that the local authority had owed a duty of care to the
parents. It followed that the parents’ claim could not be said to be so certainly or clearly bad that they should be barred from pursuing it to trial.
Accordingly, the appeal would be allowed (see p 241 c to e, p 242 j, p 243 d e h j and p 244 a to h, post).
Alcock v Chief Constable of the South Yorkshire Police [1991] 4 All ER 907 and White v Chief Constable of the South Yorkshire Police [1999] 1 All
ER 1 considered.
Decision of the Court of Appeal [1998] 3 All ER 111 reversed in part.

Notes
For liability for nervous shock, see 33 Halsbury’s Laws (4th edn reissue) para 612

Cases referred to in opinions

Alcock v Chief Constable of the South Yorkshire Police [1991] 4 All ER 907, [1992] 1 AC 310, [1991] 3 WLR 1057, HL.
Barrett v Enfield London BC [1999] 3 All ER 193, [1999] 3 WLR 79, HL.
Caparo Industries plc v Dickman [1990] 1 All ER 568, [1990] 2 AC 605, [1990] 2 WLR 358, HL.
Hunter v British Coal Corp [1998] 2 All ER 97, [1999] QB 140, [1998] 3 WLR 685, CA.
McLoughlin v O’Brian [1982] 2 All ER 298, [1983] 1 AC 410, [1982] 2 WLR 982, HL.
Robertson v Forth Road Bridge Joint Board 1996 SLT 263.
White v Chief Constable of the South Yorkshire Police [1999] 1 All ER 1, [1999] 2 AC 455, [1998] 3 WLR 1509, HL.
X and ors (minors) v Bedfordshire CC, M (a minor) v Newham London BC, E (a minor) v Dorset CC [1995] 3 All ER 353, [1995] 2 AC 633, [1995] 3
WLR 152, HL.
Young v Charles Church (Southern) Ltd (1997) 39 BMLR 146, CA.
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Appeal
The first and second claimants, W1 and W2, the parents of the third to sixth claimants, appealed with leave of the Appeal Committee of the House of
Lords given on 18 March 1999 from the decision of the Court of Appeal (Stuart-Smith, Judge and Mantell LJJ) on 2 April 1998 ([1998] 3 All ER 111,
[1999] Fam 90) dismissing their appeal from the decision of Hooper J on 7 July 1997 ([1997] 2 FLR 535) striking out proceedings for negligence against
the defendants, Essex County Council and a social worker employed by the council, Anthony Golden, in which the parents had sought the recovery of
damages for alleged psychiatric illness suffered by them on discovering that their children had been sexually abused by a boy who had been placed with
them by the council for fostering. The facts are set out in the opinion of Lord Slynn of Hadley.

Allan Levy QC and Elizabeth-Anne Gumbel QC (instructed by Sternberg Reed Taylor & Gill, Barking) for the parents.
Edward Faulks QC and Andrew Warnock (instructed by Barlow Lyde & Gilbert) for the defendants.
­ 238

Their Lordships took time for consideration.

16 March 2000. The following opinions were delivered.

LORD SLYNN OF HADLEY. My Lords, in these proceedings the plaintiffs W1 and W2 are the parents of the plaintiffs W3 to W6, the children being
one boy and three girls. All of the plaintiffs claim, inter alia, damages for personal injury caused by the negligence of Essex County Council and a social
worker employed by the council. There were additional claims in contract, for misfeasance in public office and negligent misstatement but nothing turns
on these directly in the present appeal.
Put shortly, the basis of the claim is that the parents, who in October 1992 had been approved as specialist adolescent foster carers by the council,
expressly told the council and the social worker that they were not willing to accept any child who was known or suspected of being a sexual abuser.
Despite that stipulation the council, through the social worker, placed with the parents a 15-year-old boy, G, who had admitted and had been cautioned by
the police for an indecent assault on his own sister and who was being investigated for an alleged rape. These facts were not communicated to the
parents, although they were recorded on the council’s files and were known to the social worker. Serious acts of sexual abuse against the children are
alleged to have been committed between 7 April and 7 May 1993 after the boy had arrived at the parents’ home. As a result, it is alleged that because of
the abuse both parents and children suffered injury as described in reports of an independent child abuse consultant and a consultant child and adolescent
psychiatrist.
The council and the social worker applied to strike out the claims pursuant to RSC Ord 18, r 19(1)(a) and (d). On 7 July 1997 Hooper J struck out all
the claims made by the parents but refused to strike out the claims by the children ([1997] 2 FLR 535). The Court of Appeal on 2 April 1998 ([1998] 3
All ER 111, [1999] Fam 90) by a majority upheld the judge’s order in respect of the childrens’ claim in negligence but unanimously upheld the order in
respect of the parents’ claim in negligence for the reasons which they gave. Appeals and cross-appeals were launched but by the time of the hearing
before your Lordships the defendants accepted that the claim by the children should proceed: the parents contend that their claim for their injury should
proceed to trial and that is the sole issue.
The parents contend that the defendants were negligent in placing a known sexual abuser in their home when the defendants knew of G’s history and
of the parents’ anxiety not to have a known sex abuser in their home with four young children aged between 8 and 12 at the relevant time. When they
discovered the serious acts of sexual abuse including anal and vaginal penetration and oral sex on 7 May the plaintiffs suffered psychiatric illness and
damage including severe depression and post-traumatic stress disorder as described in the medical reports they relied on.
Hooper J, after a detailed analysis of the case law and arguments, concluded ([1997] 2 FLR 535 at 563):
‘The defendants accept (just) that, arguably, there is evidence of positive psychiatric illness and that such illness was foreseeable. They submit
that what the plaintiff parents do not even arguably show is that any such illness was the result of the “sudden appreciation by sight or sound of a
horrifying ­ 239 event, which violently agitates the mind” (Alcock v Chief Constable of the South Yorkshire Police [1991] 4 All ER 907 at 918,
[1992] 1 AC 310 at 401). Mr Levy submits that there is sufficient in para 31 as now amended to permit the matter to be fully investigated at trial
and that the claim is an arguably incremental extension of the law. I do not agree. Paragraph 31 will be struck out.’
Stuart-Smith LJ ([1998] 3 All ER 111 at 130, [1999] Fam 90 at 114 (para 57)) held that the defendants owed no duty of care to parents or children
but he added in regard to the plaintiffs’ claim for psychiatric illness that in his view the judge was right to hold—
‘that the parents were secondary victims, that is to say their shock and illness was consequent upon learning of the injury to their children and
that they did not satisfy the criterion laid down in Alcock v Chief Constable of the South Yorkshire Police [1991] 4 All ER 907 at 917–918, [1992] 1
AC 310 at 401).’
Stuart-Smith LJ added ([1998] 3 All ER 111 at 130, [1999] Fam 90 at 115 (para 58)):
‘Even if the risk of psychiatric illness is reasonably foreseeable, the law gives no damages if the psychiatric injury was not caused by shock.
The shock must be sustained through the medium of the eye or ear without direct contact. Shock in this context involves the “sudden appreciation
by sight or sound of a horrifying event which violently agitates the mind” (see [1991] 4 All ER 907 at 918, [1992] 1 AC 310 at 401). It does not
include psychiatric illness caused by the accumulation over a period of time of more gradual attacks of the nervous system (see [1991] 4 All ER 907
at 917–918, [1992] 1 AC 310 at 400–401) per Lord Ackner).’
For the application to strike out to succeed it must be shown that the statement of claim discloses no cause of action or constitutes an abuse of
process of the court and for that inquiry the factual averments must be taken as true though many of them are denied by the defendants.
Although the power to strike out a claim which really has no chance of succeeding in law is a very valuable one to protect defendants and to prevent
the court’s time being used (to the detriment of other cases waiting to be heard) in the investigation of the allegations, it has to be exercised cautiously as
has so often been said. In X and ors (minors) v Bedfordshire CC, M (a minor) v Newham London BC, E (a minor) v Dorset CC [1995] 3 All ER 353,
[1995] 2 AC 633, where the question was whether a duty of care arose in child abuse cases and in special educational needs cases, Lord
Browne-Wilkinson said ([1995] 3 All ER 353 at 373, [1995] 2 AC 633 at 740–741): ‘Where the law is not settled but is in a state of development (as in
the present cases) it is normally inappropriate to decide novel questions on hypothetical facts.’ He added that it could be different where the question
depended only on the construction of relevant statutory provisions. He agreed with Bingham MR that:
‘… if, on the facts alleged in the statement of claim, it is not possible to give a certain answer whether in law the claim is maintainable, then it is
not appropriate to strike out the claim at a preliminary stage but the matter must go to trial when the relevant facts will be discovered.’ (See [1995]
3 All ER 353 at 373, [1995] 2 AC 633 at 741.)
The complex range of facts in those cases shows how difficult the exercise is.
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­ 240
In Barrett v Enfield London BC [1999] 3 All ER 193, [1999] 3 WLR 79 Lord Browne-Wilkinson repeated what he had said in X and ors (minors)
and added that the development of the law should be on the basis of actual facts found at trial ‘not on hypothetical facts assumed (possibly wrongly) to be
true for the purpose of the strike out’ (see [1999] 3 All ER 193 at 197, [1999] 3 WLR 79 at 83). I took the view that—
‘the question whether it is just and reasonable to impose a liability of negligence is not to be decided in the abstract for all acts or omissions of a
statutory authority, but is to be decided on the basis of what is proved.’ (See [1999] 3 All ER 193 at 213, [1999] 3 WLR 79 at 99.)
Causation is largely a question of fact to be proved and the facts needed to be investigated. Lord Hutton agreed that the claim should not be struck out
‘on the ground that it gives rise to issues which are non-justiciable’ (see [1999] 3 All ER 193 at 227, [1999] 3 WLR 79 at 111.)
It seems to me that it cannot be said here that the claim that there was a duty of care owed to the parents and a breach of that duty by the defendants
is unarguable, that it is clear and obvious that it cannot succeed. On the contrary whether it is right or wrong on the facts found at the end of the day, it is
on the facts alleged plainly a claim which is arguable. In their case the parents made it clear that they were anxious not to put their children at risk by
having a known sex abuser in their home. The council and the social worker knew this and also knew that the boy placed had already committed an act or
acts of sex abuse. The risk was obvious and the abuse happened. Whether the nature of the council’s task is such that the court should not recognise an
actionable duty of care, in other words that the claim is not justiciable, and whether there was a breach of the duty depend, in the first place, on an
investigation of the full facts known to, and the factors influencing the decision of, the defendants.
A more difficult question is whether, as the defendants contend, nothing is alleged by way of damage flowing from the breach to justify the case
going to trial.
Mr Faulks has forcefully submitted that where it is accepted that damages may lie for psychiatric injury the law recognises a distinction between
‘primary victims’ and ‘secondary victims’. The former are those who were involved in the event causing the psychiatric injury ‘mediately or
immediately, as [participants]’ (see Alcock’s case [1991] 4 All ER 907 at 923, [1992] 1 AC 310 at 407). Moreover it was only if the parents were within
the range of foreseeable physical injury that they were primary victims (see White v Chief Constable of the South Yorkshire Police [1999] 1 All ER 1,
[1999] 2 AC 455). If such physical injury had been foreseeable then a claim might lie for psychiatric injury even if it was not itself foreseeable (see Page
v Smith [1995] 2 All ER 736, [1996] AC 155). The parents were not participants in this sense in the injury to their children nor was it foreseeable that if G
was placed with the family the parents would suffer physical injury.
A secondary victim on the other hand is ‘no more than the passive and unwilling witness of injury caused to others’ (see Alcock’s case [1991] 4 All
ER 907 at 923, [1992] 1 AC 310 at 407 per Lord Oliver of Aylmerton) and to be compensatable in damages psychiatric injury must be foreseeable in
persons of normal fortitude. Moreover there must be a sufficiently proximate relationship with the person causing physical harm to that other. Here the
parents had the necessary ties of love for their children but they were neither near enough in time ­ 241 or space to the acts of abuse and they did not
have direct visual or oral perception of the incident or its aftermath as the House, agreeing with the speech of Lord Oliver, required that they would have
to have in order to claim for psychiatric injury. The parents only knew about the incidents after they had happened.
The defendants also reject any suggestion that the parents can claim to be entitled to damages because they feel that they had participated in or
contributed to or laid the foundation for the commission of the acts of abuse on their children by arranging for G to be brought into their home. They
were for example much less involved in the accident than the claimant in Hunter v British Coal Corp [1998] 2 All ER 97, [1999] QB 140. The parents
are in no different position from a person who suffers shock on being told of the death of a loved one. Such a claim is not recognised by the law.
There have been important developments in the cases dealing with liability for psychiatric injury which beyond doubt can constitute a head of
damage. For example, Lord Wilberforce in McLoughlin v O’Brian [1982] 2 All ER 298, [1983] 1 AC 410 recognises that a claim can be made for
nervous shock even where there is no direct impact or fear of immediate personal injury to the claimant. He accepted that there are, however, limitations
to the category of persons not suffering physical injury who can claim as, for example, when they are not within sight or sound of the aftermath of the
event causing injury to someone else. These limitations were spelled out in Alcock’s case in which it was accepted that the person claiming who was not
directly involved in the incident must have seen or heard the incident or come upon it in the immediate aftermath (per Lord Ackner and Lord Oliver). In
White’s case [1999] 1 All ER 1 at 32–33, [1999] 2 AC 455 at 493–494 Lord Steyn analysed the reasons why the law draws a distinction between physical
and psychiatric harm and why the law has proceeded cautiously in recognising as valid claims for psychiatric harm. It is, for example, difficult to
distinguish between acute grief and psychiatric injury and to widen the scope of recognised claims might not only provoke further claims but also impose
a disproportionate liability on defendants where physical harm to the claimant could not reasonably have been foreseen.
It is important in the present case to bear in mind these factors together with the limitations recognised in Alcock’s case.
On the other hand it is right to recall that in McLoughlin’s case [1982] 2 All ER 298 at 310, [1983] 1 AC 410 at 430, Lord Scarman recognised the
need for flexibility in dealing with new situations not clearly covered by existing decisions; that in Page v Smith [1995] 2 All ER 736 at 768, [1996] AC
155 at 197 Lord Lloyd of Berwick said that once it was accepted that the defendant could foresee that his conduct would expose the claimant to personal
injury ‘There is no justification for regarding physical and psychiatric injury as different “kinds of damage”’; that in this still developing area the courts
must proceed incrementally (see Caparo Industries plc v Dickman [1990] 1 All ER 568, [1990] 2 AC 605).
On a strike out application it is not necessary to decide whether the parents’ claim must or should succeed if the facts they allege are proved. On the
contrary, it would be wrong to express any view on that matter. The question is whether if the facts are proved they must fail. It is not enough to
recognise, as I do recognise at this stage, that the parents may have difficulties in establishing their claim.
On the other hand, it seems to me impossible to say that the psychiatric injury they claim is outside the range of psychiatric injury which the law
recognises.
­ 242
Prima facie pleaded it is more than ‘acute grief’. Thus in the case of the parents it is said:
‘The Mother has suffered reactive depression, sleep disturbance, nightmares, tearfulness, exacerbation of her condition of diabetes and from
hypertension. She is no longer able to work as a foster parent. The Father has suffered reactive depression and post-traumatic stress disorder with
sleep disturbance, nightmares and he was unable to continue work as a foster parent or a youth worker. The Parents’ marriage, which had
previously been a happy one, was placed under extreme stress and they have subsequently separated. Their sexual relationship was affected and
they suffered guilt characterised by feelings of helplessness and powerlessness. Doctor Bawden, in the report dated 11.9.94 describes how: “The
effect on the family as a whole has been devastating … From a previously well-functioning family since they were assessed as being able to foster
disturbed adolescents, their functioning has deteriorated markedly. They have lost employment. Their marital relationship has deteriorated and
both parents have had increased ill-health since the disclosure of these events.”’
Nor do I find it possible to say that a person of reasonable fortitude would be bound to take in his or her stride being told of the sexual abuse of his or
her young children when that person had even innocently brought together the abuser and the abused. A judge might find on a full investigation of the
circumstances that they might. I do not feel sufficiently informed on the detailed facts at this stage to rule it out.
This, however, is only the beginning. Is it clear beyond reasonable doubt that the parents cannot satisfy the necessary criteria as ‘primary’ or
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‘secondary’ victims? As to being primary victims it is beyond doubt that they were not physically injured by the abuse and on the present allegations it
does not seem reasonably foreseeable that there was risk of sexual abuse of the parents. But the categorisation of those claiming to be included as
primary or secondary victims is not as I read the cases finally closed. It is a concept still to be developed in different factual situations. Lord Goff of
Chieveley (dissenting) in White’s case [1999] 1 All ER 1 at 13–14, [1999] 2 AC 455 at 472 said that Lord Oliver ‘did not attempt any definition of this
category [ie of primary victims], but simply referred to a number of examples’. In Robertson v Forth Road Bridge Joint Board 1996 SLT 263 at 269 Lord
President (Hope) said ‘Nor is there any basis in the evidence for attributing their illnesses to a belief that they had been the unwitting cause of Smith’s
death.’ That seems to recognise that if there had been such a basis a claim might have been arguable (see also the discussion in Young v Charles Church
(Southern) Ltd (1997) 39 BMLR 146, as to whether the claimant there was a primary or a secondary victim).
I do not consider that any of the cases to which your Lordships have been referred conclusively shows that, if the psychiatric injury suffered by the
parents flows from a feeling that they brought the abuser and the abused together or that they have a feeling of responsibility that they did not detect
earlier what was happening, they are prevented from being primary victims. Indeed, in Alcock’s case [1991] 4 All ER 907 at 924, [1992] 1 AC 310 at 408
Lord Oliver said:
‘The fact that the defendant’s negligent conduct has foreseeably put the plaintiff in the position of being an unwilling participant in the event
establishes of itself a sufficiently proximate relationship between them and ­ 243 the principal question is whether, in the circumstances, injury of
that type to that plaintiff was or was not reasonably foreseeable.’
Reference has been made to the ‘rescue’ cases but these do not seem to be necessarily relevant: the plaintiffs here are in no sense claiming as
rescuers.
Whilst I accept that there has to be some temporal and spatial limitation on the persons who can claim to be secondary victims, very much for the
reasons given by Lord Steyn in White’s case, it seems to me that the concept of ‘the immediate aftermath’ of the incident has to be assessed in the
particular factual situation. I am not persuaded that in a situation like the present the parents must come across the abuser or the abused ‘immediately’
after the sexual incident has terminated. All the incidents here happened in the period of four weeks before the parents learned of them. It might well be
that if the matter were investigated in depth a judge would think that the temporal and spatial limitations were not satisfied. On the other hand he might
find that the flexibility to which Lord Scarman referred indicated that they were.
If this were, on the authorities, a clear-cut case I would not hesitate to strike it out. However I wholly agree with the decision of Hooper J and the
majority of the Court of Appeal as to the children’s claim and I have come to the conclusion that the parents’ claim cannot be said to be so certainly or
clearly bad that they should be barred from pursuing it to trial. I stress to the parents that I am not giving any indication either way as to the outcome of
the case but, win or lose, if they wish to pursue the claim they should not be barred from doing so. I would allow the appeal.

LORD STEYN. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the
reasons he has given I would also allow the appeal.

LORD HOPE OF CRAIGHEAD. My Lords, I have had the advantage of reading in draft the speech which has been prepared by my noble and learned
friend Lord Slynn of Hadley. I agree with it, and for the reasons which he has given I too would allow the appeal.

LORD HOBHOUSE OF WOODBOROUGH. My Lords, I agree that this appeal by the parents should be allowed and that their claims should be
permitted to go to trial as proposed by my noble and learned friend, Lord Slynn of Hadley.

LORD MILLETT. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Slynn of Hadley. For the
reasons he gives I too would allow the appeal.

Appeal allowed.

Celia Fox Barrister.

[2000] 2 All ER 245

Grammer v Lane and others

Grammer v Stone and others

AGRICULTURE

COURT OF APPEAL, CIVIL DIVISION

PETER GIBSON, MANCE LJJ AND WILSON J
8 OCTOBER, 25 NOVEMBER 1999

Agricultural holding – Arbitration – Notices – Freeholders disputing existence of tenancy claimed by appellant – Freeholders protecting position by
serving notices without prejudice to contention that no tenancy existed – Appellant bringing county court proceedings for declaration that tenancy existed
– Arbitration proceedings commencing in respect of notices – Arbitrator staying proceedings pending outcome of county court proceedings – Whether an
abuse for freeholders to serve without prejudice notices – Whether arbitrator guilty of misconduct – Agricultural Holdings Act 1986, s 12 – Agricultural
Holdings (Arbitration on Notices) Order 1987.

G claimed to hold a tenancy under the Agricultural Holdings Act 1986, but the existence of that tenancy was disputed by the freeholders of the land in
question. In order to protect their position in the event of G establishing the existence of the tenancy, the freeholders served on him a notice under s 12a
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of the 1986 Act demanding that the rent payable from the next termination date be referred to arbitration (the rent notice). Service of that notice was
expressly stated to be without prejudice to the freeholders’ contention that G had no tenancy. Subsequently, the freeholders served on G a further notice
under the Act requiring him to remedy ‘breach of tenancy’ by doing work of repair, maintenance or replacement (the repair notice). Like the rent notice,
the repair notice was served without prejudice to the contention that G had no tenancy. In response to that notice, G gave notice of arbitration under the
Agricultural Holdings (Arbitration on Notices) Order 1987 (the repair notice arbitration). Subsequently, in order to ensure the efficacy of the protection
afforded them by serving the rent notice, the freeholders applied for the appointment of an arbitrator in respect of that notice (the rent notice arbitration).
Between the service of the two notices, G had commenced county court proceedings, seeking a declaration affirming the existence of the tenancy (the
tenancy proceedings). Accordingly, in both sets of arbitration proceedings the arbitrators were faced with the question of whether to proceed, as
contended by G, or stay the arbitration pending the outcome of the tenancy proceedings. In the repair notice arbitration, the arbitrator, L, decided to grant
a stay. G responded by contending that L was guilty of misconduct by failing to make an award within 56 days of his appointment as required by the
1986 Act, and he made an unsuccessful application to the county court to set aside L’s appointment (the misconduct application). In the rent notice
arbitration, the arbitrator stated a special case for the county court which subsequently held, inter alia, that the freeholders had been entitled to serve the
without prejudice notices. G appealed against both the dismissal of the misconduct application and the court’s answers on the special case, contending (i)
that it was an abuse for the freeholders to invoke or maintain the arbitrator’s jurisdiction without prejudice
________________________________________
a Section 12, so far as material, is set out at p 258 a to d, post
________________________________________
­ 245

to the contention that there was no tenancy, and (ii) that the arbitrators had a duty to decide the issues before them within the prescribed time limit.

Held – (1) Where a freeholder disputed the existence of an alleged tenancy under the 1986 Act, he was entitled to serve a notice or take relevant arbitral
steps to protect his position pending the resolution of that dispute. Such a conclusion was not inconsistent with the Act’s scheme, even though the notice
and arbitration provisions presupposed the existence of a tenancy. The validity of the notice did not depend upon the will of either party, or require any
unconditional acknowledgment of a tenancy by either party. On the contrary, it depended upon a matter of objective fact and law, namely whether there
was any tenancy and, if so, what tenancy. That question was independent of either party’s expression of view, unless that expression itself gave rise to
some new contract or estoppel. Accordingly, in the instant case the freeholders had been entitled to protect their interests in the manner chosen, and their
conduct did not involve any kind of abuse (see p 257 c to e, p 259 g and p 264 j, post); Grimaldi Cia di Navigazione SpA v Sekihyo Line Ltd [1998] 3 All
ER 943 considered.
(2) Where there was an unresolved dispute about the existence of a tenancy invoked in the arbitration proceedings, the appropriate course of action
was not a question of law for the court to answer. Rather, it was a matter for the arbitrator to determine in the light of all the circumstances of the case.
Moreover, the fact that an arbitrator had failed to issue an award within the 56 days prescribed by the 1986 Act could not in itself constitute misconduct
justifying the court in setting aside the arbitrator’s appointment. In the instant case, the arbitrators no doubt envisaged that the president of the Royal
Institute of Chartered Surveyors would, as permitted under the 1986 Act, grant extensions of the time period after the determination of the appeal. That
expectation was reasonable on its face, and there was no ground for considering that either arbitrator had acted unreasonably. Nor had their been any
misconduct on the part of L. Accordingly, the appeals would be dismissed (see p 261 e, p 263 a to e and p 264 b c e to j, post); R v Fulham,
Hammersmith and Kensington Rent Tribunal, ex p Zerek [1951] 1 All ER 482 and Northern Regional Health Authority v Derek Crouch Construction Co
Ltd [1984] 2 All ER 175 considered.

Notes
For arbitration proceedings in respect of agricultural holdings, see 1(2) Halsbury’s Laws (4th edn reissue) paras 454–476.
For the Agricultural Holdings Act 1986, s 12, see 1 Halsbury’s Statutes (4th edn) (1998 reissue) 793.
For the Agricultural Holdings (Arbitration on Notices) Order 1987, see 1 Halsbury’s Statutory Instruments (1999 issue) 144.

Cases referred to in judgments

Blackstone (David) Ltd v Burnetts (West End) Ltd [1973] 3 All ER 782, [1973] 1 WLR 1487.
Brown (Christopher) Ltd v Genossenschaft Oesterreichischer Waldbesitzer Holzwirtschafts-bertriebe Registrierte Genossenschaft Mit Beschrankter
Haftung [1953] 2 All ER 1039, [1954] 1 QB 8, [1953] 3 WLR 689.
Grimaldi Cia di Navigazione SpA v Sekihyo Line Ltd [1998] 3 All ER 943, [1999] 1 WLR 708.
Halliday v Semple 1960 SLT 11, Sh Ct.
­ 246
International Tank and Pipe SAK v Kuwait Aviation Fuelling Co KSC [1975] 1 All ER 242, [1975] QB 224, [1974] 3 WLR 721, CA.
Kirkby v Robinson (1965) 195 EG 363, CA.
Luanda Exportadora SARL v Wahbe Tamari & Sons Ltd [1967] 2 Lloyd’s Rep 353.
Northern Regional Health Authority v Derek Crouch Construction Co Ltd [1984] 2 All ER 175, [1984] QB 644, [1984] 2 WLR 676, CA.
Pratt v Swanmore Builders Ltd [1980] 2 Lloyd’s Rep 504.
R v Fulham, Hammersmith and Kensington Rent Tribunal, ex p Zerek [1951] 1 All ER 482, [1951] 2 KB 1, DC.
R v Hackney, Islington and Stoke Newington Rent Tribunal, ex p Keats [1950] 2 All ER 138, [1951] 2 KB 15, DC.
Segal Securities Ltd v Thoseby [1963] 1 All ER 500, [1963] 1 QB 887, [1963] 2 WLR 403.
Vosnoc Ltd v Transglobal Projects Ltd [1998] 2 All ER 990, [1998] 1 WLR 101.

Cases also cited or referred to in skeleton arguments

Battersby v Anglo-American Oil Co Ltd [1944] 2 All ER 387, [1945] KB 23, CA.
Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1998] 2 All ER 778, [1999] 1 AC 266, HL.
Compagnie Nouvelle France Navigation SA v Compagnie Navale Afrique du Nord, The Oranie and The Tunisie [1966] 1 Lloyd’s Rep 477, DC and CA.
Dagnell v J L Freedman & Co (a firm) [1993] 2 All ER 161, [1993] 1 WLR 388, HL.
Grovit v Doctor [1997] 2 All ER 417, [1997] 1 WLR 640, HL.
Halifax Overseas Freighters Ltd v Rasno Export, The Pine Hill [1958] 2 Lloyd’s Rep 146.
Lloyd v Wright [1983] 2 All ER 969, [1983] QB 1065, CA.
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Taunton-Collins v Cromie [1964] 2 All ER 332, [1964] 1 WLR 633, CA.

Tustian v Johnston (15 November 1996, unreported), QBD.
University of Reading v Miller Construction Ltd (1994) 52 Con LR 31.

Appeals
In two appeals in related proceedings, Graham Stephenson Grammer appealed (i) with leave of Potter LJ given on 15 April 1999 from the decision of Mr
Recorder Wigoder at the Leicester County Court on 23 December 1998 dismissing two applications to set aside, on the grounds of misconduct, the
appointment of the first respondent, Alan Nicholas Lane, as arbitrator in arbitration proceedings brought by Mr Grammer against the second and third
respondents, Anthony Mornington Webster and Heath Daryl Webster, under the Agricultural Holdings (Arbitration on Notices) Order 1987, SI 1987/710,
and (ii) with leave from the answers given by John Burgess, sitting as an assistant recorder, at the Nottingham County Court on 23 March 1999 on a
special case stated by Roger Stone, the arbitrator in arbitration proceedings brought by the Websters against Mr Grammer under s 12 of the Agricultural
Holdings Act 1986. The facts are set out in the judgment of Mance LJ.

John McLinden and Mohammed Asif (instructed by M & S, Swepstone) for Mr Grammer.
Richard Hedley (instructed by Hibbert Durrad Davies, Nantwich) for Mr Lane.
William Batstone of Burges Salmon, Bristol for the Websters.
Mr Stone did not appear.

Cur adv vult

­ 247

25 November 1999. The following judgments were delivered.

MANCE LJ (giving the first judgment at the invitation of Peter Gibson LJ).
1. In June 1970 J R Grammer & Sons, a partnership consisting of four members of the Grammer family, took from the then freehold owners,
Hoveringham Gravels Ltd, a tenancy of some 330 acres of farmland known as Ivy House Farm in Derbyshire at a rent of £1,148 per annum. The
appellant, Mr G S Grammer, asserts that the tenancy was in 1976 extended to include an additional 11.140 acres at an additional rent of £70 per annum.
If necessary, he also relies on other alleged agreements or arrangements for possession at dates after 1971 and 1974 to establish a tenancy. Mr Grammer
has been since 1992 the sole surviving member of the partnership. On 18 December 1996 two brothers, Mr A M and Mr H D Webster (who I will call
‘the Websters’), acquired the freehold. It has at all times since then been the Websters’ contention that any tenancy in favour of the Grammers or Mr
Grammer, had ceased prior to the Websters’ acquisition of the freehold. The Websters contend that it ceased for the most part as a result of notices to quit
and by agreement in the 1970s, and in respect of other small areas as a result of a further such notice in 1988 and a later agreement, while any presence
which the Grammers or any of them had thereafter was by way of licence. Since December 1996, any such presence has been very confined and the land
has been effectively farmed by the Websters. But the dispute whether there was and is an outstanding tenancy remains unresolved, and has given rise to
associated litigation with which this appeal is concerned.
2. The context of this litigation is found in the provisions of the Agricultural Holdings Act 1986 relating to (a) rent, (b) repairs and (c) notices to quit.
The substantial questions raised are (1) whether a land owner involved in a dispute about the existence of a tenancy may make use of such provisions and
either initiate or participate in statutory arbitration to protect his position while the dispute is being resolved in case it should be resolved against him and
(2) what course(s) are open to a statutory arbitrator faced with such a situation.
3. As regards rent, by s 12(1) of the 1986 Act, a landlord may by notice in writing served on a tenant ‘demand that the rent to be payable in respect
of the holding as from the next termination date shall be referred to arbitration under this Act’. The ‘next termination date’ means the next day following
the date of the demand when the tenancy could have been determined by notice to quit given at the date of the demand (s 12(4)). On such a reference the
arbitrator shall determine the rent properly payable at the date of the reference and shall, with effect from the next termination, increase, reduce or
confirm the rent from the next termination date accordingly (s 12(2)). But s 12(3) provides that a demand for arbitration under s 12 shall cease to be
effective for its purposes unless before the next termination date following its date either an arbitrator has been appointed by agreement or an application
made to the president of the Royal Institute of Chartered Surveyors (the president) for appointment of an arbitrator by him. Schedule 2 contains
supplementary provisions relating to such an arbitration.
4. Section 26 of the 1986 Act relates to both repairs and notices to quit. Under s 26(1), where a notice to quit an agricultural holding is given to a
tenant and not later than one month after its service the tenant serves a counter-notice invoking this subsection, then subject to s 26(2) the notice to quit
shall not have effect, unless, on an application by the landlord, the Agricultural Land Tribunal (established under Pt V of the Agriculture Act 1947) (the
tribunal) consent to its ­ 248 operation. Section 26(1) does not apply in Cases set out in Sch 3. Case D, para (b) includes the situation where at the date
when notice to quit is given the tenant has failed to comply with a notice in writing served on him by the landlord requiring him within a reasonable
period specified in the notice to remedy any breach by the tenant that was capable of being remedied of any term or condition of his tenancy not
inconsistent with his responsibilities to farm in accordance with the conditions of good husbandry.
5. By s 29 the Lord Chancellor is empowered by order to provide for matters specified in Sch 4. One such matter is:
‘8. The determination by arbitration under this Act of any question arising under such a notice as is mentioned in paragraph (b) of Case D,
being a notice requiring the doing of any work of repair, maintenance or replacement …’
The power was exercised by the Agricultural Holdings (Arbitration on Notices) Order 1987, SI 1987/710, which provides inter alia:
‘3.—(1) Where a tenant on whom a notice to do work has been served wishes to have determined by arbitration under the 1986 Act any of the
following questions, namely—(a) his liability under the terms and conditions of his tenancy to do any of the work specified in the notice, (b) the
deletion from the notice of any item or part of an item of work on the ground that it is unnecessary or unjustified, or (c) the substitution, in the case
of any item or part of an item of work, of a different method or material for the method or material which the notice would otherwise require to be
followed or used, he shall do so by service of notice requiring the question or questions to be determined by arbitration under the 1986 Act.
(2) A notice under paragraph (1) above shall be in writing, and shall be served on the landlord within one month after the service on the tenant
of the notice to do work …
4.—(1) Where the tenant on whom a notice to do work has been served wishes to have determined by arbitration under the 1986 Act in addition
to a question specified in article 3(1) any other question arising under that notice … he shall do so by serving on the landlord within one month after
the service of the notice to do work a notice in writing requiring the question to be so determined …
9. Where it is stated in a notice to quit an agricultural holding or part thereof that the notice is given for one or more of the reasons specified in
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Case A, B, D or E and the tenant wishes to contest any question arising under the provisions of section 26(2) of, and Schedule 3 to, the 1986 Act
relating to any of the reasons so stated, he shall within one month after the service of the notice serve on the landlord notice in writing requiring the
question to be determined by arbitration under the 1986 Act.
10. A notice under article 9 requiring arbitration under the 1986 Act shall cease to be effective three months after the date of the service of that
notice unless before the expiry of those three months—(a) an arbitrator has been appointed by agreement between the parties, or (b) (in default of
such agreement) an application has been made by the tenant or the landlord under paragraph 1 of Schedule 11 to that Act for the appointment of an
arbitrator, for the purposes of that arbitration …’
­ 249
6. Section 84 of the 1986 Act provides, firstly, that any matter required by the 1986 Act or order to be determined by arbitration shall,
notwithstanding any agreement under the contract of tenancy or otherwise, be determined by the arbitration of a single arbitrator in accordance with any
order under s 84 together with the provisions of Sch 11, and, secondly, that Pt I of the Arbitration Act 1996 shall not apply to any such arbitration.
Paragraph 1 of Sch 11 provides for the appointment of an arbitrator to be by agreement between the parties or, in default of agreement, on application of
either party by the president of the Royal Institute of Chartered Surveyors, and for any appointment by the president to be made as soon as possible but, in
the case of an arbitration under s 12, not earlier than four months before the next termination date. By para 14:
‘(1) Subject to sub-paragraph (2) below, the arbitrator shall make and sign his award within fifty-six days of his appointment.
(2) The President may from time to time enlarge the time limited for making the award, whether that time has expired or not.’
Schedule 11 further provides:
‘26. The arbitrator may, at any stage of the proceedings … state in the form of a special case for the opinion of the county court any question of
law arising in the course of the arbitration and any question as to the jurisdiction of the arbitrator.
27.—(1) Where the arbitrator has misconducted himself, the county court may remove him.
(2) Where the arbitrator has misconducted himself, or an arbitration or award has been improperly procured, or there is an error of law on the
face of the award, the county court may set the award aside.
28.—(1) The county court may from time to time remit the award, or any part of the award, to the reconsideration of the arbitrator …
30. The provisions of this Schedule relating to the fixing and recovery of the remuneration of an arbitrator and the making and enforcement of
an award as to costs, together with any other provisions in this Schedule applicable for the purposes of or in connection with those provisions, shall
apply where the arbitrator has no jurisdiction to decide the question referred to him as they apply where the arbitrator has jurisdiction to decide that
question.’
7. The issues presently before us relate to the following steps taken by the Websters to protect their interests in relation to Mr Grammer as regards
rent, repairs and the obtaining of possession, in case they were wrong in their primary contention that he had no tenancy. Firstly, under cover of a letter
dated 19 March 1997 Messrs Burges Salmon, describing themselves as ‘agents of the landlords’, served on Mr Grammer the following notice:
‘TAKE NOTICE that pursuant to the Agricultural Holdings Act 1986 Section 12 A M and H D Webster, the landlords of 69 Town Street,
Sandiacre, Nottingham … demand that the rent to be payable in respect of the above holding as from the next termination date as defined in that
Act shall be referred to arbitration. This notice is given without prejudice to any other notice or act in connection with the tenancy which has been
or may after the date of this notice be given or done by the landlords or on behalf of them or any other interested party.’
­ 250
The covering letter explained:

‘The enclosed Notice is served entirely without prejudice to our clients’ contention that your client has no tenancy of any of the land purchased
by them and is served in order to ensure that, in the unlikely event that your client does establish a tenancy to any of our clients’ land, our clients
are entitled to be paid a proper rent with effect from 25 March 1998. Assuming, contrary to our clients’ contention, that your client will establish a
tenancy of some of the land the subject of the Tenancy Agreement between Hoveringham Gravels Limited and Joseph Russell Grammer, Frank
Alec Grammer, John Brian Grammer and your client dated 4 June 1970, this Notice is served upon your client as the sole surviving tenant pursuant
to that Agreement.’

8. On 2 July 1997 Mr Grammer commenced proceedings in the Nottingham County Court (case no NG780969) in which he claimed, initially, a
declaration that he was tenant of two small areas of the land totalling around 20 or so acres which he said had never been the subject of any notice or
agreement to quit, and, subsequently, by amendment on 15 September 1997, a declaration that he was tenant of the rest of the land as well. A defence and
counterclaim were served on 30 September 1997 and a reply on 3 November 1997. These county court proceedings remain undecided. Directions were
only recently given on 5 October 1999 for a trial in March 2000, estimated to last three days.
9. On 19 September 1997 Wintertons, chartered surveyors, describing themselves as duly authorised agents of the landlords, served on Mr Grammer
a ‘notice to tenant to remedy breach of tenancy by doing work of repair, maintenance or replacement’ within six months. This was headed ‘Agricultural
Holdings Act 1986, Schedule 3, Part 1, Case D’ and stated that it was served in accordance with Case D. Although no covering letter is included in the
bundle before us, it is clear that there was one from the response of Berry Bros & Hopkinson, chartered surveyors acting for Mr Grammer, who wrote on
8 October 1997 pointing out that the notice
‘… appears to be served upon our client without prejudice to the contention that there is no tenancy. We do not accept the notice on this basis
and this may well affect indeed the validity of the notice or other Claims … What exactly do you mean by the words “without prejudice”? Do you
require our clients [sic] to perform the work set out under that Notice or not … You cannot sit on the fence on this issue … It is a serious Notice
and you are not entitled to serve such a Notice and try to “back your horse both ways”.’
10. On behalf of Mr Grammer, Messrs Berry Bros also gave notice of arbitration inviting agreement on various names, but did this without
acknowledging that the Websters’ notice was a good notice. On the contrary, they asserted that it was a bad notice, a matter which they said would form
part of the arbitration. By letter dated 13 October 1997 Mr Grammer’s solicitors pursued the request for clarification of the Websters’ position. They said
that Mr Grammer would like to start work and have access to the land for that purpose immediately, while at the same time giving notice of his wish to
have determined by arbitration the questions whether he was under any liability under the terms and conditions of his tenancy to do any of the work.
Following an application made on Mr Grammer’s behalf, the president of the Royal Institute of Chartered Surveyors on 10 November 1997 appointed Mr
A N Lane as arbitrator.
­ 251
11. By letter dated 11 November 1997 Mr Lane ordered the parties to exchange statements of case by 16 December 1997. By letter to Mr Lane
dated 19 November 1997 the Websters’ solicitors said that a number of preliminary points needed resolution, the most important of which was ‘whether
there is a tenancy of the land owned by our clients at all’. They invited Mr Lane then and in subsequent correspondence ‘to suspend the arbitration to
allow that issue to be resolved by the Nottingham County Court and for the arbitration to be proceeded with only if a tenancy is judged to be in
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existence’, and said that, if this issue was considered in the arbitration, they would be inviting a special case. A suspension of the arbitration was resisted
by Mr Grammer’s solicitors, who maintained that the arbitration could and would deal with the issue whether there was a tenancy far quicker than court
proceedings, and also contended that the Websters by serving a notice to repair under the 1986 Act were estopped from denying a tenancy.
12. Statements of case were exchanged on or about 15 December 1997. Mr Grammer’s statement asserted a tenancy, admitted certain alleged
breaches, but contended generally that the notice dated 19 September 1997 was not valid. It also contained a specific alternative contention that, if the
notice was not invalidated by the accompanying letter expressing it to be ‘without prejudice’ to the issue whether there was a tenancy, it was unreasonable
to expect Mr Grammer to do any work. The Websters’ statement of case dated 16 December 1997 was expressly without prejudice to their contention
that there was no tenancy.
13. By letter dated 18 December 1997 Mr Lane questioned whether the arbitration was under both arts 3 and 4 of the 1987 order, indicated his view
that he might have jurisdiction under art 4 to consider the existence of a tenancy, but said that in view of the Websters’ request for a special case, this
would be a duplication of the existing Nottingham County Court proceedings. Unless both parties were agreeable to his issuing an interim award dealing
with the matters arising under art 3 only, to be followed by a final award following the outcome of the county proceedings, he proposed to delay fixing
any preliminary meeting or hearing until that outcome was known. By letter dated 24 December 1997 Mr Grammer’s solicitors replied that there was no
such thing as a ‘without prejudice’ arbitration, that the Websters must either accept Mr Lane’s jurisdiction or withdraw their notice to remedy and that it
was not open to Mr Lane to postpone his award in view of the period of 56 days for its issue in Sch 11. That period expired on 6 January 1998 on which
date Mr Lane wrote indicating that, since it was now clear that Mr Grammer sought arbitration under both arts 3 and 4 of the 1987 order, he proposed to
hold a preliminary hearing to receive submissions on the validity of the service of a ‘without prejudice’ notice to remedy. By letter dated 15 January 1998
the Websters’ solicitors repeated their opposition, challenging the suggestion that Mr Grammer’s reference to arbitration included any question under art
4, let alone that identified by Mr Lane. They expressed concern that Mr Lane and the parties would be at risk as to costs, if the arbitration proceeded and
it transpired that he had no jurisdiction. In making this submission, they (and indeed everyone else involved, until the matter came before us) appear to
have overlooked the provisions of para 30 of Sch 11 to the 1986 Act. They urged both Mr Grammer to agree and Mr Lane to order a postponement of any
further steps in the arbitration, as originally proposed by Mr Lane, until after the outcome of the Nottingham County Court proceedings. On 19 January
1998 Mr Lane wrote affirming his ­ 252 view that the arbitration had been sought under both arts 3 and 4 of the order, but continuing:

‘Notwithstanding the above, I must now consider the doubt raised as to my jurisdiction: no tenancy—no jurisdiction. I now accept that the costs
of a hearing of any description until my jurisdiction is clarified are at risk, and unless either party is prepared to underwrite these costs, both mine
and the other side’s, I can see no merit in proceeding with this case any further until the tenancy issue is settled in the Nottingham County Court. I
therefore revoke my proposal to hold a preliminary hearing as suggested in my letter of 6 January 1998.’

14. By letter dated 2 February 1998 those representing Mr Grammer contended that Mr Lane had misconducted himself by failing to make an award
within 56 days of appointment, invited him to resign and indicated that, if he did not, they would apply to remove him for misconduct. In reply on 3
February 1998 Mr Lane said that he had no reason to resign and did not intend to, and that the president was empowered to grant an extension ‘with or
without the concurrence of the parties’. On the same day, though without informing the parties, Mr Lane sought such an extension, and on 4 February
1998 the president extended the time for an award until 6 April 1998. On 5 March 1998 Mr Grammer applied to the Leicester County Court under para
27(1) of Sch 11 to have Mr Lane removed for misconduct. On 31 March 1998 Mr Lane applied to the president for a further extension, to which the
response on 16 April 1998 was:

‘The President will not grant an extension of time at this stage on the basis that there are Court Proceedings current. The President will await
the outcome of these Proceedings and abide by any Order or recommendation of the Court.’

The president was probably referring to the application dated 5 March 1998 to remove Mr Lane for misconduct. But he was not indicating that no
extension would or will be forthcoming, if that application fails. To meet any suggestion that the extension granted to 6 April 1998 meant that Mr Lane
could not have been guilty of misconduct at the date of the first application dated 5 March 1998, a further application was issued on behalf of Mr
Grammer on 15 December 1998 to remove Mr Lane for misconduct.
15. These two applications in the Leicester County Court came before Mr Recorder Justin Wigoder, who on 23 December 1998 dismissed both. In
full and clearly expressed reasons, he held that Mr Lane had reason to believe that he was being invited to decide issues which the Nottingham County
Court had concurrently under consideration, and was entitled on that basis to suspend the arbitration. He also rejected submissions that Mr Lane had
misconducted himself (a) by vacillating in his letters dated 18 December 1997 and 6 and 19 January 1998 and (b) by not informing the parties on 31
March 1998 that he was seeking a further extension from the president. By notice dated 28 April 1999 and with permission of the single judge Mr
Grammer appeals against Mr Recorder Wigoder’s decision, the primary ground of appeal being that the recorder was wrong to hold that the question of
the existence of the tenancy was an issue before the arbitrator. That is the first matter now before us. During the course of its hearing, we acceded to an
application for late service of a respondents’ notice, raising as an alternative ground for upholding the recorder’s ­ 253 decision that, if there was any
misconduct, it was on the facts not such as should justify the court in the exercise of its discretion removing Mr Lane as arbitrator.
16. To identify the other matter in issue before us it is necessary to regress a little. If the notice which the Websters had served on 19 March 1997
referring to s 12 of the 1986 Act was to have its intended protective effect, an arbitrator had under s 12(3) to be appointed by 25 March 1998. The
Websters on 23 March 1998 applied to the president for such an appointment. Both the application and a covering letter made clear that the parties were
in dispute whether there was any tenancy and that the application was without prejudice to the Websters’ contention that there was none. The president
on 14 April 1998 appointed Mr Roger Stone.
17. A similar issue at once arose, whether Mr Stone should proceed or, as the Websters submitted, stay further proceedings pending the outcome of
the Nottingham County Court proceedings. Mr Stone held a meeting with the parties, at which the Websters submitted in the alternative that, if Mr Stone
was not prepared to stay the arbitration, he should state a case for the opinion of the county court under para 26 of Sch 11 to the 1986 Act. They said that,
if he was not prepared to take either of these courses, they intended to apply to the county court to restrain him from pursuing the arbitration until after the
outcome of the Nottingham County Court proceedings in case no NG780969. Mr Stone decided to state a case, and by special case dated 30 October
1998 he submitted for the opinion of the Nottingham County Court (case no NG823893) the following questions:

‘5.1 Is there any objection in law to a notice pursuant to section 12 of the Agricultural Holdings Act 1986 being served by a landlord on a
person who claims to be his tenant without prejudice to the landlord’s contention that the person is not a tenant?
5.2 Does service of a notice pursuant to section 12 of the Agricultural Holdings Act 1986 without prejudice as aforesaid invalidate the
effectiveness of the notice to any extent?
5.3 If the answer to the question posed in the foregoing sub-paragraph is in the affirmative to what extent is the notice invalidated?
5.4 Is the Landlords’ Notice pursuant to section 12 of the Agricultural Holdings Act 1986 valid and effective to secure a review of the rent for
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any tenancy that the Tenant may establish with effect from 25 March 1998?
5.5 Does service of a notice pursuant to section 12 of the Agricultural Holdings Act 1986 without prejudice as aforesaid have any impact on the
Landlords’ contention that no tenancy exists whether by virtue of the doctrines of estoppel or waiver or in any other way?
5.6 If the answer to the question in the foregoing sub-paragraph is in the affirmative, what impact does such a notice have on the Landlords’
contention.
5.7 Should the arbitration proceedings be suspended to allow the preliminary issue that arises therein to be resolved by the conclusion of the
proceedings in Nottingham County Court despite the fact that the suspension will mean that the Arbitrator will not be able to make and sign his
award until very much longer than 56 days have elapsed from the date of his appointment?
5.8 If the question in the foregoing sub-paragraph is not in the Opinion of the Court a question of law for the Opinion of the Court but a
question for ­ 254 the Arbitrator to determine in the exercise of his discretion, what guidance, if any, can the Court give to the Arbitrator as to
how his discretion should be exercised in all the circumstances?
5.9 Is the Landlords’ Statement of Case dated 18 May 1998 a valid Statement of Case served pursuant to paragraph 7 of Schedule 11 to the
Agricultural Holdings Act 1986 susceptible of amendment on the application of the Landlords at the discretion of the Arbitrator.’
18. This special case duly came before Mr John Burgess, sitting as an assistant recorder, who on 23 March 1999 answered the above questions as
follows:

Question 5.1: No.

Question 5.2: No. Both parties were agreed on this.
Question 5.3: is accordingly not applicable.
Question 5.4: Yes. Again both parties were agreed.
Question 5.5: No.
Question 5.6: Is accordingly not applicable.
Question 5.7: Yes.
Question 5.8: Is therefore not applicable.
Question 5.9: Yes.

By notice of appeal dated 2 June 1999 and with leave granted by Mr Burgess in the light of the permission given by the single judge to appeal from Mr
Wigoder’s decision, Mr Grammer now appeals against Mr Burgess’s decision, and seeks to have questions 5.1 and 5.5 answered affirmatively, question
5.7 answered negatively and question 5.8 answered in the same sense as question 5.7.
19. Although not directly before us, I must mention one other set of proceedings, before the Agricultural Land Tribunal. On 25 March 1998 the
Websters served a notice to quit claiming to determine on 25 March 1999 any tenancy which existed. Again they did so expressly without prejudice to
their contention that Mr Grammer had no such tenancy. On 9 April 1998 Mr Grammer served a counter-notice, and on 11 May 1998 the Websters applied
to the tribunal, in each case under s 26(1) of the 1986 Act. Inevitably, this gave rise to a dispute similar to that arising in each arbitration. On 23
December 1998 the tribunal, chaired by Judge Malcolm Lee QC, since sadly deceased, heard an application by the Websters to adjourn generally, until
after the outcome of the first Nottingham County Court proceedings, the hearing of the Websters’ application for consent to the operation of the notice to
quit. The tribunal, after considering the judgment of Mr Recorder Wigoder given earlier on the same day in the Leicester County Court, took the view
(expressed in reasons delivered on 25 January 1999) that its only jurisdiction was to give or decline leave for the notice to quit on the footing that there
was a tenancy, and that this issue which it had to determine was quite different from any before the Nottingham County Court in case no NG780969. The
tribunal later gave notice that it would sit to determine this issue on 27 April 1999. On that date, the tribunal heard a further application for adjournment.
After considering the position in both the arbitrations, it re-affirmed its previous refusal and refused to state a case for the opinion of the court. The
solicitor acting for the Websters then withdrew from further participation before the tribunal. The tribunal (as set out in reasons given on 20 May 1999)
accordingly dismissed the Websters’ application under s 26(1) of the 1986 Act and awarded costs against the Websters.
­ 255
20. I turn to the issues argued before us on the two appeals from the decisions of Mr Recorder Wigoder and Mr Assistant Recorder Burgess. Mr
McLinden, appearing before us for Mr Grammer, put at the forefront of his submissions the proposition that the Websters had invoked a jurisdiction
which postulated the existence of a tenancy. They had done so in the case of the arbitration before Mr Lane by serving the notice to repair dated 19
September 1997 to which Mr Grammer had responded by invoking arbitration. They had done so in the case of the arbitration before Mr Stone by
serving their notice of 19 March 1997 and by following it up a year later by invoking arbitration. Before us, Mr McLinden’s main submission was that it
was an abuse for the Websters to attempt to invoke or maintain the arbitrator’s jurisdiction under the 1986 Act ‘without prejudice’ to a contention that
there was no tenancy; that neither arbitrator had jurisdiction to decide whether a tenancy existed; and that it was the arbitrator’s duty in each arbitration to
proceed to decide the issues before him within the time limited by the 1986 Act. Mr Lane should therefore have called upon the Websters either to
proceed with the relevant arbitration, accepting the existence of a tenancy, or to withdraw from further pursuit of or participation in it. Mr Lane was thus
wrong to stay the first arbitration. In respect of the arbitration before Mr Stone, the notice of appeal raised as further points that the recorder should have
held (a) that the demand for a rent review bound the Websters to accept the existence of a tenancy, or (b) that the commencement of arbitration by the
Websters had the like effect, or, in the further alternative, (c) that Mr Stone should have called upon the Websters to proceed with the relevant arbitration,
accepting the existence of a tenancy, or to withdraw from further pursuit of it.
21. Before engaging with the detail of the parties’ respective submissions, it is as well in my view to stand back and look at the overall picture. The
fundamental questions with which this court is concerned are, firstly, whether it is open to a freeholder involved in an unresolved dispute with a person
claiming a tenancy to serve protective notices, ‘without prejudice’ to his denial of a tenancy, in order to protect his position in case a tenancy should be
established, and, secondly, whether such a freeholder may, for the same protective purpose and on the same ‘without prejudice’ basis, participate in any
arbitration which the other party may invoke, as happened in the case of the Lane arbitration, or himself invoke arbitration, as happened in the case of the
Stone arbitration.
22. In addressing these questions the starting point is the 1986 Act. Its relevant provisions, under which the notices were served and arbitration
pursued, all postulate the existence of a tenancy. If Mr Grammer is right in his contention that a tenancy survives in some degree or other from the 1970s,
the notices and arbitration will prove to have been soundly based. If the Websters are right that there is no tenancy, the notices and arbitration will lack
foundation. We are in short concerned with a statutory scheme of notices and arbitration, the effective operation of which depends on the existence of a
tenancy. But whether or not any and what tenancy survives in Mr Grammer’s favour is a matter of objective fact and law. It will be ascertained in the
first Nottingham County Court proceedings. It does not depend upon what either party says, or upon what notices or arbitral steps either party serves or
takes, unless of course such notices or steps should themselves be viewed as giving rise to some contract or estoppel.
23. The scheme of the 1986 Act requires notices to be served and arbitration to be invoked within particular time limits. If these are not observed, a
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party’s rights may be affected. So, if a proper rent is to be obtained, it can only be ­ 256 obtained as from the next termination date after service of a
notice demanding arbitration under s 12, and even then the demand will become ineffective unless it is followed up by agreement upon or appointment by
the president of an arbitrator before that termination date. And if a landlord wishes to have any breach of tenancy remedied or, if necessary, to base a
notice to quit upon its continuance, then a notice is first necessary under Case D. That in turn may lead to a tenant serving a counter-notice and
commencing arbitration to protect his position under arts 3, 4, 9 and 10 of the 1987 order, within the short time limits there specified. Other Cases in Sch
3 to the 1986 Act provide further examples of time limits to be observed if a landlord is to protect his position. I take only the one further example of
Case G, which allows a landlord to take advantage of s 26(2) to support a notice to quit after a tenant’s death, only if he gives notice to quit within three
months of the death.
24. Is it impossible or improper for a freeholder in the Websters’ position to take protective steps, by way of service of notices or participation in an
arbitration on a ‘without prejudice’ basis? I see no reason in principle why a freeholder cannot serve a notice or take relevant arbitral steps to protect his
position pending the resolution of an outstanding dispute whether any tenancy exists at all. The scheme of the 1986 Act is not flouted. The validity of the
notice or arbitral step does not depend upon the will of either party, or require any unconditional acknowledgement of a tenancy by either party. On the
contrary, it depends upon a matter of objective fact and law, namely whether there is any and if so what tenancy, which is independent of either party’s
expression of view, unless that expression of view itself gives rise to some new contract or estoppel.
25. Mr McLinden’s general submission that it is abusive to act as the Websters did fails, to my mind, to take into account that, if there does prove to
be a tenancy, Mr Grammer can have no possible complaint about either the notices or the arbitration, and, if there proves not to be, then the Websters’
conduct was a reasonable reaction in the face of Mr Grammer’s (on this hypothesis unfounded) suggestion of a tenancy. If and in so far as a tenant in Mr
Grammer’s position reacts to the notices served, eg by serving counter-notices, commencing arbitration or even doing repairs (though there is no evidence
that Mr Grammer has in fact done repairs), that is his decision. If there proves to be a tenancy, he cannot complain. If there proves not to be, he will have
been backing his case, in full knowledge that it was in issue and might be wrong. In an ideal world, as soon as a dispute arose as to the existence of a
tenancy, it would be possible for the parties to go at once to court and to receive an immediate answer. In practice, it takes longer—although the first
Nottingham County Court proceedings have taken far longer than they should on the face of it have done (or than would now be possible under the new
rules)—a matter for which Mr Grammer as claimant can hardly disclaim all blame. In my judgment, the law should, if it can, allow parties to protect their
legitimate interests while the law’s process takes its time in resolving the issue of substance between them. This is not a case of proceedings initiated by
the Websters which they never had any intention of pursuing. It is more akin to an action begun in one forum to preserve a time limit against the
possibility that proceedings afoot in another preferred forum might be stayed for lack of jurisdiction or on grounds of forum non conveniens.
26. During the hearing, I mentioned a decision in the context of the 1996 Act, Grimaldi Cia di Navigazione SpA v Sekihyo Line Ltd [1998] 3 All ER
943, [1999] 1 WLR 708 where I considered the situation which not infrequently arises when a party denying that a contractual time bar applies wishes
none the less to protect ­ 257 his position in case he is wrong by making an application to the court for an extension of time within which to arbitrate
under s 12. Section 12 provides:

‘(1) Where an arbitration agreement to refer future disputes to arbitration provides that a claim shall be barred, or the claimant’s right
extinguished, unless the claimant takes within a time fixed by the agreement some step—(a) to begin arbitral proceedings, or (b) to begin other
dispute resolution procedures which must be exhausted before arbitral proceedings can be begun, the court may by order extend the time for taking
that step.
(2) Any party to the arbitration agreement may apply for such an order (upon notice to the other parties), but only after a claim has arisen and
after exhausting any available arbitral process for obtaining an extension of time.
(3) The court shall make an order only if satisfied—(a) that the circumstances are such as were outside the reasonable contemplation of the
parties when they agreed the provision in question, and that it would be just to extend the time, or (b) that the conduct of one party makes it unjust
to hold the other party to the strict terms of the provision in question.
(4) The court may extend the time for such period and on such terms as it thinks fit, and may do so whether or not the time previously fixed (by
agreement or by a previous order) has expired.’

27. The court’s power under s 12 of the 1996 Act is thus to extend time where the claim would otherwise be barred or the right extinguished by a
provision in the arbitration agreement. If no such provision exists barring the claim or extinguishing the right, the court does not need and does not have
any power. The position is similar to that under the 1986 Act, where, if no tenancy exists, the provisions relating to service of notices and arbitration do
not apply. I held in the Grimaldi case that it was for the arbitrators to determine whether any provision existed barring the claim or extinguishing the
right. But I saw no difficulty in accepting that a party could seek relief under s 12 without prejudice to his primary case that there was no consensual time
bar at all. I said:

‘(d) If the claimant wishes to have an application under s 12 decided first, or wishes to pursue it concurrently with proceedings before the
arbitrators to determine whether there is any applicable consensual time bar, he may ask the court to consider the s 12 application on an assumption
that there is an applicable consensual time bar. The court may, as in the International Tank case (International Tank and Pipe SAK v Kuwait
Aviation Fuelling Co KSC [1975] 1 All ER 242, [1975] QB 224), proceed on such an assumption. Where, however, the claimant may wish in the
arbitration to adopt a stance which contradicts that assumption (for example, as in the present case, by denying in arbitration the incorporation of
the Hague Rules upon which any time bar depends) the claimant would appear well advised to ask the respondent to agree that the s 12 application
should proceed without prejudice to the [claimant’s] right to adopt that contrary stance before the arbitrators. If the respondent does agree to this,
the court may, as in the Vosnoc case (Vosnoc Ltd v Transglobal Projects Ltd [1998] 2 All ER 990, [1998] 1 WLR 101), be prepared to proceed on
that basis, and no problem will then exist. If the respondent does not agree to this, the court may, if appropriate, stay the s 12 application pending
the arbitrators’ resolution of the issue whether there is any consensual time bar applicable in the absence of any extension.’ (See [1998] 3 All ER
943 at 953, [1999] 1 WLR 708 at 718–719.)
­ 258
28. By the time the present appeal came before us, it was common ground that a notice under s 12 of the 1986 Act is not invalidated by being
expressed to be ‘without prejudice’ to the unresolved primary contention that no tenancy exists. If so, the same must apply to a notice to repair under
Case D. However, each side accepted such a proposition on a different basis. The Websters’ contention has always been that both the notice and the
reservation are effective. Mr Grammer’s contention (at least in respect of the s 12 notice relating to rent) was that the reservation ‘without prejudice’
must be wholly disregarded. Reliance was placed on the rule that a landlord cannot avoid a waiver of forfeiture by expressing his acceptance of, or
demand for, further rent to be ‘without prejudice’ to his right to forfeit: Segal Securities Ltd v Thoseby [1963] 1 All ER 500, [1963] 1 QB 887 and David
Blackstone Ltd v Burnetts (West End) Ltd [1973] 3 All ER 782, [1973] 1 WLR 1487. In these cases the question ‘quo animo’ the rent was accepted or
demanded by the landlord, and any express qualification ‘without prejudice’ which he attached, were held irrelevant.
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29. Before us, Mr McLinden did not either in his skeleton or orally address substantial submissions to us in support of the contention in his client’s
notice of appeal that the service ‘without prejudice’ of a notice under s 12 committed the Websters unconditionally to accept the existence of a tenancy. In
my view he was right not to do so. The cases of Segal Securities and David Blackstone Ltd do not assist. They concern the situation where a tenancy
exists, and the question is whether the landlord has foregone a right to forfeit for breach of its terms. Sachs J in Segal Securities Ltd v Thoseby [1963] 1
All ER 500 at 505–506, [1963] 1 QB 887 at 898 expressly points out that the principle there recognised—that the intention with which the rent is received
or demanded is irrelevant—does not apply after the expiry of a lease by effluxion of time or notice.
30. In the present situation, if there is otherwise no tenancy, a new tenancy can only have come into existence either by the making of a new contract
or possibly by conduct estopping the Websters from denying the continuation of some previous contract. In either case, the court is concerned to
ascertain and consider the Websters’ intention objectively expressed by their words and conduct. Here, there was at all relevant points a clearly expressed
reservation, which prevents any conclusion that the Websters at any point either offered or entered into any new tenancy, or represented that there existed
any surviving tenancy. For reasons I have indicated, I consider that a party may protect his interests in the manner in which the Websters sought to do,
and I see no basis for stigmatising the Websters’ conduct as involving any kind of abuse.
31. This brings me to consideration of the courses open to the arbitrators when faced with the problem presented by the unresolved dispute about the
existence of a tenancy in the arbitration proceedings invoked in one case by Mr Grammer (under the 1987 order) and in the other case by the Websters
(under s 12 of the 1986 Act). The arbitrators had power to consider the facts and law relevant to the existence or otherwise of their statutory jurisdiction.
They could have embarked on investigation of the history and position relating to the 1970 tenancy and other agreements or arrangements. But, a
statutory arbitrator cannot by such an investigation and a ruling confer on himself a jurisdiction which he would not otherwise have had. See generally on
these points R v Fulham, Hammersmith and Kensington Rent Tribunal, ex p Zerek [1951] 1 All ER 482, [1951] 2 KB 1, Christopher Brown Ltd v
Genossenschaft Oesterreichischer Waldbesitzer Holzwirtschaftsbertriebe Registrierte Genossenschaft Mit Beschrankter Haftung [1953] 2 All ER 1039,
[1954] 1 QB 8 and also, in the ­ 259 context of agricultural arbitration, Kirkby v Robinson (1965) 195 EG 363. In the agricultural context, two
qualifications arise under paras 26 and 30 of Sch 11 to the 1986 Act. Paragraph 26 allows an arbitrator appointed under the 1986 Act to state for the
opinion of the court any question arising as to his jurisdiction. That is the course which Mr Stone adopted in respect of limited questions relating to the
admissibility and effectiveness of the ‘without prejudice’ notice and to Mr Grammer’s argument that the notice in one way or another precluded the
Websters from denying the existence of a tenancy (though not in respect of the basic question whether any tenancy otherwise survived from the 1970s).
If an arbitrator states a case under para 26, the parties will become bound by the court’s determination of any question of law raised by that case. But
findings of fact which the arbitrator may make relevant to jurisdiction can be no more binding if an arbitrator states a case than if he does not. Paragraph
30 caters, most obviously at least, for the situation where an arbitrator rules that he has no jurisdiction to decide the substantive question remitted to him.
He can still make a valid award as to his remuneration and party costs.
32. In Muir Watt and Moss Agricultural Holdings (14th edn, 1998) para 16.32 the following view is expressed:

‘Arbitrators, like other Tribunals of limited jurisdiction, are entitled to enquire into their own jurisdiction, with a view to deciding whether to
continue with the arbitration, but they can never give themselves jurisdiction by deciding that they have it if in fact they have not. Their decision as
to jurisdiction, if erroneous, can have no effect on the parties’ rights. An arbitrator, faced with a doubt or challenge as to his jurisdiction, must use
his judgment about the appropriate action in the light of all the circumstances. He must make up his mind either: (a) to state a case for the opinion
of the County Court on jurisdiction; (b) to decide that he has no jurisdiction and make an order as to costs only; or (c) to make an award on the
assumption that he has jurisdiction, leaving it to be determined, if necessary, in court proceedings whether his assumption was correct.’

33. Paragraph (c) must presumably have been intended by the editors to cover the (doubtless not unfamiliar) situation where, in the face of a
challenge to his jurisdiction, the arbitrator, after a more or less detailed review, forms a sufficiently confident view that jurisdiction exists to feel justified
in all the circumstances in proceeding without stating a case. As appears from my observations in the Grimaldi case, quoted above, I also see no
difficulty in an arbitrator proceeding by agreement on an assumption that jurisdiction exists, without prejudice to one or other party’s contrary contention
being pursued elsewhere. Apart from these situations, guidance as to the courses open to an arbitrator where a question exists about his jurisdiction is
found in a number of authorities, concerning both statutory and consensual arbitration. In Ex p Zerek, cited above, Devlin J said:

‘Although tribunals may, in my view, and in default of any alternative, have to determine for themselves in the first instance the extent of their
jurisdiction, nothing that I have said means that they should take on themselves unnecessarily the examination of questions such as those in R. v.
Hackney, Islington and Stoke Newington Rent Tribunal. Ex p. Keats ([1950] 2 All ER 138, [1951] 2 KB 15) or in cases where charges of fraud or
forgery and the like are raised. Their own good sense will tell them that. While they will not allow every empty threat to their jurisdiction to deter
them from their proper business of fixing reasonable rents, they will likewise appreciate that ­ 260 they are not by their nature equipped for the
trial of matters which in the ordinary civil courts would be determined after pleading and discovery had been given and evidence on oath tested by
cross-examination, and possibly, also, after trial by jury. The tribunal cannot be required to determine summarily such an issue if it involves a point
of substance, and, if one or other of the parties is willing to have it determined in the ordinary civil courts, an adjournment can always be granted to
allow that to be done. This will avoid an inconclusive inquiry by the tribunal and safeguard the tenant against the danger of being presented with an
order which may afterwards turn out to be illusory. It may well be that if the tribunal insists, notwithstanding that there is a practicable alternative
offered to it, in going into points of the sort which they purported to determine in R. v. Hackney, Islington and Stoke Newington Rent Tribunal. Ex
p. Keats, there is power in this court to prevent it from doing so. It is quite unnecessary that I should even consider that in relation to the present
case, for this tribunal were quite willing that the validity of the alleged agreement should be determined by the ordinary courts, and I think that that
would be the attitude of most tribunals.’ (See [1951] 1 All ER 482 at 490, [1951] 2 KB 1 at 13–14.)

In the Christopher Brown case Devlin J returned to the subject, and, in the context of consensual arbitration, the position is similar: see Mustill and Boyd
Commercial Arbitration (2nd edn, 1989) pp 572 and 574–576 and Luanda Exportadora SARL v Wahbe Tamari & Sons Ltd [1967] 2 Lloyd’s Rep 353 at
364 per Roskill J. As a matter of general law, it is clear that paras 16.32 (a), (b) and (c) in Muir Watt and Moss do not exhaust the possibilities open to an
arbitrator in any particular case. As the earlier text in para 16.32 correctly states, it is for an arbitrator to use his judgment about the appropriate action in
the light of all the circumstances of each case.
34. The particular circumstances here include the fact that, at all material times, the dispute relating to the survival of a tenancy dating from the
1970s has been awaiting resolution in the Nottingham County Court. Bearing this in mind, to investigate and state a case in respect of the preliminary
question whether a tenancy survived from the 1970s, when the same matter was already before the county court, would have made poor sense, bearing in
mind the complexity of the issues and the costs involved, quite apart from the fact that any decision about the facts would not bind; and to investigate this
preliminary question, one way or other, without stating a case would have made no more sense. On the face of it, it was open to each arbitrator to take the
course mentioned by Devlin J in Ex p Zerek in the passage cited above, and to stay further proceedings while the issue of jurisdiction is resolved in court.
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This is reinforced by the provision in para 26 of Sch 11 to the 1986 Act for stating a case. If an arbitrator can state a case on jurisdiction, he must be able
to await the outcome of that case, before proceeding. If it is unnecessary to state such a case, because the issue of jurisdiction is already before the county
court in pending proceedings, he must be able to await the outcome of those county court proceedings.
35. Mr McLinden submits that this conclusion overlooks, generally, the duty of an arbitrator to proceed with the reference, and, specifically, the
special time limits applicable to agricultural arbitrations under the 1986 Act and 1987 order. On the general duty to proceed, he cited words of Donaldson
MR in Northern Regional Health Authority v Derek Crouch Construction Co Ltd [1984] 2 All ER 175 at 191, [1984] QB 644 at 673–674 under the
heading ‘To what extent can the arbitrator refuse to decide issues?’:
­ 261
‘This problem only arises in the unusual situation of concurrent overlapping proceedings before the court and before an arbitrator. The primary
duty of an arbitrator is to decide all issues referred to him. However, an arbitrator is subject to the supervision of the court and it is well settled that
the court has jurisdiction to restrain an arbitrator from deciding issues which are being litigated before the court. If, therefore, an arbitrator has
reason to believe that he is being asked to decide issues which the court concurrently has under consideration, he should ask himself whether the
court, if asked, would be likely to enjoin him from proceeding. If the answer is Yes, he should indicate his view and give the parties an opportunity
of applying to the court for a mandatory injunction requiring him to proceed. If the answer is No, he should indicate his view and give the parties
an opportunity of applying to the court for a prohibitory injunction restraining him from proceeding. This is analogous to the duty of an arbitrator
when his jurisdiction is challenged.’

36. Those words were delivered in the context of issues of substance which arose concurrently in different proceedings before the court and
arbitrators. Here, the Nottingham County Court is concerned with the issue whether a tenancy survives from the 1970s, an issue which only arises before
the arbitrators in so far they have to consider their jurisdiction as a preliminary matter or decide to state a case upon it. Mr McLinden submits that makes
all the difference. In one sense of course, there is an important difference. The arbitrator by going into the matter of jurisdiction could not bind the
parties (at least except in so far he stated a case which led to the determination of matters of law). The court would not therefore have reason to injunct
the arbitrator from considering his jurisdiction in order to avoid the risk of an arbitral decision pre-empting a court’s decision. But, in another sense, it is
less desirable that an arbitrator should spend time and money investigating factual issues on which his decision will not even be binding, when the same
issues will be determined in binding manner in pending county court proceedings. Donaldson MR was not in my opinion addressing the problems arising
in the context of a jurisdictional issue at all, although, like Devlin J in R v Fulham, Hammersmith and Kensington Rent Tribunal, ex p Zerek [1951] 1 All
ER 482, [1951] 2 KB 1 I leave open as a possibility that an arbitrator might in some circumstances be restrained from continuing with an arbitration,
where an issue of jurisdiction exists and is being determined in another binding forum.
37. Mr McLinden also submits that the conclusion I have suggested undermines the specific requirement in Sch 11, para 14(1) that an arbitrator shall
make and sign his award within 56 days of his appointment. He points to the intention, supported by Sch 11, para 1(3), that any rent arbitration shall take
place as near as possible in time to the relevant termination date from which any rent fixed will run. True though this may be, and realisable in the great
majority of arbitrations under the 1986 Act, the 56-day limit is not and cannot be absolute. The president is given power by Sch 11, para 14(2) ‘from time
to time [to] enlarge the time limited for making the award’. A case stated on jurisdiction, as expressly permitted by para 26, is most unlikely to be
prepared or resolved within 56 days, or indeed anything like that period—as the course of events in the case of Mr Stone’s special case suggests: he was
appointed on 14 April 1998, stated his case on 30 October 1998 and it was determined on 23 March 1999. Where a special case on jurisdiction was
outstanding the president would normally no ­ 262 doubt be prepared to extend the time for making an award, either prospectively or retrospectively if
and when jurisdiction was confirmed.
38. Mr McLinden submits that, in the absence of any extension beyond 6 April 1998, Mr Lane was and is guilty of misconduct through not having
already issued his award by that date. That submission cannot be accepted. The president is given specific power to enlarge time for making an award,
even after time has expired. The mere fact that no award has been issued within 56 days cannot be misconduct, certainly not misconduct which could
conceivably justify a court in setting aside the arbitrator’s appointment under para 27. The president will exercise his power to extend sensibly. All he has
done is decide, understandably, to await the outcome of the present application(s) to set aside Mr Lane’s appointment. The failure of those applications
will enable him to consider the question of a further extension, in the knowledge that Mr Lane’s appointment stands. Halliday v Semple 1960 SLT 11
(Sheriff Court of Dumfries) on which Mr McLinden relied has no relevance. It concerned an arbitrator who, without obtaining any extension, issued an
award outside the two-month period prescribed by the Agricultural Holdings (Scotland) Act 1949. Neither Mr Lane nor Mr Stone has issued any award
outside the relevant statutory period. Nor, I am sure, has either any intention of so doing. Each no doubt envisages that, in the peculiar circumstances of
this case, the president will, after the resolution of the present appeal, see fit to grant such further extensions as may be necessary to enable them to issue
awards within the time as so extended. Without pre-judging the president’s exercise of his power, the expectation is on the face of it reasonable, and there
is certainly no ground for considering that either arbitrator has acted unreasonably.
39. The only respect in which either arbitrator may have fallen into error consists in Mr Lane’s assumption that any order which he might make
relating to his own or either party’s costs of further pursuit of the arbitration would be ineffective, if it transpired that he had no jurisdiction. For this
assumption Mr Lane cannot be blamed, since it derived from the Websters’ solicitors and was not corrected by Mr Grammer’s solicitors. If it makes any
difference to the exercise of his discretion, he will be able to reconsider the matter. But, the general undesirability of incurring large costs, which may be
wasted if the Nottingham County Court holds that there is no tenancy at all, is clearly a powerful factor, even though a valid order may under para 30 be
made against one or other party in respect of them.
40. The suggestion that Mr Lane misconducted himself by ‘vacillating’ in his letters dated 18 December 1997 and 6 and 19 January 1998 was only
faintly pursued before us and has nothing to commend it. Arbitrators doing their best to address difficult situations may be forgiven, indeed perhaps
commended, if they are open-minded enough to reconsider the appropriate course. They should not be vexed with allegations of misconduct. While
misconduct is a term of art not itself having any moral significance, there is a considerable distinction between error (even were this arbitrator to be
viewed as having made any) on the one hand and either misconduct or incompetence on the other hand: see eg Pratt v Swanmore Builders Ltd [1980] 2
Lloyd’s Rep 504 at 508–509. There seems to me equally little merit in the suggestion, even less visible before us, that Mr Lane’s appointment should be
set aside because he sought a further extension from the president without notice on 3 February 1998. The statute contains no requirement that an
arbitrator should give the parties notice of his intention to seek such an extension. But the 56-day time limit is intended to achieve early ­ 263 finality
between parties, and I am inclined to think that it would normally be good practice for an arbitrator to keep the parties informed when seeking an
extension. They might in some circumstances wish to make representations to him or the president. But the procedure for seeking and granting an
extension should not be regarded, or allowed to develop into, any form of mini-arbitration. The shortness of the time limit and the president’s very
limited role indicate that it should be dealt with in summary fashion. On the facts here, it was clear that Mr Lane would need an extension, and his letter
dated 3 February 1998 made clear—it appears without eliciting any immediate objection—that he viewed such an application as one which could be made
‘with or without the concurrence of the parties’. Even assuming that he erred in not informing the parties that he was actually seeking such an extension,
he clearly acted bona fide and any error on this point throws no doubt on his competence and cannot constitute misconduct which could conceivably
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justify his removal.
41. The rulings made by the Agricultural Land Tribunal are not the subject of proceedings before us. Essentially, they were based on conclusions
that the tribunal’s sole function was to decide the issues of substance before it, that it had to proceed on the basis that it had jurisdiction and that it did not
lie in the mouth of a party invoking the jurisdiction of the tribunal to seek consent to the operation of a notice to quit at one and the same time to
challenge its jurisdiction. This reasoning does not appear to take full account of the possibilities which are on any view open to a tribunal when a
respondent challenges its jurisdiction, and, for reasons I have already given, I take a less restrictive view of the conduct and attitude open to an applicant
invoking arbitration as a protective measure, particularly when the issue governing jurisdiction is due to be determined in another binding forum.
42. In my judgment Mr Recorder Wigoder was correct to dismiss the applications to set aside the appointment of Mr Lane, and the appeal by Mr
Grammer against his decision fails. It follows also that the answers given by Mr Assistant Recorder Burgess to questions 5.1 to 5.6 all stand. With
respect to questions 5.7 and 5.8, although this is not a point to which any party before us attached significance, I consider that it was and is for the
arbitrator and not the court to determine what course should be adopted in the arbitration. Accordingly, the answer to question 5.7 should have been ‘Not
a question of law for the court to answer’, and the answer to question 5.8 is that such guidance as the court can offer on the relevant principles is to be
found in this judgment. In particular, it is open to Mr Stone, if in his discretion he considers it otherwise appropriate and believes that he will be able in
due course to obtain a sufficient extension of time for any award, to await the outcome of the Nottingham County Court proceedings on the issue whether
Mr Grammer has any and what tenancy surviving from prior to December 1996. With that minor amendment, the appeal against the judgment of Mr
Assistant Recorder Burgess also fails.

WILSON J. I agree.

PETER GIBSON LJ. I agree.

Appeals dismissed.

James Wilson Barrister (NZ).

[2000] 2 All ER 265

Clarion Ltd and others v National Provident Institution

EQUITY

CHANCERY DIVISION
RIMER J
13, 14, 22 OCTOBER 1999

Mistake – Mistake of fact – Equity – Mistake as to commercial effect of agreement – Claimants bringing proceedings for breach of alleged agreement –
Defendant alleging that it had failed to appreciate commercial effect of agreement – Whether defendant entitled to have agreement set aside in equity for
mistake as to subject matter.

C Ltd, a company which provided investment management services, advised the trustees of various pension schemes to invest in a certain type of policy
issued by NPI. Under that policy, an investor was allowed to switch his investment from units in one fund to units in another. C Ltd, which had an
agency with NPI for the introduction of business, alleged that it had reached an agreement with the latter for a special block switching arrangement,
applying a system of historic pricing to the switching of investments. Such a system of pricing was more commercially advantageous to C Ltd and the
trustees than forward pricing, the method which NPI claimed was its standard practice in relation to switching. In proceedings brought against NPI by C
Ltd and the trustees, the claimants alleged that NPI had wrongfully terminated the agreement. NPI denied the existence of such an agreement, but
alternatively contended that it had believed that it was only entering into an administrative arrangement and had not appreciated that the agreement could
or would be used to enable C Ltd to exercise its switching opportunities with the benefit of historic pricing. It therefore contended that it was entitled to
avoid and rescind the contract in equity on the grounds of mistake going to the subject matter of the agreement. The issue was determined on the hearing
of a preliminary issue.

Held – Save for those special cases where equity might be prepared to relieve a party from an unconscionable bargain, it was ordinarily no part of
equity’s function to allow a party to escape from a bad bargain. Thus the jurisdiction of equity did not extend to relieving a party from his contract when
the nature of his mistake went not to the contract’s subject matter or terms, but only to its commercial consequences and effect. In the instant case the
alleged mistake did not relate to the terms of the contract but merely to its potential for commercial exploitation. Such a mistake could not be
characterised as a mistake relating to the subject matter of the contract. Rather, the thrust of NPI’s case was that it had made a bad bargain from which it
wished to be released. Accordingly, NPI was not entitled to rescind the alleged agreement on the grounds of mistake (see p 275 h j, p 279 b d and p 281 h
to p 282 b, post).
Torrance v Bolton (1872) LR 8 Ch App 118 and Solle v Butcher [1949] 2 All ER 1107 considered.

Notes
For mistake as a ground for relief in equity, see 32 Halsbury’s Laws (4th edn reissue) para 4.
­ 265
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Cases referred to in judgment

Ashmore v Corp of Lloyd’s (No 2) [1992] 2 Lloyd’s Rep 620.
Associated Japanese Bank (International) Ltd v Credit du Nord SA [1988] 3 All ER 902, [1989] 1 WLR 255.
Bell v Lever Bros Ltd [1932] AC 161, [1931] All ER Rep 1, HL.
Cockshott v Bennett (1788) 2 Term Rep 763, 100 ER 411.
Cundy v Lindsay [1878] 3 App Cas 459, [1874–80] All ER Rep 1149, HL; affg (1877) 2 QBD 96, CA; rsvg (1876) 1 QBD 348.
Davis v Davis (1880) 13 Ch D 861.
Deputy Commissioner of Taxation (NSW) v Chamberlain (1990) 93 ALR 729, Aust FC.
EasyFind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98, NSW SC.
Fuji Finance Inc v Aetna Life Insurance Co Ltd [1996] 4 All ER 608, [1997] Ch 173, [1996] 3 WLR 871, CA.
Grist v Bailey [1966] 2 All ER 875, [1967] Ch 532, [1966] 3 WLR 618.
Hickman v Berens [1895] 2 Ch 638, CA.
Ismene Larussa-Chigi v CS First Boston Ltd (18 December 1997, unreported), QBD.
Liverpool City Council v Irwin [1976] 2 All ER 39, [1977] AC 329, [1976] 2 WLR 562, HL; affg [1975] 3 All ER 658, [1977] AC 329, [1975] 3 WLR
663, CA.
Magee v Pennine Insurance Co Ltd [1969] 2 All ER 891, [1969] 2 QB 507, [1969] 2 WLR 1278, CA.
Milner, Ex p, re Milner (1885) 15 QBD 605, DC.
Moorcock, The (1889) 14 PD 64, [1886–90] All ER Rep 530, CA.
Mosvolds Rederi A/S v Food Corporation of India [1986] 2 Lloyd’s Rep 68.
Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472, CA.
R v Municipal Council for the Shire of Marong, ex p Filcock (1903) 29 VLR 355, Vic SC.
Shell UK Ltd v Lostock Garage Ltd [1977] 1 All ER 481, [1976] 1 WLR 1187, CA.
Smith v Hughes (1871) LR 6 QB 597, [1861–73] All ER Rep 632, CA.
Solle v Butcher [1949] 2 All ER 1107, [1950] 1 KB 671.
Southern Foundries (1926) Ltd v Shirlaw [1939] 2 All ER 113, [1939] 2 KB 206, CA; affd [1940] 2 All ER 445, [1940] AC 701, HL.
Sowler v Potter [1939] 4 All ER 478, [1940] 1 KB 271.
Taylor v Johnson (1983) 45 ALR 265, Aust HC.
Torrance v Bolton (1872) LR 8 Ch App 118, CA.
Wilding v Sanderson [1897] 2 Ch 534, CA.
William Sindall plc v Cambridgeshire CC [1994] 3 All ER 932, [1994] 1 WLR 1016, CA.

Cases cited or referred to in skeleton arguments

Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] 1 All ER 482, [1981] 2 WLR 169, CA.
Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd, The Good Luck [1989] 3 All ER 628, [1990] 1 QB 818, CA; rvsd [1991] 3
All ER 1, [1992] 1 AC 233, HL.
Commission for the New Towns v Cooper (GB) Ltd [1995] 2 All ER 929, [1995] Ch 259, CA.
Cunliffe-Owen v Teather & Greenwood, Cunliffe-Owen v Schaverien Habermann Simon & Co, Cunliffe-Owen v L A Seligmann & Co [1967] 3 All ER
561, [1967] 1 WLR 1421.
Forget v Baxter [1900] AC 467, PC.
­ 266
Friends’ Provident Life Office v Hillier Parker May & Rowden (a firm) (Estates and General plc and others, third parties) [1995] 4 All ER 260, [1997]
QB 85, CA.
Hartog v Colin and Shields [1939] 3 All ER 566.
Johnson v Bingley (1995) Times, 28 February.
Logwon Pty Ltd v Warringah Shire Council (1993) 33 NSWLR 13, NSW CA.
Mallalieu v Hodgson (1851) 16 QBD 689, DC.
Scally v Southern Health and Social Services Board (British Medical Association, third party) [1991] 4 All ER 563, [1992] 1 AC 294, HL.
Scriven Bros & Co v Hindley & Co [1913] 3 KB 564.
Spring v Guardian Assurance plc [1994] 3 All ER 129, [1995] 2 AC 296, HL.
Marcan Shipping (London) Ltd v Polish Steamship Co, The Manifest Lipkowy [1989] 2 Lloyd’s Rep 138, CA.
Bates (Thomas) & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 All ER 1077, [1981] 1 WLR 505, CA.
Tinsley v Milligan [1993] 3 All ER 65, [1994] 1 AC 340, HL.
Tutt v Doyle (1997) 42 NSWLR 10, NSW CA.
Williams & Humbert Ltd v W & H Trade Marks (Jersey) Ltd, Rumasa SA v Multinvest (UK) Ltd [1986] 1 All ER 129, [1986] AC 368, HL.

Preliminary issues
By order of Master Moncaster dated 30 September 1999, the court was asked to determine three preliminary issues arising in proceedings brought by the
claimants, Clarion Ltd and the trustees of the Orwell, Chemcat and Stewart pension schemes, against the defendant, National Provident Institution (NPI).
The preliminary issues were as follows: (i) whether there would be an implied term, in an alleged agreement or any agreement between NPI and Clarion,
that Clarion would, in its dealings with NPI, comply with the Securities and Investments Board principles; (ii) whether NPI would have been entitled to
rescind an alleged agreement for the grant of special block switching arrangements and withdraw those arrangements; and (iii) whether the agreement for
the grant of the special block switching arrangements would have been void on grounds of public policy. The facts are set out in the judgment.

Michael Briggs QC and Nicholas Asprey (instructed by Fox Williams) for Clarion and the trustees.
Charles Flint QC and Charles Marquand (instructed by Druces & Attlee) for NPI.

Cur adv vult

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22 October 1999. The following judgment was delivered.

RIMER J.

INTRODUCTION
This judgment is on three preliminary issues which Master Moncaster directed to be tried by an order he made on 30 September 1999. He made it on
the application of the seven claimants, of which the first is Clarion Ltd (Clarion). They appear by Mr Michael Briggs QC and Mr Nicholas Asprey. The
defendant is National Provident Institution (NPI), which appears by Mr Charles Flint QC and Mr Charles Marquand. The master’s order was made either
with NPI’s consent or at least on the basis that NPI did not oppose it.
­ 267
The trial itself is due to start on 15 November 1999. In view of that my initial reaction was that it is now very late in the day to be raising these
issues and that it would probably be more satisfactory for them to be dealt with at the trial, with the benefit of all evidence which might be said to be
relevant to them. At the outset of the hearing Mr Flint asked me so to direct, despite NPI’s earlier attitude to the making by the master of his order. The
reason, however, why the issues have been raised is that to the extent that they are decided in the claimants’ favour now there will be a material saving in
the expert evidence which is otherwise proposed to be adduced at trial. The exercise is therefore directed towards saving costs; and, bearing in mind that
the master made the case management order which he did and that substantial costs have since been incurred in preparation for the hearing before me, I
ruled against Mr Flint’s request and allowed the preliminary issues to be argued.

BACKGROUND
Clarion provides investment management services. Its co-claimants are trustees of three pension schemes known as Orwell, Chemcat and Stewart to
which Clarion provides investment advice, as it also does to another pension scheme called Campbell.
NPI is or was at all material times a mutual life office, although I should mention that earlier this month, on 5 October, I made an order under Sch 2C
to the Insurance Companies Act 1982 sanctioning its ‘demutualisation’. The action concerns one type of policy issued by NPI called a ‘Penfund’ policy.
NPI divides its pension fund into several unitised funds, each of a different character, and the Penfund policyholder is allocated a number of units in his
chosen fund, the precise number depending on the size of his contribution and the value of the units. Clause 10 of the policy allows the investor to switch
his investment from units in one fund to units in another.
NPI’s pleaded case is that its practice in relation to switching was and is to apply a system of ‘forward pricing’. Under that practice the investor
sends a switch request to NPI on day one; it would normally be received on day two; and the switch would then be effected on day three and calculated by
reference to market prices as at midday on day two. At or before 6 pm of each business day NPI would normally forward to the Financial Times for
publication the bid prices it would be employing the following business day for the purpose of effecting a switch. Under this arrangement, at the time the
investor gives his switch instruction to NPI, he will not know the bid price which NPI will apply. NPI’s case is that in this respect all its Penfund
investors are or should be in the same position. I should, however, quote cl 10(i)(a) and (vi) of the switching provisions in the policy which provide as
follows:
‘10. Variation of funds (Switching)
The grantee may request NPI to cancel the allocation to this policy of all or some of the units in any fund and to use their value to secure the
allocation of units in other funds. In carrying out such a request the following conditions will apply. (i)(a) The value of the cancelled allocation of
units in the investment funds is calculated on the bid price ruling on the working day following receipt of the grantee’s written instructions in a
form satisfactory to NPI, subject to (vi) below, but NPI may at its absolute discretion use the price ruling on a different day … (vi) NPI reserves the
right to defer any action under this provision involving the cancellation of an allocation of units in any of the investment funds. The period of
deferment ­ 268 will not exceed one calendar month except for a transaction involving units in any fund containing investments in real property
when the deferment will not exceed six calendar months. The prices used in the event of such deferment would be those applying on the actual date
of cancellation.’

THE CLARION AGREEMENT

NPI and Clarion entered into a written agreement on 2 May 1986. It recorded that Clarion had been granted an agency for the purpose of introducing
to NPI all the types of business NPI was authorised to write. It dealt primarily with the terms as to the payment to Clarion of commission on
introductions. By cl 6 NPI reserved the right ‘to amend the commission rates, the terms and conditions of the agency and to cancel the agency at any
time’. Clause 7 recorded that the appointment was ‘subject to the observance of the attached Code of Practice’, being a three page code issued by various
life offices and associations. It dealt mainly with the manner in which intermediaries and introducers should approach and deal with prospective
policyholders.
As cl 6 permitted, that agreement was revised from time to time. By 1988 the Financial Services Act 1986 was in force and both Clarion and NPI
became authorised persons under it. Clarion is a member of the Financial Intermediaries, Managers and Brokers Regulatory Association (FIMBRA) and
NPI is a member of the Life Assurance and Unit Trust Regulatory Organisation (LAUTRO). In May 1988 NPI invited Clarion to enter into a new form of
agreement which had been imposed on it by LAUTRO, being one which was intended to supersede the May 1986 agreement. There is no evidence that
Clarion did enter into it, although it is a reasonable inference that it did. What is clear is that in the early 1990s it did enter into further revised forms of
agreement with NPI which were directed at setting out the conditions on which NPI accepted business from Clarion. The version in force in about March
1990 dealt primarily with the payment and calculation of commission to Clarion and cl 5 permitted NPI to terminate or vary its terms.
In May 1993 a revised set of terms of business was entered into, also including a like right for NPI to terminate or vary it. The final relevant change
occurred in April 1994 when revised terms of business were entered into, again dealing in similar fashion with the payment of commission and also of
premiums. I will refer to this version as ‘the Clarion agreement’.
From about 1991 Clarion advised Orwell, Chemcat and Campbell to invest in Penfund policies which were to be under the management of two other
investment managers, Assured Asset Management plc and Falcon Group plc. These managers had ‘block switching’ arrangements with NPI which
enabled them to switch investments on behalf of some or all of their clients at the same time.
By 1994 Orwell, Chemcat and Campbell had become dissatisfied with the performance of their investments. In mid-1994 Clarion and NPI entered
into negotiations with a view to Clarion taking over the management of the Penfund investments with NPI and enjoying a similar block switching
arrangement. Clarion also had the benefit of agreements with its clients entitling it to be paid management and performance fees in respect of funds
which were subject to any such arrangement.
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THE DISPUTE
The main issue in the action is whether or not, as Clarion claims, it made a binding oral agreement on about 5 July 1994 with NPI by which it
became entitled to a special block switching arrangement. Clarion’s case is that this agreement was ­ 269 concluded between Mr Walker of Clarion
and Mr Hendry of NPI. The essence of the alleged agreement is that NPI would accept switch instructions from Clarion which were faxed to NPI by 5
pm on day one and that the value switched would then be determined according to the bid price on day two which would be calculated on the basis of
market prices ruling at 12 noon on day one. Clarion also alleges that it was initially agreed that the arrangement would operate for a reasonable period,
not less than 12 months, and that on 2 August 1994 Mr Walker and Mr Hendry agreed that it would continue until determined by 12 months notice.
Clarion claims that the arrangement was to be available to its investor clients, including its co-claimants. Its case is that the oral agreement by which it
negotiated the arrangement operated to vary both the Clarion agreement and the switching provisions of cl 10 of the Penfund policy.
Whilst NPI admits that there were certain discussions with Clarion about block switching, it denies that any such contract—or any contract—was
made. If it was made it pleads that it was made by NPI without authority or else was ineffective for want of consideration and/or because cl 15 of the
Penfund policies required alterations to the policy to be made in writing. Despite NPI’s denial of the agreement it did in fact operate a block switching
arrangement with Clarion in accordance with the terms Clarion says were agreed. It did so until about 26 September 1994 when it unilaterally withdrew
the facility. Because Clarion says that at least 12 months notice of termination was required it and the other claimants claim damages against NPI for
breach of contract. The second to seventh claimants claim damages for the lost profits they would have earned had the arrangement continued during
such period; and Clarion claims damages for the lost management and performance fees and commission it would have earned.
The claim is a very substantial one since the beauty of the alleged agreement is that it enabled Clarion to introduce unlimited funds into NPI’s unit
linked pension business and then to enjoy the benefit of an arrangement under which it could switch between funds with the invaluable benefit of
hindsight. This is because it was entitled to make the switching decision by 5 pm each day at unit prices fixed by reference to the state of the markets at
midday, timing which enabled it to trade on ‘historic pricing’ rather than NPI’s more usual ‘forward pricing’. Clarion’s case is that under the arrangement
its co-claimants could have made profits at the rate of some 60.5% per year. The arrangement has close parallels with that described by Morritt LJ in Fuji
Finance Inc v Aetna Life Insurance Co Ltd [1996] 4 All ER 608 at 610, [1997] Ch 173 at 179–181.

THE PRELIMINARY ISSUES

On this application I am not concerned with whether the alleged contract was made. Nor am I asked to rule on those of NPI’s defences I have
referred to above. I am merely asked to rule on three assertions in NPI’s defence and counterclaim. For that purpose I am invited to assume that the oral
contract asserted by Clarion was made. In that connection it is not suggested that any different contract was made. NPI’s case is simply that no contract
was made. I am also required to assume the correctness of certain factual allegations raised by NPI in its defence. The three preliminary issues are as
follows.

1. Were the Securities and Investments Board principles impliedly incorporated into the Clarion agreement?
By s 47A of the 1986 Act, inserted by s 192 of the Companies Act 1989, the Secretary of State was empowered to issue statements of principle with
respect ­ 270 to the conduct and financial standing expected of persons authorised to carry on investment business. Section 47A(3) provides that:

‘Failure to comply with a statement of principle under this section is a ground for the taking of disciplinary action or the exercise of powers of
intervention, but it does not of itself give rise to any right of action by investors or other persons affected or affect the validity of any transaction.’

The power to issue such statements of principle was delegated to the Securities and Investments Board (SIB). SIB promulgated some statements of
principle pursuant to its delegated powers and they (the SIB principles) came into force on 30 April 1990. The principles were incorporated into the rule
books of LAUTRO and FIMBRA and it is agreed that each of NPI and Clarion, as members of those regulatory bodies respectively, were bound by the
SIB principles and faced the risk of disciplinary action or worse if they breached them. However, s 47A(3) shows that any such breach could not ‘of
itself’ give rise to a cause of action or affect the validity of any transaction. If, however, the SIB principles were incorporated into a contract between,
say, Clarion and an investor customer then a breach of the principles could or might give rise to a cause of action for damages. The claimant would not in
such a case be relying simply on a breach of the principles. He would be relying on the extra feature that they had assumed the status of contractual
terms.
The SIB principles are preceded by five paragraphs of introduction which explain that they are intended to form a universal statement of the
standards expected and that they apply directly to the conduct of investment business and financial standing of all authorised persons. It explains they are
not exhaustive of the standards expected. The principles themselves comprise ten paragraphs. Paragraphs 1 to 3 read as follows:

‘Integrity
1. A firm should observe high standards of integrity and fair dealing.
Skill, Care and Diligence
2. A firm should act with due skill care and diligence.
Market Practice
3. A firm should observe high standards of market conduct. It should also, to the extent endorsed for the purpose of this principle, comply with
any code or standard as in force from time to time and as it applies to the firm either according to its terms or by rulings made under it.’

Paragraphs 4 and 5 are directed to the firm’s dealings with customers and (in summary) urge it to seek from customers the information it will need in
order to fulfil its duties to them and to give them the information they will need in order to make an informed decision. Paragraph 6 reads:

‘Conflicts of interest
6. A firm should either avoid any conflict of interest arising or, where conflicts arise, should ensure fair treatment to all its customers by
disclosure, internal rules of confidentiality, declining to act, or otherwise. A firm should not unfairly place its interests above those of its customers
and, where a properly informed customer would reasonably expect that the firm would place his interests above its own, the firm should live up to
that expectation.’

Paragraph 7 is to the effect that if a firm has control of, or is responsible for, a customer’s assets it should keep them safe. Paragraph 8 requires a
firm to ensure ­ 271 that it has adequate financial resources to meet its commitments and to withstand any potential business risks. Paragraph 9 urges
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high standards of internal control and organisation within the firm. Paragraph 10 requires firms to be open and co-operative with its regulator and to keep
it informed of anything of which it should be informed.
Paragraph 26 of NPI’s defence and counterclaim asserts that it was an implied term of the Clarion agreement that Clarion would, in its dealings with
NPI, comply with the SIB principles. The defence identifies SIB principles 1, 3 and 6 in particular; and, if the principles as a whole are impliedly
incorporated into the Clarion agreement, then it is the alleged breach of one or more of principles 1, 3 and 6 that NPI seeks to deploy to its advantage in
the litigation. The claimants say that there is no question of the SIB principles having been impliedly so incorporated and they ask the court to rule
against NPI on that here and now.
As Steyn J said in Mosvolds Rederi A/S v Food Corporation of India [1986] 2 Lloyd’s Rep 68 at 70, it is always a question of law whether a term
ought to be implied into a contract. There are three alternative bases on which a court may conclude that a term ought to be so implied.
The first basis is the ‘business efficacy’ test explained in The Moorcock (1889) 14 PD 64, [1886–90] All ER Rep 530. The theory underlying that is
that the contract is unworkable without the suggested term. Mr Flint does not suggest that principle has any application in this case. I consider he was
right not to do so.
The second basis is that the term may be implied if it is a matter of obvious inference that it must have been intended. This is the ‘officious
bystander’ test as explained by MacKinnon LJ in Southern Foundries (1926) Ltd v Shirlaw [1939] 2 All ER 113 at 124, [1939] 2 KB 206 at 227.
According to this test a term will be implied if it is so obvious that it goes without saying: ‘… so that’, as MacKinnon LJ said, ‘if, while the parties were
making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a
common, “Oh, of course!”.’ This basis of implication is broader in scope than The Moorcock test but it still imposes ‘a stringent test’ (see Associated
Japanese Bank (International) Ltd v Credit du Nord SA [1988] 3 All ER 902 at 908, [1989] 1 WLR 255 at 263 per Steyn J); and in Philips Electronique
Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472, Bingham MR also referred to the strict constraints which the law imposes on what he
called the court’s ‘extraordinary power’ to imply into a contract terms for which the parties themselves have made no provision.
Mr Flint does rely on this basis for contending that the SIB principles were impliedly incorporated into the Clarion agreement. I was, however,
unpersuaded by his submissions.
The Clarion agreement in the form in which it was by July 1994 represented the fruit of various changes over the years since May 1986 and
expressly incorporated a set of business terms relating primarily to commission payments. This, as well as earlier versions of the Clarion agreement,
post-dated the introduction of the SIB principles, of which I readily accept both parties were fully aware, yet those principles were not expressly
incorporated into the Clarion agreement. I do not find that omission in any way surprising. At the time the Clarion agreement was made each of Clarion
and NPI was already subject to the SIB principles. They were imposed on them by their respective regulators and set out minimum standards by
reference to which they were each expected to carry out their respective investment businesses. Any breach by either of them of the SIB principles
exposed them to disciplinary procedures or worse. In this state of affairs I consider it to be the reverse of obvious that they should be taken, without
­ 272 any need to mention it expressly, also to have impliedly incorporated the SIB principles as part of their contract. There was, on one perfectly
reasonably view, simply no need. Why, for example, imply a contractual term to ‘observe high standards of integrity and fair dealing’ when the code of
standards applicable to both contracting parties already imposed on them what was in effect a professional duty to do just that? In my view, if the
officious bystander had been aware that Clarion and NPI were already subject to the SIB principles it would not have occurred to him to suggest that they
should incorporate them into their contract. Alternatively, if he had suggested it to Clarion and NPI, I think that their probable response would have been
to suppress him testily with a common, ‘Oh, of course not. We are members of LAUTRO and FIMBRA and are already governed by them’.
Secondly, in my view the very nature of the SIB principles militates against the suggestion that it is an obvious inference that they were impliedly
incorporated into the Clarion agreement. Mr Flint does not suggest that anything less than the SIB principles as a whole were so incorporated. Yet
several of them appear to me to be inapplicable to the business relationship between Clarion and NPI. That agreement was one between two companies
carrying on investment business, whereas in large part the SIB principles appear to me to be primarily directed to dealings by investment advisers with the
consuming public; and I regard principles 4 and 5 in particular as largely inapplicable to the Clarion agreement. Other principles (for example, principles
7 to 10) appear to me to be inappropriate and improbable terms for incorporation into any contract. Their purpose is to impose minimum standards of
business practice on those carrying on investment business and they do not look to me like the sort of provisions which would ever ordinarily find their
way into a contractual document. Nor, as it seems to me, would it add very much to a contract if they did. For example, principle 7 imposes the
blindingly obvious standard that a firm which is responsible for a customer’s assets should take care of them. But were a firm not to safeguard any such
assets and were to lose them, I should be surprised if in most cases the injured customer would be short of appropriate remedies by reason of the absence
of a term in his contract equivalent to principle 7.
I do not, therefore, regard it as a matter of obvious inference that the SIB principles were implied into the Clarion agreement. In my view it is
obvious that they were not.
By way of an alternative argument Mr Flint submitted that the SIB principles should be implied on the third basis on which terms may be implied
into a contract, namely that the contract between Clarion and NPI is, he says, of a particular generic type and that it is necessary for the due operation of
contracts within that class to make the suggested implication. For example, under this principle terms may be implied into contracts between owner and
hirer, landlord and tenant and employer and employee. The applicable principle is illustrated by Liverpool City Council v Irwin [1976] 2 All ER 39,
[1977] AC 329; and see also Shell UK Ltd v Lostock Garage Ltd [1977] 1 All ER 481 at 487, [1976] 1 WLR 1187 at 1196 per Lord Denning MR; and
Ashmore v Corp of Lloyd’s (No 2) [1992] 2 Lloyd’s Rep 620 at 629 and following, per Gatehouse J. Necessity is an essential requirement before any
terms can be implied on this basis. For my part, I have difficulty in identifying the general class of relationship within which the Clarion agreement is
said to fall. But for the reasons given in relation to the ‘obvious inference’ test I can anyway see no necessity for implying the SIB principles into it. I
reject this limb of Mr Flint’s argument as well.
­ 273
I add that Mr Flint placed reliance on the decision in Ismene Larussa-Chigi v CS First Boston Ltd (18 December 1997, unreported). In that case
Thomas J held that the London Code of Conduct promulgated by the Bank of England had been expressly incorporated into the contract between the
parties. He also said, in an obiter passage, that he would if necessary have held the Code to have been impliedly incorporated under either ‘business
efficacy’ or ‘officious bystander’ tests. Mr Flint invited me to be guided by that decision in this case too. As to that, I am here dealing with a different
code and am asked to imply it, not into a contract between an investment adviser and a customer, but between two companies carrying on investment
business. Thomas J’s obiter opinion as to the implication of the London Code of Conduct into the particular contract before him does not, if I may
respectfully say so, cause me to conclude that I should arrive at a like conclusion in this case with regard to the SIB principles.
The result is that the claimants succeed on the first issue. It follows that para 26 of the defence should be struck out, which will mean that NPI’s
counterclaim must also be struck out. That mounts a claim for damages for breach of the SIB principles, the quantum being said to match NPI’s liability,
if any, to the claimants under the claim. Paragraph 32 of the defence also raises pleas based on the assumption that the SIB principles are incorporated
into the Clarion agreement. I will hear counsel as to what should be done about that paragraph.
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2. Mistake
The second preliminary issue involves a plea of mistake. For this purpose I have to assume that the special switching arrangement alleged by
Clarion was duly made. I also have to assume to be true various allegations in the defence. The heart of them is that Mr Hendry, who negotiated the
agreement on behalf of NPI, was mistaken as to how the block switching arrangement would be used by Clarion and as to its likely effect. He did not
appreciate that it could or would be used to enable Clarion to exercise its switching opportunities using the benefit of ‘historic pricing’. None of this was
discussed or disclosed to him when the arrangement was made; and he believed that the faxing arrangements which were part of the deal were simply
administrative in effect and were designed to ease the giving of and receipt of instructions. I also have to assume that, at the time of the negotiation of the
agreement, Clarion was aware of Mr Hendry’s mistaken understanding as to how the arrangement would be used by it and what its likely effect was.
NPI’s case, therefore, is not that it (by Mr Hendry) was mistaken or confused as to any of the terms of the arrangement. Its mistake was simply as to
the particular use to which Clarion would put the arrangement, ie how it would exploit it. It was therefore a mistake as to the commercial effect of the
arrangement which was being made. But it is, however, a mistake of which I have to assume Clarion was aware at the time. What is not alleged is that
Clarion made any sort of misrepresentation to NPI. Nor is it suggested that Clarion was under any duty to disclose to NPI the full implications of the
making of the arrangement.
The type of mistake which will enable a party to a contract to avoid it involves consideration of a corner of the law which has given rise to much
discussion. What does seem tolerably clear is that it is an area of law in which even by the end of the twentieth century there has been little merging of
the streams of common law and equity. There is, if I may say so, a typically valuable and illuminating discussion of the essential elements of the relevant
law by Steyn J in ­ 274 Associated Japanese Bank (International) Ltd v Credit du Nord SA [1988] 3 All ER 902 at 909–913, [1989] 1 WLR 255 at
264–269. Steyn J expressed his view that Bell v Lever Bros Ltd [1932] AC 161, [1931] All ER Rep 1 is best regarded as providing the guidance of the
House of Lords on mistake at common law. He then went on to say that:
‘The law has not stood still in relation to mistake in equity. Today, it is clear that mistake in equity is not circumscribed by common law
definitions. A contract affected by mistake in equity is not void but may be set aside on terms: see Solle v Butcher [1949] 2 All ER 1107, [1950] 1
KB 671; Magee v Pennine Insurance Co Ltd [1969] 2 All ER 891, [1969] 2 QB 507; Grist v Bailey [1966] 2 All ER 875, [1967] Ch 532. It does
not follow, however, that Bell v Lever Bros Ltd is no longer an authoritative statement of mistake at common law.’ (See [1988] 3 All ER 902 at
911, [1989] 1 WLR 255 at 266.)
Steyn J then said:
‘It might be useful if I now summarised what appears to me to be a satisfactory way of approaching this subject. Logically, before one can turn
to the rules as to mistake, whether at common law or in equity, one must first determine whether the contract itself, by express or implied condition
precedent or otherwise, provides who bears the risk of the relevant mistake. It is at this hurdle that many pleas of mistake will either fail or prove to
have been unnecessary. Only if the contract is silent on the point is there scope for invoking mistake. That brings me to the relationship between
common law mistake and mistake in equity. Where common law mistake has been pleaded, the court must first consider this plea. If the contract is
held to be void, no question of mistake in equity arises. But, if the contract is held to be valid, a plea of mistake in equity may still have to be
considered: see Grist v Bailey [1966] 2 All ER 875, [1967] Ch 532 and the analysis in Anson’s Law of Contract (26th edn, 1984) pp 290–291.’
(See [1988] 3 All ER 902 at 912, [1989] 1 WLR 255 at 268.)
NPI does not plead or submit that the special block switching arrangement was, by reason of its mistake, void at common law. Against the
background of facts I am asked to assume it is accepted that there is no question of that. NPI’s case is simply that it was entitled to avoid and rescind the
contract in equity and that it did so by renouncing the arrangement in September 1994 once it realised the consequence and effect of what it had done.
Clarion’s position is that, even accepting that equity is more sympathetic towards providing relief from mistake than is the common law, its
sympathy does not extend to providing relief in cases such as this. The limit of the applicable principles is, Mr Briggs submits, that a court of equity may
in certain circumstances relieve a party from his contract if he entered into it under a mistaken understanding of its subject matter or terms, provided that
such mistake was known by the other party at the time; but that equity’s jurisdiction does not extend to relieving a party from his contract when the nature
of his mistake went not to subject matter or terms but only to its commercial consequences and effect. Mr Briggs submits that equity mends no man’s
bargain, whereas all that NPI’s case amounts to is that it realised by September 1994 that it had made a bad bargain from which it now wants to be
released.
I have been referred to several authorities. They provide plenty of examples of equity permitting either rescission or rectification where one party
has, to the ­ 275 knowledge of the other, made the contract under a mistake as to its subject matter or terms. I have not been referred to any authority
where rescission has been sought or granted in a case where the mistake was simply as to the effect or commercial consequences of the contract. Certain
of the dicta in the cases may be read as suggesting that equity’s protective arm is not as limited as Mr Briggs submits. Others indicate that it is.
Ultimately the issue before me appears to turn on a question of principle on which there appears to be no direct guidance.
Both sides regard Solle v Butcher [1949] 2 All ER 1107, [1950] 1 KB 671 as the best starting point for an understanding of equity’s role in this area.
Denning LJ said:

‘Let me next consider mistakes which render a contract voidable, that is, liable to be set aside on some equitable ground. Whilst presupposing
that a contract was good at law, or at any rate not void, the court of equity would often relieve a party from the consequences of his own mistake, so
long as it could do so without injustice to third parties. The court had power to set aside the contract whenever it was of opinion that it was
unconscientious for the other party to avail himself of the legal advantage which he had obtained: Torrance v. Bolton ((1872) LR 8 Ch App 118 at
124). This branch of equity has shown a progressive development. It is now clear that a contract will be set aside if the mistake of the one party
has been induced by a material misrepresentation of the other, even though it was not fraudulent or fundamental, or if one party, knowing that the
other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and conclude a
contract on the mistaken terms instead of pointing out the mistake, which is, I venture to think, the ground on which the defendant in Smith v.
Hughes ((1871) LR 6 QB 597, [1861–73] All ER Rep 632) would be exempted nowadays, and on which, according to BLACKBURN, J.’s view of
the facts ((1876) 1 QBD 348 at 355), the contract in Lindsay v. Cundy ([1878] 3 App Cas 459), was voidable and not void, and on which the lease
in Sowler v. Potter ([1939] 4 All ER 478, [1940] 1 KB 271) was, in my opinion, voidable and not void.’ (See [1949] 2 All ER 1107 at 1119–1120,
[1950] 1 KB 671 at 692.)

Neither the facts on which Solle v Butcher was decided nor that passage in Denning LJ’s judgment appear to me to provide a basis for the existence
of the wide equitable jurisdiction which NPI claims to invoke. NPI’s mistake was not as to terms or as to the identity of parties. The apparent width of
the third quoted sentence does, however, inevitably prompt a reference to Torrance v Bolton (1872) LR 8 Ch App 118 in order to see how the equitable
jurisdiction was there described.
Torrance v Bolton was a case in which property was put up for sale by auction but was described in the particulars as an immediate absolute
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reversion, a description wrongly conveying that it was unencumbered by mortgages. It was in fact encumbered by three mortgages which were referred
to in the conditions of sale, but those conditions were not circulated to those attending the auction. They were, however, read out at the auction by the
auctioneer’s clerk. The plaintiff attended the auction with a view to bidding for the property but, as he was deaf, he did not hear what was read out. He
bought the property in reliance on the particulars and in ignorance of the mortgages. He learned the true position shortly afterwards, claimed to rescind
the contract and succeeded. The case was, in my view, a simple one of misrepresentation. As James LJ said (at 123):
­ 276
‘There being, then, this improper and misleading description in the particulars of sale, I am of opinion that the burden of proof is cast entirely on
the Defendant to shew that the Plaintiff was not in fact misled by what he had read, and of that burden the Defendant has not, in my judgment,
discharged himself.’

The passage in James LJ’s judgment to which Denning LJ was referring is at 124–125 and reads as follows:

‘It was very strongly impressed upon us that Lord St. Leonards had said in his book, (Sugden’s Vendor and Purchaser, 14th Ed. p. 244), that
contracts for sale, although they might not be enforced in this Court, could only be set aside on the ground of fraud. The word “fraud” there is
nomen generalissimum, and it must not be construed so as to mislead persons into the notion that contracts for the sale and purchase of lands are in
any respect privileged, so as to be free from the ordinary jurisdiction of the Court to deal with them as it deals with any other instrument or any
other transactions, in which the Court is of opinion that it is unconscientious for a person to avail himself of the legal advantage which he has
obtained. Indeed the books are full of cases in which the Court has dealt with contracts of that kind—contracts obtained by persons from others
over whom they have dominion, contracts obtained by persons in a fiduciary position, contracts for the sale of shares obtained by directors through
misrepresentation contained in the prospectus, in respect of which it was never necessary to allege or prove that the directors were wilfully guilty of
moral fraud in what they had done. A contract for sale, like every other contract, is subject to the ordinary rules and jurisdiction of this Court, and
that passage of Lord St. Leonards must be understood as meaning that the same kind of case must be made when a party comes here to set aside a
contract for sale as must be made in setting aside any other contract or dealing between the parties.’

That passage, read in the context of the facts of the case, does not in my view assist NPI on this application either. The nature of the plaintiff’s
mistake there was not comparable to that which is alleged in this case. It was a mistake as to subject matter which had been induced by
misrepresentation. James LJ’s more general references to the court’s jurisdiction to relieve against ‘unconscientious’ transactions do not by themselves
support the contention that the circumstances I am required to assume in this case constitute the type of circumstances against which equity would or
might be prepared to provide relief.
Mr Flint referred me to Taylor v Johnson (1983) 45 ALR 265, a decision of the High Court of Australia on appeal from the Supreme Court of New
South Wales. There the vendor sold 10 acres of land for a total price of $15,000 but under the mistaken belief that the contract provided a price of
$15,000 per acre. The Court of Appeal, differing from the trial judge, found that the purchaser believed that the vendor was probably mistaken as to the
price provided by the contract and set the contract aside. Their decision was upheld by the High Court by a majority. The case therefore involved a
unilateral mistake by one party as to terms, with the other party being aware of the mistake. The joint judgment of Mason ACJ, Murphy and Deane JJ
identified this as the applicable principle:

‘The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is
that a party who has entered into a written contract under a serious mistake ­ 277 about its contents in relation to a fundamental term will be
entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering
the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to
ensure that the first party does not become aware of the existence of his mistake or misapprehension.’ (See (1983) 45 ALR 265 at 271–272.)

Again, I do not regard that statement of principle as assisting NPI. The case concerned a mistake as to terms and is an example of equity operating in just
the type of circumstances identified by Denning LJ in Solle v Butcher.
I was next referred by Mr Flint to Deputy Commissioner of Taxation (NSW) v Chamberlain (1990) 93 ALR 729, a decision of Wilcox J. There the
respondent had an outstanding assessed tax liability of $255,579.20. The applicant issued a writ against the respondent claiming only $25,557.92. It was
perfectly obvious that in preparing the writ the applicant had by mistake shifted the comma and the dot one space to the left and had in consequence by
mistake claimed only 10% of the due amount. The respondent was quick to submit to a consent order. The application was to set the consent order aside
on the basis of a mistake, which Wilcox J did. Taylor v Johnson was cited to him and it was argued that as the mistake was not about terms but about the
subject matter of the consent order the principle of that case did not apply. Wilcox J did not accept that and said (at 740):
‘First, it would be erroneous to construe the passage from the majority judgment in Taylor v Johnson, which I have just quoted, as if it were an
attempt to state exhaustively all of the circumstances under which equity will set aside a contract for unilateral mistake. As their Honours pointed
out, their proposition was “narrowly stated” in terms appropriate for disposing of the case then before them. The emphasis of the judgment is upon
the wide power of equity to relieve against a unilateral mistake induced by fraud, misrepresentation or other unconscionable dealing. This emphasis
is consistent with the underlying rationale that equity operates upon the conscience of a party. This rationale requires attention to the nature of the
wrongdoer’s conduct and its effect upon the other party. If, by reprehensible conduct, one party has induced operative unilateral mistake in the
other, the rationale underlying equity justifies its intervention to relieve against the consequences of the mistake. In terms of principle, there is
nothing to be gained from a nice distinction between mistake as to the terms of the contract and mistake as to its subject matter, which is difficult to
draw anyway: see Greig and Davis, The Law of Contract, pp 925–6. What I have just said is consistent with the majority judgment in Taylor v
Johnson. It is noteworthy that until they advanced the “narrowly stated” proposition ([1983] 45 ALR 265 at 271), their Honours made no
distinction between a mistake as to terms and a mistake as to subject matter. Indeed … they referred to both when pointing out that special
circumstances need to be shown before it would be unconscientious for one party to enforce a contract against the other. In none of the cases cited
by their Honours does the distinction appear as a relevant factor. Two of the English cases given as examples of the circumstances in which equity
will relieve against unilateral mistake involved errors as to subject matter.’
­ 278
The two English cases to which he was referring were Torrance v Bolton (1872) LR 8 Ch App 118 and Solle v Butcher [1949] 2 All ER 1107, [1950] 1
KB 671.
Mr Flint submitted that in the present case too NPI’s mistake was really about subject matter. That depends on how the concept of subject matter
ought to be characterised for present purposes. His submission is that NPI believed it was only entering into an administrative arrangement, whereas in
fact the contract gave Clarion rather more than that. It was obtaining a commercial advantage which NPI did not foresee and of which it was ignorant.
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Since, however, there was no mistake by NPI as to the terms of the contract but merely as to its potential for commercial exploitation, I do not regard its
mistake as a mistake as to subject matter of a like type as that under consideration in cases such as Deputy Commissioner of Taxation (NSW) v
Chamberlain. The mistake there went to the nature of the claim made in the writ and settled by the consent order, the mistake being that the applicant
thought it was for the full amount of the tax assessment whereas it was only for 10% of it. That mistake went to the very heart of the agreement which
was made and to the applicant’s consent to it, not merely to its commercial consequences.
In the present case there was no like mistake. NPI knew precisely what Clarion was asking it to agree to and fully understood the terms of what was
being put to it. All it did not know or understand was the potential value of those terms to Clarion. That is a distinction to which Wilcox J was sensitive
in Deputy Commissioner of Taxation (NSW) v Chamberlain, and I should quote what he said (at 741):
‘Counsel for the respondent contend that Mr Besgrove was merely under a misapprehension as to the value of what he was giving up. They say
that it is not open to a party who agrees to sell something at a particular price to obtain rectification upon learning that it was worth more. I agree
with the latter proposition, at least in the absence of special circumstances. No-one would deny the right of a businessman, for instance, to take
advantage of another businessman’s error of judgment, and so obtain a “bargain” for himself. It is the nature of our society for parties to put into
competition their expertise and informational resources. But no contest of business judgment is involved where one party unwittingly makes a
clerical or arithmetical error and the other party takes advantage of it. This is just a shabby trick and indubitably unconscionable.’
Mr Flint also referred me to and relied on a dictum of Evans LJ in the decision of the Court of Appeal in William Sindall plc v Cambridgeshire CC
[1994] 3 All ER 932, [1994] 1 WLR 1016. There under the heading ‘Equitable mistake’, Evans LJ said:
‘Logically, there remains the question whether the contract, notwithstanding that on its true construction it covers the situation which has arisen,
and that it cannot be set aside for misrepresentation, nevertheless may be rescinded on the ground of equitable mistake, as defined by Denning LJ in
Solle v Butcher [1949] 2 All ER 1107 at 1119, [1950] 1 KB 671 at 692. It must be assumed, I think, that there is a category of mistake which is
“fundamental” so as to permit the equitable remedy of rescission, which is wider than the kind of “serious and radical” mistake which means that
the agreement is void and of no effect in law: see Chitty on Contracts (26th edn, 1989), vol 1, para 401, Treitel The Law of Contract (8th edn, 1991)
p 276; and Cheshire Fifoot and Furmston’s Law of Contract (11th edn, 1986) p 245. The difference may be that the common law rule is limited to
mistakes with regard to the subject matter of the contract, whilst ­ 279 equity can have regard to a wider and perhaps unlimited category of
“fundamental” mistake.’ (See [1994] 3 All ER 932 at 959, [1994] 1 WLR 1016 at 1042.)
Mr Flint relies, of course, on the last sentence. I hope it will not be thought disrespectful, however, if I say that I do not regard it as providing any
real guidance for the purposes of the present issue. It was at most a somewhat tentative obiter comment which Evans LJ did not elaborate.
I was referred by counsel, both during and following the hearing, to certain other authorities. I do not propose to refer to all of them, since most do
not appear to me to be based on facts or to include statements of principle which provide any additional guidance in the resolution of the issue before me.
I will, however, refer to EasyFind (NSW) Pty Ltd v Paterson (1987) 11 NSWLR 98. That was a decision of Young J. It concerned an application to set
aside a compromise of legal proceedings based on the unilateral mistake of one party of which the other was aware, although the latter neither induced it
nor deliberately cloaked it. Young J refused the application on the facts, and (at 106) he expressed some views which I regard as lending support to
Clarion’s arguments rather than to NPI’s. He said:
‘The defendants in the instant case say that although they make it quite clear, as I do too, that nothing can be said against the probity of the
conduct of the barrister, he must have considered that the plaintiff’s solicitor thought that the plaintiff’s solicitor was getting a concession when he
knew that was not the case and did nothing about it. He thus engaged in a course of conduct designed to inhibit discovery of the mistake.
It was because of the far-reaching ramifications of this submission that I reserved my decision. It would be extremely common, especially in
common law settlements, for a plaintiff’s barrister to negotiate out a settlement well knowing that the plaintiff has no memory at all of the accident
and if the matter is called onto court would not be able to prove his case. The defendant, fearing that if the plaintiff does run his case the verdict
will be a large one, thinks he has done well because he has settled for a moderate amount. Plaintiff’s counsel on the other hand knows that he has
done well because had the matter gone to court he would have failed. Can it be that by virtue of the principle in Taylor v Johnson that if as a result
of some loose talk at a bar function later on the mistake is discovered, the settlement can be upset?
It is clear of course that a consent order agreed to by the parties cannot afterwards be set aside on the mere allegation that the consent was given
in ignorance of a particular fact notwithstanding that with the knowledge of the fact the party would not have given consent: see, eg, R v Municipal
Council for the Shire of Marong, ex p Filcock (1903) 29 VLR 355 at 364. In that case Madden CJ said:
“... If after a party has consented to a judgment he finds that he would have been better off if he had not consented, for all that he will be held to
it. The misapprehension which allows a withdrawal by either party from such a consent ought to be something in the nature of a deception by the
other party, or a misapprehension as to what the terms of the bargain were; so that he thought they meant one thing when they really meant another,
and such misunderstanding was to his disadvantage.
­ 280
The mere fact that he might have been better off if he had known of any particular fact is no answer.”
See also Davis v Davis (1880) 13 Ch D 861.
Mr Foskett, in his Law and Practice of Compromise (1980) at 27–29, deals with a series of cases of unilateral mistake in settlements. These
show that a mistake as to the effect of the compromise will not be sufficient to set aside the compromise. He does, however, show that there is an
area where unilateral mistake may be sufficient to enable the court to set aside a consent order. This, however, brings one back to the area of the
classic law of unilateral mistake rather than the special area of compromises of litigation.’
The answer to Young J’s question at the end of the second paragraph which I quoted must, I consider, ordinarily be No. The compromise of
litigation is a contractual exercise in which it is the commonest thing for each side to be aware of facts and matters of which it either knows or at least
suspects the other side is ignorant. If each side knew all that the other side knew then either no or only a very different compromise would be reached. In
the negotiation of such compromises the parties must be careful not to make any misrepresentations. But there is in my view no general duty imposed
upon them in the nature of a duty of disclosure. The negotiations are in the nature of an arm’s length commercial bargain. Each party has to look after
his own interests and neither owes a duty of care to the other. It would in my view be astonishing if, in the ordinary case, a defendant could later set aside
a compromise merely because he had learnt from some ‘loose talk at a bar function’ that he had materially over-paid a claimant who, unbeknown to him
but well known to the claimant’s advisers, probably could not have proved his case at all.
The English authorities are, in my view, in line with this approach. Hickman v Berens [1895] 2 Ch 638 illustrates that a compromise of litigation can
be set aside if there is a mistake between the parties as to its terms. But Rigby LJ, also made plain that (at 648–649): ‘If this were an attempt to get rid of
a compromise because it turned out to be, pecuniarily, very onerous to the party seeking relief, I think it ought not to be entertained, or, at any rate, it
ought not to succeed.’ The distinction he there had in mind was, I consider, that between a mistake going to the making of the agreement, that is as to its
terms or subject matter, and a mistake as to its commercial wisdom or effect. Wilding v Sanderson [1897] 2 Ch 534 is another illustration of the setting
aside of a consent order in a case in which there was a mistake as to its terms, the particular mistake being as to its construction. I do not, however,
consider that it sheds direct light on the issue before me.
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With that review of most of the authorities to which I was referred I come to my decision. I do not regard NPI’s mistake as being a mistake either as
to the terms of the contract asserted by Clarion or as to its subject matter. There was no mistake as to either of these things. If there had been then I
would accept that NPI would have an arguable case for being released from its contract. The only mistake was as to the commercial advantage which the
contract gave Clarion. I am prepared to assume that, had NPI been aware of that advantage, it would not have entered into the contract at all. The thrust
of NPI’s complaint is simply that it made a bad bargain from which it now wants to be released. It is, however, of the essence of business transactions
that each party is bargaining in his own interests and for his own benefit and that each has to look after his own interests and that in most cases neither
owes any duty of care or disclosure to the other. It is inherent in such a system that there will be those who will make bad ­ 281 bargains, but that is the
risk which in my view each bargaining party must be assumed to be willing to take and which the law must be regarded as having allocated to him. I
agree with Mr Briggs that it is ordinarily no part of equity’s function to allow those who do make such bargains to escape from them. I am, of course, not
here referring to those special cases in which equity may be prepared to relieve a party from what it regards as an ‘unconscionable bargain’, but those are
cases in which there will necessarily be special additional features which it is not suggested are present here: see, for example, Snell’s Equity (29th edn,
1990) at p 558. The result is that I decide this issue too in favour of the claimants.

3. Illegality
The third issue is one of alleged illegality. NPI’s pleaded case is that the special block switching arrangement operated to give Clarion and its
co-claimants a special advantage not enjoyed by other Penfund policyholders and enabled the claimants to make very large profits wholly at the expense
of those other policyholders. NPI pleads that, because of this, the consequence of the arrangement was to put it in breach of fiduciary duties it owed to
other investors, namely: (1) to refrain from putting any investor in a preferential position and (2) to avoid any conflict between the interests of one
investor and another. NPI pleads that the arrangement put it in breach of these duties and so was void for public policy reasons.
I do not find it easy to derive from the Penfund policy that NPI did owe any such fiduciary duties to the Penfund investors generally. I have earlier
quoted from cl 10, of which sub-paras (i)(a) and (vi) appear to give NPI a wide discretion as to how it may deal with switch requests from any particular
policyholder; and cl 15(iii) also contemplates the agreed alteration of the terms of his policy. It is not clear to me that NPI ever assumed any binding
commitment to treat each policyholder in exactly the same way as others, although no doubt in practice it would ordinarily do so, just as the policyholders
would ordinarily expect it to. However, whilst Mr Briggs does not concede that the making of the arrangement would have resulted in either a breach of
fiduciary duty or a breach of contract as between NPI and the other Penfund policyholders, he was prepared to accept that I can for present purposes
proceed on the basis that the making of the arrangement might at least have caused a breach of contract between NPI and the other policyholders. He
disputes, however, that there is any basis for concluding that a breach of fiduciary duty could have occurred.
Mr Flint’s argument on this issue was founded on two cases concerned with the making of compositions between a debtor and his creditors. The first
was Cockshott v Bennett (1788) 2 Term Rep 763, 100 ER 411. In that case the defendant debtors made a composition with all their creditors, who signed
a deed under which they were each to receive a dividend of 11 shillings in the pound. The plaintiffs refused to sign the deed unless the debtors gave them
a promissory note for the remaining 9 shillings in the pound, which the debtors did, and they also made a subsequent promise to pay it. The other
creditors would not have signed the deed unless the plaintiffs also signed. The plaintiffs’ claim to enforce the note failed. Lord Kenyon CJ said:
‘... I wish to disclaim founding my opinion upon grounds of equity as contra-distinguished from grounds of law. The foundation of my opinion
is, that the temptation to give this note was a fraud on the creditors who were ­ 282 parties to the contract, on which their debts were to be
cancelled in consideration of receiving a composition. The note preceded the execution of the deed; all the creditors being assembled for the
purpose of arranging the defendant’s affairs, they all undertook and mutually contracted with each other that the defendants should be discharged
from their debts after the execution of the deed. Then these plaintiffs, in fraud of that engagement, entered into a contract with the defendants,
which prevented their being put in that situation which was the inducement to the other creditors to sign the deed, and to relinquish a part of their
demands... But this transaction is bottomed in fraud, which is a species of immorality; and, not being available as such, cannot be revived by a
subsequent promise.’ (See (1788) 2 Term Rep 763 at 765, 100 ER 411 at 412–413.)
Ashurst J said:
‘If this security be fraudulent, a Court of law may avoid it as well as a Court of equity; and in my apprehension, it is a fraud on the rest of the
creditors. For they were induced to enter into this agreement on principles of humanity, in order to discharge the defendants from their
incumbrances: and if they had not thought that such would have been the effect, they would not probably have agreed to sign the deed, but each
would have endeavoured to obtain payment of his whole debt. Therefore, I think that this security is not merely voidable, but absolutely void. If it
had been only voidable, the subsequent promise might have revived it: but if void in its creation, no promise could set it up again. But here the note
was void on the ground of fraud; and any subsequent promise must be a nudum pactum: For the debt was annihilated by the deed of composition;
and the plaintiffs had consented to take a smaller sum than their original debt.’ (See (1788) 2 Term Rep 763 at 765–766, 100 ER 411 at 413.)
That case is in my view distinguishable from the present one. It involved a composition between a debtor and all his creditors and between all the
creditors themselves. Its ratio was that a secret and preferential bargain which one creditor had negotiated with the debtor himself was a fraud on the
other creditors, the fraud being that the others were misled into signing on the false basis that all were being treated equally. The present case does not
have any features comparable to that. The Penfund policyholders were not parties to any common agreement between themselves and, for reasons given,
it is not even clear that NPI ever assumed any contractual obligation to treat them all equally. In those circumstances I am unable to regard the making of
the special arrangement in this case as constituting anything in the nature of fraud on the other policyholders of a like kind as that which was found in
Cockshott v Bennett.
Ex p Milner, Re Milner (1885) 15 QBD 605 concerned a problem similar to that in Cockshott v Bennett. The applicable principles are explained
fully by Brett MR (at 613) and also by Bowen LJ. Bowen LJ said (at 615–616):

‘I think the case must be decided on the settled principles of the common law. A man who is insolvent may enter into any arrangement he
pleases with his creditors, provided that he does not infringe the provisions of any statute or the rules of ordinary good faith. But in an ordinary
case what does a simple composition with creditors mean? It means that each of the creditors agrees to forego a part of his debt, the consent of each
creditor who comes into the arrangement being a consideration for the consent of the ­ 283 others. It follows that it is of the very essence of such
a transaction that the creditors who take part in the scheme act upon the faith and understanding that they are all coming in upon terms of equality,
and if a deed is prepared to carry out this equal distribution, every creditor who executes it does so on the faith that there is no private bargain with
any of the other creditors which will destroy this equality. If there is any private agreement that one of the creditors is not to be dealt with upon this
equal footing, but is to receive a preference, that is a breach of faith, and, if the debtor is aware of it, it strikes at the root of the deed, and entitles
any creditor who has been thus deceived to treat it as void.’

Once again the essence of that was that the right to avoid the deed rested on the premise that all had agreed to it on the basis of equality between
them. For the reasons given, I do not regard the position of the Penfund policyholders as analogous.
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I do not, therefore, regard either Cockshott v Bennett or Ex p Milner as providing authority for the conclusion that the special block switching
arrangement constituted a fraud on the other Penfund policyholders and was in consequence void. In my view the highest the case might be put is, as Mr
Briggs is prepared for present purposes to accept, that the making of that arrangement between Clarion and NPI resulted in NPI being in breach of
contract with its other Penfund policyholders. But even if this is so, I disagree that a further consequence would or could have been that the Clarion/NPI
arrangement would thereby have been automatically avoided. If A contracts to sell his house to B and then, before completion, also contracts to sell it to
C, B would or might be able to restrain the completion of the A/C contract. The making of the A/C contract might itself put A in breach of his A/B
contract and its completion certainly would. But the A/C contract is neither illegal nor void and if B restrains its completion C will in principle have a
good claim for damages for its breach against A.
That example is not an exact analogy for present purposes, but I regard its principle as applicable. Thus, assuming that the making of the special
switching arrangement put NPI in breach of contract with its Penfund policyholders, it might be that the other policyholders could restrain its
performance, in which case Clarion would be confined to a claim for damages against NPI. I do not, however, accept that the special switching
arrangement is illegal and void.
It follows that I hold that NPI’s plea that the arrangement was void as illegal also fails.

Order accordingly.

Celia Fox Barrister.

[2000] 2 All ER 285

Practice Note (trial of children and young persons: procedure)

PRACTICE DIRECTIONS

QUEEN’S BENCH DIVISION

LORD BINGHAM OF CORNHILL CJ AND KLEVAN J
16 FEBRUARY 2000

Crown Court – Trial of children and young persons – Procedure.

LORD BINGHAM OF CORNHILL CJ gave the following direction at the sitting of the court.
1. This practice direction applies to trials of children and young persons in the Crown Court. Effect should be given to it forthwith. In it children
and young persons are together called ‘young defendants’. The singular includes the plural and the masculine the feminine.
2. The steps which should be taken to comply with this practice direction should be judged, in any given case, taking account of the age, maturity
and development (intellectual and emotional) of the young defendant on trial and all other circumstances of the case.

The overriding principle

3. Some young defendants accused of committing serious crimes may be very young and very immature when standing trial in the Crown Court.
The purpose of such trial is to determine guilt (if that is in issue) and decide the appropriate sentence if the young defendant pleads guilty or is convicted.
The trial process should not itself expose the young defendant to avoidable intimidation, humiliation or distress. All possible steps should be taken to
assist the young defendant to understand and participate in the proceedings. The ordinary trial process should so far as necessary be adapted to meet
those ends. Regard should be had to the welfare of the young defendant as required by s 44 of the Children and Young Persons Act 1933.

Before trial
4. If a young defendant is indicted jointly with an adult defendant, the court should consider at the plea and directions hearing whether the young
defendant should be tried on his own and should ordinarily so order unless of opinion that a joint trial would be in the interests of justice and would not be
unduly prejudicial to the welfare of the young defendant. If a young defendant is tried jointly with an adult the ordinary procedures will apply subject to
such modifications (if any) as the court may see fit to order.
5. At the plea and directions hearing before trial of a young defendant, the court should consider and so far as practicable give directions on the
matters covered in paras 9 to 15 below inclusive.
6. It may be appropriate to arrange that a young defendant should visit, out of court hours and before the trial, the courtroom in which the trial is to
be held so that he can familiarise himself with it.
7. If any case against a young defendant has attracted or may attract widespread public or media interest, the assistance of the police should be
enlisted to try and ensure that a young defendant is not, when attending for the trial, exposed to intimidation, vilification or abuse.
8. The court should be ready at this stage (if it has not already done so) to give a direction under s 39 of the 1933 Act or, as the case may be, s 45 of
the Youth ­ 285 Justice and Criminal Evidence Act 1999. Any such order, once made, should be reduced to writing and copies should on request be
made available to anyone affected or potentially affected by it.

The trial
9. The trial should, if practicable, be held in a courtroom in which all the participants are on the same or almost the same level.
10. A young defendant should normally, if he wishes, be free to sit with members of his family or others in a like relationship and in a place which
permits easy, informal communication with his legal representatives and others with whom he wants or needs to communicate.
11. The court should explain the course of proceedings to a young defendant in terms he can understand, should remind those representing a young
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defendant of their continuing duty to explain each step of the trial to him and should ensure, so far as practicable, that the trial is conducted in language
which the young defendant can understand.
12. The trial should be conducted according to a timetable which takes full account of a young defendant’s inability to concentrate for long periods.
Frequent and regular breaks will often be appropriate.
13. Robes and wigs should not be worn unless the young defendant asks that they should or the court for good reason orders that they should. Any
person responsible for the security of a young defendant who is in custody should not be in uniform. There should be no recognisable police presence in
the courtroom save for good reason.
14. The court should be prepared to restrict attendance at the trial to a small number, perhaps limited to some of those with an immediate and direct
interest in the outcome of the trial. The court should rule on any challenged claim to attend.
15. Facilities for reporting the trial (subject to any direction given under s 39 of the 1933 Act or s 45 of the 1999 Act) must be provided. But the
court may restrict the number of those attending in the courtroom to report the trial to such number as is judged practicable and desirable. In ruling on
any challenged claim to attend the courtroom for the purpose of reporting the trial the court should be mindful of the public’s general right to be informed
about the administration of justice in the Crown Court. Where access to the courtroom by reporters is restricted, arrangements should be made for the
proceedings to be relayed, audibly and if possible visually, to another room in the same court complex to which the media have free access if it appears
that there will be a need for such additional facilities.
16. Where the court is called upon to exercise its discretion in relation to any procedural matter falling within the scope of this practice direction but
not the subject of specific reference, such discretion should be exercised having regard to the principles in para 3 above.

Appeal and committals for sentence

17. This practice direction does not in terms apply to appeals and committals for sentence, but regard should be paid to the effect of it if the
arrangements for hearing any appeal or committal might otherwise be prejudicial to the welfare of a young defendant.

Dilys Tausz Barrister.

[2000] 2 All ER 287

Practice Direction (family proceedings: court bundles)

PRACTICE DIRECTIONS
FAMILY DIVISION

Practice – Family proceedings – Hearings – Court bundles.

1. The following practice applies to all hearings in family proceedings in the High Court, to all hearings of family proceedings in the Royal Courts of
Justice and to hearings with a time estimate of half a day or more in all care centres, family hearing centres and divorce county courts (including the
Principal Registry of the Family Division when so treated), except as specified in para 2.3 below, and subject to specific directions given in any particular
case. ‘Hearing’ extends to all hearings before judges and district judges and includes the hearing of any application.
2.1 A bundle for the use of the court at the hearing shall be provided by the party in the position of applicant at the hearing or by any other party who
agrees to do so. It shall contain copies of all documents relevant to the hearing in chronological order, paginated and indexed and divided into separate
sections, as follows: (a) applications and orders; (b) statements and affidavits; (c) experts’ reports and other reports including those of a guardian ad litem,
and (d) other documents, divided into further sections as may be appropriate.
2.2 Where the nature of the hearing is such that a complete bundle of all documents is unnecessary, the bundle may comprise only those documents
necessary for the hearing but the summary (para 3.1(a) below) must commence with a statement that the bundle is limited or incomplete. The summary
should be limited to those matters which the court needs to know for the purpose of the hearing and for management of the case.
2.3 The requirement to provide a bundle shall not apply to the hearing of any urgent application where the circumstances are such that it is not
reasonably practicable for a bundle to be provided.
3.1 At the commencement of the bundle there shall be: (a) a summary of the background to the hearing limited, if practicable, to one A4 page; (b) a
statement of the issue or issues to be determined; (c) a summary of the order or directions sought by each party; (d) a chronology if it is a final hearing or
if the summary under (a) is insufficient; (e) skeleton arguments as may be appropriate, with copies of all authorities relied on.
3.2 If possible the bundle shall be agreed. In all cases, the party preparing the bundle shall paginate it and provide an index to all other parties prior
to the hearing.
3.3 The bundle should normally be contained in a ring binder or lever arch file (limited to 350 pages in each file). Where there is more than one
bundle, each should be clearly distinguishable. Bundles shall be lodged, if practicable, two clear days prior to the hearing. For hearings in the Royal
Courts of Justice bundles shall be lodged with the Clerk of the Rules. All bundles shall have clearly marked on the outside, the title and number of the
case, the hearing date and time and, if known, the name of the judge hearing the case.
4. After each hearing which is not a final hearing, the party responsible for the bundle shall retrieve it from the court. The bundle with any additional
­ 287 documents shall be re-lodged for further hearings in accordance with the above provisions.
5. This direction replaces paras 5 and 8 of the direction ‘Case Management’ dated 31 January 1995 and shall have effect from 2 May 2000 (see
Practice Direction (family proceedings: case management) [1995] 2 FCR 340, [1995] 1 WLR 262).
6. Issued with the approval and concurrence of the Lord Chancellor.

DAME ELIZABETH BUTLER-SLOSS

10 March 2000 President.

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[2000] 2 All ER 289

Gillett v Holt and another

SUCCESSION; Wills

COURT OF APPEAL, CIVIL DIVISION

BELDAM, WALLER AND ROBERT WALKER LJJ
22–25 FEBRUARY, 8 MARCH 2000

Estoppel – Proprietary estoppel – Expectation of inheriting estate – Claimant leaving school at defendant’s suggestion to work on his farm – Claimant
working for defendant for 40 years – Defendant repeatedly assuring claimant that he would leave him bulk of his estate – Defendant dismissing claimant
and excluding him from will – Whether circumstances giving rise to proprietary estoppel.

In 1952 G, who was then 12 years old, met and became friendly with H, a 38-year-old gentleman farmer and bachelor. Four years later G left school on
H’s suggestion to work on his farm, and continued to work for him for nearly 40 years. During that time he moved into a property owned by H’s
company and, through his wife and children, effectively provided H with a surrogate family. Over the course of their relationship, H gave G repeated
assurances, usually before an assembled company on special family occasions, that he would inherit the farm business, and in 1986 executed a will
leaving G his residuary estate. After 1992, the relationship between the two men began to cool, and in 1994 H executed a new will, naming W as chief
beneficiary, but giving pecuniary legacies to G and his family and allowing G to occupy his home for as long as he liked. The following year, H
summarily dismissed G and made another will, excluding G entirely and removing the provision concerning the occupation of his home. G subsequently
brought an action against H and W, claiming an equity in H’s property under the doctrine of proprietary estoppel arising from reliance on the latter’s
assurances. In order to establish the requisite element of detriment, G relied, inter alia, on his failure to seek or accept offers of employment elsewhere or
to go into business on his own account, the carrying out of tasks beyond the normal scope of the employee’s duty and his failure to take substantial steps
to secure his future wealth. The judge held that the representations relied on could not reasonably be construed as an irrevocable promise that G would
inherit, regardless of any change in circumstances, and that in any event he had not suffered sufficient detriment in reliance on H’s assurances.
Accordingly, he dismissed the claim and G appealed.

Held – The doctrine of proprietary estoppel could not be treated as subdivided into three or four watertight compartments. Rather, the quality of the
relevant assurances could influence the issue of reliance which was often intertwined with detriment. Detriment itself was not a narrow or technical
concept, and it need not consist of the expenditure of money or other quantifiable financial detriment, provided that it was something substantial. Thus
detriment had to be approached as part of a broad inquiry as to whether repudiation of an assurance was or was not unconscionable in all the
circumstances. Indeed, all elements of the doctrine were permeated by the fundamental principle that equity was concerned to prevent unconscionable
conduct, and the court had to look at the matter in the round. In the instant case, the judge had erred in holding that H’s assurances were incapable of
forming the foundation for an enforceable claim based on proprietary estoppel. He had also taken too narrowly financial a view of the requirement for
detriment, and had failed to stand back and look at the ­ 289 matter in the round. If he had done so, he would have recognised that detriment was
amply established. Accordingly, the appeal would be allowed (see p 301 e f, p 303 f to j, p 308 c d, p 309 g h, p 310 h j and p 314 c, post).
Taylor v Dickens [1998] 3 FCR 455 criticised.
Decision of Carnwath J [1998] 3 All ER 917 reversed.

Notes
For the elements of proprietary estoppel, see 16 Halsbury’s Laws (4th edn reissue) para 1072.

Cases referred to in judgments

A-G of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] 2 All ER 387, [1987] AC 114, [1987] 2 WLR 343, PC.
Amalgamated Investment and Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1981] 1 All ER 923, [1982] QB 84, [1981] 2 WLR 554;
affd on other grounds [1981] 3 All ER 577, [1982] QB 84, [1981] 3 WLR 565, CA.
Basham (decd), Re [1987] 1 All ER 405, [1986] 1 WLR 1498.
Company, Re a (No 00709 of 1992) [1999] 2 All ER 961, [1999] 1 WLR 1092, HL.
Crabb v Arun DC [1975] 3 All ER 865, [1976] Ch 179, [1975] 3 WLR 847, CA.
Eves v Eves [1975] 3 All ER 768, [1975] 1 WLR 1338, CA.
Goodchild (decd), Re [1997] 3 All ER 63, [1997] 1 WLR 1216, CA; affg [1996] 1 All ER 670, [1996] 1 WLR 694.
Grant v Edwards [1986] 2 All ER 426, [1986] Ch 638, [1986] 3 WLR 114, CA.
Greasley v Cooke [1980] 3 All ER 710, [1980] 1 WLR 1306, CA.
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, Aust HC.
Inwards v Baker [1965] 1 All ER 446, [1965] 2 QB 29, [1965] 2 WLR 212, CA.
Jones v Watkins [1987] CA Transcript 1200.
Layton v Martin [1986] 2 FLR 227.
Pascoe v Turner [1979] 2 All ER 945, [1979] 1 WLR 431, CA.
Plimmer v Mayor of Wellington (1884) 9 App Cas 699, PC.
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Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1981] 1 All ER 897, [1982] QB 133, [1981] 2 WLR 576.
Taylor v Dickens [1998] 3 FCR 455.
Walton v Walton [1994] CA Transcript 479.
Watts v Storey (1983) 134 NLJ 631, [1983] CA Transcript 319.
Wayling v Jones (1993) 69 P & CR 170, CA.
Willis (J) & Son v Willis [1986] 1 EGLR 62, CA.

Appeal
The claimant, Geoffrey Stephen William Gillett, appealed from the decision of Carnwath J ([1998] 3 All ER 917) on 17 June 1998 dismissing his claim
that the first defendant, Kenneth Ancell Holt, had become subject to an obligation founded on proprietary estoppel to bequeath to Mr Gillett substantially
the whole of his estate, which had in fact been bequeathed instead to the second defendant, David Kenneth Wood, under a will dated 20 November 1995.
The facts are set out in the judgment of Robert Walker LJ.

John McDonnell QC and James Aldridge (instructed by Chattertons, Horncastle) for Mr Gillett.
John Martin QC and Keith Rowley (instructed by Roythorne & Co, Spalding) for Mr Holt and Mr Wood.

Cur adv vult

­ 290

8 March 2000. The following judgments were delivered.

ROBERT WALKER LJ (giving the first judgment at the invitation of Beldam LJ). This is an appeal from an order made on 6 July 1998 by Carnwath J,
(see [1998] 3 All ER 917). The order dismissed an action claiming equitable relief based on proprietary estoppel brought by Mr Geoffrey Gillett. Apart
from the main action the judge also heard two separate petitions for relief under s 459 of the Companies Act 1985 (both of which were also dismissed)
and a subsidiary action relating to part of a farm known as The Beeches, Baumber, near Horncastle, in Lincolnshire (in which the judge refused a claim
for possession and made a declaration as to the existence of a protected agricultural tenancy). This appeal is concerned only with the main action, but the
subject matter of the other proceedings spills into the main action, which relates to events spanning over 40 years.

THE FACTS
The undisputed background facts have some unusual features. In 1952, when Mr Gillett first met the first defendant Mr Kenneth Holt, the former
was a schoolboy aged 12 and the latter was a gentleman farmer (and a bachelor) aged 38. Mr Holt’s father had been a farmer in Lincolnshire, but the
family money came from shipping interests in Liverpool. Mr Holt himself began farming on his own in 1936, as tenant of a mixed farm of 536 acres
known as The Limes, Baumber. The farmhouse at The Limes is a substantial house and Mr Holt has lived there since 1936. The landlord, from 1947,
was Merton College Oxford. Since these disputes arose Mr Holt has, through a company, acquired the freehold of The Limes.
Mr Holt had two brothers (one of whom was killed in the 1914–18 war) and one sister but he did not have any nephews or nieces who might have
been expected to benefit from his estate. The surviving brother, Mr Noel Holt, who was born in 1911, plays a peripheral part in the story. Both he and
Mr Holt’s housekeeper, Miss Hilda Bell (who died before the trial) gave witness statements to Mr Gillett’s solicitors and these were admitted in evidence
at the trial.
In 1952 Mr Gillett moved with his parents from Skegness to Woodhall Spa on his father’s promotion from police constable to police sergeant. Mr
Gillett senior (who also plays a peripheral part in the story) went on to be a police inspector and, after his retirement, the chairman of the East Lindsey
District Council. Mr Gillett junior went to Queen Elizabeth’s Grammar School at Horncastle. He first met Mr Holt at Woodhall Spa golf club when he
was earning some pocket money as a caddie. He became Mr Holt’s regular caddie and a friendship developed between them. Mr Gillett said in his
witness statement that despite the difference in their ages they got on well. During his teenage years Mr Gillett was a regular visitor to The Limes,
helping on the farm and sometimes staying at the house. Mr Holt was introduced to Mr Gillett’s parents and got on well with them. They sometimes
played bowls together. Mr Gillett senior acknowledged that he was initially concerned about Mr Holt’s relationship with his son but that after meeting
Mr Holt’s housekeeper he was reassured.
When Mr Gillett junior was 15 Mr Holt proposed that he should leave school and work full-time for Mr Holt. The proposal was that he should work
at The Limes for a year and then go to agricultural college near Lincoln. Mr Gillett’s headmaster was against the plan, as he was expected to take O and
A levels, and his parents had misgivings about it. But they overcame their misgivings and ­ 291 in December 1956, when he was just 16, Mr Gillett
went to work for Mr Holt, living at The Limes from January 1957. He took his meals with Mr Holt and the housekeeper (a predecessor of Miss Bell, who
arrived in 1961). He did not in the end go to agricultural college because Mr Holt thought that he could learn more at The Limes. Mr Holt (from 1957
through his company K A Holt Ltd—‘KAHL’) employed a foreman and four or five other men but Mr Gillett was treated as a trainee rather than a farm
labourer. He was made responsible for the payroll and Mr Holt took him to Nottingham and introduced him to Mr Holt’s accountant who explained
PAYE to him.
During the years when he might have been expected to be studying for his A levels, or in further education, Mr Gillett learned a great deal about
farming, partly from his practical training at The Limes and partly from evening courses and study which he undertook on his own initiative (he said that
Mr Holt was not a believer in college learning). By 1960, when he was twenty, he had introduced a new bookkeeping system and had been given a
degree of responsibility for purchasing spares. This was extended over the next two or three years to responsibility for negotiating supplies of fuel, seeds,
fertilisers and sprays, and for buying and selling machinery and livestock. He introduced Mr Holt to beekeeping, which had been a schoolboy hobby of
his, and at Mr Holt’s suggestion he began his own business of keeping laying poultry and selling eggs. He also enjoyed an active social life with Mr Holt,
with many outdoor activities ranging from golf to shooting and speedboat racing. The only activity from which Mr Gillett was largely excluded was
fishing for salmon and trout, which became an abiding interest of Mr Holt’s from about 1960, taking him on regular trips to Scotland.
In 1958 or 1959 Mr Holt approached Merton College to ask whether it would sell the freehold reversion to the farm. When the college declined this
approach Mr Holt asked whether the tenancy could be put in the joint names of himself and Mr Gillett. The college declined that also (unsurprisingly, if
only because Mr Gillett was still under full age as the law then stood). Mr Holt then made the suggestion, both to Mr Gillett and to his parents, that he
(Mr Holt) should adopt him in order to give Mr Gillett a right of succession to the agricultural tenancy. Nothing came of this but it is an indication of Mr
Holt’s feelings and it is part of the background to the assurances and understandings on which Mr Gillett relied in the main action.
In May 1963 Mr Holt acquired another freehold farm of 236 acres, White House Farm, Waddingworth. This was conveyed into Mr Holt’s own
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name, not to KAHL.
When Mr Gillett was between 18 and 20 Mr Holt was clearly of central importance both to Mr Gillett’s working life and to his social life. Mr Gillett
had some girlfriends, but Mr Holt did not encourage them. Then in 1961 at Horncastle Young Farmers Mr Gillett met and became friendly with Sally
Wingate, the daughter of a tenant farmer on a nearby estate. After some initial coolness on both sides she put herself out to become friends with Mr Holt,
and Mr Holt became friendly both with her and with her father and mother (until their deaths in 1971 and 1984 respectively). Mr Gillett and Miss
Wingate became very close friends and at Easter 1964 they became engaged. They broke the news to Mr Holt who was at first shocked but returned the
next day to his usual friendly manner. During 1964 Mr Gillett senior was transferred from Woodhall Spa to Boston and he and his wife moved away
from the district for about three years. In the summer Mr Holt told Mr Gillett that he (Mr Holt) was going fishing ­ 292 in Iceland and that Mr Gillett
(then aged 24) would be in charge of the harvest. Mr Holt went fishing and Mr Gillett got the harvest in successfully. On his return Mr Holt
congratulated Mr Gillett and, according to Mr Gillett, from then on he retired from day-to-day involvement in the work of the farm.
Then occurred the first of seven incidents which the judge recorded as assurances given by Mr Holt and relied on by Mr Gillett (see [1998] 3 All
ER 917 at 930–932). The judge accepted the Gilletts’ account as factually accurate. The first incident (and some supporting material from the same
period) were described as follows by the judge:

‘… 1964 Harvest
Mr Gillett says that he and Sally (then his fiancée) were taken to dinner by Mr Holt at the Golf Hotel Woodhall Spa. The discussion was in line
with earlier indications but was “more specific”. Mr Holt explained that “as time progressed I would be involved more and more with the farming
business and in due course I would take over the complete running of the farm and when he died the farming business would be left to me in its
entirety”. Mrs Gillett remembers Mr Holt saying that Mr Gillett was going to be in full charge of the farm in due course and “that he also wanted to
leave the farm to Geoff”. There is some support from other witnesses. Mr Gillett’s father speaks of a dinner at Mr Holt’s house at about this time,
at which Mr Holt said he wanted Geoffrey to run the farm which he saw as being “a permanent arrangement” and that “he would see to it that, when
anything happened to himself, Geoffrey and Sally would be secure”. Sally’s brother, Mr Wingate, remembers a conversation at his parents’ house,
at which Mr Holt said “something to the effect that he was going to look after Geoffrey and Sally and that they would have an assured future”. In
paras 13 and 14 of the amended statement of claim these statements are expressed as being to the effect that “upon his death the First Defendant
would bequeath all of his assets to the Plaintiff”. On any view, that is overstating the effect of the evidence, which at most supports a statement of
intention with respect to the farming business.’ (See [1998] 3 All ER 917 at 930–931.)

In December 1964 Mr and Mrs Gillett were married. Before their marriage, but after the dinner with Mr Holt, they had agreed to buy a bungalow
called Rose Bank at Thimbleby, a little over two miles from The Limes. It cost £2,250, provided by a 95% mortgage from the Abbey National and the
balance from Mr Gillett’s savings. Mr Gillett was before his marriage being paid £15 a week by KAHL, but this was raised to £17 on his marriage. This
was one of the few points on which the judge found Mr Gillett’s recollection to be at fault. He also had a modest pension plan arranged by Mr Holt. Mr
Gillett’s evidence was that he and his wife found it difficult to keep up with their mortgage payments, even with help from her earnings. Their first child,
Robert, was born on 18 April 1971.
Robert’s christening was the occasion of the second assurance relied on by Mr Gillett in the main action. The judge made the following finding
about this (at 931):

‘… 1971 Robert’s Christening

Mr Holt attended the christening as Robert’s godfather and gave a speech. The statement of claim (para 27) alleges that he stated words to the
effect that “Robert’s birth would enable the farm to continue to the next generation”. This wording accords with Mr Gillett’s evidence. He says it
did ­ 293 not surprise him because it was already well settled between them that “I would eventually succeed to his farming business”. The
evidence of Sally and Mr Gillett senior is to similar effect.’

Shortly before Robert’s birth there had been an important change in that Mr Holt’s company KAHL, acquired further freehold property and Mr and
Mrs Gillett went to live there. They sold Rose Bank for about £4,000, leaving a net equity in their hands of about £1,500. The purchase of the new land
(103 acres and a farmhouse, then called Hatton Farm, Baumber, now The Beeches) was negotiated and carried through by Mr Gillett, with Mr Holt’s
approval. The price was £28,000 financed by an increased overdraft (which Mr Gillett negotiated as being preferable to an inflexible mortgage loan).
The farmhouse (renamed The Beeches) was in a poor state and the Gilletts carried out repairs and improvements, some at the expense of KAHL and some
at their own expense.
On 16 March 1973 their second son Andrew was born. A few months later a new company, G & H Farms Ltd (G & H) was formed. Mr Holt and
Mr Gillett each had 45% of the shares and Mr Holt’s brother Noel the remaining 10% (which was transferred to Mrs Gillett in 1991). The directors were
Mr Holt and Mr Gillett (who in 1973 were aged 59 and 33 respectively). The idea for the company came from Mr Holt’s accountant in Nottingham, Mr
Ray, who suggested that the new company could hire machinery out to KAHL and build up liquid assets derived from it, and so achieve a legitimate
saving of estate duty on Mr Holt’s death (this was before the replacement of estate duty by capital transfer tax, and a raft of new reliefs for agricultural
and business assets, transformed tax planning for farmers). Mr Holt’s concerns about tax planning may have been prompted partly by the partition,
during 1973, of the Holt family trust, which made a substantial addition to Mr Holt’s disposable assets. Mr Holt freely discussed these matters with Mr
and Mrs Gillett, who assisted Mr Holt with the secretarial side of managing his investments and in the preparation of his tax returns. The Gilletts had in
1967 formed a company of their own, Horncastle Secretarial Services Ltd, which was run by Mrs Gillett and provided secretarial and bookkeeping
services, mainly to farmers (including KAHL). It ceased trading in 1980 but Mrs Gillett continued to work for KAHL and became its employee in 1986.
During the first part of 1974 Mr Holt must have written again to Merton because there was a letter dated 30 April 1974 from the estates bursar to
him. It began:
‘The College policy for re-letting farms to sons of tenants before the death or retirement of the father has, for the last twelve years been that
until the father dies or retires completely, no change can be made. This may seem harsh but there are reasons for it.’
Then after some explanation of the college policy it went on:
‘With regard to Limes Farm, I hope that you will remain our tenant for a great number of years. If your tenancy did end, then the College
would have to decide whether to sell or re-let, as I am sure we would not wish to farm it ourselves. As you know we have no other land near
Baumber with which to amalgamate and 543 acres is rapidly becoming a small unit for the type of land. The College might be tempted to sell but if
it did not then we would want a tenant and Mr Gillett, who I have got to know quite well over the last few years and who I know would make an
excellent tenant so long as he had the necessary finance, would stand a very good chance of getting the tenancy.’
­ 294
The next three instances of assurances given by Mr Holt to Mr Gillett occurred in 1973, 1974 and 1975, and again the judge’s findings about these
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should be set out in full:

‘… Christmas 1973
According to the statement of claim (para 32) Mr Holt held a dinner for Mr and Mrs Gillett at which he “repeated once again that he would
bequeath all his assets” to Mr Gillett, and “specifically stated” that he believed that his non-farming assets would be sufficient to pay the tax
liability on the estate “leaving (at the least) the entirety of his farming business to be passed to the Plaintiff free of liability to tax”. The evidence
does not go so far. According to Mr Gillett’s statement, Mr Holt “reiterated all he had said about leaving K.A. Holt Ltd to Sally and me on his
death and the formation of G & H Farms Ltd”. As I understood his answers in cross-examination, he did not suggest that the representation
extended to “all his assets”. The other assets came into the conversation, because Mr Holt “thought it would be possible” to use them to enable the
farm to be passed on free of tax; he was in consultation with his solicitors and accountants about this. According to Mrs Gillett, Mr Holt said that
he was “looking into the best way of passing assets over but he was worried about the tax side of it” …
1974 Golf Hotel dinner
According to the statement of claim (para 34) Mr Holt told Mr Gillett that he had appointed him executor of his will, and showed him some
papers which “appeared to … indicate” that he had “bequeathed his entire estate” to Mr Gillett. Again Mr Gillett’s evidence is less specific. His
statement says that at a dinner at the Golf Hotel, Mr Holt said that “he had now made his will in our favour”, with him as one of the executors.
Shortly afterwards, at The Limes, Mr Holt showed him a document which he understood to be this will, but he was not given it to read …
1975 Discussion of The Beeches
Mr Gillett says that he asked Ken for something in writing to confirm that The Beeches Farm would be theirs. He was told “that was not
necessary as it was all going to be ours anyway”. Mr Gillett was disappointed but after discussing it with his wife and parents decided “that Ken
was a man of his word so I accepted his assurances”. His statement supports the statement of claim in this respect (para 35). In cross-examination he
said that he understood this as a representation that the farming business would come to him on Mr Holt’s death.’ (See [1998] 3 All ER 917 at
931–932.)

The last of these episodes is referred to in the notice of appeal as ‘The Beeches incident’.
It does not appear from the documents disclosed on discovery that Mr Holt had by this stage made a will in favour of Mr and Mrs Gillett. The
official announcement (in November 1974) of the proposed replacement of estate duty by capital transfer tax, with partially retrospective effect, had a
chilling effect on tax planning at that time. But there is a draft will of Mr Holt prepared in February 1976 appointing Mr Gillett and two others (Mr
George Grant, a local farmer, and Mr Wormald, a Liverpool solicitor) as executors and (after numerous pecuniary legacies and specific legacies of
chattels, many to the members of the Gillett family) settling the residuary estate on trusts under which Mr and Mrs Gillett took successive life interests,
with ulterior trusts of capital in favour of their children (and an ultimate trust, if no child attained a vested interest, for Mr and ­ 295 Mrs Gillett in equal
shares). Another similar draft will, but with Mr Noel Holt as one of the executors in place of Mr Grant, and Mr William Pinfold, another partner in Alsop
Stevens, in place of Mr Wormald, was prepared in March 1977. It is probable but not certain (and may not ultimately be significant) that wills in these
forms were executed by Mr Holt, and destroyed when revoked by a new will. At that time Mr Holt was taking a lot of advice on tax planning from
different quarters, primarily Alsop Stevens (his Liverpool solicitors), Prior & Palmer (his Nottingham accountants) and a firm of insurance brokers. The
judge (at 920) summarised the slow progress in arriving at a tax planning strategy and implementing it:

‘By September 1978 this had crystallised into a decision in principle to give 20% of the shares in KAHL to Mr Gillett, to sell White House
Farm to KAHL, and (subject to tax considerations) to channel future machinery purchases through G & H. The transfer of the shares in KAHL was
not implemented until the end of 1983 when Mr and Mrs Gillett were given 10% each of the shares in KAHL.’

These decisions were documented at the time in the minutes of a meeting held at The Limes on 27 September 1978. The meeting was attended by Mr
Holt, his brother Noel (who took the chair), Mr Palmer and Mr Kennedy of Prior & Palmer, Mr Pinfold of Alsop Stevens and (for part of the meeting) Mr
Gillett.
Shortly afterwards Mr Gillett, at Mr Holt’s request, visited Mr Palmer and expressed some doubts about the effect of the proposals on the liquidity of
the farming business, especially as KAHL was losing its tenancy of a farm called Greenfield Farm. He is also recorded by Mr Palmer (in a letter to Mr
Pinfold) as having expressed personal anxieties:

‘He has also pointed out that the whole family has a record of longevity, and he envisages the possibility that he, Gillett, may reach retirement
age before anything really happens. I pointed out to him that this is highly unlikely, and in any case if it goes anywhere near that I am sure Ken
Holt, having voluntarily taken these steps to try and help Gillett, would do something about it. I also pointed out that Gillett himself, is not
immortal, and if we went too far handing things over at this stage we could well be landed with the classical situation that Ken Holt could be
stripped of a large part of his fortune. I begged him to drive carefully on the way back to Baumber.’

Mr Pinfold’s response was that Mr Gillett should be grateful for anything. Mr Kennedy replied on 15 December saying at the beginning of a long letter:

‘I do not think that Mr Gillett’s comments are necessarily in contradiction of our main conclusion. I think that Peter Palmer and I both tend to
agree with the comments in your letter of 28 November that Mr Gillett is in a way tending to look his gift horse in the mouth. Nevertheless, he is
the business manager used to thinking chiefly in terms of the business and his comments do have some bearing on our proposals. I was myself
unaware of the pending loss of Greenfield Farm and this will obviously have a material effect on the results of the business unless an alternative can
be found.’

The letter then continued with detailed financial projections. This exchange of correspondence is interesting as showing the perceptions of detached
professionals whose instructions came from Mr Holt.
­ 296
In 1979 Merton College was again asked about transferring Mr Holt’s tenancy of The Limes into the joint names of himself and Mr Gillett, but again
this approach came to nothing. The estates bursar wrote to Mr Holt:

‘I fully understand your desire to secure Mr Gillett’s future and I feel it is good of you to be so concerned on his behalf. I am afraid, however,
that it would be quite contrary to the College’s policy to create a joint tenancy with him.’
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Mr Gillett’s own view of the matter appears from some manuscript notes which he prepared, probably in 1981, for a presentation to Mr Holt (which
did not in the event happen, so that the notes were not used). The judge (at 923) set out part of the notes as an expression of what he called Mr Gillett’s
frustrations:

‘“After a long series of intermittent discussions no conclusion has been reached. During this protracted period I have accepted a lower salary in
anticipation of a substantial capital involvement over the years. I believe the time has come that a satisfactory solution must be reached as my total
involvement in the farm must not be allowed to wane. As you are aware I have been for some time frustrated because of your policy of
non-expansion. I ask myself at 40 years old just what on earth I will do with my untapped energy for the times on the farm when it is slack.”’

But the judge commented that there was no evidence before 1992 that his frustrations were reflected in any failings in the management of the farm. In
particular, Mr Gillett’s decision in 1987 to develop on some of the land at The Beeches what he called the Countryside Companions project—a project for
farm diversification first into wild flower seed, and then into the growing of native trees and shrubs, and fish farming—was taken with Mr Holt’s blessing
and support, although Mr Holt did not wish to be a shareholder or director in Countryside Companions (an unlimited company).
There was a good deal of evidence before the judge (uncontradicted by any evidence from the defendants, since they elected to call no evidence) that
Mr Gillett, so far from neglecting the farm business, was energetic, skilful and innovative. One example of many to be found in Mr Gillett’s long witness
statement is his collaboration with ICI in developing a new means of transporting and handling fertiliser:

‘In 1973 I hit on an idea to make easier the handling of bulk fertiliser. I was fed up with all the work involved in lifting bags of fertiliser,
generally packed in 1 cwt bags. Farm mechanisation was increasingly happening and my simple idea was to use bigger bags which could be lifted
by a tractor fitted with fork lifting gear. I discussed this with a contact at ICI which led to trials on the farm in which we co-operated with ICI. The
result was the “big bag” system now universally in use on farms.’

In 1984 Mr Holt celebrated his 70th birthday. His birthday party on 24 March 1984 was the occasion of the sixth assurance on which Mr Gillett
relied in his pleadings. The judge (at 932) made this finding about it:

‘… Mr Holt’s 70th birthday (March 1984)

According to the statement of claim (para 42) there was a party organised by Mr and Mrs Gillett. Mr Holt said that he was pleased that they and
their ­ 297 children “had a very secure future”. This wording accords with Mr Gillett’s statement.’

On 9 June 1986 Mr Holt made a new will. This is the first executed will disclosed on discovery but it probably revoked a will in the form of the
draft prepared in March 1977. It appointed as executors Mr Noel Holt, Mr Gillett and Mr Pinfold. It contained no pecuniary or specific gifts and left the
entire residuary estate to Mr Gillett absolutely (with alternative gifts to Mrs Gillett or to their children at 21 in equal shares, if the gift to Mr Gillett failed).
The seventh and last assurance pleaded by Mr Gillett was made in 1989 when Mr Holt had to go into hospital. The judge made this finding:

‘… 1989 Mr Holt’s operation

According to the statement of claim (para 43), on 21 June 1989, Mr Holt had to go to hospital in Lincoln for a prostate operation. He was taken
there by Mr and Mrs Gillett. He told them that, if anything went wrong with the operation: “It is all yours but I would like you to look after all the
people who have worked for me.” Again this is supported by Mr Gillett’s statement.’

A few months after Mr Holt’s operation in 1989 Mr and Mrs Gillett celebrated their silver wedding by going on a round the world cruise. Mr Holt
was sufficiently recovered to have their younger son Andrew (then 16) to stay with him, and Mr Holt wrote affectionate letters to the elder son, Robert,
signing himself ‘Love from Uncle Ken’. So in 1990 there were still very warm relations between Mr Holt and the Gilletts, and in 1991 Mr Holt made a
codicil appointing Mr Grant as an executor in place of his brother Mr Noel Holt, but otherwise confirming his will.
In 1992, however, things began to change, and relations between Mr Holt and the Gilletts deteriorated rapidly until the final rupture on 27 November
1995, when Mr and Mrs Gillett were summarily dismissed by KAHL after a police investigation (which resulted in no criminal charges) and a
disciplinary hearing.
The primary cause of this dramatic change, after friendships which went back 43 years as between Mr Holt and Mr Gillett, and at least 31 years as
between Mr Holt and Mrs Gillett, was the appearance on the scene in 1992 of Mr David Wood, the second defendant. He was then a trainee solicitor with
Roythorne & Co of Spalding. That firm, principally in the person of Mr Alan Plummer, appears to have played a major part in initiating the police
investigation and conducting the disciplinary hearing against Mr and Mrs Gillett. It has also acted for Mr Holt and Mr Wood in this litigation. But all Mr
Holt’s testamentary instruments appear to have been prepared by Alsop Stevens (or its successor Alsop Wilkinson).
The judge’s findings (at 923) in relation to Mr Wood were as follows:

‘As for the period after 1992, there is no doubt that the primary cause of the rift was the change in Mr Holt’s affections, brought about by Mr
Wood’s appearance on the scene. This is not just the view of the Gillett family, but it is supported by Mrs Bell (Mr Holt’s housekeeper since 1961)
and his brother, Noel. From Mrs Bell’s evidence it is clear that Mr Holt’s relationship with Mr Wood, developed into something of an obsession,
which was of concern to his family and other friends. Not having heard Mr Holt or Mr Wood (although they were sitting together at the back of the
court for most of the trial), I have no reason to doubt her account.
­ 298
By February 1994 this relationship had developed sufficiently for Mr Wood to have replaced Mr Gillett as the principal beneficiary under Mr
Holt’s will.’

In that will Mr Wood became an executor in place of Mr Gillett. Mr Gillett and members of his family took pecuniary legacies totalling £120,000,
but White House Farm, Mr Holt’s shares in KAHL and G & H and his residuary estate were left to Mr Wood. There was a provision for Mr and Mrs
Gillett to occupy the farmhouse and garden at The Beeches for as long as they wished. It is not clear whether this provision was mandatory or precatory
in nature. In Mr Holt’s next will dated 5 April 1995 the legacies to the Gilletts had been reduced to £60,000 but the rest of the will was in substantially
similar form. By 20 November 1995, a week before the disciplinary hearing, the legacies to the Gilletts and the provision for them to stay in The Beeches
farmhouse had disappeared.
As to the substance of the complaints made against Mr and Mrs Gillett at the disciplinary hearing, the judge’s findings were as follows (at 925–926):
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‘… the general impression given by the evidence is that Mr Gillett continued to discharge his duties as a farm manager properly, in spite of his
deteriorating personal relationship with Mr Holt. The final breakdown in the relationship, which came to a head in Roythorne’s letter of 4 October
1995, could not fairly be blamed on Mr Gillett. Notwithstanding the lack of any positive evidence to contradict that impression, Mr Martin QC in
closing persisted with the case that Mr Gillett was “flagrantly in breach” of the trust which Mr Holt was entitled to expect from him, and that such
misconduct was sufficient to destroy any equity which might otherwise arise (see eg J Willis & Son v Willis [1986] 1 EGLR 62). This was based on
a number of specific complaints, which he supported by reference to the documentation and to his cross-examination of Mr Gillett and other
witnesses. They included allegations as to the treatment in the accounts of the area of land occupied by Countryside Companions and the rent paid
by it to KAHL; the arrangements for sale of peas and beans by KAHL to Countryside Companions, which, it is said, were structured to benefit
Countryside Companions at KAHL’s expense; the arrangements for charging for labour as between KAHL and Countryside Companions; an
incident in 1994 when the documentation in respect of the purchase of a tractor was switched by Mr Gillett from KAHL to G & H; and other similar
allegations. Mr Gillett has responded to all these complaints, and has been cross-examined on his explanations. In view of the conclusions I have
reached on the main issues (see below), I do not find it necessary to examine them in detail. I doubt, in any event, whether they would have
affected the overall result. In the first place, it was not these complaints which led to the breakdown in the relationship. They only emerged in the
investigation following the letter of 4 October. Secondly, whether or not I accept Mr Gillett’s explanations, what matters much more is how Mr
Holt would have reacted to these points if he had not by then been looking for reasons to justify the separation. The complaints are largely
concerned with the accounting between KAHL, G & H and Countryside Companions. Although it was understood that proper accounts would need
to be kept between them, if only for tax reasons, for many purposes the businesses were treated as one enterprise. This clearly caused problems
when the Gilletts were confronted by Mr Vestbirk [a farm management consultant whose company took over management of the farms] and Mr
Plummer with the detailed investigation in November 1995.
­ 299
As Mrs Gillett says: “What they didn’t seem to grasp was that the whole thing was treated as one enterprise and it was divided up in this way so
that assets could be passed on to us before Ken died so as to save tax.” Whatever view I might objectively form of the propriety or otherwise of Mr
Gillett’s actions in relation to these matters, it is the perceptions of the parties themselves which matter. In the absence of evidence from Mr Holt, it
is impossible to judge to what extent any of the complaints, if substantiated, would have been regarded by him, before Mr Wood’s intervention, as
sufficient to end a successful relationship of nearly 40 years. Another difficulty is one of basic fairness. It seems to me fundamentally unfair to
make findings against Mr Gillett on serious charges of breach of trust and impropriety, when those who make the charges have not in the event put
their heads above the parapet to support them. If they had given evidence, it would have been possible for them to be cross-examined on the
detailed responses made by Mr Gillett, and I would have had a balanced picture of the true significance of the individual points.’

After his dismissal Mr Gillett commenced the main action against Mr Holt, and (after Mr Gillett learned of lifetime dispositions made by Mr Holt in
favour of Mr Wood) the proceedings were amended to join Mr Wood as second defendant. The other proceedings (a s 459 petition in respect of KAHL
issued by Mr Gillett, a s 459 petition in respect of G & H issued by Mr Holt, and the possession proceedings in respect of The Beeches commenced by
KAHL with a counterclaim for a declaration) also followed. These matters were heard together during twelve days of hearings in April and May 1998
(and would no doubt have taken longer but for the defendants’ decision, described by the judge (at 921–922), not to call any evidence). The amended
statement of claim pleaded the claim in terms of contract as well as estoppel, but the former claim was abandoned at trial.

THE JUDGMENT AND THE NOTICE OF APPEAL

In his reserved judgment the judge made numerous findings of fact (the most important of which are set out above). He made those findings on the
basis that the Gilletts and their witnesses had told the truth, apart from a few errors of recollection. Nevertheless he reached the conclusion that the main
action must be dismissed. He set out his reasons as follows (at 932), in a paragraph headed ‘CONCLUSION’):

‘It is not in dispute that for a long period Mr Holt intended to leave the bulk of his estate to the Gilletts; and that he both made that intention
known to Mr Gillett, and gave effect to it in wills executed by him. (The precise extent of the property covered by those statements from time to
time is less clear.) What I am unable to find in the representations reviewed above is anything which could reasonably be construed as an
irrevocable promise that the Gilletts would inherit, regardless of any change in circumstances. Nor do I believe that Mr Gillett himself did so
construe them. In cross-examination, he accepted that if circumstances had changed materially, for example if Mr Holt had married and had
children, he could not have complained if Mr Holt had made some provision for them. No doubt it was because of this insecurity that he pressed
for something more formal in relation to The Beeches. On that he was unsuccessful. He must have been well aware that his expectations, however
reasonable, were dependent on Mr Holt’s ­ 300 continuing goodwill, and had no legally enforceable foundation. In those circumstances the claim
based on proprietary estoppel must fail.’

The judge went on to say that the claim would in any event have failed because Mr Gillett had not proved himself to have suffered sufficient detriment, in
reliance on Mr Holt’s assurances, to give rise to a proprietary estoppel.
Mr Gillett’s notice of appeal runs to 17 paragraphs, some subdivided, but its main thrust appears from the headings to groups of paragraphs:
‘irrevocability’ (paras 1–6); ‘mutual understanding as to form of reliance’ (paras 7–12); and ‘reliance/detriment’ (paras 13–17). Mr John McDonnell QC
and Mr James Aldridge (appearing in this court, as they did below, for Mr Gillett) have put in a skeleton argument which follows the same lines, but with
a further section on the flexibility of proprietary estoppel. There is no respondent’s notice, and Mr John Martin QC and Mr Keith Rowley (appearing in
this court, as they did below, for Mr Holt and Mr Wood) submit in their skeleton argument that the judge was entirely right to dismiss the action on the
grounds stated in his judgment. The oral argument has followed the same general lines.

PROPRIETARY ESTOPPEL
This judgment considers the relevant principles of law, and the judge’s application of them to the facts which he found, in much the same order as
the appellant’s notice of appeal and skeleton argument. But although the judgment is, for convenience, divided into several sections with headings which
give a rough indication of the subject matter, it is important to note at the outset that the doctrine of proprietary estoppel cannot be treated as subdivided
into three or four watertight compartments. Both sides are agreed on that, and in the course of the oral argument in this court it repeatedly became
apparent that the quality of the relevant assurances may influence the issue of reliance, that reliance and detriment are often intertwined, and that whether
there is a distinct need for a ‘mutual understanding’ may depend on how the other elements are formulated and understood. Moreover the fundamental
principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine. In the end the court must look at the
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matter in the round.
In his discussion of the law the judge took as his starting point the decision of Mr Edward Nugee QC in Re Basham (decd) [1987] 1 All ER 405,
[1986] 1 WLR 1498. In that case the claimant and her husband had helped her mother and her stepfather in all sorts of ways throughout the claimant’s
adult life. She received no remuneration but understood that she would inherit her stepfather’s property when he died. After her mother’s death in 1976,
and until her stepfather’s death in 1982, she and her husband lived near the cottage to which her stepfather had moved (but never lived in the cottage).
The claimant was told by her stepfather that ‘she would lose nothing’ by her help and (a few days before his death) that she was to have the cottage. The
deputy judge held that she was entitled, by proprietary estoppel, to the whole of the estate of her stepfather (who died intestate). He rejected the
submission that the principle could not extend beyond cases where the claimant already had enjoyment of an identified item of property (see [1987] 1 All
ER 405 at 415, [1986] 1 WLR 1498 at 1509–1510). In that context he referred to the well-known judgment of Oliver J in Taylor Fashions Ltd v
Liverpool Victoria Trustees Co Ltd [1981] 1 All ER 897, [1982] QB 133. That judgment has been described as ‘a watershed in the development of
proprietary ­ 301 estoppel’ (Gray Elements of Land Law (2nd edn, 1993) p 324). In it Oliver J stated that in the light of the more recent cases the
principle—

‘requires a very much broader approach which is directed to ascertaining whether, in particular individual circumstances, it would be
unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his
detriment than to inquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal
yardstick for every form of unconscionable behaviour.’ (See [1981] 1 All ER 897 at 915–916, [1982] QB 133 at 151–152.)

Re Basham may be difficult to reconcile with the decision of Scott J in Layton v Martin [1986] 2 FLR 227 which was not cited in Re Basham and
may not have been reported at the time when Mr Nugee heard the case. Nevertheless Re Basham has been referred to at least twice in this court without
its correctness being challenged. In Jones v Watkins [1987] CA Transcript 1200 Slade LJ referred to it as containing a helpful statement of the principle.
Slade LJ’s judgment also contains some important observations about the possibility of proprietary estoppel (unlike promissory estoppel) arising even
from an equivocal representation:

‘At first sight, it may be surprising that a promise to confer an interest in property which is so equivocal in its terms that it would be incapable
of giving rise to a binding contract may be capable of conferring on the promisee a right in equity to a transfer of the whole property. However, I
think that Mrs Hill must be right in describing this as simply one instance of equity supplementing the law. The equivocal nature of the promises
found by the judge is clearly one relevant factor when considering whether or not it would be unconscionable to permit the administrators to rely on
their strict legal title, having regard to any detriment suffered by the plaintiff in reliance on them.’

The other case in which Re Basham has been referred to in this court is Wayling v Jones (1993) 69 P & CR 170. It concerned an assurance (‘It’ll all
be yours one day’) given by the elder partner in a male homosexual relationship to his younger partner. Balcombe LJ (at 172) cited Mr Nugee’s statement
of principle in Re Basham (decd) [1987] 1 All ER 405 at 410, [1986] 1 WLR 1498 1503, as having been accepted by the parties:
‘The plaintiff relies on proprietary estoppel; the principle of which in its broadest form may be stated as follows: where one person (A) has
acted to his detriment on the faith of a belief which was known to and encouraged by another person (B) that he either has or is going to be given a
right in or over B’s property B cannot insist on his strict legal rights if to do so would be inconsistent with A’s belief.’
Balcombe LJ (at 173) went on to state the relevant principles as to reliance and detriment:

‘(1) There must be a sufficient link between the promises relied upon and the conduct which constitutes the detriment—see Eves v. Eves ([1975]
3 All ER 768 at 774, [1975] 1 WLR 1338 at 1345), in particular per Brightman J. Grant v. Edwards ([1986] 2 All ER 426 at 432–433, 438–439,
439, [1986] Ch 638 at 648–649, 655–657, 656), per Nourse L.J. and per Browne-Wilkinson V.-C. ­ 302 and in particular the passage where he
equates the principles applicable in cases of constructive trust to those of proprietary estoppel. (2) The promises relied upon do not have to be the
sole inducement for the conduct: it is sufficient if they are an inducement—(Amalgamated Investment and Property Co Ltd (in liq) v Texas
Commerce International Bank Ltd [1981] 1 All ER 923 at 936, [1982] QB 84 at 104–105). (3) Once it has been established that promises were
made, and that there has been conduct by the plaintiff of such a nature that inducement may be inferred then the burden of proof shifts to the
defendants to establish that he did not rely on the promises—Greasley v. Cooke ([1980] 3 All ER 710, [1980] 1 WLR 1306); Grant v. Edwards
([1986] 2 All ER 426 at 439, [1986] Ch 638 at 657).’

IRREVOCABILITY OF ASSURANCES
The judge referred to these authorities and then to the decision of Judge Weeks QC in Taylor v Dickens [1998] 3 FCR 455 (which has since been
compromised on appeal). That was the case of the elderly lady who said that she would leave her estate to the gardener and did so, but then changed her
mind (without telling him) after he had stopped charging her for his help with gardening and odd jobs. Judge Weeks rejected the claim and (at 472)
criticised Re Basham in two respects. The first criticism was that Mr Nugee’s judgment omitted the requirement of unconscionability. That criticism
seems misplaced: see [1987] 1 All ER 405 at 410 and 414, [1986] 1 WLR 1498 at 1504 and 1509. The second criticism was that

‘… it is not sufficient for A to believe that he is going to be given a right over B’s property if he knows that B has reserved the right to change
his mind. In that case, A must show that B created or encouraged a belief on A’s part that B would not exercise that right.’

For that proposition Judge Weeks referred to the decision of the Privy Council in A-G of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] 2
All ER 387, [1987] AC 114.
Taylor v Dickens has itself attracted a good deal of criticism: see for instance [1998] Conv 210 (Professor M P Thompson) and [1998] Restitution
Law Review 220 (W J Swadling); but compare the contrary view in [1999] Conv 46 (M Dixon). Mr Swadling’s comment is short and pithy:

‘This decision is clearly wrong, for the judge seems to have forgotten that the whole point of estoppel claims is that they concern promises
which, since they are unsupported by consideration, are initially revocable. What later makes them binding, and therefore irrevocable, is the
promisee’s detrimental reliance on them. Once that occurs, there is simply no question of the promisor changing his or her mind.’

Mr McDonnell has added his voice to the criticism. In his skeleton argument he has submitted that Taylor v Dickens is ‘simply wrong’. Mr Martin,
while reminding the court that it is not hearing an appeal in Taylor v Dickens, has not given the case whole-hearted support. He has been inclined to
concede that Judge Weeks should have focused on the promise which was made and whether it was of an irrevocable character, instead of looking for a
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second promise not to revoke a testamentary disposition.
In my judgment these criticisms of Taylor v Dickens are well-founded. The actual result in the case may be justified on the other ground on which it
was put (no unconscionability on the facts); or (as Mr Swadling suggests later in his note) ­ 303 the gardener’s unremunerated services might have
merited some modest restitutionary relief. But the inherent revocability of testamentary dispositions (even if well understood by the parties, as Mr Gillett
candidly accepted that it was by him) is irrelevant to a promise or assurance that ‘all this will be yours’ (the sort of language used on the occasion of The
Beeches incident in 1975). Even when the promise or assurance is in terms linked to the making of a will (as at the 1974 Golf Hotel dinner) the
circumstances may make clear that the assurance is more than a mere statement of present (revocable) intention, and is tantamount to a promise. A-G of
Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd, on which Judge Weeks relied, is essentially an example of a purchaser taking the risk, with his
eyes open, of going into possession and spending money while his purchase remains expressly subject to contract.
Carnwath J (at 929) observed that the advice to the claimant in Taylor v Dickens ‘not to count his chickens before they were hatched’ is—

‘an apt statement of how, in normal circumstances, and in the absence of a specific promise, any reasonable person would regard—and should
be expected by the law to regard—a representation by a living person as to his intentions for his will.’

In the generality of cases that is no doubt correct, and it is notorious that some elderly persons of means derive enjoyment from the possession of
testamentary power, and from dropping hints as to their intentions, without any question of an estoppel arising. But in this case Mr Holt’s assurances
were repeated over a long period, usually before the assembled company on special family occasions, and some of them (such as ‘it was all going to be
ours anyway’ on the occasion of The Beeches incident) were completely unambiguous. With all respect to the judge, I cannot accept the conclusion which
he reached on this point (at 932, a passage which I have already quoted). The judge attached weight to The Beeches incident in reaching his conclusion.
To my mind it is highly significant, but its significance goes the other way. I find it wholly understandable that Mr and Mrs Gillett, then ten years
married and with two young sons, may have been worried about their home and their future depending on no more than oral assurances, however
emphatic, from Mr Holt. The bitterly fought and ruinously expensive litigation which has ensued shows how right they would have been to be worried.
But Mr Gillett, after discussing the matter with his wife and his parents, decided to rely on Mr Holt’s assurances because ‘Ken was a man of his word’.
Plainly the assurances given on this occasion were intended to be relied on, and were in fact relied on. In any event reliance would be presumed (see
Greasley v Cooke [1980] 3 All ER 710, [1980] 1 WLR 1306; Mr Martin accepted that while challenging the suggestion that that case also supported any
presumption of detriment).
It may be that the judge, having gone deeply and correctly into the law of mutual wills in Re Goodchild (decd) [1996] 1 All ER 670, [1996] 1 WLR
694 (affirmed by this court [1997] 3 All ER 63, [1997] 1 WLR 1216) went too far in seeking a parallel between those principles and those of proprietary
estoppel. Mr Nugee also discerned a parallel in Re Basham: see [1987] 1 All ER 405 at 410, [1986] 1 WLR 1498 at 1504. But although both doctrines
show equity intervening to prevent unconscionable conduct, the special feature of the mutual wills and secret trust cases is that they involve not two
parties but three. In mutual wills cases they are (typically) a testator (A), a testatrix (B) and an intended beneficiary or class of beneficiaries (C). In secret
trust cases they are the testator (A), the secret trustee (B) and the beneficiary (C). There must be an ­ 304 agreement between A and B as to conferring a
benefit on C because it is the agreement (and not C’s moral claims) which would make it unconscionable for B to resile from his agreement. The judge
did make clear (at 929 and again at 930) that he was well aware of the differences between mutual wills and proprietary estoppel as regards the need for a
binding contract. But whether or not he was influenced in that way, I differ from his conclusion that Mr Holt’s assurances were incapable of forming the
foundation for an enforceable claim based on proprietary estoppel. In my judgment they were well capable of doing so.
Mr Martin has in two spirited passages of his oral submissions supported the judge’s paragraph headed ‘Conclusion’ (at 932) as containing findings
of fact which the judge reached after seeing and hearing the witnesses (in particular, Mr Gillett, who was cross-examined for the best part of three days).
Mr Martin forthrightly submitted that it was not open to this court to disregard or disturb these findings of fact made by the judge. That submission calls
for serious consideration and it has led to some close textual analysis of the paragraph in question. When the judge stated—‘What I am unable to find in
the representations reviewed above is anything which could reasonably be construed as an irrevocable promise that the Gilletts would inherit, regardless
of any change of circumstances’—he must, it seems to be, have been exaggerating the degree to which a promise of this sort must be expressly made
irrevocable if it is to found an estoppel. As already noted, it is the other party’s detrimental reliance on the promise which makes it irrevocable. To that
extent the judge seems to have misdirected himself as to what he was looking for in the facts.
Mr Gillett was cross-examined at length about some increasingly improbable eventualities: that Mr Holt would marry his housekeeper, that he would
have children, that his elderly sister would suddenly lose all her investments and turn to him for help. Mr Gillett naturally enough conceded that in those
circumstances Mr Holt could or would have made some provision for these moral obligations. But he stuck resolutely to the promises made to him
(transcript of 27 April 1998, p 24): ‘I am aware that promises were made by Mr Holt to me and I continued through 40 years of my life on the basis of
those promises …’ and on the next page: ‘This was a partnership arrangement effectively between Ken and [me] over many, many years and hypothetical
situations like that are inappropriate I would have thought.’
The last two sentences of the Conclusion paragraph begin ‘No doubt it was because of this insecurity‘ and ‘He must have been well aware‘. Neither
of these sentences can readily be described as a simple finding of primary fact. Moreover the second sentence does, with great respect to the judge, beg
the whole question, because Mr Gillett was not in the witness box to take part in a seminar on the elements of proprietary estoppel (although parts of his
cross-examination suggest otherwise). He was there to give evidence, which was largely unchallenged and which the judge accepted, about the assurances
made to him and his detrimental reliance on them. Whether those assurances put his expectations on a legally enforceable foundation was not a question
for him. But unfortunately he was right in his instinct that his lack of success in getting Mr Holt to give him anything more formal might lead to tears.
I would if necessary take the view that these alleged findings of fact in the Conclusion paragraph were against the weight of the evidence. But it is
not necessary to go that far. They are not simple findings of fact, and they take their colour from the judge having misdirected himself as to what he was
looking for.
­ 305

MUTUAL UNDERSTANDINGS AND RELIANCE

The judge’s approach seems also to have been influenced by the need to find what he called (at 929)—

‘a mutual understanding—which may be expressed or inferred from conduct—between promisor and promisee, both as to the content of the
promise and as to what the promisee is doing, or may be expected to do, in reliance on it.’

Similarly he set out his view (at 932) that ‘the Re Basham principle requires some mutual “understanding” as to the quid pro quo [ie the consideration] for
the promise …’
Here again I think that the judge may have been too influenced by the cases on mutual wills in which a definite agreement is an essential part of the
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doctrine. There is of course a kernel of truth, indeed a considerable nugget of truth in this approach, because (as Balcombe LJ said in Wayling v Jones
(1993) 69 P & CR 170, and other distinguished judges said in the earlier cases which he cited) there must be a sufficient link between the promises relied
on and the conduct which constitutes the detriment. In cases where the detriment involves the claimant moving house (as in Watts v Storey (1983) 134
NLJ 631, [1983] CA Transcript 319) or otherwise taking some particular course of action at the other party’s request, the link is, in the nature of things,
going to have some resemblance to the process of offer and acceptance leading to a mutual understanding. But in other cases well within the mainstream
of proprietary estoppel, such as Inwards v Baker [1965] 1 All ER 446, [1965] 2 QB 29 and the nineteenth century decisions which this court applied in
that case, there is nothing like a bargain as to what particular interest is to be granted, or when it is to be granted, or by what type of disposition it is to be
granted. The link is provided by the bare fact of A encouraging B to incur expenditure on A’s land.
The judge seems to have recognised this point when he said (at 930):

‘It may be easier to infer a fixed intent when the subject matter is a particular property, which the plaintiff has been allowed to enjoy in return
for services, than in relation to a whole estate.’

But when he got to his conclusion he was taking too restricted a view of the first essential element of this very flexible doctrine. If it had been
necessary to find a mutual understanding in this case, the judge might readily have found it in Mr Holt promising to reward Mr Gillett for his past, present
and future loyalty and hard work which (backed up by that of Mrs Gillett) made Mr Holt’s life more pleasant and prosperous. That seems to have been
the general theme of the speech which Mr Holt made on the occasion of his 70th birthday party in 1984. It also seems to be reflected in an exchange in
Mr Martin’s cross-examination of Mr Gillett (transcript of 27 April 1988, p 24),

‘[Question] … Let us take an example, you say, as I understand it, that Ken’s promises were not a one-way street. You had obligations too.
You were obliged to provide companionship and keep on working for him? [Answer] Yes, that’s fair.’

But particular findings of that sort were not necessary because Mr Gillett had abandoned his claim in contract.
­ 306

DETRIMENT
It is therefore necessary to go on to consider detriment. The judge would have decided the case against Mr Gillett on this point also, as he indicated
at the end of his judgment in the main action (see [1998] 3 All ER 917 at 932–936). The judge devoted almost all of this part of his judgment to an
analysis of whether Mr Gillett was substantially underpaid between 1965 and 1995. He dealt with the other matters relied on as detriment in a manner
which Mr McDonnell has described as perfunctory.
It is understandable that the judge devoted most attention to the issue of Mr Gillett being underpaid because that was the issue (affecting detriment)
on which most time was spent in cross-examination, and on which Mr Martin seems to have made most progress. It was therefore particularly expedient
for the judge to record his findings about it. Mr McDonnell called a distinguished expert witness, Professor A K Giles OBE, Emeritus Professor of Farm
Management in the University of Reading. Professor Giles had prepared a report the general effect of which was to compare Mr Gillett’s salary, bonuses
and other benefits during his working life (as reported by Mr Gillett) with those reported by farm managers who participated in surveys conducted (at
intervals of four or five years) by the farm management unit of the University of Reading. The results of the comparison are summarised in app 6 and app
7 to Professor Giles report (but those appendices must of course be read subject to all the explanations and qualifications in the body of the report).
Professor Giles concluded that over the whole period from 1964 to 1995 Mr Gillett had received earnings and benefits amounting to about 80% of
the average disclosed by the survey, whereas his above-average level of responsibility would have justified earnings and benefits 5 to 10% above the
average. The judge noted and accepted two main criticisms of this conclusion, in addition to the small size of the sample on which the average was based:
first, that some of Mrs Gillett’s earnings from KAHL were in effect a redistribution of those of her husband; and second, that no account was taken of the
time which Mr Gillett was, after 1988, devoting to the business of Countryside Companions. The judge said that he was not persuaded, on the evidence,
that Mr Gillett did in fact receive less than a reasonable wage for his services as a manager, or that he did so as part of an understanding related to his
expectations, and that conclusion has not been seriously challenged in this court. The judge then said (at 936):
‘Various other matters were relied on by Mr Gillett in support of his case of “detriment”: for example his refusal of inquiries from other
employers, the limited provision made for his pension, the domestic tasks undertaken by him and Sally for Mr Holt, and the money spent by him on
improving The Beeches. Against that, he acknowledges that Mr Holt was generous with gifts to the family, in paying Robert’s school fees, and in
other ways. It is impossible and inappropriate to attempt to weigh the balance of advantage and disadvantage. The Gilletts decided at an early
stage that their future lay with Mr Holt, and as with most human relationships that involved obligations and compensations. I cannot find in them
such a balance of “detriment” as to support the case for a legally enforceable obligation.’
Both sides agree that the element of detriment is an essential ingredient of proprietary estoppel. There is one passage in the judgment of Lord
Denning MR in Greasley v Cooke [1980] 3 All ER 710 at 713, [1980] 1 WLR 1306 at 1311 which suggests that any action in reliance on an assurance is
sufficient, whether or not ­ 307 the action is detrimental. In Watts v Storey Dunn LJ (who was a party to the decision in Greasley v Cooke) explained
Lord Denning MR’s observations as follows:

‘Nor, if that passage from Lord Denning MR’s judgment is read as a whole, was he stating any new proposition of law. As the judge said, it
matters not whether one talks in terms of detriment or whether one talks in terms of it being unjust or inequitable for the party giving the assurance
to go back on it. It is difficult to envisage circumstances in which it would be inequitable for the party giving an assurance alleged to give rise to a
proprietary estoppel, ie an estoppel concerned with the positive acquisition of rights and interests in the land of another, unless the person to whom
the assurance was given had suffered some prejudice or detriment.’

The overwhelming weight of authority shows that detriment is required. But the authorities also show that it is not a narrow or technical concept.
The detriment need not consist of the expenditure of money or other quantifiable financial detriment, so long as it is something substantial. The
requirement must be approached as part of a broad inquiry as to whether repudiation of an assurance is or is not unconscionable in all the circumstances.
There are some helpful observations about the requirement for detriment in the judgment of Slade LJ in Jones v Watkins [1987] CA Transcript 1200.
There must be sufficient causal link between the assurance relied on and the detriment asserted. The issue of detriment must be judged at the moment
when the person who has given the assurance seeks to go back on it. Whether the detriment is sufficiently substantial is to be tested by whether it would
be unjust or inequitable to allow the assurance to be disregarded—that is, again, the essential test of unconscionability. The detriment alleged must be
pleaded and proved.
As authority for the second of these observations Slade LJ referred to Spencer Bower and Turner Law Relating to Estoppel by Representation (3rd
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edn, 1977) p 110, which in turn cites the judgment of Dixon J in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 674–675 (High Court
of Australia):

‘One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of
affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the
assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party
asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no
misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party
asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This
means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the
assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot
complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then,
if it is allowed, his own original change of position will operate as a detriment. His action or ­ 308 inaction must be such that, if the assumption
upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of
himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice.’

This passage was not directed specifically to proprietary estoppel, but Slade LJ was right, in my respectful view, to treat it as applicable to proprietary
estoppel as well as to other forms of estoppel.
The point made in the passage may be thought obvious, but sometimes it is useful to spell out even basic points. If in a situation like that in Inwards
v Baker, a man is encouraged to build a bungalow on his father’s land and does so, the question of detriment is, so long as no dispute arises, equivocal.
Viewed from one angle (which ignores the assurance implicit in the encouragement) the son suffers the detriment of spending his own money in
improving land which he does not own. But viewed from another angle (which takes account of the assurance) he is getting the benefit of a free building
plot. If and when the father (or his personal representative) decides to go back on the assurance and assert an adverse claim then (as Dixon J put it) ‘if
[the assertion] is allowed, his own original change of position will operate as a detriment’.
The matters which Mr Gillett pleaded as detriment, and on which he adduced evidence of detriment, included, apart from the level of his
remuneration, (i) his continuing in Mr Holt’s employment (through KAHL) and not seeking or accepting offers of employment elsewhere, or going into
business on his own account; (ii) carrying out tasks and spending time beyond the normal scope of an employee’s duty; (iii) taking no substantial steps to
secure his future wealth, either by larger pension contributions or otherwise; and (iv) expenditure on improving The Beeches farmhouse which was, Mr
Gillett said, barely habitable when it was first acquired by KAHL in 1971. That company paid for some structural work, with a local authority
improvement grant, but Mr Gillett paid for new fittings and materials and carried out a good deal of the work himself. The details are set out in part 3 and
app 1 of Mr Gillett’s witness statement.
I have to say that I see some force in Mr McDonnell’s criticism of the judge’s approach to this part of the evidence (although the judge, having
decided the main action on the issue of assurances, was not obliged to cover the issue of detriment in great detail). After listening to lengthy submissions
about the judgment, and after reading much of Mr Gillett’s evidence both in his witness statement and under cross-examination, I am left with the feeling
that the judge, despite his very clear and careful judgment, did not stand back and look at the matter in the round. Had he done so I think he would have
recognised that Mr Gillett’s case on detriment (on the facts found by the judge, and on Mr Gillett’s uncontradicted evidence) was an unusually compelling
one.
In my judgment the cumulative effect of the judge’s findings and of the undisputed evidence is that by 1975 (the year of The Beeches incident) Mr
Gillett had an exceptionally strong claim on Mr Holt’s conscience. Mr Gillett was then 35. He had left school before he was 16, without taking any of
the examinations which might otherwise have given him academic qualifications, against the advice of his headmaster and in the face of his parents’
doubts, in order to work for and live with a 42-year-old bachelor who was socially superior to, and very much wealthier than, his own parents. Mr Holt
seriously raised the possibility of adopting him. Mr Holt’s influence extended to Mr Gillett’s social and private life ­ 309 and it seems to have been
only through the diplomacy of Miss Sally Wingate (as she then was) that Mr Holt came to tolerate, and then accept, the notion of Mr Gillett having a
girlfriend. Mr Holt had said that he would arrange for Mr Gillett to go to agricultural college but then did not arrange it, and it was only through Mr
Gillett’s own hard work and determination that he learned additional skills at evening classes. He proved himself by getting in the harvest in 1964 when
Mr Holt was away fishing. All these matters preceded the first of the seven assurances on which Mr Gillett relied, so they are in a sense no more than
background. But they are very important background because they refute Mr Martin’s suggestion (placed in the forefront of his skeleton argument) that
Mr Gillett’s claim should be regarded as a ‘startling’ claim by someone who was no more than an employee. On the contrary, Mr McDonnell was not
putting it too high when he said that for thirty years Mr and Mrs Gillett and their sons provided Mr Holt with a sort of surrogate family.
However a surrogate family of that sort is not the same as a birth family, and it is clear that Mr Gillett and his wife must often have been aware of the
ambivalence of their position. Mr Holt was generous but it was the generosity of the patron; his will prevailed; Mr and Mrs Gillett were expected to, and
did, subordinate their wishes to his (compare Re Basham (decd) [1987] 1 All ER 405 at 411, [1986] 1 WLR 1498 at 1505). One telling example of this
was over the education of their sons. Mr Holt decided that he would like to pay for the Gilletts’ elder son, Robert, to go to Mr Holt’s old school
(Greshams in Norfolk). The offer did not extend to their younger son, Andrew, and the Gilletts not unnaturally felt that if one boy was to go to boarding
school then both should go. In the end Robert went to Greshams and Andrew to a less well-known boarding school at Grimsby, and Mr and Mrs Gillett
used some maturing short-term endowment policies and increased their overdraft in order to bear half the combined cost of the school fees and extras.
Mr Gillett also incurred substantial expenditure on the farmhouse at The Beeches, most of it after the clear assurance which Mr Holt gave him when,
in 1975, he ventured to ask for something in writing: ‘… that was not necessary as it was all going to be ours anyway.’ This was after the Gilletts had
sold their own small house at Thimbleby and so had stepped off the property owning ladder which they had got on to in 1964.
It is entirely a matter of conjecture what the future might have held for the Gilletts if in 1975 Mr Holt had (instead of what he actually said) told the
Gilletts frankly that his present intention was to make a will in their favour, but that he was not bound by that and that they should not count their
chickens before they were hatched. Had they decided to move on, they might have done no better. They might, as Mr Martin urged on us, have found
themselves working for a less generous employer. The fact is that they relied on Mr Holt’s assurance, because they thought he was a man of his word,
and so they deprived themselves of the opportunity of trying to better themselves in other ways. Although the judge’s view, after seeing and hearing Mr
and Mrs Gillett, was that detriment was not established, I find myself driven to the conclusion that it was amply established. I think that the judge must
have taken too narrowly financial a view of the requirement for detriment, as his reference to ‘the balance of advantage and disadvantage’ (at 936)
suggests. Mr Gillett and his wife devoted the best years of their lives to working for Mr Holt and his company, showing loyalty and devotion to his
business interests, his social life and his personal wishes, on the strength of clear and repeated assurances of testamentary benefits. They received (in
1983) 20% of the shares in KAHL, which must be regarded as received in ­ 310 anticipation of, and on account of, such benefits. Then in 1995 they
had the bitter humiliation of summary dismissal and a police investigation of alleged dishonesty which the defendants called no evidence to justify at trial.
I do not find Mr Gillett’s claim startling. Like Hoffmann LJ in Walton v Walton [1994] CA Transcript 479 I would find it startling if the law did not give
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a remedy in such circumstances.

SATISFYING THE EQUITY

Since Mr Gillett has established his claim to equitable relief, this court must decide what is the most appropriate form for the relief to take. The aim
is (as Sir Arthur Hobhouse said in Plimmer v Mayor of Wellington (1884) 9 App Cas 699 at 714) to ‘look at the circumstances in each case to decide in
what way the equity can be satisfied’. The court approaches this task in a cautious way, in order to achieve what Scarman LJ (in Crabb v Arun DC [1975]
3 All ER 865 at 880, [1976] Ch 179 at 198) called ‘the minimum equity to do justice to the plaintiff’. The wide range of possible relief appears from
Snell’s Equity (30th edn, 1999) pp 641–643.
In this case the satisfaction of the equity presents unusually difficult problems. Often (as in Inwards v Baker or Re Basham) the property in dispute
is a small house or a small house and some modest savings and the litigants are not wealthy enough to be much troubled by inheritance tax, capital gains
tax or Sch E tax on ‘golden handshakes’. In this case, by contrast, it is necessary to take account of taxes and the constraints of company law. Since the
litigation began Mr Holt has made some very substantial gifts in favour of Mr Wood. These have involved some complex manoeuvres (although these
seem to have been inspired by legitimate tax planning considerations, and not by a desire to put assets beyond Mr Gillett’s reach). It is therefore
necessary to summarise the present position (as it was explained to this court on instructions).
In April 1997 the freehold in the Limes was acquired from Merton College for £1,251,000. The purchase price originated from Mr Holt, but the
transactions were structured with the use of a nominee company so as to keep Mr Holt’s tenancy in existence until Mr Holt had completed other
dispositions which he wished to make in favour of Mr Wood. The position on the ground is now as follows:

The Limes farmhouse (with about 19 acres and two cottages in Baumber)
Mr Wood is now legal and beneficial owner with vacant possession. A minor complication (but an important one from the Gilletts’ point of view) is
that on part of the 19 acres there are polytunnels (prefabricated polythene greenhouses) in which Mr Gillett has started off trees and shrubs for the
business of Countryside Companions. It has recently been decided that Countryside Companions does not have an agricultural tenancy of these structures
and the land which they occupy.

White House Farm (235 acres)

Mr Wood has been legal and beneficial owner since April 1996. The land is in hand and farmed under a contract farming agreement by Aubourn
Farming Ltd (Aubourn).

The Limes farmland (520 acres)

The freehold is held by KAHL as legal and beneficial owner, but KAHL owes £1m to Edgescan Ltd (Edgescan), its controlling shareholder (see
below). This borrowing is unsecured. The tenancy has come to an end. The land is in hand and farmed by Aubourn.
­ 311

The Beeches (105 acres)

This land has the most complicated pattern of ownership and occupation. The freehold belongs to KAHL, as it has since 1971, subject to a bank
mortgage. The farmhouse is occupied by Mr and Mrs Gillett under a tenancy to Mr Gillett which has limited protection under the Rent (Agriculture) Act
1976. The rent is £70 a week. The central area of the land and a small area at the east end (in all about 39 acres) are occupied by Countryside
Companions under a tenancy protected by the Agricultural Holdings Act 1986. The rest of the land is in hand and farmed by Aubourn; this year’s crop is
wheat.

KAHL
This company has an issued capital of 2,500 £1 shares, 1,999 (80%) of which are held by Edgescan, 251 (10%) by Mr Gillett and 250 (10%) by Mrs
Gillett. It has an unsecured liability of £1m to Edgescan and a further liability (secured on The Beeches) of an unknown amount to the bank. The court
was not told about any other assets which it owns, or of the precise terms of its contract farming arrangement with Aubourn.

Edgescan
This company is owned as to 70% by Mr Holt and as to 30% by Mr Wood. Mr Holt and Mr Wood do therefore have complete control of Edgescan
and (through Edgescan) they have voting control of KAHL, including control on questions which require a 75% majority.
In my judgment the extent of Mr Holt’s property in respect of which the equity is established is Mr Holt’s farming business as the parties would have
contemplated it during the period when the assurances were given and down to the time when those assurances were repudiated. That is a long period and
a broad approach is necessary. The property extended to the tenancy of The Limes, to the freehold of The Beeches and to the freehold of White House
Farm. It did not extend to the tenancy of Greenfield Farm (which had come and gone in the ordinary course of events) or to the freehold of The Limes
(acquired only in 1997). Nor did it extend to the rest of Mr Holt’s assets, even though he did between 1976 and 1991 plan to leave almost his entire estate
to the Gilletts. During the late 1970’s there were prolonged discussions about tax planning (in which Mr Gillett had some involvement) and it was at that
time contemplated that most of Mr Holt’s other assets might be required in order to pay capital transfer tax on the farming assets. Since then the relevant
agricultural and business reliefs have become more extensive (although how long they will remain in their present form is of course unpredictable).
That is in my view the maximum extent of the equity. The court’s aim is, having identified the maximum, to form a view as to what is the minimum
required to satisfy it and do justice between the parties. The court must look at all the circumstances, including the need to achieve a ‘clean break’ so far
as possible and avoid or minimise future friction (see Pascoe v Turner [1979] 2 All ER 945 at 951, [1979] 1 WLR 431 at 438–439).
In satisfying the equity it is not necessary to resort to the court’s special jurisdiction under ss 459 and 461 of the 1985 Act, since Mr Holt and Mr
Wood are before the court and they have completed control (subject to the constraints of company law and tax law) of Edgescan and its 80% subsidiary,
KAHL. Nor would it be appropriate to exercise that statutory jurisdiction unless the case for its exercise is made out, on the principles explained by the
­ 312 House of Lords in Re a Company (No 00709 of 1992) [1999] 2 All ER 961, [1999] 1 WLR 1092. The judge did not have the benefit of that
decision but it confirms his view that the case was not made out in relation to KAHL, in which Mr Gillett did not have any significant holding until 1983
(he was given a single share much earlier, in 1964, when he became company secretary). The judge said (at 940):

‘Any hopes Mr Gillett may have had of becoming the owner of the company were in his personal capacity as a potential heir to Mr Holt. They
were not expectations on which he was entitled to rely in his capacity as a shareholder of KAHL. Indeed, they predated his becoming a
shareholder.’
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Apart from the formality of the single share, I agree with that; and I agree with the judge’s conclusion that Mr Gillett’s s 459 petition should be dismissed.
Nevertheless it is most desirable that the Gilletts should be disentangled from KAHL, just as Mr Holt has (as part of the terms of settlement of
another part of the litigation) been disentangled from G & H. I think that the court should therefore take on itself the responsibility for directing the
general machinery to be adopted in order to satisfy the equity, while leaving the parties and their advisers some room for discussion and manoeuvre
(which they will, I hope, use constructively in the knowledge that they may still be neighbours for some years to come). One decision (for Mr Gillett and
his advisers alone) will be whether he and his wife, as (virtually) equal shareholders in KAHL, should participate equally in the satisfaction of the equity,
or whether Mr Gillett as sole claimant should take the whole benefit of his success in the appeal.
I would dispose of the appeal in the main action by allowing it and substituting for the judge’s order directions on the following lines.

THE SUBSTANCE OF THE RESULT TO BE ACHIEVED

Mr and Mrs Gillett are to be entitled to the freehold of the whole of The Beeches (that is the farmhouse, the land occupied by Countryside
Companions and the land farmed under contract by Aubourn) together with the sum of £100,000 to compensate for the exclusion of Mr Gillett from all
the rest of the farming business. That figure represents an overall assessment of what the justice of the case requires, taking account of numerous matters
large and small, including Mr Gillett’s exceptionally long and devoted service on the one hand and the element of acceleration on the other hand.
Liability for rent in respect of The Beeches will cease at once but Aubourn will be entitled to get in this year’s harvest unless the parties agree otherwise.
The bank mortgage must be discharged or shifted to other assets of KAHL. The £100,000 will carry interest at 5% per annum from today. I do not
exclude the possibility of some or all of that sum being satisfied (by agreement between the parties) by the transfer of other assets in specie, but I
recognise that the layout of the properties, and the need for a clean break, may make such an agreement unlikely. It seems clear that the freehold of The
Beeches plus £100,000 must exceed the net assets value of the Gilletts’ 20% shareholdings in KAHL; but to the extent that it does not exceed that value,
the distribution must be made either in satisfaction of (or otherwise in consideration of) their shareholdings.

THE GENERAL MACHINERY TO ACHIEVE THAT RESULT

Since there will also be liabilities for costs, it seems almost inevitable that KAHL will have to be put into liquidation to enable some or all of its
assets to be sold or distributed in specie to its shareholders (Edgescan also being a substantial ­ 313 unsecured creditor). It may be that the requisite
distribution in specie will require some preliminary action by Mr Holt and Mr Wood, as controllers of Edgescan, so as to bring the Gilletts’ combined
shareholdings in KAHL up to a level proportionate to what they are to receive (a deeply discounted rights issue of new KAHL shares, not taken up by
Edgescan, might be one possibility). Alternatively Mr Holt and Mr Wood might prefer to make up some or all of the disparity by transfers of assets not
held within the Edgescan group. They and their advisers must have the opportunity to consider the possibilities. The aim is not to inflict penal
consequences on them, but to satisfy Mr Gillett’s equity, end Mr and Mrs Gillett’s minority shareholdings in KAHL, and give both sides the freedom to
lead their own lives for the future.
I would therefore allow the appeal in the main action but dismiss the appeal in the s 459 petition relating to KAHL.

WALLER LJ. I agree.

BELDAM LJ. I also agree.

Appeal allowed. Permission to appeal to the House of Lords refused.

Celia Fox Barrister.

[2000] 2 All ER 315

Victor Chandler International v Customs and Excise Commissioners and another

LEISURE AND LICENSING

COURT OF APPEAL, CIVIL DIVISION

SIR RICHARD SCOTT V-C, CHADWICK AND BUXTON LJJ
1, 29 FEBRUARY 2000

Gaming – Betting – Bookmaker – Statutory provision prohibiting advertising in relation to bets placed with bookmaker outside United Kingdom –
Offshore bookmaker wishing to advertise its odds on Teletext service in United Kingdom – Whether such advertising breaching statutory prohibition –
Betting and Gaming Duties Act 1981, s 9.

VCI, a Gibraltarian company which operated an offshore credit-betting business for non-United Kingdom residents, wished to extend its business to serve
United Kingdom residents by placing advertisements, setting out its odds, on the Teletext service operated by T Ltd. The proposed advertising would
have involved the electronic transmission of information from VCI’s computers in Gibraltar to T Ltd’s central editing system in the United Kingdom, and
its further transmission to T Ltd’s remote databases at major television transmitter sites. The information would then be broadcast as Teletext pages
alongside certain television channels. VCI asked the Customs and Excise Commissioners to confirm that such advertising would not constitute a breach
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of s 9(1)(b)a of the Betting and Gaming Duties Act 1981. That provision, which had originally been enacted in the Finance Act 1952, made it an offence
for a person knowingly to issue, circulate or distribute in the United Kingdom any advertisement or other document inviting or otherwise relating to the
placing of bets with a bookmaker outside the United Kingdom. When the commissioners refused to give the confirmation sought, VCI applied to the
court for a declaration that the proposed advertising would not constitute a breach of s 9(1)(b). That application was granted by the judge who held that s
9(1)(b) was limited to advertisements in documentary form and that the means by which advertisements on Teletext were made available for viewing did
not involve the issue, circulation or distribution of any document. The commissioners appealed.
________________________________________
a Section 9(1), so far as material, is set out at p 317 c d, post
________________________________________

Held – On its true construction, s 9(1)(b) of the 1981 Act applied to advertisements stored in electronic form and broadcast for viewing on television
screens. A conclusion to the contrary would seriously undermine the purpose of s 9(1)(b), namely the protection of the revenue derived from betting
within the United Kingdom and the protection of domestic bookmakers from unfair competition by off-shore bookmakers. Moreover, it would take
insufficient account of the technological advances that had taken place since 1952. Although Parliament could not then have contemplated the means by
which advertisements could be created, circulated and distributed electronically, there was no difference, so far as the mischief at which s 9(1)(b) was
aimed, between the proposed advertisements and those inserted in a newspaper or periodical, recorded on a film and projected on a cinema screen or
recorded on a film and broadcast for viewing on television screens. It followed that s 9(1)(b) was to be ­ 315 given an ‘always speaking’ construction,
taking account of developments which had taken place since that provision was first enacted, even though it created a criminal offence. On such a
construction, VCI’s advertisements were an ‘advertisement or other document’ within the meaning of s 9(1)(b), and, in finding their way to television
screens in the United Kingdom, were issued, circulated or distributed for the purposes of that provision. Accordingly, the appeal would be allowed (see p
321 f g, p 322 a d, p 323 g to j, p 324 a to e g h, p 328 a to g, p 329 d and p 330 a b, post).
R v Westminster City Council, ex p A (1997) 9 Admin LR 504 and Fitzpatrick v Sterling Housing Association Ltd [1999] 4 All ER 705 considered.
Decision of Lightman J [2000] 1 All ER 160 reversed.

Notes
For the prohibition on advertising relating to bets placed with a bookmaker outside the United Kingdom, see 4(1) Halsbury’s Laws (4th edn reissue) para
185.
For the Betting and Gaming Duties Act 1981, s 9, see 5 Halsbury’s Statutes (4th edn) (1998 reissue) 278.

Cases referred to in judgments

Alliance & Leicester Building Society v Ghahremani [1992] RVR 198.
Derby & Co Ltd v Weldon (No 9) [1991] 2 All ER 901, [1991] 1 WLR 652.
Fitzpatrick v Sterling Housing Association Ltd [1999] 4 All ER 705, [1999] 3 WLR 1113, HL.
Grant v Southwestern and County Properties Ltd [1974] 2 All ER 465, [1975] Ch 185, [1974] 3 WLR 221.
R v Ireland, R v Burstow [1997] 1 All ER 112, [1997] QB 114, [1996] 3 WLR 650, CA; affd [1997] 4 All ER 225, [1998] AC 147, [1997] 3 WLR 534,
HL.
R v Westminster City Council, ex p A (1997) 9 Admin LR 504, CA.
Rollo v HM Advocate 1997 SLT 958, HC of Just.

Appeal
The first defendant, the Commissioners of Customs and Excise, appealed with permission of Lightman J from his decision on 16 July 1999 ([2000] 1 All
ER 160, [1999] 1 WLR 2160) granting an application by the claimant, Victor Chandler International Ltd (VCI), for a declaration that proposed
advertising by VCI on the Teletext service operated by the second defendant, Teletext Ltd, would not constitute a breach of s 9 of the Betting and Gaming
Duties Act 1981. The second defendant took no part in the appeal or the proceedings below. The facts are set out in the judgment of Sir Richard Scott
V-C.

Philip Sales and Timothy Pitt-Payne (instructed by the Solicitor for the Customs & Excise) for the commissioners.
David Oliver QC and Mark Cunningham (instructed by Goldsmiths) for VCI.

Cur adv vult

29 February 2000. The following judgments were delivered.

SIR RICHARD SCOTT V-C.

1. This appeal raises a narrow question of construction of s 9(1)(b) of the Betting and Gaming Act 1981. The 1981 Act is a consolidating Act which
reproduces previously enacted statutory provisions. Under s 1(1)(a) of the 1981 Act betting duty is chargeable on any bet which is not an on course bet
and which ­ 316 ‘is made with a bookmaker in the United Kingdom’. There are other circumstances set out in the subsection in which betting duty
becomes chargeable but I need not refer to them. Under s 2(1) the betting duty has to be paid ‘in the case of a bet with a bookmaker º by the bookmaker’.
Naturally enough bookmakers make arrangements under which the real cost of the betting duty for which they become liable is borne by the punters who
place bets with them.
2. Betting duty is an excise duty and the Commissioners of Customs and Excise are responsible for its collection.
3. Section 9 of the 1981 Act is entitled ‘Prohibitions for protection of revenue’. It reproduces provisions which had their origin in the earlier
legislation. The purpose of s 9, and its statutory predecessors, is to prevent bookmakers who are based off-shore, and who are therefore not chargeable
under s 1(1)(a), from soliciting bets from people within the United Kingdom.
4. Section 9(1) provides as follows:
‘Any person who—(a) conducts in the United Kingdom any business or agency for the negotiation, receipt or transmission of bets to which this
section applies, or (b) knowingly issues, circulates or distributes in the United Kingdom, or has in his possession for that purpose, any
advertisement or other document inviting or otherwise relating to the making of such bets º shall be guilty of an offence.’
Subsection (2) provides that: ‘Except as mentioned in subsection (3) below, this section applies to º (b) all bets made with a bookmaker outside the United
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Kingdom º’
5. Subsection (3) excludes certain types of bet from the operation of the section and sub-s (4) deals with the sentences that can be imposed on
persons convicted of a s 9 offence. Nothing, for present purposes, turns on these subsections. Subsection (5) has, however, some relevance. It provides
as follows:
‘A person who makes or tries to make a bet, or who gets or tries to get any advertisement or other document given or sent to him, shall not be
guilty of an offence by reason of his thereby procuring or inciting some other person to commit, or aiding or abetting the commission of, an offence
under this section.’
6. The evident purpose of sub-s (5) is to allow punters to bet with off-shore bookmakers and to obtain documentary information about the odds or
other services on offer from off-shore bookmakers without being guilty of a s 9 offence. If an off-shore bookmaker sends to an individual in this country
documentary material ‘that relates to the making of º bets’, the off-shore bookmaker, but not the individual, will be guilty of a s 9(1)(b) offence.
7. The main purpose of s 9 is to protect the revenue but that is not its only purpose. The effect of the section, and presumably one of its purposes, is
to protect domestic bookmakers from unfair competition from those who operate off-shore. An off-shore bookmaker who is not chargeable with betting
duty will be able to offer a more attractive return to punters than domestic bookmakers can offer. Nothing in the 1981 Act prevents domestic punters
from placing their bets with off-shore bookmakers. But s 9(1)(b) prohibits the issue, circulation or distribution in this country of advertisements or other
documents relating to the making of bets with off-shore bookmakers.
­ 317
8. The issue for decision on this appeal is whether an off-shore bookmaker who arranges for advertisements for his services to be made available for
viewing on television screens in the United Kingdom by being broadcast on Teletext commits an offence under s 9(1)(b).
9. Lightman J, in the judgment under appeal given on 16 July 1999, held that he did not (see [2000] 1 All ER 160, [1999] 1 WLR 2160). He held
that ‘advertisements’ in s 9(1)(b) were limited to advertisements in documentary form and that the means by which advertisements broadcast on Teletext
were made available for viewing did not involve the issue, circulation or distribution of any document.
10. The Commissioners of Customs and Excise, defendants below, have appealed. Teletext Ltd, who are responsible for Teletext broadcasts, were
second defendants below. They took no part in the proceedings below and have taken none on this appeal.
11. The respondent in this court, the successful claimant before Lightman J, is Victor Chandler International. I shall refer to them, for convenience,
as VCI. VCI was incorporated in Gibraltar in 1991 and in October 1996 established itself as an off-shore credit betting business offering services to
persons outside the United Kingdom. VCI is not a ‘bookmaker in the United Kingdom’ and so is not chargeable with betting duty under s 1(1)(a) of the
1981 Act. Victor Chandler Credit Betting Ltd is a company incorporated in England. Its business was the provision of credit betting services within the
United Kingdom. It was a ‘bookmaker in the United Kingdom’. So Victor Chandler Credit Betting Ltd, unlike VCI, was chargeable with betting duty on
bets made with it. With effect from 17 May 1999 Victor Chandler Credit Betting Ltd sold its business and contact lists to VCI. VCI is anxious to carry
on and promote the UK business it has acquired.
12. Teletext Ltd is a broadcasting company. It began broadcasting on 1 January 1993. It broadcasts alongside the ITV and Channel 4 television
channels what are known as ‘screen frames’, or ‘pages’, which contain news, information and advertisements. The pages can be accessed by a television
viewer using a television remote control and typing in the number of the desired page. That page will then appear on the television screen. A similar
service is offered by a company called Skytext Ltd. A number of United Kingdom bookmakers advertise the odds they are offering about various
sporting events by broadcasting the information on Teletext or Skytext, or both.
13. VCI wishes to advertise its services on Teletext and Skytext. The information it wishes to broadcast includes the odds it is offering and other
information about sporting events, together with news items and reference telephone numbers.
14. For the purposes of the hearing before Lightman J the parties produced an agreed statement of facts. A few additional paragraphs were added to
the agreed statement at the hearing itself. Paragraphs 9 to 24 of the agreed statement, as amended, set out in some detail the manner in which the
information desired by VCI to be included in a Teletext broadcast is collected in VCI’s computers at its Gibraltar premises, is relayed to Teletext’s central
editing database system in the United Kingdom, is transmitted from there to remote databases at Teletext’s transmitter sites in the United Kingdom and
from there is broadcast alongside the ITV and Channel 4 television channels.
­ 318
15. The paragraphs are as follows:
‘9. The information would be prepared on VCI’s personal computers at VCI’s premises in Gibraltar using bespoke software which enables VCI
in real time to up-date the Teletext pages remotely as and whenever necessary. 10. What is seen on the screen would be updated by VCI as
frequently as it wished to do so. Depending on a variety of circumstances, including changes in odds, the information might be updated as often as
100 times a day. 11. In addition pages would be replaced as often as necessary depending on a variety of different circumstances including whether
a particular race had taken place. The period for which each page would be displayed would be subject to agreement between VCI and Teletext.
12. The information would be saved by VCI on its own personal computers (on the databases of those computers) at its premises in Gibraltar. It
would then in real time be relayed as a batch of information to Teletext’s central editing system in the United Kingdom by direct electronic
transmission over a data link, either using a modem and telephone line or leased data circuit via VCI’s communications agent, Laveroch von
Schoultz Limited (“LVS”). A modem is a piece of telecommunications equipment which modulates and demodulates a message. It changes data
into a sound in order to send the sound along the telephone line and then restores the sound into data again (i.e. data held on the recipient computer
system). A leased data circuit is a circuit which is continuously rented and always open, not just for the length of the call. 13. LVS is a
communications agent. The information would be sent down one private leased telephone line from Gibraltar to LVS in the United Kingdom and
from there down a number of telephone lines to Teletext. The Information would not be stored by LVS. 14. Teletext would from its central editing
system database distribute the pages electronically to remote databases sited at major TV transmitter sites around the United Kingdom from where
the Teletext services broadcast alongside the ITV and Channel 4 television channels. 15. The information would be prepared by VCI and contain
information only provided by VCI. It would not contain information provided by any other source. 16. What is seen on the screen, being the
Teletext pages, would be updated frequently and as often as necessary. 17. The information provided by VCI is continuously available on Teletext
so that a user of Teletext has access to the information 24 hours a day on any day of the year. 18. Teletext is regulated by the Independent
Television Commission (“the ITC”). The ITC Code for Text Services Part A section 8 requires that a record of all material transmitted be made
by a means previously agreed with the ITC and be retained for a period of 90 days, and that for the avoidance of doubt this includes advertising
material. In order to comply with this requirement Teletext retains an electronic archive record of all Teletext pages and all updates to those pages.
Pages, and updates, remain in this archive for three months after they have been broadcast. It is possible for Teletext to print out copies of material
that is in this electronic archive. From time to time the ITC seeks copies of matter which has been broadcast and Teletext provides this either in
hard copy or in electronic form. 19. It is possible to print what is seen on the screen with the use of a Teletext printer which is a specialist piece of
hardware and not generally available to members of the public. Pages can be retrieved from the central database at Teletext, either the live version
or ­ 319 from the archive. Pages are viewed using a specialised Teletext page editor and this software supports printing to standard PC printers.
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It would not be the intention of VCI that any viewer should use a Teletext printer, although it would be impossible to stop him doing so if he so
wished. Additionally any viewer who has access to a computer can purchase a TV card which enables that computer to display television and text
services on the computer screen. Such cards also enable the user to gather and manipulate the Teletext data in other forms eg tracking share price
performance over a period of days or weeks. A computer used with a TV card can print out material from Teletext on an ordinary computer printer
without needing a Teletext printer. 20. This is the way in which VCI proposes to do business in the future if it is legally permitted to do so. 21.
There are no material differences between the way in which the information would be passed to Skytext and the way in which it would be passed to
Teletext. 22. The process as it relates to Skytext is largely similar save that Skytext is broadcast alongside the Sky channel pursuant to a satellite
link. 23. There is a part of the computer electronic storage system on VCI’s personal computers in Gibraltar containing the information prepared on
those personal computers. 24. If VCI broadcasts on Teletext there will be (a) a part of Teletext’s central editing system which will contain the batch
of information transmitted by VCI; and (b) a part of the remote databases of Teletext which will contain the batch of information transmitted from
the central editing system.’
16. There were two issues argued before Lightman J. They were expressed by Mr Sales, counsel for the commissioners, in his skeleton argument as
follows:
‘(1) Whether section 9(1)(b) applies to all advertisements relating to relevant bets, or merely to advertisements in documentary form; and (2) If
section 9(1)(b) applies only to advertisements in documentary form, whether the proposed method of operation involves the issue, circulation or
distribution in the United Kingdom of a relevant document, by VCI or anyone else.’
17. The breakdown of the issue before the court into these two constituent issues was understandable but, in my view, tends to distract attention from
the real point at issue. The issue is whether the manner in which information collected by VCI in its Gibraltar computers eventually becomes part of a
Teletext broadcast and available for viewing on United Kingdom television sets involves, for the purposes of s 9(1)(b), the issue, circulation or
distribution in the United Kingdom of an advertisement or other document.
18. It is not, in my opinion, necessary to conclude that s 9(1)(b) applies to all advertisements in order to be able to conclude that it applies to VCI’s
Teletext advertisements. Mr Oliver QC, counsel for VCI, naturally placed great emphasis on the use in s 9(1)(b) of the words ‘or other document’. These
words, he submitted, require ‘advertisement’ to be limited to an advertisement in documentary form. He fortified his argument by reference to the use of
the verbs ‘issue’, ‘circulate’ and ‘distribute’ in s 9(1)(b) and to the reference in s 9(5) to ‘any advertisement or other document given or sent to him’.
These textual points support, he said, the conclusion that s 9(1)(b) was intended to catch advertisements in documentary form and was not intended to
catch advertisements not in documentary form.
­ 320
19. It is, in my opinion, well arguable that, contrary to Mr Sales’ submission, s 9(1)(b) would not catch oral advertisements. Suppose, for example,
that a campaign of telephone cold-calling was instituted in order to try and persuade UK residents to place their bets with an off-shore bookmaker. I
would find some difficulty in concluding that in delivering an off-the-cuff exhortation over the telephone the caller could be described as issuing,
circulating or distributing an advertisement. So a construction which imposes some limitation on the breadth of ‘advertisement’ in s 9(1)(b) may be
justified. However, it is not, in my opinion, necessary for us to decide whether all advertisements, in whatever form, would be caught by s 9(1)(b). It is
only necessary to decide whether Teletext, or Skytext, advertisements are caught.
20. Some points are common ground between the parties. It is common ground that VCI’s Teletext broadcasts are ‘advertisements’ in the ordinary
meaning of the word. It is also common ground that, for the purposes of s 9(1)(b), a ‘document’ would include anything in which, or on which,
information was recorded or stored. Lightman J accepted that, as Vinelott J had held in Derby & Co Ltd v Weldon (No 9) [1991] 2 All ER 901, [1991] 1
WLR 652:
Լ the database of a computer, so far as it contained information capable of being retrieved and converted into readable form, and whether stored
in the computer itself or recorded in back-up files, was a document.’ (See [2000] 1 All ER 160 at 165–166, [1999] 1 WLR 2160 at 2165)
The judge cited with approval a passage from the judgment of Lord Milligan in Rollo v HM Advocate 1997 SLT 958 at 960:
‘It seems to us that the essential essence of a document is that it is something containing recorded information of some sort. It does not matter
if, to be meaningful, the information requires to be processed in some way such as translation, decoding or electronic retrieval.’ (See [2000] 1 All
ER 160 at 166, [1999] 1 WLR 2160 at 2165.)
21. I respectfully agree with all of this. It follows that VCI’s computers, Teletext’s central editing system and the remote databases, each of which
held the relevant information, can be regarded as documents. Each of them possesses the essential characteristic of a document, namely, containing
recorded information.
22. But neither VCI’s computers, nor Teletext’s central editing system, nor the remote databases, can sensibly be regarded as ‘advertisements’.
VCI’s advertisements consisted not of the hardware, or any part of the hardware, but of the relevant information stored within these rather peculiar
‘documents’ and transmitted electronically from one to the other and eventually to television screens. How then should s 9(1)(b) be construed and
applied?
23. Mr Oliver’s answer, and the judge’s, is a simple one. The ‘documents’ were not issued, nor circulated, nor distributed. What was issued,
circulated and distributed was the relevant information, the advertisements, stored or contained in these ‘documents’. Section 9(1)(b) requires that an
advertisement in documentary form be issued, circulated or distributed. An advertisement not in documentary form but stored electronically and
transmitted by a series of electronic impulses is something that falls outside the concept of an advertisement or other document issued, circulated or
distributed, and outside s 9(1)(b) properly construed.
­ 321
24. This answer is based on the construction of statutory language that first appeared in the Finance Act 1952. It takes insufficient account, in my
judgment, of the technological advances that have taken place since then.
25. Parliament could not in 1952 have contemplated the means by which advertisements intended to be seen or read can now be created, circulated
and distributed electronically. These things were not then possible. In 1952 an off-shore bookmaker who wanted to advertise his services in this country
might have done so by issuing and distributing ordinary documentary material. That would plainly have been caught by s 9(1)(b). He might have done
so by commissioning a film to be made and shown on cinema screens. If not in 1952, then soon thereafter such a film could have been shown also on
television screens. It is accepted, rightly, that the film would have constituted an ‘advertisement or other document’. The film would have been circulated
and distributed, if not issued, in the United Kingdom and an offence under s 9(1)(b) would have been committed. But the techniques of dissemination of
information, including advertisements, have been transformed since 1952 by the advent of the computer, the internet, the worldwide web and a
developing understanding and mastery of the electronic impulses by means of which these technologies can be made to serve a variety of purposes. It is
plain that, when s 9(1)(b) first took statutory form, neither the draftsman nor Parliament would have had in contemplation the manner of advertising
intended to be used by VCI via the Teletext broadcasts.
26. I would accept that the dissemination of VCI’s advertisements in this manner does not involve the issue, circulation or distribution of a document
in the normal meaning of those words. Mr Oliver submits that the technological developments that enable advertisements to be transmitted via Teletext
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have led to a lacuna in s 9. The section simply does not cater for them. If the lacuna is to be filled, Parliament must do it, not the courts.
27. There are, of course, some gaps in legislation that cannot be filled by judge made law. But it is now a well known rule of statutory construction
that an ‘ongoing’ statutory provision should be treated as ‘always speaking’. The principle is set out in Bennion Statutory Interpretation (3rd edn, 1997),
p 686:
‘(2) It is presumed that Parliament intends the court to apply to an ongoing Act a construction that continuously updates its wording to allow for
changes since the Act was initially framed (an updating construction). While it remains law, it is to be treated as always speaking º (3) A fixed-time
Act is intended to be applied in the same way whatever changes might occur after its passing. Updating construction is not therefore applied to it.’
(Author’s emphasis.)
28. These principles received the endorsement of the Court of Appeal in R v Westminster City Council, ex p A (1997) 9 Admin LR 504 at 509, where
Lord Woolf MR described the National Assistance Act 1948 as—
‘a prime example of an Act which is “always speaking” and so should be construed “on a construction, that continuously updates its wording to
allow for changes since the Act was initially framed”.’
Lord Woolf MR’s citation was from the second edition of Bennion.
29. Mr Oliver protested that this ‘always speaking’ construction ought not to be applied to a statutory provision that created a criminal offence. But
in R v Ireland, R v Burstow [1997] 1 All ER 112, [1997] QB 114 the Court of Appeal ­ 322 held that silent telephone calls resulting in psychiatric
damage to the victim could constitute an ‘assault occasioning actual bodily harm’ for the purposes of s 47 of the Offences against the Person Act 1861.
As to the meaning of ‘assault’, in s 47, Swinton Thomas LJ said: ‘The early cases pre-date the invention of the telephone. We must apply the law to
conditions as they are in the twentieth century.’ (See [1997] 1 All ER 112 at 115, [1997] QB 114 at 119.)
30. Another example of a penal statutory provision being given an ‘always speaking’ construction is given by Bennion at p 696:
‘Section 4 of the Foreign Enlistment Act 1870 makes it an offence for a British subject to accept any engagement in “the military or naval
service” of a foreign state which is at war with a friendly state. The mischief at which s 4 is aimed requires this phrase to be taken as now including
air force service º a modern court should treat “military or naval service” in s 4 as including any service in the armed forces of the state in question.’
I respectfully agree.
31. A very recent example of an ‘always speaking’ construction being applied to a statutory provision is Fitzpatrick v Sterling Housing Association
Ltd [1999] 4 All ER 705, [1999] 3 WLR 1113. The question was whether an individual who had lived for a number of years with a partner in a stable and
permanent homosexual relationship could be described as ‘a member of [the partner’s] family’ for the purposes of para 2(2) of Sch 1 to the Rent Act
1977. The House of Lords held that he could. Lord Nicholls of Birkenhead posed the question ‘can the expression “family” legitimately be interpreted in
1999 as having a different and wider meaning than when it was first enacted in 1920?’. His answer was Yes and he explained it in the following passage:
‘A statute must necessarily be interpreted having regard to the state of affairs existing when it was enacted. It is a fair presumption that
Parliament’s intention was directed at that state of affairs. When circumstances change, a court has to consider whether they fall within the
parliamentary intention. They may do so if there can be detected a clear purpose in the legislation which can only be fulfilled if an extension is
made. How liberally these principles may be applied must depend upon the nature of the enactment, and the strictness or otherwise of the words in
which it was expressed.’ (See [1999] 4 All ER 705 at 721–722, [1999] 3 WLR 1113 at 1129.)
32. Before applying an ‘always speaking’ construction to a penal statutory provision in order to take account of developments which have taken
place since the provision was enacted, the court must, in my judgment, be very clear that the new situation to which the provision is to be applied is
within the mischief at which the provision was aimed. It must be very clear that the new situation falls within the Parliamentary intention. I find myself
in no doubt in the present case that that requirement is satisfied. Whatever may be the position regarding advertisements delivered orally, s 9(1)(b) was
aimed at prohibiting off-shore bookmakers from advertising in the United Kingdom for business. The documentary advertisements that the draftsman of
the 1981 Act had in mind would have had some quality of permanence. Mr Sales has, as I have said, submitted that the word ‘advertisement’ in s 9(1)(b)
covers all advertising of any sort. If he is right, oral advertising would be caught. But whether or not Mr Sales is correct in attributing such a wide
meaning to ‘advertisement’, and I am not satisfied that he is, there is a clear distinction between oral advertisements and ­ 323 documentary
advertisements. Advertisements in ordinary documentary form would obviously be caught by s 9(1)(b). Films and other taped recordings are, it is
accepted, ‘documents’ and, if they contain advertisements, are also caught by the section. So, too, in my judgment, is an advertisement or other
information stored electronically in a computer bank or in some form of database. So far as the mischief at which s (1)(b) was aimed is concerned, I can
see no difference at all between advertisements inserted in a newspaper or periodical, advertisements recorded on a film and projected on a cinema screen,
advertisements recorded on a film and broadcast for viewing on television screens and advertisements stored in electronic form and broadcast for viewing
on television screens. In each case, in my judgment, the advertisements are of a sort that fall squarely within the mischief that s 9(1)(b) was trying to
prevent. If s 9(1)(b) is not construed so as to catch advertisements of the sort that VCI is arranging to be broadcast on Teletext, the ability of s 9(1)(b) to
achieve its purpose of protecting the revenue and protecting domestic bookmakers from unfair competition by off-shore bookmakers will be seriously
undermined. Section 9(1)(b) is an ‘ongoing’ provision and, in my judgment, should be given an ‘always speaking’ construction. VCI’s advertisements
are, in my judgment, within the meaning of ‘advertisement or other document º’, so construed, and, in finding their way to television screens in this
country are, in my judgment, issued, circulated or distributed within the meaning of those verbs in s 9(1)(b).
33. It follows that I do not agree with the learned judge’s conclusion that the statutory language is not apt to embrace the dissemination by Teletext
or Skytext of VCI’s advertisements. I would allow the appeal and set aside the declarations made by the judge.

CHADWICK LJ.
34. The issue raised by this appeal is whether the transmission of advertising material in electronic form to a database comprised within equipment
located in the United Kingdom—that is to say, equipment capable of receiving and storing that material—can properly be said to be the issue, circulation
or distribution in the United Kingdom of any advertisement or other document for the purposes of s 9(1)(b) of the Betting and Gaming Duties Act 1981; it
being common ground that the relevant material invites or otherwise relates to the making of bets with a bookmaker outside the United Kingdom (see
section 9(2)(b) of that Act).
35. The first question, as it seems to me, is whether s 9(1)(b) of the 1981 Act—which has its origin in s 5(1) of the Finance Act 1952 and which can
be traced through s 2(1) of the Betting Duties Act 1963 and s 9 of the Betting and Gaming Duties Act 1972—is to be given an ‘always speaking’
construction, in the sense described at section 288 in Bennion Statutory Interpretation (3rd edn, 1997), p 686 and adopted by Lord Woolf MR, in R v
Westminster City Council, ex p A [1997] 9 Admin LR 504 at 509. It is, I think, plain that that question must be answered in the affirmative. The opening
words of the section as first enacted in 1952 are: ‘With a view to protecting the revenue º’ Those words were retained in the relevant sections of the 1963
and 1972 Acts. Those Acts, and the 1981 Act itself, were consolidating Acts. Although the words themselves do not appear in the 1981 Act, their
substance appears in the side note to the section: ‘Prohibitions for protection of revenue’. Parliament has re-enacted the same provision in successive Acts
over a period of 30 years for the expressed purpose of protecting the revenue derived from betting duty. It would, to my mind, be extraordinary ­ 324 if
Parliament had not intended that the words first used in 1952 should receive a construction which takes account of changes from year to year. As it is put
in Bennion, at p 687:
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‘In construing an ongoing Act, the interpreter is to presume that Parliament intended the Act to be applied at any future time in such a way as to
give effect to the true original intention. Accordingly the interpreter is to make allowances for any relevant changes that have occurred, since the
Act’s passing, in law, social conditions, technology, the meaning of words, and other matters.’
36. The conclusion that the relevant provision is to be given an ‘always speaking’ or ongoing construction leads to the second question: can the ‘true
original intention’ of the provision be identified with sufficient clarity to enable the court to say, with the confidence appropriate to the nature of the
legislation, that it should be given effect in the new circumstances which arise out of advances in technology since the legislation was enacted. That, I
think, is the issue to which the observations of Lord Nicholls of Birkenhead in Fitzpatrick v Sterling Housing Association Ltd [1999] 4 All ER 705 at
721–722, [1999] 3 WLR 1113 at 1129 (albeit made in a very different context) are addressed:
‘When circumstances change, a court has to consider whether they fall within the parliamentary intention. They may do so if there can be
detected a clear purpose in the legislation which can only be fulfilled if an extension is made.’
37. The Betting and Gaming Duties Act 1981—as its short title suggests—was enacted to impose excise duties on betting and gaming within the
United Kingdom. The provisions relating to betting duties are contained in Pt I of the 1981 Act. The duties are imposed by s 1(1) (general betting duty)
and s 6(1) (pool betting duty). Sections 1(2) and 7(1), respectively, set the amounts of those duties. Sections 2 and 8 provide by whom the duties shall be
paid and from whom they shall be recoverable. It is in that context that s 9 of the 1981 Act makes it an offence (a) to conduct business in the United
Kingdom for the negotiation, receipt or transmission of bets made with bookmakers, totalisators or promoters outside the United Kingdom (see s 9(2)); (b)
knowingly to issue, circulate or distribute in the United Kingdom advertisements or other documents inviting or otherwise relating to such bets; or (c)
being a bookmaker within the United Kingdom, to make or offer to make any such bet with a bookmaker outside the United Kingdom. The obvious
purpose of s 9 is to protect the revenue derived from betting within the United Kingdom by making it an offence—subject to the saving provision in s
9(5)—to carry on or take part in activities within the United Kingdom, described in s 9(1), which are calculated to promote, encourage or facilitate the
making of bets outside the United Kingdom.
38. What, then, did Parliament intend to achieve by the words enacted as para (b) of s 9(1)? The answer is clear enough. Parliament intended to
protect the revenue derived from betting within the United Kingdom by making it an offence to solicit bets to be made with persons outside the United
Kingdom. But it is equally clear, in my view, that Parliament recognised that it was unnecessary—and would probably be impracticable—to attempt to
prohibit all forms of solicitation. The prohibited conduct is limited to solicitation by means of the issue, circulation or distribution in the United Kingdom
of ­ 325 ‘any advertisement or other document’. The words used in s 9(1)(b) indicate, as it seems to me, that Parliament had it in mind to prohibit only
the dissemination of information by the issue, circulation or distribution of something on or in which that information was contained.
39. I share the doubt, expressed by Sir Richard Scott V-C, whether a purely oral invitation to place bets with an off-shore bookmaker would be
within the prohibition. It seems to me unlikely that Parliament would have chosen, in 1952, to describe an oral invitation—whether delivered face to face
or over the telephone—as the issue, circulation or distribution of an advertisement. Some support for that view is found in the saving provision in s 9(5)
of the 1981 Act—in particular, in the words ‘who gets º any advertisement º given or sent to him’. And, if the words were not apt to describe a purely
oral invitation in 1952, they have not become so as a result of technological advance. But it is not necessary to decide that question.
40. An obvious example of the dissemination of information by the issue, circulation or distribution of something on or in which that information is
contained is the newspaper advertisement. Another is the mail-shot. There can be no doubt that both would have been within the ‘true original intention’
of Parliament when the section was first enacted in 1952. A further example—perhaps less obvious, but equally free from doubt—is the distribution of a
cinematograph reel, with or without an accompanying soundtrack. Nor is it in dispute that the physical distribution in the United Kingdom of a tape or
video cassette, a compact disc or a 3 inch floppy diskette on which information inviting or otherwise relating to the making of bets with an off-shore
bookmaker is stored would be within the prohibition.
41. The reason why the respondent does not dispute that the physical distribution of, for example, a compact disc or floppy diskette would be within
the prohibited conduct is because it accepts—as, in my view, it has to accept—that a disc on which information is stored in electronic form must, in the
age in which we now live, be treated by the law as a document. If authority be needed for that proposition it can be found in the judgment of Vinelott J in
Derby & Co Ltd v Weldon (No 9) [1991] 2 All ER 901 at 905–906, [1991] 1 WLR 652 at 657–658. His analysis is, I think, instructive in the present
context. After referring to the decision of Walton J in Grant v Southwestern and County Properties Ltd [1974] 2 All ER 465, [1975] Ch 185—in which it
had been held that a tape recording of a telephone conversation was a document within the meaning of RSC Ord 24—Vinelott J went on:
Լ there can be no distinction in principle between the tape used to record a telephone conversation in Grant v Southwestern and County
Properties Ltd º which was an ordinary analogue tape on which the shape of sound waves is, as it were, mimicked by the pattern of chemical
deposit on the tape, and a compact disc or digital tape on which sound, speech as well as music, is mapped by co-ordinates and recorded in the form
of groups of binary numbers. And no clear dividing line can be drawn between digital tape-recorded messages and the database of a computer on
which information which has been fed into the computer is analysed and recorded in a variety of media in binary language.’ (See [1991] 2 All ER
901 at 906, [1991] 1 WLR 652 at 658.)
­ 326
42. In Alliance & Leicester Building Society v Ghahremani [1992] RVR 198 at 199, Hoffmann J rejected a submission that Vinelott J’s view as to the
scope of the word ‘document’ was restricted to questions of discovery under the rules of court. He applied the extended meaning to the question whether
the deliberate deletion of information stored on the disc of an office computer was a contemptuous breach of an order restraining a solicitor from
destroying or altering any documents relating to a conveyancing transaction. In Rollo v HM Advocate 1997 SLT 958, the High Court of Justiciary took
the same view in relation to the meaning of the word in the context of the seizure of an electronic notebook under the powers conferred by s 23(3)(b) of
the Misuse of Drugs Act 1971.
43. The judge accepted that the database of the Teletext central editing system—in so far as it stored, in electronic form, the relevant information
transmitted to it from Gibraltar by the respondent—was a document for the purposes of s 9(1)(b) of the 1981 Act; and further, that the Teletext remote
databases—again, in so far as they stored the information transmitted on from the central editing system—were documents for those purposes. But it was
not enough that, under the proposed arrangements, Teletext Ltd would have documents containing relevant information in its possession; as, clearly, it
would have. It was necessary, in order to fall within the prohibition in s 9(1)(b) of the 1981 Act, that the documents should be in the possession of
Teletext Ltd as the result, or for the purpose, of issue, circulation or distribution in the United Kingdom. The relevant question, therefore, was whether
the transmission of information to the database of the central editing system—or the onward transmission of that information to the remote
databases—was properly to be regarded as the issue, circulation or distribution of a document.
44. The judge answered that question in the negative. He observed that:
‘Information of itself cannot constitute a document, and the transmission of information of itself cannot constitute the transmission of a
document.’ (See [2000] 1 All ER 160 at 166, [1999] 1 WLR 2160 at 2166 (para 11).)
He returned to the same point:
‘As I have already held information alone cannot constitute a document: only the physical object which contains information can do so: and
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accordingly the transmission of information (whether or not contained in a document) cannot of itself constitute the transmission of a document’.
(See [2000] 1 All ER 160 at 167, [1999] 1 WLR 2160 at 2167 (para 14).)
At para 15, the judge said this:
‘The transmission from VCI to the Teletext central editing system and from the Teletext editing system to the Teletext remote databases, is
transmission in the form of electronic impulses of information which the recipient (through his own equipment) inscribes on his own document.
The analogy in this case (as in the case of a facsimile message and e-mail) is not with the sending of a computer disk, but with the recipient (having
been furnished by the transmitter with the means of doing so) taking down in shorthand or transcribing the message from the transmitter or making
a copy of the transmitter’s document º The statutory language is not apt to embrace what modern technology can achieve, namely the dissemination
in ­ 327 non-documentary form of information which on receipt is reduced to written form.’ (See [2000] 1 All ER 160 at 167–168, [1999] 1
WLR 2160 at 2167.)
45. In my view the judge reached the wrong conclusion. The error in his reasoning, as it seems to me, was to regard the transmission of electronic
impulses from one electronic database to another as the transmission of ‘information’ as if that were something distinct from the transmission of a
‘document’. The true analysis is that the transmission of electronic impulses is simply that: it is nothing more nor less than the transmission of electronic
impulses. It is the combination of those impulses within co-ordinates and groups that may convey information. If the impulses are transmitted to a
system which is capable of receiving and storing them in the same, or some derivative, combination—so that they can be analysed or ‘read’—then it may
be said that a document is created in or on the recipient database. It is as apt to describe the process as the transmission of a document as it is to describe
it as the transmission of information. Indeed, it is now a matter of common parlance to talk of ‘sending a document’ from one computer to another. But
what is really happening is that, by the transmission of electronic impulses in a combination, or ‘language’, which the recipient system can read, the
sender is creating a document on the recipient database.
46. I do not, myself, find it of assistance to ask whether the process which I have described is more closely analogous, on the one hand, to the
sending of a computer disk or, on the other hand, to the transcription of an oral message by a shorthand writer. Both supposed analogies seem to me to be
some distance away from what, on a true analysis, is actually happening when material is transmitted in electronic form from one database to another.
The right question is to ask whether the process which I have described falls within the conduct prohibited by s 9(1)(b) of the 1981 Act; that is to say,
whether, having regard to the true intention of Parliament when that section and its predecessors were enacted, that process can aptly be described as the
issue, circulation or distribution of any advertisement or other document. I have no doubt that that the answer to that question is ‘Yes’.
47. I agree that this appeal should be allowed.

BUXTON LJ.
48. I agree that this appeal should be allowed.
49. When s 5(1)(b) of the Finance Act 1952 spoke of ‘advertisement or other document’, the phrase carried forward into s 9(1)(b) of the Betting and
Gaming Duties Act 1981, it did not in my view intend to limit the meaning of the common and popular word ‘advertisement’ by confining it to
advertisements in documentary form. Stronger wording would have been required to achieve that end. The reason for the wording actually used would
seem to be that draftsman needed to address not only advertisements; but also documents that were not advertisements, but which none the less invited or
related to the making of (in the Finance Act 1952) pool bets other than through promoters in the United Kingdom. It was a compressed, but in my view
comprehensible, form of words to refer to the latter case by the expression ‘other document’. Had the word ‘other’ been omitted, it might have appeared
that the category of advertisement excluded anything that was also a document: which was plainly not the intention. Nor can I see any sensible reason
why, in a provision intended to prevent the ­ 328 advertisement of foreign betting in order to protect revenue from duty on onshore betting, any
category of activity that can properly be described as an advertisement should have been omitted.
50. Nor am I persuaded by the argument that the references to ‘issues, circulates or distributes º or has in his possession’ in s 9(1)(b); and to ‘given or
sent to him’ in s 9(5); cannot relate to advertisements in a non-documentary form. These expressions extend over the whole of the subject matter of s 9,
but that subject matter expressly contains a number of different sub-sets: advertisement or other document. The expressions therefore do not as a matter
of construction necessarily apply in every case addressed by the section; and the present argument could thus only be a good one if, in relation to the
non-documentary advertisement in issue in this case, the teletext transmission arranged by VCI, they could not be applied at all. But that is not so. By
the plain meaning of language, the teletext transmission is ‘issued’ when it is shown to the public. That advertisement or emanation of the advertisement
may never be circulated, distributed, given or sent. That however does not matter, because for this construction point to be made out VCI have to show
that it is impossible to apply any of the wording of s 9 to the particular advertisement that is argued to fall under it; and that they cannot do.
51. I therefore consider that the advertisement contained in the teletext transmission falls under the provisions of s 9(1)(b).
52. That strictly speaking renders it unnecessary to consider the arguments as to whether, leaving aside that transmission, there has none the less
been issued, circulated or distributed a document inviting or otherwise relating to the making of offshore bets. However, I would answer that question
also in the affirmative.
53. Mr Oliver expressly accepted the contention in the Customs and Excise’s skeleton argument that:
‘VCI’s computers, Teletext’s central editing system and remote databases, and the equivalent databases maintained by Skytext, so far as they
held relevant information, all constituted “documents”.’
54. But, he contended, those documents were merely hardware, that did not move anywhere; so they could not be said to be circulated, etc. The only
thing that was circulated was information, by means of electronic impulses; and as the judge had rightly held, information was not in itself a document.
55. I of course agree that ‘information’ cannot simply be substituted for ‘document’. However, just as, as is conceded, the range of physical
operations addressed by the word ‘document’ is not constrained by the physical nature that documents took in 1952, so we are entitled, and indeed bound,
to consider the appropriate application of the concept of circulation, etc, of a document in the light of current practice and technology. When documents
were restricted to paper form, it was perfectly natural to say that, for instance, a letter had been circulated when what had happened was that multiple
copies of the letter had been produced and then distributed. It would have been pedantic to insist that what had been distributed was something different
from ‘the letter’. I see no relevant difference between that process and that with which we are concerned in the present case, where there is produced on,
say, Teletext’s computer a document that is an exact copy of the document that is on VCI’s computer. Nor can I see any relevant difference between that
process and the transmission of ‘a document’ by fax: where what in fact occurs is that the original document ­ 329 remains in the possession of the
sender, but is copied by electronic means on to the receiving fax machine. It would, I think, be very surprising if it were not possible to hold that a
document is circulated or distributed by being sent out by fax.
56. By normal processes of construction, therefore, the documents in this case are circulated and distributed, by being electronically reproduced.
And for the reasons given by Sir Richard Scott V-C in his judgment, that conclusion is not precluded just because the provision under construction can be
characterised as being penal in nature.

Appeal allowed.
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Celia Fox Barrister.

[2000] 2 All ER 331

Equitable Life Assurance Society v Hyman

PENSIONS

COURT OF APPEAL, CIVIL DIVISION

LORD WOOLF MR, MORRITT AND WALLER LJJ
30 NOVEMBER, 1, 2 DECEMBER 1999, 21 JANUARY 2000

Pension – Retirement annuity contracts – Final bonus – Policy providing policyholders with various options including annuity at guaranteed rate –
Policy-provider deciding to pay policyholders opting for guaranteed annuity rate lower final bonus than other policyholders – Whether policy-provider
entitled to declare differential final bonuses.

In 1979 the appellant, H, entered into a retirement annuity policy with the respondent life assurance society, entitling him to membership of the society
and to participate in its profits. H’s policy, like all such policies entered into before 1988, entitled the policyholder, on maturity, to ‘the annuity increased
by Related Bonuses (if any)’, an annuity at a guaranteed annual rate (GAR) applied to a fund composed of three elements, including a final bonus.
Schedule 4 gave the policyholder two alternative options to the GAR, namely an option to take an annuity from another provider (para 1.1) or an option to
take an annuity from the society calculated by reference to its current rates rather than the GAR (para 2). Those options were expressed as a right ‘to
renounce all or any part of the annuity increased by Related Bonuses (if any) and in lieu thereof to have’ the alternative annuities, calculated by reference
to ‘the Policy Annuity Value’ (PAV). The definitions schedule provided that ‘Related Bonuses’ meant ‘in relation to the annuity … such amounts (if
any) as shall’ under the society’s rules and regulations ‘have been allotted by way of addition to or bonus thereon’. The PAV was defined as meaning ‘in
relation to all or part of the annuity increased by Related Bonuses (if any) … the Policy Annuity Value attributable thereto’ calculated in the manner set
out in schedule 6. That schedule provided first for the calculation of ‘the Accumulation Value … of the premium paid in respect of the annuity’, and then
set out in para 1.5 the mechanism for calculating the amount of the GAR annuity. The society’s initial practice was to pay the same final bonus to all
policyholders, irrespective of the option they had chosen. However, after the current annuity rate fell below the GAR, the society’s board decided to pay
to those policyholders who had opted for the GAR a lower final bonus than that paid to those who had taken the other options, thereby reducing the size
of the fund to which the GAR applied. In introducing that policy, the board purported to act in exercise of the discretion conferred on it by art 65 of the
society’s articles of association, namely a discretion to determine how any surplus was to be apportioned by way of bonus to policyholders. In
proceedings brought to test the validity of the differential bonus policy, H contended, on behalf of all the pre-1988 policyholders, that such a differential
was precluded by the terms of the policy or fell outside the scope of the art 65 discretion. Those contentions were rejected by the Vice-Chancellor who
accordingly upheld the validity of the differential bonus policy. H appealed.

Held – (Morritt LJ dissenting) The appeal would be allowed for the following reasons—
(1) (Per Lord Woolf MR) The declaration of a differential final bonus was not a permissible exercise of the discretion conferred by art 65 of the
society’s articles.
­ 331
The powers contained in that provision were not conferred for the purpose of treating a policyholder differently depending on the manner in which
he sought to exercise his rights under the policy. Yet that was precisely the result of the policy adopted by the society, and that was a collateral purpose
designed to negative a benefit to which the policyholder would otherwise have been entitled. Although the society had no obligation to pay the final
bonus, that did not mean, if it decided to do so, that it could make the payment in a manner which deprived the policyholder of a share of the society’s
investment return that would be conferred on him if he selected other options available under the policy (see p 345 g h and p 346 h to p 347 b, post).
(2) (Per Waller LJ) On their true construction, the terms of the policy precluded the allotting of different bonuses on the GAR policies depending on
whether the beneficiary took the annuity or a capital sum with which to purchase an annuity elsewhere. Differential ‘Related Bonuses’ were
impermissible since, in view of the wording of para 1.1 of schedule 4, the ‘annuity increased by Related Bonuses’ could not be different depending on
whether it was being taken as an annuity or used as a basis for calculating the PAV. Furthermore, para 1.5[ii] of schedule 6, which set out the means of
calculating the PAV, did not allow for the payment of a top up sum. Rather, the terms of the policy required the society (i) to calculate the annuity plus
related bonuses that would be payable if an annuity was taken, and (ii) calculate back from that resulting annuity its capital equivalent. Accordingly, the
board had conducted an exercise that was not permitted by the policy (see p 359 h, p 363 b to j and p 364 d, post).

Notes
For retirement annuity contracts generally, see 44(2) Halsbury’s Laws (4th edn reissue) paras 677–709.

Cases referred to in judgments

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, CA.
Bromley London BC v Greater London Council [1982] 1 All ER 129, [1983] 1 AC 768, [1982] 2 WLR 62, CA and HL.
Company, Re a (No 00709 of 1992) [1999] 2 All ER 961, [1999] 1 WLR 1092, HL.
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Edge v Pensions Ombudsman [1999] 4 All ER 546, CA.

Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India, The Kanchenjunga [1990] 1 Lloyd’s Rep 391, HL.
O’Reilly v Mackman [1982] 3 All ER 1124, [1983] 2 AC 237, [1982] 3 WLR 1096, HL.
Padfield v Minister of Agriculture Fisheries and Food [1968] 1 All ER 694, [1968] AC 997, [1968] 2 WLR 924, HL.
Prescott v Birmingham Corp [1954] 3 All ER 698, [1955] Ch 210, [1954] 3 WLR 990, CA; affg [1954] 3 All ER 299, [1955] Ch 210, [1954] 3 WLR 600.
Roberts v Hopwood [1925] AC 578, [1925] All ER Rep 24, HL.

Appeal
The appellant, Alan David Hyman, acting on his own behalf and in a representative capacity on behalf of approximately 90,000 holders of retirement with
profit policies with the respondent, the Equitable Life Assurance Society (the Society), appealed from the decision of Sir Richard Scott V-C on 9
September 1999 rejecting Mr Hyman’s challenge to the validity of the Society’s policy of paying differential ­ 332 final bonuses on such policies. The
facts are set out in the judgment of Lord Woolf MR.

Jonathan Sumption QC, Sarah Asplin and Simon Salzedo (instructed by Norton Rose) for Mr Hyman.
Lord Grabiner QC, Brian Green QC, Andrew Lenon and James Ayliffe (instructed by Denton Hall) for the Society.

Cur adv vult

21 January 2000. The following judgments were delivered.

LORD WOOLF MR.

The background to the appeal

1. This is an appeal from the judgment of Sir Richard Scott V-C, given on 9 September 1999. The appellant, Mr Hyman, is a representative of the
interests of approximately 90,000 policyholders who hold about 116,000 pre-1988 policies with the respondent, the Equitable Life Assurance Society (the
Society). The critical feature of all the policies which were entered into pre-1988 is that they provide the policyholder with the option on the maturity of
the policy of taking an annuity at a Guaranteed Annuity Rate (GAR). The issue on which this appeal turns arises because in October 1993 current annuity
rates began to fall below the GAR and they have remained below ever since. The response of the Society has been to adopt the policy of declaring two
different rates (differential rates) for the final bonuses. It is this policy which is under attack in these proceedings. Accordingly, it is possible to
encapsulate the dispute between the parties as being:

‘Whether the Society is entitled to declare, as a final bonus in relation to its retirement with profit policies which contain a GAR, a differential
rate of final bonus, the rate of final bonus depending on whether the policyholder chooses to take an annuity at the GAR or chooses to take an
annuity at the Society’s current annuity rate or an annuity from another provider?’

2. The dispute is not as to what is the GAR. The guaranteed rate is not in dispute. It is as to the size of the fund to which the GAR is to be applied.
That fund is made up of three elements representing the investment return which the policyholder receives on the premiums which he has paid. The
elements are: (i) the minimum level of benefits specified in the policy, (ii) the reversionary bonuses which were declared from time to time under the
policy, which once declared are allotted to all unmatured policies and become guaranteed. Guaranteed in the sense that the policyholder has an accrued
contractual right to the reversionary bonus even though it is not payable until maturity, and (iii) final bonuses declared annually for each calendar year
and allotted at maturity to policies maturing during that year. Until the policy matures, the final bonus is not guaranteed and the policyholder has no
accrued contractual right to that bonus.

The rival contentions of the parties

3. It is not in dispute, therefore, that the policyholder is entitled to have his GAR calculated on the combined value of the minimum level of benefits
specified in the policy plus the reversionary bonuses and whatever is the appropriate final ­ 333 bonus, if any. The Society contends that as the final
bonus was not guaranteed, it is appropriate, if the GAR is higher than the current annual rate, for the Society, in order to achieve equality between its
policyholders, to pay a smaller final bonus to those GAR policyholders who elect to take the GAR annuity than it pays to those who take the other options
under the policy. This the Society considers is desirable because otherwise under the terms of the policy the proportion of the assets of the Society which
will be attributed to the policyholders selecting to take a GAR annuity will be greater than those selecting other options. This is due to the greater cost of
providing the higher annuity than a current annuity. In fact, if the final bonus was not reduced, in practice it would mean that the policyholder would
always select to be paid a GAR annuity since the other options would be less attractive because of the fall in the annuity rates. The Society also points
out that, if they are not entitled to take the course of adopting differential final bonus rates, those policyholders who are entitled to a GAR will benefit
twice over as a result of having a GAR. They will benefit from the higher rate of annuity and in addition from the improvement in the capital value of the
funds of the Society, which is the result of the Society’s investments appreciating in value in consequence of the fall in interest rates, which is in turn
reflected in the lower current annuity rates. The Society accepts that the GAR was meant to be of benefit to the policyholder but contends that the
policyholder, under the terms of the policy, is only entitled to the GAR on a minimum level of benefits plus the guaranteed reversionary bonuses and
whatever sum is paid as a discretionary final bonus. If no final bonus or a reduced final bonus is paid he has no grounds of complaint.
4. Mr Sumption QC on behalf of the appellant and his fellow policyholders submits the situation is very different. He submits that it is contrary to
the terms of the policy and an improper exercise of discretion by the board of the Society to adopt the policy of declaring a differential final bonus. Until
the current annuity rates fell below the GAR the practice of the Society was to have a single final bonus, and what the Society is doing is depriving the
policyholders of at least part of the benefit of the GAR and in doing so discriminating against the policyholders who were wise or fortunate enough to
have a GAR included in their policy.
5. In the course of argument criticisms were made both of the policyholders for seeking more than their fair share of the investment profits of the
Society and the Society for seeking to deprive the policyholders of that fair share. In my judgment no criticism of the policyholders or the Society is
justified. If the Society is entitled to adopt the course which it has then, having regard to their responsibility to all the policyholders, it seems to me that
what it is seeking to achieve is perfectly reasonable. On the other hand I can well understand the policyholders’ feelings viewing the issue from their
perspective. What appears to them to have happened is that the Society has adopted a wholly new policy to deprive them of at least part of the benefits of
having the GAR provision contained in their policy. I certainly do not regard it as correct to characterise their conduct as ‘greedy’, a description to which
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they justifiably took exception. All they are seeking is what they believe is their just entitlement.
6. My understanding is that the Society, confronted with an unprecedented situation, felt it right for both the Society and the policyholders to obtain
the legal ruling of the courts. The Society is therefore funding these proceedings, so that the legal position can be tested notwithstanding the costs
involved. It appears to me that both parties are to be commended and not criticised for trying to resolve ­ 334 the issues between them in this way. It is
fortunate that declaratory proceedings are sufficiently flexible to enable the issue to be determined in a single action.
7. It is recognised by the Society that even if it is entitled to adopt the bonus policy which it has, this may not be the end of the story in the case of all
policyholders. It is accepted that there could be circumstances personal to any particular policyholder which induced that policyholder to enter into the
policy or to pay a premium thereunder which give that policyholder rights independent of those which are being considered on this appeal. The position
as to those circumstances is not covered by these proceedings.
8. The policies entered into by Mr Hyman are accepted as being representative of this class of policy. They are all ‘retirement annuity policies’
approved by the Inland Revenue under s 226 of the Income and Corporation Taxes Act 1970. Those policies are issued to self-employed persons or those
in non-pensionable employment. These policies are attractive because of the income tax relief which the policyholder receives in relation to the
premiums which he pays. However, in view of this tax advantage, subject to exceptions which are not relevant to these proceedings, it is the intention of
the legislation that the value of the policies must, under the relevant Inland Revenue rules, be used on maturity to buy an annuity. It was part of that
policy, that on maturity of the policy the policyholder should not be confined to taking an annuity from the Society. A policyholder on a policy maturing
is to be able, if this is preferred, to choose an annuity policy provided by another life office. This is in the interests of policyholders generally because it
encourages competition and extends the choices which are available to policyholders. It was because of the alternatives which are open to a policyholder
that the size of the fund that could be used to obtain an annuity other than that which is based on the GAR is important.

The significance of the appeal

9. The effect of the approach of the Society in providing differential final bonuses can be demonstrated very clearly in practical terms under one of
the policies of the appellant. If the appellant selected the GAR annuity the fund on which it would be paid would be £40,033·48. While if he chose one
of the other options, the fund would be £46,503·39. The difference in the final bonus was therefore the sum of £6,469·91. For the appellant, assuming he
would be aged 68 and 3 months at the relevant time, the difference between the GAR annuity on the smaller and larger fund was the difference between
£4,399·68 per annum and £5,110·74 per annum. A difference which is not insignificant when it is borne in mind that the annuity is paid annually. The
differential bonus on the other hand meant that the annuity he would receive from the other provider or from the Society on a funded basis would be equal
in value in current terms to that payable at the GAR.
10. It would be wrong to conclude from this that if the appeal is successful, the appellant and his fellow policyholders will in fact benefit to the
extent of the figures first quoted. Mr Sumption acknowledges that, if his arguments are accepted, the result will be that at best from his clients point of
view the board would have to reconsider what final bonus should be payable. He accepts it is possible, if not probable, that, if the board cannot declare a
differential rate of bonus, they will declare a unified rate which is lower than the higher rate of bonus the Society has decided to pay to those
policyholders who do not select the GAR option but instead select what was described in argument as the funded option. None the less the significance of
the case is very great. Quite apart from ­ 335 the scale of the Society’s activities, which result in its assets at 31 December 1998 exceeding £28bn,
there are a great many other insurance companies who were offering policies with a GAR and the decision in these proceedings will be relevant to their
policies as well. In addition I regard the case as being important because it demonstrates the extent to which the courts can review the manner in which a
fiduciary discretion is exercised. There could also be an important issue if the appeal succeeds as to what action the Society should be required to take to
rectify the situation bearing in mind that since the first differential bonuses were declared many policyholders have exercised their powers of election.
Whether it would be desirable to require the Society to attempt to put the clock back to zero (if this is possible) is not an issue on which we have heard
argument.

The decision of Sir Richard Scott V-C

11. Sir Richard Scott V-C came to the conclusion that the policy adopted by the Society was in accord with both the articles of association of the
Society and the terms of the policy. He therefore made the declarations which the Society was seeking. Lord Grabiner QC, on behalf of the Society,
adopts Sir Richard Scott V-C’s reasoning with one exception. What I have described as the differential rate final bonus was described by Sir Richard
Scott V-C as a conditional bonus. Whether the bonus is described as a differential bonus or a conditional bonus is not significant. What could be of
significance is whether that bonus is a ‘Related Bonus’ under the terms of the policy. Sir Richard Scott V-C considered it was a Related Bonus. Lord
Grabiner disagrees and for this reason the Society has filed a respondent’s notice. In due course it will be necessary to consider this point.

The articles of association of the Society

12. Policy No RO119487 of the appellant (the policy) is accepted by the parties as containing terms on which it is possible to resolve the issues
between the parties. As the recitals to the policy make clear, the appellant by virtue of the policy is entitled to be a member of the Society. The articles of
association of the Society govern the relationship between the Society and its members. Article 2 defines a ‘participating policy’ as ‘any policy which for
the time being confers a present entitlement to participate in the profits of the Society’. The policy is a participating policy. Article 3 accords with the
recitals to the policy by providing that every person who has effected a participating policy is a member of the Society.
13. It is the articles of the Society which set out the powers of the directors of the Society to declare a bonus or make a cash payment. The relevant
article is art 65 and it is in very wide terms:

‘(1) The Directors shall, at such intervals as they may deem expedient, but at least once in every three years, cause an investigation to be made
into the financial condition of the Society, including a valuation of its assets and liabilities, by the Actuary. Provided that in the valuation of the
assets the values thereof be not estimated beyond the market prices (if any) of the same, unless for reasons to be set out in the Directors’ report to
the Members upon the results of the valuation. After making such provision as they may think sufficient for such liabilities, and any special or
other reserve they may think fit, the Directors shall, at a Special Board Meeting, declare what amount of the surplus (if any) shown by such
valuation may, in their opinion, be divided by way of bonus, and they shall apportion the amount of ­ 336 such declared surplus by way of bonus
among the holders of the participating policies on such principles, and by such methods, as they may from time to time determine. The Directors
may pay or apply the bonus so apportioned to each participating policy holder, either by way of reversionary bonus (that is to say, by way of
addition to the sum assured when it shall become a claim), cash payment, reduction of premium for the whole of life or any less period, or in any
other way they and any participating policy holder may agree.
(2) The Directors (after obtaining such report or reports from the Actuary as they may in their discretion consider to be necessary or desirable in
the circumstances) may, in cases where participating policies become claims in the interval between two valuations, pay such interim or additional
or special bonuses as they shall think fit.
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(3) The amount of any bonus which may be declared or paid pursuant to paragraph (1) or paragraph (2) of this Regulation and the amount (if
any) to which any participating policyholder may become entitled under any mode of payment or application of any such bonus, shall be matters
within the absolute discretion of the Directors, whose decision thereon shall be final and conclusive.’

14. In his judgment Sir Richard Scott V-C draws attention to the three stages by which bonuses become allocated to individual members (para 10):

‘First, the Directors must decide upon the amount of surplus to be divided by way of bonus. I will call the amount “the total declared bonus” in
order to distinguish it from the bonus allocated to individual policyholders or classes of policyholders. Second, the Directors must decide how to
apportion the total declared bonus among the members. As to this, they may apportion “on such principles, and by such methods, as they may
from time to time determine”. Third, the directors must decide upon the manner in which the bonus allocated to each member will be provided to
him or her.’

15. The process of declaring bonuses only need take place once in every three years and in practice the process occurs annually. Subject to this the
directors’ powers are expressed in the widest of terms. They have an ‘absolute discretion’ and their decision is to be ‘final and conclusive’.
16. However, even a discretion expressed in these wide terms is not unlimited. The directors cannot use their powers under art 65 to take a decision
which would constitute a breach of contract. The limits on the exercise of this broad discretion are not however confined to excluding conduct which is
contrary to the terms of a contract. It is not disputed that the relationship between the directors and the members of the Society means that the directors
have to exercise their powers in a fiduciary manner. The powers have to be used to further purposes for which they are conferred. They have to be
exercised justly and fairly.
17. In his speech in Re a Company (No 00709 of 1992) [1999] 2 All ER 961, [1999] 1 WLR 1092 Lord Hoffmann provides an illuminating analysis
of the nature of the restriction which is imposed by equity on the literal construction of a provision in a context involving s 459 of the Companies Act
1985. (See in particular [1999] 2 All ER 961 at 969, [1999] 1 WLR 1092 at 1100–1101.) From what Lord Hoffmann has to say as to legitimate
expectation, I recognise that a lawyer more familiar with the review of the exercise of discretionary public law powers than ­ 337 the exercise of
discretionary fiduciary powers must be cautious and not draw false analogies. None the less, while recognising the need for caution, it can be safely said
that there are marked similarities between the two discretionary situations. This is made clear by the judgment of Chadwick LJ in Edge v Pensions
Ombudsman [1999] 4 All ER 546. As Professor Dawn Oliver of University College, London has recently convincingly pointed out in a paper for the
Sweet & Maxwell 1999 Judicial Review Conference there are ‘a range of fiduciary relationships in which equity imposes (and the fact of imposition is
important) duties of considerate decision making’ on bodies who are not public for the purposes of judicial review. By contrast, there is a well established
tradition, especially in relation to local authorities, of regarding public bodies as being under a fiduciary duty similar to that owed by trustees (see Roberts
v Hopwood [1925] AC 578, [1925] All ER Rep 24, Prescott v Birmingham Corp [1954] 3 All ER 299 at 302, [1955] Ch 210 at 226 per Vaisey J and
[1954] 3 All ER 698 at 706–707, [1955] Ch 210 at 235–237 per Jenkins LJ and Bromley London BC v Greater London Council [1982] 1 All ER 129 at
134–135, 154, [1983] 1 AC 768 at 776–777, 815 per Lord Denning MR and Lord Wilberforce.
18. Parliament confers wide discretionary powers on the government of the day, so that they can be used in the nation’s and the public’s interests.
Local authorities have wide discretionary powers conferred upon them so that they can be used in the interest of the locality and those who reside there.
(I would not accept that today any group such as the ratepayers can be singled out as the beneficiary of local government powers.) The recipients of the
powers, whether national or local, are in very much the same position as they would be if they had fiduciary powers conferred upon them. The powers
are entrusted to them so that they can exercise them on behalf of the public or a section of the public. The public places its trust in the public bodies to
exercise their powers for the purposes for which they are conferred. The importance of the House of Lords’ decision in Padfield v Minister of Agriculture
Fisheries and Food [1968] 1 All ER 694, [1968] AC 997 is that it made this clear.
19. With-profits policies which involve the allocation of bonuses based upon the profits earned by the insurer would not be possible if the
discretions, such as those conferred on the board of the Society in such wide terms, were not also recognised by the courts to be subject to similar
responsibilities. The powers are entrusted to the board to be used equitably for the benefit of existing and future policyholders, having regard to the terms
of their respective policies and the interests and needs of the Society as a whole. If decisions are taken which are inconsistent with or disregard those
terms the courts can intervene and require the decisions to be taken again in very much the same way as they intervene on judicial review. As with
judicial review the exercise is not confined to a black letter exercise of construing the width of the power. Although the power allows the decision maker
a wide latitude to use the discretion in the manner he regards as most appropriate, the discretion is not unlimited.
20. That there is this similarity between the role of the courts on judicial review and in relation to a fiduciary duty should cause no surprise when it is
remembered that Lord Greene MR, who encapsulated the essence of the court’s role in judicial review in Associated Provincial Picture Houses Ltd v
Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, was a distinguished Chancery lawyer, as is Lord Wilberforce, one of the patriarchs of English
administrative law. Indeed it was only the need to protect the procedural safeguards which are part of the process of judicial review which explains the
decision in O’Reilly v Mackman [1982] 3 All ER 1124, [1983] 2 AC 237 in so far as it decides public law issues could no ­ 338 longer be regularly
determined on an application made by originating summons in the Chancery Division.
21. The good sense of the courts’ requirement of similar standards from those who exercise fiduciary discretionary powers to those who exercise
public law discretionary powers is emphasised by the facts of this case. A substantial body of members of the public are dependent on the Society for
pensions to meet their needs after they have ceased to earn their living as a result of their employment. The pension industry is therefore regulated and
there is a pensions ombudsman because of the functions the industry performs. The supervision which is thus provided is in addition to and not in
substitution of that provided by the courts. It is important that courts are prepared to supervise the manner in which fiduciary powers are exercised. The
position does, however, remain that, in considering whether the directors have acted inequitably or otherwise gone outside their powers in declaring a
differential final bonus in relation to pension policies of the class with which we are concerned, the terms of the policy are of critical importance. The
fact that policyholders are also members of the Society is no more than background. My views on the issues would be the same even if the Society was
no longer owned by its members. I therefore turn to the terms of the policy.

Terms of the policy

22. After the recitals, the policy contains only five short clauses followed by six relatively short schedules. Despite this the proper interpretation of
the policy has been subject to extensive argument, both orally and in writing, between the parties. The position as I see it, however, is relatively
straightforward as long as you focus on the issue which divides the parties, namely whether the Society is entitled to declare a differential final bonus
because the current annuity rates have fallen below the GAR. The policy gives the policyholder an option to pay further premiums but this option does
not affect the issue and so, in my reference to the terms of the policy, to minimise the complexity of the provisions, I will not refer to passages of the
policy which refer to the payment of further premiums or further annuities. The starting point of the policy is cl 2 of the policy which provides that if the
policyholder—‘shall survive to the Selected Pension Date the Society will pay to the [the policyholder] the Annuity increased by Related Bonuses (if any)
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… upon and subject to the terms and conditions set out in this Policy.’ The important point to note here is that there is a right to have Related Bonuses, if
any, added to the annuity (the GAR annuity) given expressly by the policy. If there is no bonus there is nothing to add but if there is the policyholder is to
benefit. This is an important feature of the contract.
23. Schedule 1 contains definitions and included among those definitions are definitions of ‘the Annuity’, ‘Selected Pension Age’, ‘Selected Pension
Date’ and ‘Related Bonuses’. The annuity means: ‘… the Annuity purchased by the premium specified in Endorsement 1 and calculated in the manner
specified in the Sixth Schedule.’ ‘Related Bonuses’ means: ‘… in relation to the Annuity … such amounts (if any) as shall under the rules and regulations
of the Society have been allotted by way of addition to or bonus thereon.’
24. The only relevant rules and regulations of the Society are those contained in art 65 which I have already quoted. So already the policy has
identified what the policy is to provide, namely an annuity plus Related Bonuses, if any, and how ­ 339 the annuity is to be calculated and the basis for
allotting bonuses. The ‘Selected Pension Date’ means ‘the date upon which the [policyholder] attains the Selected Pension Age’.
25. The ‘Selected Pension Age’ (the SPA) is said to have ‘the meaning ascribed thereto by the provisions of the Third Schedule’.
26. Schedule 3 states that the SPA shall be either the age chosen by the policyholder or within one calendar month of attaining that age or the age
deemed to be the SPA pursuant to paras 4 or 5 of schedule 3.
27. Paragraph 4 of schedule 3 provides:

‘Unless and until the [policyholder] shall have chosen an age as the Selected Pension Age the Selected Pension Age for all the purposes of this
Policy (including the calculation of the Annuity … and the Policy Annuity Value(s) of the Annuity) … shall be deemed to be the age of 70 years.’

28. Paragraph 5 provides that if the policyholder has not chosen an age before the age of 70 then the policyholder is deemed for all purposes of the
policy to have chosen the age of 70 as the SPA. This is subject to the provision which allows the policyholder in specified circumstances to select a
different SPA not exceeding 75.
29. Clause 4 of the policy provides that the policyholder: ‘… shall be entitled to exercise the options to take the alternative benefits which are
contained in the Fourth Schedule upon and subject to the terms and conditions therein set out.’ (My emphasis.)
30. This is another important provision because it makes clear the options are an entitlement. Before turning to schedule 4 to see what that schedule
says about options, it is desirable to refer back to schedule 3, which is described as the ‘Benefit Schedule’, to note that it provides:

‘1.1 The Annuity shall be calculated in the manner specified in the Sixth Schedule.
1.2 The Annuity increased by Related Bonuses (if any) shall be payable from the Selected Pension Date during the remainder of the lifetime of
the [policyholder] …’

31. Turning now to schedule 4 it is headed ‘Options to Take Alternative Benefits’. It provides two relevant options. The first is the option to take an
annuity from a provider other than the Society. This is described as an ‘Option to effect a Substituted Contract’. The provision reads:
‘1.1 At the time of choosing the Selected Pension Age the [policyholder] may elect upon the terms and conditions hereinafter appearing to
renounce all or any part of the Annuity increased by Related Bonuses (if any) and in lieu thereof to have the Policy Annuity Value in respect thereof
at the Selected Pension Age applied as premium under a Substituted Contract.’ (My emphasis.)
32. The second option dealt with in schedule 4 is the option to take an annuity at the Society’s current rate. This option is described in these terms:

‘2. At the time of choosing the Selected Pension Age the [policyholder] may elect by giving written notice to the Society … to renounce all or
part of the Annuity increased by Related Bonuses (if any) … and to be paid in lieu thereof an annuity calculated by reference to the Policy Annuity
Value of the benefit so renounced and the table of rates in use by the Society at the ­ 340 Selected Pension Date for a contract providing an
immediate annuity approved under Section 226 of the Act having regard to the sex of the [policyholder] and the age of the [policyholder] at the
Selected Pension Date.’ (My emphasis.)

33. Here it will be noted that in the case of both options (a) it is the annuity increased by Related Bonuses which is the starting point, (b) it is
necessary to ascertain the Policy Annuity Value (PAV) and (c) it is on the PAV that the alternative annuities will be calculated. The PAV is defined in
schedule 1 as meaning: ‘… all or part of the Annuity increased by Related Bonuses (if any) … the Policy Annuity Value attributable thereto calculated in
the manner specified in the Sixth Schedule.’
34. Schedule 6 is headed ‘Calculation of Annuities and Policy Annuity Values’. This is important since it deals with the calculation of the annuity
which will be obtained applying the GAR and where a policyholder selects one of the two options, to which I have referred already under schedule 4, the
calculation of the PAV.
35. Central to the calculation of the GAR annuity is the Accumulation Value and table A to schedule 6. Table A consists of a schedule setting
different sums of money against each year during which the premium is invested up to 59 years for a premium of £100. Thus in year zero the
Accumulation Value is £95·50 and in year 59 the Accumulation Value is £726·92.
36. Turning to the main body of schedule 6 it initially deals with the GAR annuity. Paragraph 1 states:
‘1.1 The Annuity … payable at the Selected Pension Date shall be calculated in the following manner.
1.2 The Accumulation Value at the Selected Pension Date of the premium paid in respect of the Annuity … shall first be ascertained in
accordance with paragraph 1.3 or (as the case may be) paragraph 1.4 of this Schedule.
1.3 the Accumulation Value at the Selected Pension Date of any premium paid on a date falling on or within 30 days after any Premium Day
shall be calculated as follows:
1.3.1 the number of completed years between the Premium Day in question and the Selected Pension Date shall be ascertained.
1.3.2 the amount of Accumulation Value attributable to such complete number of years and to the amount of the premium in question shall then
be ascertained by reference to Table A.
[1.3.3 This sub-paragraph contains a provision providing for a percentage increase where the Selected Pension Date is not a Premium Day.]
… and the Accumulation Value so determined … shall be the Accumulation Value of the premium in question at the Selected Pension Date.’
37. Paragraph 1.4 deals with the position where the premium is paid after thirty days and can be ignored for the present purposes.
38. Paragraph 1.5 is divided into three sub-paragraphs. The first sub-paragraph sets out how the amount of the GAR annuity is to be ascertained. It
states:

‘Having ascertained the Accumulation Value at the Selected Pension Date of the premium paid in respect of the Annuity … in accordance with
the preceding paragraphs of this Schedule the amount of Annuity … shall be the ­ 341 amount of annuity attributable to such Accumulation
Value at the Selected Pension Age by reference to Table B.’
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39. Table B sets out the Selected Pension Ages between 60 and 70 and against each gives an amount of annuity equivalent to £100 Accumulation
Value. Thus for £100 of Accumulation Value at the age of 65 a male is to receive an annuity of £11·72 and a female £10·36.
40. It will be observed that the process is twofold. First of all you ascertain by reference to table A the Accumulation Value and then you find the
amount of the annuity at the GAR by applying table B to the Accumulation Value.
41. Then returning to cl 2(a) the policyholder is to receive ‘the Annuity increased by Related Bonuses’. There is no problem in calculating the
Related Bonuses in the case of a GAR because they are declared in the terms of an annuity. However in the case of the exercise of one of the options the
position is more complicated because of the need to ascertain the PAV.
42. The second sub-paragraph of para 1.5 provides for the calculation of the PAV. It states:

‘The Policy Annuity Value at the Selected Pension Date of the Annuity increased by Related Bonuses (if any) … shall be the amount of
Accumulation Value attributable thereto which shall be ascertained by reference to Table B.’

43. The second sub-paragraph of 1.5 therefore provides that table B is to be used to obtain an Accumulation Value if one or other of the options
contained in schedule 4 is selected instead of taking the GAR annuity. In both calculations the Related Bonuses are to be taken into account. Those
Related Bonuses, if Sir Richard Scott V-C is correct, include the final bonus.
44. The final bonus policy adopted by the Society means however that the final bonuses are of different amounts depending on whether or not one of
the options is selected. The way the Society achieved this from 1993 to 1998 was by the form of the bonus declaration under art 65. Final bonuses were
to be at a rate of 13% of the contractual benefits ranking for bonus on 31 December 1992, together with an additional final bonus of 10% for the period
from 31 December 1993 to the date of payment of benefits. This was however subject to the proviso:
‘Where benefits are taken in annuity form and the contract guarantees minimum rates for annuity purchase, the amount of final bonus payable is
reduced by the amount, if any, necessary such that the annuity secured by applying the appropriate guaranteed rate to the cash fund value of the
benefits, after that reduction, is equal to the annuity secured by applying the equivalent annuity rate in force at the time benefits are taken to the
cash fund value of the benefits before such reduction.’ (My emphasis.)
45. The declaration in 1999, as a response to the arguments and contentions of policyholders, used a different formulation. The new formulation
was:

‘If the contract guarantees minimum rates for annuity purchase the aggregate final bonus otherwise applicable is reduced when benefits are
taken by the amount, if any, necessary such that the annuity secured by applying the appropriate guaranteed annuity rate after such reduction, is
equal to the annuity which would be secured by applying the Society’s annuity rate for an equivalent annuity in force at the time benefits are taken
to the cash fund value of the benefits before that reduction, subject to a minimum value for ­ 342 the final bonus after such reduction of zero. If
the contract guarantees minimum rates for annuity purchase and a reduction has been made under the immediately preceding paragraph, then where
benefits are not taken in a form to which those minimum rates apply an additional amount of final bonus will be made available to the policyholder
at the time benefits are taken equal to the reduction if any made under the immediately preceding paragraph. Such additional amount of
non-guaranteed final bonus will not constitute a “related bonus” or bonus allotted under the contract.’ (My emphasis.)

46. The language of both declarations is complex. For the purposes of the present appeal I do not consider that it is helpful to attach any significance
to the different language used. The second form of declaration was no doubt thought to improve the position of the Society. I do not consider that it does
so. If however it does, then it would be a pyrrhic victory for the policyholders to succeed on the first form of declaration, if they could not succeed on the
second form of declaration. This is because, on the evidence of the Society, if it was required to retake its decisions in relation to the earlier years, it
would merely adopt the formula used for the declaration in 1999. The later formulation also indicates that the ‘additional amount’ is not to be a ‘Related
Bonus’. I consider that Sir Richard Scott V-C was correct to regard the reduced final bonus referred to in the earlier declaration and the additional
amount referred to in the later declaration as being Related Bonuses. It is not in my judgment open to the Society to seek by adopting a particular form of
words in the later declaration to avoid the clear intention of the policy that a final bonus should be a Related Bonus. I would therefore reject the
arguments of the Society set out in its respondent’s notice.
47. I should also make clear that I do not consider that the outcome of this appeal turns on whether the declarations are creating what I prefer to call a
differential bonus or what Sir Richard Scott V-C describes as a conditional bonus. The critical issue as I have already indicated is whether it is
permissible to declare two levels of final bonus. One payable in the case of the GAR annuity and the other when the options are exercised. Whether
‘conditional’ or ‘differential’ the final bonus is to be used to establish the PAV and so must be a Related Bonus for the purposes of the policy.

The contract argument

48. Basing himself on the language of the policy, Mr Sumption advances three main arguments for submitting that the bonuses declared over the
relevant period contravene the terms of the contract. The first principal argument is that in calculating the policyholders’ contractual entitlement the
Society has applied the current annuity rates rather than the contractual rates set out in table B. The second principal argument is a variation of the first
argument and involves the contention that the conditions of the policy require the PAV to be the capital equivalent of the GAR annuity including the final
bonuses. The third principal argument depends on the scheme of the policy. It is submitted that the allotment of the final bonus is intended to precede the
time when the policyholder makes his decision whether to select one or other of the options instead of the GAR. Here it is said it depends on the choice
made by the policyholder. It is submitted relying on a statement of Lord Goff of Chieveley in Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp
of India, The Kanchenjunga [1990] 1 Lloyd’s Rep 391 at 399 that ‘the principle of election applies when a state of affairs comes into ­ 343 existence in
which one party becomes entitled to exercise a right and has to choose whether to exercise the right or not’.
49. None of these arguments establishes that to declare a differential bonus is contrary to any express term of the contract. If there was such a term
the answer would be obvious. The first two arguments at one level amount to no more than an objection as to the manner in which the equivalent capital
value of the fund on which the annuity would be based, depending on which option was selected, would be calculated. The Society no doubt had to make
a reverse calculation in order to determine the differential final bonuses. However, having ascertained the differential bonuses in this way, the express
terms of the policy can be applied to produce the result that the Society sought to achieve once it is accepted that there can be two different rates of final
bonus. The arguments do not go to the question of whether a differential rate of bonus is permitted. As already indicated, Related Bonuses are linked by
the policy to the power of the Society under art 65 and the language of art 65 is certainly wide enough to permit the declaration of differential bonuses if
this is a permissible manner in which to exercise the discretion under art 65. The most one can say is it is surprising if the Related Bonuses which are
referred to in the GAR and the two options can differ in amount. This is not what you would expect.
50. As to the third argument, I have no difficulty in applying Lord Goff’s statement as to election to a situation where two different rates of bonus are
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announced before the policyholder makes the choice. This was the position here. It cannot be said that the policyholder was lacking in information
which was required to make a proper selection.
51. I therefore reject Mr Sumption’s arguments in so far as they are based on a contravention of any single term of the policy. In his submissions,
Lord Grabiner on behalf of the Society drew attention to the fact that in opening this appeal Mr Sumption had not expressly stated that the Society had
breached any term of the contract. This was no doubt no more than a forensic point but did suggest, what I believe to be the case, that if Mr Sumption’s
client is to succeed, it must be on the basis that, while to declare a differential bonus may not be contrary to the letter of the policy, it involves an
impermissible exercise of discretion. This is because it amounts to exercising the board’s discretion in a manner which is contrary to what the policy by
implication requires; the implication being drawn from the structure and terms of the policy as a whole. This is the argument which I regard as going to
the heart of the appeal. It can be considered as part of Mr Sumption’s first head of argument ‘Inconsistency with the contract’ or it can be considered
under the more general head of an improper exercise of discretion. I prefer to deal with it under the broader head of discretion to which I will now turn.
However, in the end I would come to the same conclusion under either head after taking into account the matrix of the contract.

Improper exercise of discretion

52. Here, the matrix of the policy is important. Included in the matrix is the Society’s general approach as to the declaration of bonuses which I
believe is correctly set out in Mr Sumption’s revised skeleton argument in these terms:

‘1. The main features of the Society’s practice at all relevant times have been as follows: (1) Final bonuses are declared annually by the Board,
for the succeeding calendar year. Upon a policy maturing during that calendar ­ 344 year, the Board’s decision is mechanically applied by the
Society’s staff. (2) The Board of the Society declares final bonuses for each calendar year, as a percentage uplift applied to the value of the benefits
that would have been available to a given policyholder at the beginning of the previous calendar year. Subject to any express reservation included
in the declaration, the uplift applies across the board regardless of the form in which benefits are taken. (3) The fundamental concept used by
Equitable Life and other life offices is “asset share”. This is a notional capital fund attributed to a particular policy. It reflects a retroactive
assessment of the amount of the policyholder’s premiums, the period of time for which they have been invested with the Society and the investment
return which the Society has achieved. (4) The object of final bonus declarations is to increase the notional fund attributable to each policy, so that
on maturity it will correspond to that policy’s asset share. (5) It was a common feature of all Retirement Annuity Policies (but not all pension
policies with GARs) that the bonuses were expressed in the declarations and allotments as an increase of the Annuity, and not as an increase of the
Accumulation Value from which the Annuity was calculated. This, however, was essentially a matter of procedure. The bonus, like the minimum
contractual annuity, can in practice be calculated only by reference to the notional capital fund attributed to the policyholder. As Mr Nash (the
Managing Director and Actuary of Equitable Life) points out in his affidavit, the Board of Equitable Life has always calculated final bonuses as
additions to the Accumulation Value, and then expressed them in annuity terms by applying the GARs to the addition: The effect of the allotment of
bonus to any given policy is the same irrespective of whether a given bonus is expressed in annuity terms or as a capital value equivalent to that
produced by applying GARs. Since this exercise involves determining the distribution of the increase in the value of the Society’s net assets over
the relevant period, there is no other way that it can be done. (6) It is implicit in this practice, and is expressly accepted by Equitable Life, that
GARs must be applied not just to the Accumulation Value shown in Table A to the policy, but to additions to that value made in the course of
declaring bonuses, including final bonuses. Mr Nash says: “On maturity, if a final bonus is made available to a policyholder taking his benefits in
guaranteed annuity form, the GAR applies to that final bonus just as it applies to other guaranteed benefits under the policy.”’

53. Against this background the conclusion I have come to is that it was not a permissible exercise of discretion for the Society to declare a
differential bonus. To do so is inconsistent with the tenor of the policy for the following reasons. (a) The differential bonus significantly detracts from or
undermines the benefit of GAR given by the policy. The assumption on which the policy was based was that when current annuity rates fall below the
GAR the annuity which the policyholder should receive would be higher than if there was no GAR. (b) Although a policyholder has no right to a terminal
bonus, if the Society declares a terminal bonus, the bonus is a Related Bonus, which has to be taken into account in determining the sum available
whether an option is exercised or not. This is inconsistent with the declaration of differential bonuses. (c) Whatever formulation is adopted by the Society
to achieve its policy, that policy has the effect of providing the policyholder with a final bonus which differs in amount depending on which of his
contractual rights the policyholder exercises.
­ 345
The power to declare bonuses is not to enable the Society to increase or reduce the attractiveness of those rights. For example, it would be
impermissible for the Society because it did not wish to offer annuities itself to use its discretion as to bonuses to make it more attractive for the
policyholder to use another provider. (d) The options under schedule 4(1.1) involve renouncing the annuity increased by the Related Bonuses and ‘in lieu
thereof’ the policyholder receiving ‘the Policy Annuity Value in respect thereof’. As the Related Bonuses are part of the PAV this is not consistent with
there being different Related Bonuses. In addition, the PAV is based on the ‘Annuity’ increased by ‘Related Bonuses’, which produces the Accumulation
Value by reference to table B. Table B is in fact central to the GAR so whether an option is exercised or not table B plays a part in the calculation. This
does not suggest that the effect of the GAR should be neutralised by the declaration of differential bonuses. (e) It is argued by the Society that its policy
is merely to maintain equality between the choices the policy gives a policyholder. However the GAR meant there would always be inequality. Either
the current annuity would be lower or higher than the GAR. It is said that if the Society had not adopted a differential bonus, the options under schedule 4
to the policy would be of no value when the GAR is above current rates. However this will be the case if current annuity rates drop so low that even if the
Society attributed the entire sum available for final bonuses to those policyholders who did not select the GAR, the selection of the GAR would still be
financially beneficial. It was therefore always contemplated there could be inequality in the value of the choices the policy provided. (f) The other
justification of the Society for its policy, namely that it prevents the policyholder receiving a double benefit, namely the benefit of the appreciation of the
assets of the Society and a high annuity rate, is not as strong an argument as it first appears. The policyholder is in any event entitled to the benefit of a
policy with a GAR and should be not treated differently if he seeks to take the benefit the GAR provides because the assets of the Society appreciate. The
final bonus is payable because of the profitability of the Society, the GAR is payable because this is what the policy requires. (g) The absence of any
documentation suggesting at the time that the policies were entered into that differential final bonuses could be declared in these circumstances. (h)
While the expert evidence called by the Society and the policyholders in this case is useful in getting the background to the issues involved, the issues
cannot be resolved by the opinions of experts, no matter how eminent, or the views of other bodies. It is a question for the court. (i) The policyholder
was entitled to be told if there were to be differential final bonuses depending on which policy option was chosen since the neutralisation of the benefit of
the GAR was not a course which could be reasonably foreseen.
54. The declarations of final bonus which are in issue in this case therefore involved an impermissible exercise of discretion. It was an exercise of
discretion reducing the policyholder’s reasonable expectation that he would receive his asset share irrespective of how he exercised his rights under the
policy. The purposes for which the powers contained in art 65 are conferred on the Society do not include treating a policyholder differently depending
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on the manner in which he seeks to exercise his rights under the policy which he has been granted by the Society in return for his premium. This is
precisely the result of the policy adopted by the Society and it is a collateral purpose designed to negative a benefit to which the policyholder would
otherwise be entitled. The fact that the Society was not under an obligation to pay a final bonus does not mean that if the Society decided to pay a final
bonus it should do so in a manner which ­ 346 deprives the policyholder of a share of the investment return of the Society which the Society would
confer upon him if he selected one or other of the other options available under the policy.
55. I do not as part of my reasoning go so far as to say that the action of the Society deprives the GAR of any value. It does provide a floor below
which the annuity rate could not fall. However, as Mr Sumption submitted, such protection is extremely limited.
56. In my judgment the appeal should be allowed. The Society will have to decide on what course it should now adopt. We will be prepared to hear
argument as to the order which is appropriate if there is any dispute as to this.

MORRITT LJ.

Introduction
57. The Equitable Life Assurance Society (the Society) was formed in 1762. In 1892 it was incorporated under the Companies Act 1890. Its
members are those with whom it has entered into participating, or with-profits, policies of assurance. By art 65 of its articles of association its directors
are required periodically to determine how much of any surplus of its assets over its liabilities and reserves should be paid to its members by way of
bonus and to apportion such surplus ‘on such principles, and by such methods, as they may from time to time determine’.
58. Since 1974 the Society has declared two types of bonus, reversionary or interim and final. The reversionary or interim bonus has been declared
annually from the inception of the policy to its maturity; it becomes a contractual entitlement at the time of the declaration but is not payable until
maturity. By contrast the final bonus is also declared annually but is payable only on the maturity of a policy in that year; there is no prior contractual
entitlement to a final bonus of any or any particular amount. The bonus is calculated so as to distribute to the policyholder net investment returns
attributable to the premiums he has paid. To retain maximum flexibility the Society has retained a large proportion of such returns until the declaration of
the final bonus.
59. From 1957 to 1988 the Society sold with-profits annuity policies on terms which, in one form or another, guaranteed the rate of annuity payable
in respect of the premium or premiums paid for a specific form of annuity. Such policies also gave the holder options to acquire annuities on terms
different to those to which the guaranteed rate applied. If the holder chose to acquire any of those alternative annuities then the notional fund required for
the provision of the guaranteed annuity was treated as applied in the purchase of the alternative.
60. Since the mid-1990s the market rate for the purchase of annuities has been below the guaranteed rate. Accordingly the notional fund required to
provide an annuity at the guaranteed rate has been less than that required to fund an annuity of the same amount at the current rate. In December 1993 the
directors of the Society resolved to allot to those policyholders who elected to take an annuity to which the guaranteed annuity rate did not apply a larger
final bonus than that allotted to those who took the annuity to which the guaranteed rate did apply.
61. A number of policyholders, through a representative policyholder Mr Hyman, contended that the Society was not entitled so to do. Sir Richard
Scott V-C, disagreed with them and made declarations upholding the validity of the Society’s practice. This is the appeal of Mr Hyman from those
declarations. Both before Sir Richard Scott V-C and this court the parties were agreed that the points ­ 347 of principle could be fully and properly
argued and determined on the basis of the terms of one of the policies taken out by Mr Hyman. Accordingly I propose to consider the arguments and
reach my conclusions in the light of the terms of that policy.

The policy
62. The policy, RO119487, was effected by Mr Hyman in June 1979 by payment of a premium of £1,000. It was a retirement annuity contract in a
form approved by the Inland Revenue pursuant to s 226 of the Income and Corporation Taxes Act 1970. Consequently, subject to commutation of part,
the benefits might only be taken in annuity form, s 226(2)(a) of the 1970 Act and, by virtue of subsequent endorsements, the value of Mr Hyman’s
accrued rights under it might be applied as a premium or other consideration for alternative annuity benefits, s 622 of the Income and Corporation Taxes
Act 1988. Schedule 5, para 4.0 conferred on Mr Hyman the right to participation in the profits of the Society up to the selected pension date but no longer.
Mr Hyman thereby became, if he was not one already, a member of the Society. By cl 2(a) Mr Hyman was entitled to the guaranteed annuity. Clause 4
and schedule 4 gave him various options to take the alternative benefits therein described. Clause 1 and schedule 1 contained definitions applicable to the
policy as a whole but only if the context so permitted. It is necessary to consider all these provisions in some detail.
63. The starting point is cl 2(a). This provides:

‘2. The Society hereby covenants with the Grantee that … (a) if the Grantee shall survive to the Selected Pension Date the Society will pay to
the Grantee the Annuity increased by Related Bonuses (if any): or (b) … upon and subject to the terms and conditions set out in this Policy.’

64. The terms ‘Selected Pension Date’, ‘the Annuity’ and ‘Related Bonuses’ are defined in schedule 1. For the moment it is only necessary to refer
to the latter two definitions. They are:

‘… the Annuity means the Annuity purchased by the premium specified in Endorsement 1 and calculated in the manner specified in the Sixth
Schedule … Related Bonuses means in relation to the Annuity … such amounts (if any) as shall under the rules and regulations of the Society have
been allotted by way of addition to or bonuses thereon.’

65. Schedule 6 provides by para 1.1 that ‘the Annuity … payable at the Selected Pension Date shall be calculated in the following manner’.
Paragraphs 1.2 to 1.4 provide for the calculation of ‘the Accumulation Value’, a term defined in schedule 1 ‘in relation to any premium’ by reference to
this calculation which is to be carried out by the application of an attached table A. Table A contains the value after any given number of years up to 59
of each £100 of premium paid. Paragraph 1.5 contains three sub-paragraphs which for ease of reference I have numbered [i],[ii] and [iii]. Sub-paragraph
[i] provides:

‘Having ascertained the Accumulation Value at the Selected Pension Date of the premium paid in respect of the Annuity … in accordance with
the preceding paragraphs of this Schedule the amount of Annuity … shall be the amount of Annuity attributable to such Accumulation Value at the
Selected Pension Age by reference to Table B.’
­ 348
66. Table B provides for the amounts of annuity per £100 of Accumulation Value dependent on age and sex ranging from £9·32 to £13·80. There is
no provision for the valuation of Related Bonuses for the purpose of the guaranteed annuity because there is no need. The bonuses are declared as a
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percentage of the annuity derived from the Accumulation Value or the annuity so derived as increased by earlier reversionary or interim bonuses.
Schedule 3, para 1.2 provides that the annuity so calculated and increased by Related Bonuses should be paid from the Selected Pension Date during the
remainder of the lifetime of the grantee by equal quarterly instalments in advance.
67. Schedule 4 confers options on the grantee to take alternative benefits. One option (schedule 4, para 2.0) is to have an annuity from the Society
calculated by reference not to the guaranteed annuity rate but by reference to the rates used by the Society at the Selected Pension Date. The other
(schedule 4, para 1) is to have the value of the guaranteed annuity as increased by Related Bonuses transferred to another life office in payment for the
acquisition of an annuity from that life office. There are two points relevant to the exercise of either option. The first is the time when the option must be
exercised. The second is the method of ascertaining the value of the guaranteed annuity to be applied in paying for the alternatives arising on the exercise
of either option.
68. The election is, in each case, to be made ‘at the time of choosing the Selected Pension Age’. The term ‘Selected Pension Age’ is defined by
reference to schedule 1 and schedule 3, para 3.1.1 as the age chosen by the grantee as provided in schedule 3.2 at which the annuity is to commence. By
schedule 3, para 3.2 the grantee is required to chose that age ‘on or within one calendar month of attaining’ it. Unless and until such age is chosen the
Selected Pension Age is deemed to be 70. Schedule 3, para 5.0 provides that ‘if the grantee shall have attained the age of 70 years plus one calendar
month’ without having chosen an age then he is deemed to have chosen the age of 70 as the Selected Pension Age. There is provision in schedule 3, para
6.0 for selecting an age greater than 70 but not more than 75. It must be exercised on or within one calendar month of attaining the age of 70 and requires
a new table of guaranteed annuity rates ‘calculated on the same basis as Table B but applicable after the age of 70’.
69. If, in accordance with that procedure, the grantee exercises any of the rights of election provided for in schedule 4 then the consequence is ‘to
renounce all or part of the Annuity increased by Related Bonuses (if any)’. In the case of a substituted contract with another life office (schedule 4, para
1.1) then ‘in lieu thereof to have the Policy Annuity Value in respect thereof at the Selected Pension Age applied as a premium under a Substituted
Contract’. In the case of an annuity with the Society at current rates (schedule 4, para 2.0) then there is ‘to be paid in lieu thereof an annuity calculated by
reference to the Policy Annuity Value of the benefit so renounced …’. Accordingly, in each case, it is necessary to ascertain the Policy Annuity Value
(PAV) of ‘the Annuity as increased by Related Bonuses’ or of ‘the benefit so renounced’.
70. By schedule 1 the expression ‘Policy Annuity Value’ is defined as meaning: ‘… in relation to all or part of the Annuity increased by related
Bonuses (if any) … the Policy Annuity Value attributable thereto calculated in the manner specified in the Sixth Schedule.’
71. The provision for ascertaining such PAV is contained in schedule 6.5[ii], which is in the following terms:
­ 349
‘The Policy Annuity Value at the Selected Pension Date of the Annuity increased by Related Bonuses (if any) … shall be the amount of
Accumulation Value attributable thereto which shall be ascertained by reference to Table B.’
72. It is evident that in that context the expression ‘Accumulation Value’ is related to ‘the Annuity increased by Related Bonuses (if any)’ and not to
‘any premium’ which is the context in relation to which it is defined in schedule 1. The common element is the application of table B. But whereas table
B is to be applied to ascertain the capital equivalent of the Related Bonuses as well as of the annuity, there is no provision requiring the application of
table B for ascertaining the Related Bonus.
73. In December 1993 the directors of the Society decided to amend the declaration of bonus for the calendar year 1994 so as to provide for the first
time for a differential final bonus dependent on whether the grantee took the guaranteed annuity or exercised an option to take an alternative benefit from
either the Society or from another life office. The reason for the change was the decline in annuity rates to a level below the guaranteed rate. The effect
of the change was to allot to those who took the guaranteed annuity a lesser final bonus than that allotted to those who took some alternative benefit. The
purpose of the change was to ensure that the annuity benefit available to those who decided to take alternative benefits was no less than that available to
those who chose the guaranteed annuity.
74. Mr Hyman’s policy matured on 28 October 1998. The bonus declaration for that year declared final bonuses for a number of different types of
policy at different rates. With regard to the category of recurrent single premium policies the final bonus was 13% of the annuity increased by previous
reversionary or interim bonuses for the year to 31 December 1997 and 9% for the period from that date to maturity. The declaration provided that:

‘Where benefits are taken in annuity form and the contract guarantees minimum rates for annuity purchase, the amount of final bonus payable is
reduced by the amount, if any, necessary such that the annuity secured by applying the appropriate guaranteed annuity rate to the cash fund value of
the benefits, after that reduction, is equal to the annuity secured by applying the equivalent annuity rate in force at the time benefits are taken to the
cash fund value of the benefits before such reduction.’

75. It is clear from the opening words that the provision applies only to those who take benefits in annuity form. The effect of the singularly opaque
words is to reduce the final bonus allotted to those taking the guaranteed annuity by the ratio of the current rate to the guaranteed rate. Thus if the current
rate is 8% and the guaranteed rate 10% the final bonus to those taking the guaranteed rate is 8/10ths of the final bonus as declared. The effect, so far as
Mr Hyman was concerned, is demonstrated by the valuations provided to him by the Society. The PAV of his policy attributable to the premiums paid
and reversionary bonuses already declared was £20,867·67. To provide an annuity of £1,099·92 per quarter at current rates required a final bonus of
£26,635 but at the guaranteed rates the requisite final bonus was only £19,165·81.

The proceedings
76. As I have indicated Mr Hyman and those he represents object to such a differential final bonus. Those who took the guaranteed annuity claim
that it ­ 350 should have been more and those, like Mr Hyman, who elected to take an alternative benefit, whilst recognising that they got a higher final
bonus, contend that they were not given the choice they should have had between a yet higher guaranteed annuity and the alternative benefit. They
contend that the declaration and payment of differential bonuses constituted a breach of contract or, if not a breach of contract, an improper exercise by
the Society of its discretionary power to allocate bonuses.
77. Sir Richard Scott V-C rejected both submissions. With regard to the breach of contract claim he analysed the argument as ‘wholly dependent on
the proposition that it is not contractually open to the Society to allot a conditional final bonus’. He rejected that proposition on the ground that there was
nothing in the contract to prevent it. With regard to the submission that the directors’ declaration and payment of a differential final bonus was an
improper exercise of their discretionary power it was his view that the decision was not irrational and that the directors had taken account of all relevant
factors and no others. Mr Hyman and those he represents contend that Sir Richard Scott V-C was wrong on both points. Thus the issues for our
determination are whether the declaration and payment of differential final bonuses are (1) inconsistent with, and so in breach of, the contract between the
Society and its policyholders; or (2) an improper exercise of the discretion conferred on the directors of the Society by art 65 of its articles of association.

Related Bonuses
78. Before considering the arguments advanced in support of Mr Hyman’s appeal on those two grounds it is convenient to deal with a subsidiary
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point raised by the Society’s respondent’s notice, namely whether the amount of final bonus allotted to those taking an alternative benefit in so far as it
exceeds the amount of the final bonus payable to those taking the guaranteed annuity is a Related Bonus within the terms of the policy. Before Sir
Richard Scott V-C the Society submitted that it was not. The argument and his reason for rejecting it are clearly set out in para 93 of Sir Richard Scott
V-C’s judgment. He said:

‘[Counsel for the Society] argued, also, that the final bonus taken by a GAR policyholder who elected to take benefits in fund form was not a
Related Bonus, as defined. The GAR policyholder only became entitled to it if he renounced the GAR based annuity. So it could not be described
as an addition to or bonus on the GAR based annuity. This is made explicitly clear in the new wording incorporated into the 1999 bonus
declaration. However, in the 1994 to 1998 bonus declarations the final bonus was expressed as “the amount required to increase the annuity or
other benefit ranking for bonus ” etc. This language, in my view, brought the final bonus within the definition of “Related Bonuses”. But the
qualifying sentence, included for the first time in the 1994 declaration, made the amount of the final bonus conditional on the form in which the
policyholder took his benefits. The amount of final bonus receivable by a policyholder who elected to take his benefits in fund form was never
receivable by a policyholder who elected to take a GAR based annuity. The amount of the “Related Bonuses” varied, therefore, depending on what
the policyholder decided to do. I do not agree with [counsel] that, in the 1994 to 1998 bonus declarations, the final bonus to which GAR
policyholders became entitled was not a Related Bonus. I think it was. But I do not think that makes any difference. The amount was conditional.’
­ 351
79. Similar arguments were advanced on behalf of the Society in this court. The final bonus in so far as it exceeded the amount allotted to the
guaranteed annuity was not ‘allotted by way of addition to or bonus on [the annuity]’ for the purposes of the definition of Related Bonus contained in
schedule 1. Sir Richard Scott V-C rejected the argument because of the form of declaration. I agree that he was right to do so. But there is a danger that to
confine the reason for rejecting the argument to such form may perpetuate the dispute. In my view there is another ground for reaching the same
conclusion derived from the context of schedule 6, para 1.5[ii]. The term Related Bonus is defined in schedule 1 ‘in relation to the annuity’. By virtue of
cl 1 of the policy that definition does not apply if the subject or context is inconsistent with it. The purpose of schedule 6, para 1.5[ii] is to provide the
basis on which to ascertain the PAV of the annuity increased by the Related Bonuses. There is no doubt that the bonus is declared in respect of the
annuity for there is no other justification for the policyholder’s participation in the profits. Accordingly account must be taken of it for the purpose of
ascertaining the PAV. In that respect it is plainly related. It appears to me, in that context, to be placing an altogether too restricted interpretation of the
part of the definition of Related Bonus which stipulates that it is ‘allotted by way of addition to or bonus on [the annuity]’ to require that it is not only
declared in respect of the annuity but will be payable as an increase of the annuity. In my view a bonus is related for the purpose of ascertaining the PAV
if it is declared in respect of the annuity, and in that sense allotted by way of addition to or bonus on the annuity, even though that annuity is never paid
because the policyholder elects to take an alternative benefit in connection with which the need to determine the PAV arises.

Contract
80. The argument of Mr Hyman on this appeal is founded on the objection to the Society’s policy of declaring differential final bonuses that:

‘… it is designed to render the contractual annuity rates in table B irrelevant to the calculation of benefits wherever possible. This is (a) contrary
to the purpose for which those rates were included, namely to protect policyholders against a fall in interest rates, and (b) impossible to achieve
without calculating bonuses in a manner different from that required by the express terms of the policy, which make the guaranteed rates an integral
part of the calculation of benefits.’

I will return to this fundamental point in due course but it is convenient first to consider the three specific but related points on which Mr Hyman relies.
81. The first point is that the Society’s practice involves calculating the policyholder’s contractual entitlement to ‘the annuity increased by Related
Bonuses’ by the application to the relevant capital fund of current annuity rates rather than the contractual rates set out in table B. It is submitted that the
contractual rates are used only for the purpose of calculating the differential bonus. The contractual term to which this submission is attached is the
requirement in schedule 3, para 1.1 and the definition of annuity contained in schedule 1 that the annuity should be calculated in accordance with
schedule 6. Reliance is also placed on the proposition that the calculation requires two elements namely an underlying capital fund, whatever it may be
called, and the application of the contractual annuity rates.
­ 352
82. I do not accept these submissions. Plainly it is necessary to use current interest rates as an integral part of the calculation of the differential bonus
rates. But the requirement that the annuity is to be calculated in accordance with schedule 6 does not impose any restriction on the method of calculation
of the Related Bonuses whether reversionary or final. It is also true that schedule 6 requires the calculation of the Accumulation Value of a premium by
reference to the rate set out in table A but that relates to the premium not the bonus and it applies table A. Table B applies to the Accumulation Value so
determined but not to Related Bonuses.
83. The submission for Mr Hyman seeks to impose an obligation on the Society to declare a final bonus equal to the net investment return on his
asset share, being the notional fund generated by the investment of the premiums he has paid. But not only is there no such requirement in the policy its
imposition would be contrary to the express words of art 65 of the Society’s articles of association. That article is a term of the contract between the
Society and the policyholder first because the policyholder is or becomes a member of the Society by virtue of effecting the policy and second because it
is imported by the definition of Related Bonus.
84. The second specific point is that the practice of declaring differential final bonuses is inconsistent with the provisions requiring the calculation of
the fund in cases where the policyholder has renounced the guaranteed annuity in favour of one of the alternatives. It is submitted that the policy requires
the fund to be the capital equivalent of the guaranteed annuity inclusive of final bonuses. I agree with that submission for it is implicit in the provisions
contained in schedule 4, paras 1 and 2 and the calculation of the PAV contained in schedule 6, para 1.5[ii]. But it is then submitted that it is implicit that
the same rates will be used to derive the annuity from the capital fund and to derive the capital fund from the annuity. I do not (unless it is limited to the
annuity as defined) accept that submission. The table B rates are applicable to the Accumulation Value of the premiums paid so as to derive the amount
of the annuity. But, as I have already pointed out, there is nothing in the policy to require the application of the table B rates to the calculation of the
Related Bonuses. Thus though the annuity is derived from the table B rates the annuity as increased by the Related Bonuses is not. This is to be
contrasted with the application of table B so as to derive the PAV from the annuity as increased by the Related Bonuses as prescribed by schedule 6, para
1.5[ii]. In this event table B is applicable not only to the annuity but also to the Related Bonuses including, in the view I have taken on that issue, the
final bonus. Accordingly the implication contended for cannot be made.
85. In connection with this point it is suggested that it is anomalous to calculate the annuity from the capital at the current rates but to calculate back
to the capital from the annuity at the higher guaranteed rate. It is suggested that in consequence the asset share of two policyholders whose contributions
to the underlying fund are the same end up with different shares. I do not accept that there is the anomaly alleged. The guaranteed rates set out in table B
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are applied for all purposes except the amount of the Related Bonuses to be declared; there is no contractual requirement that they be used for that
purpose. But I do not accept the suggested consequence either. Let it be assumed that two policyholders have made identical contributions by way of
premium under identical policies. In capital terms their asset share will be the same. But the annuity value of their contributions will differ if each
receives the same final bonus. The purpose of the differential final bonus is to equalise the ­ 353 benefits available in annuity terms, being the only
form in which the policyholders are permitted to take the benefits even if a proportion of the annuity may be commuted and taken as capital.
86. The third specific point is somewhat different. It is pointed out that the amount of the final bonus depends on the form in which the policyholder
chooses to take his benefits. It is also pointed out that the scheme of the policy is that the allotment of the final bonus precedes the time when the
policyholder must make his election. The form of election involves the renunciation of ‘the Annuity increased by Related Bonuses’. Thus far I agree
with the observations of counsel for Mr Hyman.
87. It is then submitted that a right may only be renounced if it has already accrued. Reliance in this connection is placed on the speech of Lord Goff
of Chieveley in Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India, The Kanchenjunga [1990] 1 Lloyd’s Rep 391 at 399. He said:
‘In the context of a contract, the principle of election applies when a state of affairs comes into existence in which one party becomes entitled to
exercise a right, and has to choose whether to exercise the right or not. His election has generally to be an informed choice, made with knowledge
of the facts giving rise to the right.’
88. I confess to being puzzled by this submission. There is no suggestion that at the time the policyholder is required to make his election he is
unaware of the amount of the differential bonuses. The case relied on concerned election not renunciation. It is submitted that an accrued right is one
which could notionally be sued on and that it is not possible to sue on a right to £x or £y. Let it be assumed that a right may only be renounced once it has
accrued. We were not referred to any authority or principle justifying a conclusion that to be renounceable a right must be accrued in the sense of being
both presently enforceable and indefeasible in amount. I see no reason why a right to either £x or £y dependent on the subsequent action of the person
entitled to the right should be incapable of renunciation within the terms of the policy. Such a right is inherently capable of assignment. I see no reason
why it cannot be renounced ‘in lieu of’ some other right.
89. For all these reasons I would reject each of the specific but related points on the detailed terms of the policy advanced by counsel on behalf of Mr
Hyman. But I agree with him that in addressing those points it is all too easy to lose sight of the wood for the trees. In that connection it is appropriate to
refer back to the basic objection I have quoted in para 81 above and to the repetition of it contained in counsel’s criticism of Sir Richard Scott V-C’s
judgment in rejecting his submissions. It is suggested that his conclusion did not confront the essential difficulty of the Society’s case that it:

‘(i) desires to calculate bonuses in a manner which gives no effect to provisions for the use of contractual annuity rates that are an integral part
of the contract, (ii) arrives at a result which is designed to deprive pre-1988 policies of part of their purpose, namely to protect policyholders against
a fall in current annuity rates.’

90. For reasons to which I have referred already I would reject each of those criticisms. With regard to the first there is no provision integral or
otherwise for the use of contractual or guaranteed interest rates in the calculation of any bonuses reversionary or final. With regard to the second,
notwithstanding the ­ 354 introduction of differential final bonuses, policyholders have not been deprived of what was guaranteed, namely payment of
an annuity of an amount not less than that derived from the application of the rates contained in table B to the Accumulation Value of their premiums.
There was no guarantee that a final bonus would be paid at all or at any particular rate. The purpose of the differential final bonus was to equalise the
value of the benefits in annuity form, being the only form to which the policyholder was ultimately entitled. For all these reasons I would reject the claim
that the Society has committed any breach of the terms, whether express or implied, of the contract contained in the policy issued to Mr Hyman.

Discretion
91. The second issue is whether the directors of the Society have exercised the discretion vested in them by art 65 of the Society’s articles of
association in an improper manner. Article 65 provides, so far as material:

‘… the Directors shall, at a Special Board Meeting, declare what amount of the surplus (if any) shown by such valuation may, in their opinion,
be divided by way of bonus, and they shall apportion the amount of such declared surplus by way of bonus among the holders of the participating
policies on such principles, and by such methods, as they may from time to time determine …’

92. The requirement that the decision is taken at a special board meeting precludes delegation to any committee of the board. (Article 58(1).)
93. The evidence before Sir Richard Scott V-C included affidavit evidence from Mr Nash, the managing director and actuary of the Society, Mr
Brindley, the finance director and actuary of National Provident Institution, Mr Headdon, the appointed actuary and general manager of the Society, and
Mr Shelley, an independent actuarial expert. I do not find it necessary to consider the terms of the evidence in any detail for the material parts are
summarised in the judgment of Sir Richard Scott V-C.
94. In paras 40 to 57 he dealt with the Society’s practice regarding bonuses. Their purpose—

‘was and is to bring the value of the benefits being taken by the policyholder on maturity up to a level that equates to the policyholder’s notional
“asset share” in the Society’s with-profits fund. The “asset share” as explained by Mr Nash, the Society’s managing director and actuary, in his
first affidavit is: “… the share of the fund … generated by the investment of the premiums/contributions actually paid …”’ (See para 41.)

95. With regard to final bonuses he said (para 46):

‘… without a final bonus the value of the benefits payable to a with-profits policyholder may be significantly less than the “asset share” of that
policyholder. A final bonus may be necessary in order to ensure that the policyholder obtains a proper share of the investment returns earned by the
with-profits fund, ie obtains benefits which equate to the asset share attributable to his policy.’

96. In paras 58 to 76 Sir Richard Scott V-C considered the relationship between final bonuses and guaranteed annuity rates. In paras 77 to 87 he
described the concept of the policyholders’ reasonable expectations or PRE, a concept derived ­ 355 from ss 12 and 21 of the Insurance Companies
Amendment Act 1973. In this connection he referred (para 81) to the report of a working party chaired by Mr Brindley that—

‘the primary expectation of policyholders was that their guaranteed benefits would be met in full and that the company’s affairs would be
managed ethically and competently. The report concluded that: “The holders [of policies with a discretionary element] may reasonably expect that
life offices will behave fairly and responsibly in exercising the discretion which is available to them. They may also expect a reasonable degree of
continuity in an office’s approach to determining variable charges or benefits …” and that: “… in the normal day-to-day actuarial management of a
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life policy, PRE is synonymous with equity and the almost universal method for measuring it is asset share calculation.”’

97. Sir Richard Scott V-C found the concept of PRE to be elusive and difficult but accepted the conclusions of the working party to which he had
referred. He considered in some detail the communications from the Society to its policyholders in the form of Bonus illustrations, the With-Profits
Guide, Bonus notices and Bonus leaflets. He concluded this section of his judgment by noting that (para 84):

‘It is common ground that none of these documents creates any contractual obligation on the Society to award final bonuses on any particular,
identifiable basis or at any particular rate or of any particular amount. The question, which I will consider in a moment, is whether or to what
extent they place constraints on the manner in what the Society can, with propriety, exercise its discretion as to the allotting of final bonuses to
GAR policyholders.’

98. Sir Richard Scott V-C dealt with that question on the footing, with which I agree, that there was no contractual impediment to the declaration and
payment of differential bonuses. He considered that (para 95) in deciding what bonus policy to adopt the directors of the Society should take PRE into
account. As to the PRE of the Society’s relevant policyholders he concluded that—

‘the communications received by GAR policyholders from the Society over the period up to 1994 and, perhaps, for a while thereafter, and the
Society’s practice regarding final bonuses up to 1994, did produce in GAR policyholders a reasonable expectation that the final bonus declared for
all policyholders would be added to the previously guaranteed fund in order to produce the fund to which GARs would be applied or, at the election
of the policyholder, taken in fund form. I do not, on the other hand, think that the communications and previous practice provided the basis for any
reasonable expectation that a GAR policyholder who elected to take his benefits in fund form would be entitled to take a fund equal to the value at
current rates of the GAR based annuity that he could have elected to take. Nor, in my view, did policyholders have a reasonable expectation that
the same rate of final bonus would be applied to all policyholders. As I have noted, a variable final bonus had for some time been used in order to
cater for variations in guaranteed investments returns.’ (See para 96.)
­ 356
99. After reviewing the history of declining interest rates in the mid-1990s, the problems to which that gave rise and the change in practice by the
introduction of differential final bonuses in 1994 Sir Richard Scott V-C stated (para 99): ‘I am not satisfied that the Society failed, when exercising its
discretion regarding final bonus over the period since 1994, to take into account PRE.’
100. He rejected (para 100) the submission that the Society’s policy involved depriving policyholders of part of their asset share on the ground that:

‘A policyholder’s asset share is, and remains, a notional sum. It is not a sum of capital that the policyholder is entitled to be paid. It is a
yardstick by which to measure the value of the benefits the policyholder receives from the Society.’

101. His conclusion on the issue of discretion (para 103) was:

‘It would have been open to the directors, if they had wanted to do so, to have adopted a quite different final bonus policy. They could have
ignored the value of the benefits receivable by the GAR policyholder and, instead, have concentrated on the policyholder’s guaranteed fund. They
could have awarded as a final bonus a sum sufficient to bring the guaranteed fund up to the level of the policyholder’s notional asset share. If they
had done so, the policyholder would have become entitled to a GAR based annuity of the amount attributable under table B to a capital sum equal
to the notional asset share. The value of the annuity taken by the policyholder would, if GARs exceeded current rates, necessarily exceed the
notional asset share. It would, in my opinion, have been open to the directors, exercising their art 65 discretion, to have allotted final bonus on that
basis. But they were not contractually obliged to do so and their decision to allot final bonus on a different basis, a basis that used asset share as a
yardstick for the value of benefits taken rather than as a yardstick for the capital sum by reference to which the amount of the annuity taken was
calculated, was, in my judgment, a decision well within their discretion.’
102. For Mr Hyman and those he represents it is submitted that Sir Richard Scott V-C was wrong. It is submitted that the purpose of declaring
differential bonuses was and is collateral to the purpose for which the power contained in art 65 was conferred. In addition it is submitted that the policy
is irrational because it reduces the asset share of those who take the guaranteed annuity and introduces an arbitrary distinction between the basis on which
reversionary or interim bonuses and final bonuses are declared.
103. It is not disputed that the purpose for which a fiduciary power, such as that contained in art 65, is exercised must fall within the purpose for
which it was conferred or its scope. The scope or purpose of a power is limited both by the terms in which it is conferred and by the requirement that it is
to be exercised in good faith, cf Re a Company (No 00709 of 1992) [1999] 2 All ER 961 at 969, [1999] 1 WLR 1092 at 1100–1101. For Mr Hyman it is
submitted that the purpose of art 65 does not include either the nullification of a contractual advantage to which a class of policyholder is entitled or
discrimination between policyholders by the attribution of different capital values to the same underlying share based on a criterion irrelevant to their
value.
104. It is convenient to take the second point first. It is true that if it be assumed that A and B are of the same age and paid the same premiums on
the same date for the same annuity contract then their asset shares, as understood by actuaries, will ­ 357 be the same in both income and capital terms.
If on maturity they take the same benefits then there will be no reason or justification for discriminating between them. But if they take different benefits
then there may be.
105. If it be assumed that A takes the guaranteed annuity but B opts for one of the alternatives then benefits in annuity form to be derived from their
respective asset shares will differ because the guaranteed rate is more than the current rate. For the same reason the cost to the Society in providing the
latter, either directly or by transfer to another life office, will exceed the cost of providing the former. In addition, as the expert witness, Mr Shelley,
pointed out in para 4.6.1 of his report dated 28 June 1999 the reduction in interest rates, which was primarily responsible for the fall in annuity rates, had
also given rise to capital appreciation for fixed interest securities and equities and a corresponding rise in asset shares. If the final bonus for those taking
the guaranteed annuity was the same as the final bonus for those electing for an alternative then the former would obtain a double benefit. Mr Shelley
gave it as his opinion that so to do would be unfair. And, as Mr Brindley accepted in paras 29 and 32 of his affidavit, the concept of asset share is but one
element in the concept of fairness.
106. In these circumstances there were grounds on which the board of directors might consider it appropriate to declare differential final bonuses.
They were not limited to considering the capital value of the asset shares but were entitled, and indeed bound, to consider the relative values and costs of
the benefits in annuity form obtainable depending on the chosen form of benefit.
107. The first point, namely, the nullification of a contractual advantage to which a class of policyholder is entitled is no more than the expression, in
pejorative terms, of the submission that the directors had no power to declare differential bonuses. But that submission is unsustainable in the light of the
terms of art 65 and my conclusion that there is no contractual impediment to their payment. As Sir Richard Scott V-C held the asset share is a notional
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sum and a yardstick by which to measure the value of the benefits the policyholder receives; it is not a contractual entitlement.
108. It was suggested that Sir Richard Scott V-C was wrong to have concluded that there was no PRE, that the rate of final bonus would be the same
for all irrespective of the benefit chosen because of the differential final bonuses declared in respect of policyholders enjoying the benefit of a guaranteed
investment return. It was not disputed that such differential final bonuses had been declared. It was contended that guaranteed investment returns were
different and justified differential final bonuses to avoid double counting. I accept that they are different. But I do not think that the differences are
relevant. The point is that it was not the invariable practice of the Society to avoid differential bonuses. In any event, as Mr Shelley pointed out, the use
of differential final bonuses in the case of guaranteed annuity rates was also justifiable as a means of avoiding duplication of the benefit derived from the
fall in interest rates.
109. The irrationality relied on is twofold. The first is the reduction in the asset share of the policyholder who takes the guaranteed annuity when
compared with the asset share of the policyholder who opts for an alternative benefit. The second is the change in basis for the declaration of the final
bonus when compared with the reversionary bonus. But both presuppose that the only proper purpose or consideration of a final bonus is the return of the
capital value of the asset share of the policyholder. For the reasons I have already given such a limited purpose or consideration is inconsistent with both
the terms of the power and the economic justifications for a differential bonus.
­ 358
110. In this connection it is not irrelevant to observe that the policy adopted by the directors of the Society has been approved or emulated by others.
Thus the relevant official in H M Treasury, the regulatory authority for insurance companies, in writing on 18 December 1998 to the managing directors
of insurance companies, envisaged that depending on the terms of the contract it might be possible to award a lower final bonus in respect of contracts
containing a guaranteed annuity rate when compared with contacts which did not. Similarly the Faculty and Institute of Actuaries in a Position Statement
issued in March 1999 recognised that the declaration of differential final bonuses was one of a number of acceptable approaches. The expert witness, Mr
Shelley pointed out that three other significant with-profits companies had adopted principles effectively identical in their financial effects to the
differential final bonuses declared by the Society.
111. For my part I can see no ground on which the exercise of the discretion given to the directors of the Society by art 65 so as to declare
differential bonuses can be successfully challenged. The terms of art 65 are wide enough to permit such declarations and they do not constitute the breach
of any term, express or implied, of the contract between the Society and the policyholder. The power thereby conferred to make such declarations was
exercised by the directors of the Society in good faith. There was proper justification for the course the directors took. That course was not the only one
available to them but the decision which to adopt was a matter for the directors.
112. For all these reasons I would dismiss this appeal.

WALLER LJ.
113. I gratefully adopt the facts and the background from the judgments of Lord Woolf MR and Morritt LJ.
114. My view is that the critical question that arises in this case is whether the argument of Mr Sumption QC on the proper construction of the policy
is right. I am fully persuaded that if the board of the Society had a discretion unlimited by the terms of any contract, as to whether to allot by way of final
bonus a different bonus, depending on whether the beneficiary was to take the benefit of the policy as an annuity, or whether he was to take it by way of a
capital sum to be used for the purchase of an annuity other than from the Society, the exercise of that discretion could not be attacked. In that context the
board must, as I see it, have a broad discretion as to how it brings about a situation in which as between policyholders, those with guaranteed annuity rates
and those without such terms, each get their asset share and no more than their asset share.
115. But what is much more difficult is whether the contract allows for the allotting of different bonuses on the Guaranteed Annuity Rate (GAR)
policies depending on whether the beneficiary takes the annuity or a capital sum with which to purchase an annuity elsewhere. That difficulty flows in
my view from the fact that the starting point for the calculation of the capital sum or the Policy Annuity Value (PAV) is ‘the Annuity’ that the beneficiary
would otherwise receive but surrenders. It is, at least at first sight, difficult to contemplate that the annuity, ie the actual figure, which the policyholder
would receive if he took the annuity, might be different from the annuity that forms the basis of the calculation for the PAV. I should say straight away
that even if Mr Sumption is right in saying that the two figures must be the same, it does not in my view lead to the conclusion that the annuity figure
must be that which was in fact used in the calculation of the PAV. The conclusion (as I understood Mr Sumption to ­ 359 accept) would simply be that
the board should start again and reconsider what bonus should be allotted having regard to the fact that the two figures must be the same.
116. The important terms are the following. Clause 2:

‘The Society hereby covenants with the Grantee that if the Policy shall continue to be approved as aforesaid then: (a) if the Grantee shall
survive to the Selected Pension Date the Society will pay to the Grantee the Annuity increased by Related Bonuses (if any) …’

Clause 4:

‘The Grantee shall be entitled to exercise the options to take alternative benefits which are contained in the Fourth Schedule upon and subject to
the terms and conditions therein set out.’

Schedule 3:
‘1.1 The Annuity shall be calculated in the manner specified in the Sixth Schedule
1.2 The Annuity increased by Related Bonuses (if any) shall be payable from the Selected Pension Date during the remainder of the lifetime of
the Grantee by equal quarterly instalments in advance the first instalment being payable on the Selected Pension Date and subsequent instalments
being payable at the commencement of each subsequent period of three months during the lifetime of the Grantee.’

Schedule 4:

‘1.1 At the time of choosing the Selected Pension Age the Grantee may elect upon the terms and conditions hereinafter appearing to renounce
all or part of the Annuity increased by Related Bonuses (if any) and in lieu thereof to have the Policy Annuity Value in respect thereof at the
Selected Pension Age applied as a premium under a Substituted Contract.’

Schedule 5:

‘4.0 This Policy shall confer right to participation in the profits of the Society up to the Selected Pension Date and no longer.’
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117. Schedule 6 is the key and is brought into play by virtue of the definitions of the following:

‘the Annuity means the Annuity purchased by the premium specified in Endorsement 1 and calculated in the manner specified in the Sixth
Schedule …
Accumulation Value means in relation to any premium the Accumulation Value thereof calculated in the manner specified in the Sixth Schedule
…
Policy Annuity Value means in relation to all or part of the Annuity increased by Related Bonuses (if any) or (as the case may be) all or part of
any Further Annuity increased by Related Bonuses (if any) the Policy Annuity Value attributable thereto calculated in the manner specified in the
Sixth Schedule.’
­ 360
118. There is also a definition of ‘Related Bonuses’ in the following terms:

‘… means in relation to the Annuity or (as the case may be) any Further Annuity such amounts (if any) as shall under the rules and regulations
of the Society have been allotted by way of addition to or bonus thereon.’

119. Schedule 6 provides:

‘1.1 The Annuity and any Further Annuity payable at the Selected Pension Date shall be calculated in the following manner.
1.2 The Accumulation Value at the Selected Pension Date of the premium paid in respect of the Annuity and (as the case may be) the Further
Annuity shall first be ascertained in accordance with paragraph 1.3 or (as the case may be) paragraph 1.4 of this Schedule.’

There is no need to quote the whole of 1.3 or 1.4 since there is no dispute as to the calculation of the Accumulation Value.
120. Paragraph 1.5 is in three parts which although not numbered in the policy I shall number:

‘[i] Having ascertained the Accumulation Value at the Selected Pension Date of the premium paid in respect of the Annuity and (as the case
may be) the Further Annuity in accordance with the preceding paragraphs of this Schedule the amount of Annuity and (as the case may be) the
Further Annuity shall be the amount of annuity attributable to such Accumulation Value at the Selected Pension Age by reference to Table B.
[ii] The Policy Annuity Value at the Selected Pension Date of the Annuity increased by Related Bonuses (if any) and the Policy Annuity Value
at the Selected Pension Date of any Further Annuity increased by Related Bonuses (if any) shall be the amount of Accumulation Value attributable
thereto which shall be ascertained by reference to Table B.
[iii] And the Policy Annuity Value at the Selected Pension Date of a part of the Annuity increased by Related Bonuses (if any) and (as the case
may be) a part of any Further Annuity increased by Related Bonuses (if any) shall be calculated proportionately.’

Common ground
121. There is much which is common ground to be noted. First, the annuity to which a beneficiary is entitled is the amount of annuity attributable to
the accumulation value by reference to table B, increased by related bonuses (if any) ie such amounts (if any) as shall under the rules and regulations of
the Society have been allotted by way of addition to or bonus thereon. It is table B which provides the guaranteed annuity rate. It is to be noted that
related bonuses are not taken into account when calculating the basic ‘accumulation value’.
122. Second, if the policyholder is to exercise the right to take alternative benefits, he renounces ‘all or part of the Annuity increased by related
bonuses (if any) and in lieu thereof [takes] the Policy Annuity Value in respect thereof’, the PAV being calculated under para 1.5[ii]. What para 1.5[ii] is
thus calculating is the capital value of the annuity increased by the related bonuses. It is accepted that where the phrase ‘accumulation value’ is used by
reference to both the annuity and related bonuses in that paragraph it has a different meaning from Accumulation Value as defined in the policy. (Clause
1 of the policy recognises that the definitions bow to an inconsistent context, and the context clearly is ­ 361 inconsistent.) The calculation under para
1.5[ii] is designed to produce the capital equivalent of the annuity increased by bonuses allotted thereto by application of the table B rates.

What is not common ground

123. Putting it broadly for the moment, it is disputed by the policyholders that the contract allowed the Society to allot final bonuses to be added to
the annuity depending on whether the beneficiary was going to take the benefit of the policy by way of annuity, or whether the annuity plus bonuses were
going to be used as the basis for the calculation of the PAV.
124. When the GAR in the relevant policies exceeded the annuity rates available in the market, the Society in 1994 began to declare final bonuses, so
far as the GAR policies were concerned, in the following form:

‘Where benefits are taken in annuity form and the contract guarantees minimum rates for annuity purchase, the amount of final bonus payable is
reduced by the amount, if any, necessary such that the annuity secured by applying the appropriate guaranteed rate to the cash fund value of the
benefits, after that reduction, is equal to the annuity secured by applying the equivalent annuity rate in force at the time benefits are taken to the
cash fund value of the benefits before such reduction.’

125. This form was used between 1994 and 1998.

126. In 1999 the form changed a little, and was as follows:

‘If the contract guarantees minimum rates for annuity purchase the aggregate final bonus otherwise applicable is reduced when benefits are
taken by the amount, if any, necessary such that the annuity secured by applying the appropriate guaranteed annuity rate after such reduction, is
equal to the annuity which would be secured by applying the Society’s annuity rate for an equivalent annuity in force at the time benefits are taken
to the cash fund value of the benefits before that reduction, subject to a minimum value for the final bonus after such reduction of zero. If the
contract guarantees minimum rates for annuity purchase and a reduction has been made under the immediately preceding paragraph, then where
benefits are not taken in a form to which those minimum rates apply an additional amount of final bonus will be made available to the policyholder
at the time benefits are taken equal to the reduction if any made under the immediately preceding paragraph. Such additional amount of non
guaranteed final bonus will not constitute a “related bonus” or bonus allotted under the contract.’
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127. By the first form the Society purported to declare a bonus but reduce it if the policyholder took it in annuity form, meaning, as I understand it,
that if the PAV was taken, then in that calculation the annuity plus related bonuses would continue to include the bonus without any reduction.
128. By the second form the same result was sought to be achieved, but the Society described any difference between the bonus if the annuity was
taken, and the bonus if the PAV was taken as not a ‘related bonus’ or a bonus allotted under the contract.
129. Sir Richard Scott V-C was of the view that, however the Society described that part of the bonus, which in the PAV calculation was additional
to that in the situation in which an annuity was taken, the bonuses declared were related bonuses, and it is that aspect which is the subject of a
respondent’s notice.
­ 362
130. Sir Richard Scott V-C took the view that the short point on which the contractual issue depended was whether under the policy the Society was
entitled to allot a final bonus that was conditional. I agree that that is the issue. His view was that by virtue of art 65 which gave the board a very wide
discretion it was permissible to allot a conditional bonus and it was his view that there was nothing in the contractual terms which precluded the allotment
of a conditional final bonus. So his conclusion was that the Society were entitled to allot a final bonus in the form that the beneficiary gets £x as a bonus
to be added to his annuity if he takes the annuity, but £x plus y added to the annuity if he takes the capital value of the annuity plus bonuses.
131. I am unable to reach the same conclusion as Sir Richard Scott V-C. I accept that art 65 gives a very wide discretion, and that if that article
applied alone a conditional bonus would be possible. But the question seems to me to be whether the Society are free under the policy to do what they
did, and that could only be so if they were free to do one of two things. First, are the Society free to make the annuity plus related bonuses if taken as an
annuity one figure say £z, but make it a different figure say £z plus x, when calculating the capital value of that figure? Then, second, if not, are the
Society free to allot a sum which is not a related bonus to the beneficiary in order, as Lord Grabiner QC put it, to top up that which is required to provide
a capital fund equivalent to a beneficiary’s notional asset share?
132. As to the first of the two alternatives, it seems to me that the contract contemplates that it is the annuity plus Related Bonuses, including any
final bonus, which will be the starting point for the capitalisation of that very figure. By cl 1.1 of schedule 4 the grantee is entitled to elect to renounce
‘the Annuity increased by Related Bonuses’ and ‘in lieu thereof to have the Policy Annuity Value in respect thereof’. I cannot at present see how the
‘Annuity increased by the Related Bonuses’ can be different depending on whether it is being taken as an annuity or used as a basis for calculating the
PAV.
133. It thus seems to me that differential Related Bonuses are not permissible. Can the same result be achieved by allotting a sum not a Related
Bonus as a top up to the PAV? I do not think so. Paragraph 1.5[ii] of schedule 6 states how the PAV is to be calculated, and it does not allow for a top up
sum. I accept that Related Bonuses are only those amounts added to an annuity as calculated under the first part of schedule 6 but it is only that annuity
increased by Related Bonuses that can form the basis for calculating the PAV.
134. In my view thus the terms of the policy required the Society to calculate the annuity plus Related Bonuses that would be payable by it if an
annuity was taken, and then calculate back from that resulting annuity its capital equivalent. The Society’s argument asserts that if the Society carries out
the exercise in this way the result may be that in cash terms the policyholder will be entitled to £x a year if he takes the annuity, but will only be able to
purchase an annuity which will provide £x-y in cash terms, and, so it is said, he does not get the equivalent value of his notional asset share depending on
whether he takes an annuity or a capital sum. The premises on which that contention is based seem to me to be unsound. First, with guaranteed rates it
should not be surprising if the guaranteed annuity comes out higher than an annuity purchased when current rates are lower. Second, the calculation of
value of ‘notional asset share’ and the attempt to equalise whether the value is taken as an annuity or as a capital sum, is done simply by reference to
current rates. But it is the guaranteed rates when applied to calculating an annuity which must be the starting point.
­ 363
135. As indicated at the commencement of this judgment, in my view it does not follow that beneficiaries are entitled simply to take an annuity
increased by the bonuses used for the calculation of the capital sum in place of the bonuses previously offered. The board have in my view conducted an
exercise that the policy does not allow them to do. The exercise that the Society must carry out accordingly is a different one. What Mr Sumption seeks
is an order that will enable the Society to carry out the exercise again. In the carrying out of that exercise the board will of course have to take into
account the cost of providing the annuities at the guaranteed rate if no differential bonus is declared. It is possible that because there is no contractual
entitlement to a final bonus, and because as between different types of policy it is certainly, in my view, legitimate for the board to have regard to the
value of the notional asset share of the different policyholders, the GAR policyholders will not in actual cash terms do very much better than they have
done under the differential bonus scheme. I see no reason why different bonuses may not be awarded to different types of policyholder and thus I do not
understand why, for example, the board cannot in deciding what final bonus to award to GAR policyholders, keep that bonus at a level which does not
deprive different with-profits policyholders of their equivalent asset share. What the correct final bonus is in relation to GAR policies could only be
worked out by the board on the advice of the actuary.
136. I would however be in favour of allowing the appeal.

Appeal allowed.

Kate O’Hanlon Barrister.

[2000] 2 All ER 365

Secretary of State for Trade and Industry v Deverell and another

COMPANY; Directors
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COURT OF APPEAL, CIVIL DIVISION

MORRITT, POTTER LJJ AND MORISON J
9, 10, 11 NOVEMBER, 21 DECEMBER 1999

Company – Director – Disqualification – Shadow director – Meaning of shadow director – Company Directors Disqualification Act 1986, s 22(5).

E Ltd went into creditors voluntary liquidation with an estimated deficiency with regard to creditors of £4·6m. The Secretary of State subsequently
sought disqualification orders against D and H under the Company Directors Disqualification Act 1986, contending that they had been shadow directors
of E Ltd. Section 22(5)a of the 1986 Act defined ‘shadow director’ as a person in accordance with whose directions or instructions the directors of the
company were accustomed to act. It further provided that a person was not deemed to be a shadow director merely because the directors acted on advice
given by him in a professional capacity. At the hearing, the judge held that mere advice would not satisfy the statutory definition: rather it had to be so
given or so accepted as to amount to a direction or instruction. He further held that s 22(5) contemplated a situation where the board had cast itself in a
subservient role to the shadow director to such an extent that it exercised no independent judgment. Applying those tests, the judge concluded that neither
D nor H were shadow directors within the meaning of s 22(5), but held that the conduct of both would have warranted disqualification orders if they had
been such directors. The Secretary of State appealed, challenging the judge’s construction of s 22(5). In seeking to uphold the judge’s decision, D and H
contended that a communication could only satisfy the statutory definition if both the giver and receiver had understood or expected that it would be
followed by the latter.
________________________________________
a Section 22, so far as material, is set out at p 367 a, post
________________________________________

Held – For the purposes of s 22(5) of the 1986 Act, the question whether a particular communication constituted a direction or instruction had to be
answered in the light of all the evidence, and it was not necessary to prove the understanding or expectation of either giver or receiver. Evidence of such
an understanding or expectation might be relevant, but it could not be conclusive. Furthermore, non-professional advice could fall within s 22(5). Such a
conclusion appeared to be assumed by the proviso excepting advice given in a professional capacity, and in any event the concepts of ‘direction’ and
‘instruction’ did not exclude the concept of ‘advice’ since all three shared the common feature of ‘guidance’. Moreover, although it would be sufficient to
show that properly appointed directors had cast themselves in a subservient role or surrendered their discretions in the face of ‘directions or instructions’
from the alleged shadow director, it would not always be necessary to do so. Such instructions or directions did not have to extend over all or most of the
corporate activities of the company, and it was not necessary to demonstrate a degree of compulsion in excess of that implicit in the fact that the board
was accustomed to act in ­ 365 accordance with them. Moreover, it was not necessary for the shadow director to lurk in the shadows, although he
might frequently do so. In the instant case, the judge had applied too strict a test, and he had been wrong to conclude that D and H had not been shadow
directors of E Ltd. Accordingly, the appeal would be allowed (see p 376 b to f h to p 377 a c, p 381 c to f and p 383 d to p 384 b g h, post).
Re Unisoft Group Ltd (No 3) [1994] 1 BCLC 609, Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 and Re Kaytech International plc, Secretary of
State for Trade and Industry v Kaczer [1999] 2 BCLC 351 considered.

Notes
For disqualification orders generally, see 7(3) Halsbury’s Laws (4th edn) (1996 reissue) para 2867.
For the Company Directors Disqualification Act 1986, s 22, see 8 Halsbury’s Statutes (4th edn) (1999 reissue) 853.

Cases referred to in judgments

Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1, Aust Fed Ct.
Hydrodam (Corby) Ltd, Re [1994] 2 BCLC 180.
Kaytech International plc, Re, Secretary of State for Trade and Industry v Kaczer [1999] 2 BCLC 351, Ch D and CA.
Lo-Line Electric Motors Ltd, Re [1988] 2 All ER 692, [1988] Ch 477, [1988] 3 WLR 26.
Secretary of State for Trade and Industry v Laing [1996] 2 BCLC 324.
Unisoft Group Ltd, Re (No 3) [1994] 1 BCLC 609.

Appeal
The Secretary of State for Trade and Industry appealed from the decision of Judge Cooke, sitting as a judge of the High Court in the Chancery Division,
on 11 May 1998 dismissing the Secretary of State’s application for disqualification orders against the respondents, John Deverell and Peter Hopkins,
under s 6 of the Company Directors Disqualification Act 1986. The facts are set out in the judgment of Morritt LJ.

Michael Green (instructed by Burstows, Brighton) for the Secretary of State.

Ian Alexander QC and Simon Airey (instructed by Edwin Coe) for Mr Deverell.
Clare Hoffman (instructed by Gordon Dadds) for Mr Hopkins.

Cur ad vult

21 December 1999. The following judgments were delivered.

MORRITT LJ.

Introduction
1. Euro Express Ltd (the company) carried on the business of tour operators. On 10 March 1993 it went into creditors voluntary liquidation with an
estimated deficiency with regard to creditors of £4·46m. In due course the Secretary of State for Trade and Industry applied under s 6 of the Company
Directors Disqualification Act 1986 for disqualification orders to be made against three of the company’s duly appointed directors, namely Mr William
Besant, Mr Colin Blyth and Mr John Stevens. He also sought such orders against Mr John Deverell and Mr Peter Hopkins on the ground that each of
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them was a ‘shadow director’ ­ 366 of the company to whom by virtue of s 22(4) the provisions of s 6 applied. Such a director is defined by s 22(5) as:
‘… a person in accordance with whose directions or instructions the directors of the company are accustomed to act (but so that a person is not
deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity).’
2. After a hearing extending over 17 working days, by his order dated 11 May 1998, Judge Cooke, sitting as a judge of the High Court in the
Chancery Division, made disqualification orders against Mr Blyth for 11 years, Mr Besant for six years and Mr Stevens for two years. With regard to
both Mr Deverell and Mr Hopkins he considered that their respective conduct warranted such an order but he dismissed the application against each of
them because, as he concluded, neither of them had been shown to be a shadow director.
3. This is the appeal of the Secretary of State. He contends that if the judge had properly construed and applied the statutory definition to the facts as
found by him or, in the alternative, to the facts he should have found then he would have decided that each of Mr Deverell and Mr Hopkins was a shadow
director. Mr Deverell and Mr Hopkins submit that the judge was right for the reasons he gave and that no sufficient grounds are shown to entitle this
court to interfere with the judge’s findings of fact.

The facts
4. The company was incorporated on 17 February 1986. Its issued capital was 20,000 shares of £1. All but one such shares were registered in the
name of Mr Besant. According to the file maintained at Companies House Mr Besant was a director of the company from the time of its incorporation
down to his resignation in circumstances I shall describe in more detail later on 5 November 1991. For a short period after incorporation there was another
director appointed to protect the interests of Mr Deverell’s father as a loan creditor. Otherwise Mr Besant was the only apparent director from the time of
incorporation down to 18 October 1990.
5. As I have indicated the business of the company was that of a tour operator. For that purpose it required an Air Traffic Organiser’s Licence
(ATOL) from the Civil Aviation Authority. As a practical matter it also needed to be a member of the Association of British Travel Agents (ABTA) and
to obtain an ABTA Bond. The rules of ABTA provided that to be eligible to become or remain a member:
‘Every director, principal shareholder, proprietor or partner and every person employed or concerned in the management of a member’s
business must be “a respectable and honest businessman” and in particular must not: (a) be an undischarged bankrupt … (c) have been an owner or
a controlling director of or partner in a business which has failed to meet its liabilities …’
In due course the company obtained an ATOL licence, membership of ABTA and an ABTA Bond.
6. Mr Deverell had been concerned with two companies which had previously failed. Giro Travel Service Ltd of which he had been controlling
director went out of business in August 1971. Century Tours Ltd of which he was also the owner or controlling director had gone into insolvent
liquidation as recently as 13 September 1985. Mr Deverell was concerned in the management of the company from the time of its incorporation; he was
one of the signatories to the company’s bank account. In a sales document drawn up in 1992 for which he was ­ 367 responsible he was described as an
effective founder. He claimed that his participation was as a consultant. The judge concluded that ‘in reality he was throughout the whole story senior
management and a key executive’.
7. The particular business of the company was that of a flight seat sales operator on the Gatwick/Nice route. For the purpose of promoting the sales
of flight seats on the return journey and acting as its broker in France it formed an associated or subsidiary company in France called Euro Express SARL.
Mr Deverell was the gerant or managing director of that company.
8. Mr Colin Blyth joined the company as a manager shortly after its incorporation. He was appointed company secretary on 12 July 1987. He
became a director of the company on 23 August 1991 shortly before the resignation of Mr Besant. He remained a director until the liquidation of the
company in March 1993.
9. The company was acquired by Pilgrim Air, a subsidiary of Granada plc, in June 1988. Though the shares in the company were acquired by
Pilgrim Air Mr Besant remained a director. The judge found that ‘the internal management [of the company] proceeded as before with Mr Besant and Mr
Deverell taking an important and active role in management’. In October 1989 Pilgrim Air closed down the company’s operations but agreed, in January
1990, to what was colloquially known as a management buyout. The apparent purchaser was Mr Besant. He paid £1 for all 20,000 issued shares. The
shares were registered in his sole name and, according to the file maintained at Companies House, he remained the sole director of the company.
10. Mr Hopkins had been chief executive of Granada Travel, the holding company of Pilgrim Air. He had been involved in the travel business since
1961. In 1988 he left Granada Travel on grounds of ill-health and went to live in France. Shortly after the management buyout in January 1990 he was
approached initially by Mr Besant alone and later by both Mr Besant and Mr Deverell to help expand the company’s business on the return leg of its
route, ie from Nice to London. Mr Hopkins told the judge that he agreed to do so on a consultancy basis. He bought one third of the issued shares
(6,666) from Mr Besant for £3,333 which, at his request, were registered in the name of Checkout Ltd, an offshore company controlled by Mr Hopkins.
He was provided by the company with free air travel between Nice and Gatwick as well as substantial cash benefits.
11. By July 1990, as the judge accepted, the shares in Checkout Ltd, which by then had acquired all Mr Hopkins other assets, had been transferred to
Languedoc, a Channel Island trust company, and were held by that company on the trusts of an offshore settlement for the benefit of Mr Hopkins and his
family. In October 1990 Checkout transferred the shares in the company to another Channel Island company, Chalfont Enterprises Ltd. At some time in
late 1991 or 1992 Chalfont Enterprises Ltd charged the shares in the company in favour of Allied Irish Bank (Channel Islands) Ltd. The initial steps were
no doubt taken in anticipation of the presentation on 17 August 1990 by the Inland Revenue of a petition for a bankruptcy order against Mr Hopkins.
Ultimately a bankruptcy order was made against him on 27 November 1991.
12. Mr Stevens joined the company in October 1990. He was appointed a director on 18 October 1990 and he acquired from Mr Besant 6,666 shares
in the company. This represented one third of Mr Besant’s original holding and half of what he had left after having transferred 6,666 shares to Checkout
Ltd at the direction of Mr Hopkins. Mr Stevens did not give evidence before the judge. The judge described him as a distinctly shadowy figure. Initially
he was brought in as ­ 368 a non-executive director and was not paid. He dealt with matters concerning the Civil Aviation Authority and ATOL. The
judge considered that it would be consistent with what happened to describe Mr Stevens as Mr Deverell’s stooge and that he was the most obvious
candidate for casting in the role of a puppet.
13. In April 1991 the business of the company expanded in a new direction, namely the schools ski market. The judge found that this market had
been in the hands of two giants who had both gone out of business. The company diversified into this area under the name of Kaleidoscope. In relation
to schools’ ski holidays in Austria there was a profit-sharing arrangement with the company’s agent, Mr Walter Mayer, and his wholly-owned company,
WMFerienhotels. The judge referred to the evidence of Mr Hopkins that he had advised that Mr David Lyne and Mrs Pamela Smith should be brought in
to look after the operation (as they were), that he Mr Hopkins would not be available in the United Kingdom and that, in anticipation of his bankruptcy,
he could not be involved in the management of the business. He said that his own duties would have to be restricted to advice, the production of
brochures, the business plan and contracting duties. The judge concluded that:
‘There can be no doubt of course that [Mr Hopkins] was heavily involved with [Kaleidoscope]. It gave him a major opening in a field which he
knew to perfection.’
The judge accepted that in connection with the bankruptcy order Mr Hopkins was advised to avoid involvement on the financial side of the company’s
business.
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14. In view of its increased business the company needed to increase its ATOL Bond from £121,923 to £472,041. As part of its financial structure
the Civil Aviation Authority required the company to have subordinated loans. A company called Linberg Designs Ltd, an offshore company registered in
Alderney on 6 June 1991, agreed to provide such loans and entered into two subordinated loan agreements in respect of £40,000 and £60,000 respectively.
The Civil Aviation Authority was so informed. But the researches of the liquidator showed and the judge accepted that there was no loan of new money
whether or not subordinated. The sums of £40,000 and £60,000 were ostensibly paid by Linberg to the company on 10 June and 18 September 1991. But
at its year end Linberg was shown as a debtor for £98,237 represented by £60,000 paid by the company to Mr Deverell in December 1990 and £34,237
paid by the company to Linberg on 13 September 1991. The judge concluded that ‘certainly £34,000 and in all probability virtually the whole loan went
round in a circle. This was a most serious deception of CAA’. He considered that Mr Deverell was ‘at the heart of it’ but, though Mr Hopkins might have
been instrumental in setting up Linberg Design, there was no evidence that Mr Hopkins was involved in such deception.
15. In the summer 1991 there was a major policy disagreement between Mr Besant and Mr Deverell. As I have recorded Mr Blyth was appointed a
director of the company on 23 August 1991. Shortly thereafter the disagreements between Mr Besant and Mr Deverell came to a head. At a board
meeting consisting of Mr Besant, Mr Blyth and Mr Stevens the latter two sided with Mr Deverell and against Mr Besant. Mr Besant refused to resign and
steps were taken to convene a meeting of members to consider a resolution for his removal. In the event it was unnecessary to hold it for, on 5 November
1991, Mr Besant accepted quite a generous resignation package and resigned. The judge described this episode as the oddest of all. He said: ­ 369 ‘It
is of course an odd enough feature that the “consultant” should stay and the director should go—though [Mr Deverell’s] consultancy was really no more
than a label. He was senior management on any view. But it is even odder that the others were prepared to force the issue. On the register the
shareholdings were equal thirds with [Mr Besant] holding the odd share. With [Mr Stevens] against him … he would narrowly outvote Mr Stevens unless
the Chalfont holding cast its vote against him … [Mr Deverell] said in evidence that he spoke to the directors and also to [Mr Hopkins] … Mr Hopkins
himself says that he was not consulted.’
The judge concluded that the episode clearly showed that Mr Deverell was regarded by others as important and powerful, that Mr Hopkins appeared to
have been spoken to rather than to have taken the initiative and that although the Chalfont holding was in baulk some at least thought that the threat of the
use of its voting power was real. After the resignation of Mr Besant Mr Stevens and Mr Blyth were the only directors of the company until the
appointment on 20 January 1992 of Mr Lyne and Mrs Smith.
16. In addition to the subordinated loan capital it was necessary, in order to satisfy the Civil Aviation Authority, to increase the issued capital of the
company. At an extraordinary general meeting held on 12 December 1991 the authorised capital was increased to £250,000 divided into 250,000 £1
shares. The minute records that the meeting was attended by Mr Besant, Mr Blyth representing Chalfont Enterprises and Mr Deverell representing Mr
Stevens and that Mr Besant abstained. Pursuant to the articles of association such shares should be offered to the existing shareholders in proportion to
their existing holdings. 165,000 shares were issued payable in full in cash on 17 February 1992. No shares were taken up by either Mr Besant or
Chalfont. The shares were taken up by Mr Stevens as to 79,160, which was 24,160 more than his entitlement to one third, 30,833 to Mr Blyth and 55,000
to a Mr Mays, neither of whom had previously held any shares at all. According to the judge Mr Mays was an English travel operator with an office at
Salzburg Airport. The judge concluded that it was ‘in all probability a window-dressing exercise for the benefit of CAA’.
17. In March 1992, notwithstanding the apparent increase in the issued share capital, the company issued £460,000 loan stock to lenders found by
their auditors. A Mr Norris was appointed a director to protect the interests of the loan stock holders. He took no part in the management of the company
and no complaint is made against him. At this time both Mr Deverell and Mr Stevens were expressing their concerns at the absence of any proper
procedure to monitor expenditure and the lack of management accounts and cash flow forecasts. Indeed Mr Stevens expressed the fear that the company
might be trading whilst insolvent. Mr Hopkins persuaded him and others that that was not the case. One consequence was that on the suggestion of Mr
Standen of the company’s auditors, Tuffin & Co, Mr Alan Charlwood was recruited from a specialist agency and appointed a financial controller. He
reported to Mr Deverell. Originally he was engaged for six months only but in September he was taken on as part of the permanent staff. The judge
regarded Mr Charlwood as thoroughly dishonest both as the financial controller and as a witness.
18. In the summer 1992 a number of relevant events occurred. First, Mr Deverell entered into negotiations with First European Ltd for that company
to acquire the shares in the company. First European was seeking to set up a new airline operating between London and Nice and was an obvious
commercial ­ 370 associate. Later, in December 1992, the proposals changed to a purchase of the company’s assets attributable to the flight seat sale
operation with the proceeds thereof being used to expand the Kaleidoscope business. During the course of the negotiations, which were carried on by Mr
Deverell with the authority of the board and the knowledge and apparent approval of Mr Hopkins he stated in terms that he and Mr Hopkins had received
an unsolicited offer for the company. Second WMFerienhotels had to overdraw substantial sums from their bankers in order to pay for the company’s
bookings with hoteliers in Austria. Mr Hopkins sent an urgent memorandum to Mr Blyth with a copy to Mr Deverell, amongst others, requiring urgent
payments to WMFerienhotels so as to restore its credit. The liquidator considered, and the judge agreed, that by August 1992 the company was insolvent.
Third the company moved to larger leasehold premises. The landlord was a company of which Mr Deverell was a director and shareholder. In addition
he had given a guarantee of its debts secured on his own home. The company agreed to a loan of £180,000 being made at the commencement of the lease
to defray the cost of the considerable refurbishment works required. The loan was to be repaid by set-off against the rent subsequently falling due.
19. In October 1992 Mr Charlwood went to Austria, as the judge thought, in part to obtain evidence to support his theory that Mr Hopkins was
siphoning the company’s money out to Austria and then pocketing it himself. Mr Charlwood found no such evidence but on his return produced a credit
note from WMFerienhotels acknowledging that it would pay £200,000 to the company as its share of the profits. The allegation against Mr Hopkins came
to his attention. As the judge described it there was a monumental row. Mr Charlwood grovelled and gave a humiliating apology; he kept his job. Mr
Lyne who had become unwittingly involved apologised unreservedly and resigned as a director on 7 November 1992.
20. The company’s year end was 31 October. The audited accounts were sent to the Civil Aviation Authority. In the summer of 1992 it was
anticipated that the authority would be troubled by the company’s lack of liquidity. The accounts to 31 October 1992 were dressed to allay that concern.
First, the WMFerienhotels credit note was entered at its face value as cash. Second Euro Express SARL, which owed the company £500,000 it could not
pay, paid £250,000 on the eve of the balance sheet date which the company paid back a few days later. The sum so paid was recorded as a cash balance
as at the balance sheet date. The judge concluded that Mr Deverell was ‘a prime mover’ in the window dressing of the accounts which was intended to
deceive the Civil Aviation Authority.
21. As I have already mentioned the basis of the negotiations with First European changed on 17 December 1992. The proposal then discussed was
for the sale of the flight side assets and the use of the proceeds of sale thereof in the expansion or support of the Kaleidoscope business. Though a
memorandum of understanding dated 14 February 1993 was signed by Mr Deverell, First European and the company its implementation was conditional
on loans from a Mr Adams which never materialised. Accordingly on the advice of Mr Gilbert, an insolvency expert with Levy Gee, the company went
into creditors voluntary liquidation on 10 March 1993. Mr Gilbert and Mr Pallen of Ernst & Young were appointed joint liquidators.
22. These proceedings were commenced shortly before the expiry of the two-year period prescribed by s 7(2) of the 1986 Act. The allegations
against Mr Deverell and Mr Hopkins were, in accordance with the normal practice, ­ 371 contained in the affidavit in support of the application sworn
by Mr Gilbert. The allegation, as clarified at the commencement of the hearing before the judge, was that Mr Deverell and Mr Hopkins were shadow
directors as defined in s 22(5) of the Act, not de facto directors coming within the definition of director contained in s 22(4), as ‘any person occupying the
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position of director, by whatever name called …’ Thus the judge only dealt with the allegation before him. In his notice of appeal and in argument
before us the Secretary of State sought leave to take the point that if Mr Deverell and Mr Hopkins were not shadow directors then they were de facto
directors. We rejected the application. My reasons for doing so are, briefly, that it is too late and that to grant leave would prejudice Mr Deverell and Mr
Hopkins. Counsel for the Secretary of State explained why there had been the change of approach and that he would not seek to rely on any other
evidence or finding of fact. But neither point meets the objection that the hearing below was conducted throughout on a different basis. That the
Secretary of State will rely only on existing findings ignores the possibility that if the case had been conducted differently at an earlier stage the
respondents might have adduced further evidence in support of different or further findings. Their counsel informed us that such evidence would have
been sought. Likewise the fact that the Secretary of State might then have had good reason to limit his case against Mr Deverell and Mr Hopkins is no
reason for letting him expand it now on the ground that the reason no longer exists if to do so will cause prejudice to them.
23. Accordingly this appeal has been confined to the questions whether either Mr Deverell or Mr Hopkins was a shadow director. Those questions
break down into five issues, namely, whether: (1) the judge correctly interpreted the statutory definition; (2) the judge made the correct findings of fact
with regard to Mr Deverell; (3) whether on the findings of fact the judge ought to have made, alternatively did make, with regard to Mr Deverell the
application of the definition properly interpreted should lead to a finding that Mr Deverell was a shadow director; (4) the judge made the correct findings
of fact with regard to Mr Hopkins; (5) whether on the findings of fact the judge ought to have made, alternatively did make, with regard to Mr Hopkins
the application of the definition properly interpreted should lead to a finding that Mr Hopkins was a shadow director. Before us issues (2) and (3) and (4)
and (5) were argued in reverse order. From the advocates’ point of view there were obvious attractions in doing so. But the logical order and, therefore,
the one most likely to arrive at the proper result is that in which I have set out the issues and which I propose to follow.

The interpretation of s 22(5)

24. The words of the definition, as opposed to the term defined, are not new. Thus, with the omission of the proviso it was added by s 3 of the
Companies (Particulars as to Directors) Act 1917 to the definition of the word ‘director’ in ss 26, 75 and 274 of the Companies (Consolidation) Act 1908,
it was included in the definition of ‘officer’ in s 73(3) and ‘director’ in s 75(5) of the Companies Act 1928. What is now the proviso was added by s
380(2) of the Companies Act 1929. Since then it has been carried forward through the various consolidations effected in 1948 and 1985. The words
‘shadow director’ first appeared as the defined term in s 63 of the Companies Act 1980. Currently the defined term and the definition appear not only in s
741 of the Companies Act 1985 and s 22(5) of the 1986 Act but also in s 251 of the Insolvency Act 1986 and s 207(1) of the Financial Services Act 1986.
­ 372
25. The definition has been considered by the courts from time to time but this appeal appears to be the first time its proper construction may be
crucial to the outcome of an appeal. The previously reported cases, taking them in chronological order, are: Re Lo-Line Electric Motors Ltd [1988] 2 All
ER 692, [1988] Ch 477; Re Unisoft Group Ltd (No 3) [1994] 1 BCLC 609; Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180; Australian Securities
Commission v AS Nominees Ltd (1995) 133 ALR 1; Secretary of State for Trade and Industry v Laing [1996] 2 BCLC 324; and Re Kaytech International
plc, Secretary of State for Trade and Industry v Kaczer [1999] 2 BCLC 351.
26. In Re Lo-Line Electric Motors Ltd [1988] 2 All ER 692, [1988] Ch 477 Browne-Wilkinson V-C was concerned with an allegation that the person
in question was a de facto director, not a shadow director. He said of the latter that the definition presupposes that there is a board of directors ‘who act in
accordance with instructions from someone else, the éminence grise or shadow director’ (see [1988] 2 All ER 692 at 699, [1988] Ch 477 at 489). He
rejected the submission that because the section had penal consequences the word ‘director’ should be strictly construed. As the paramount purpose of
disqualification is the protection of the public he approached the question of construction on the normal basis.
27. In Re Unisoft Group Ltd (No 3) [1994] 1 BCLC 609 Harman J was concerned with an application to strike out a minority shareholder’s petition.
One of the relevant allegations was that a particular individual was a shadow director within the meaning of the definition contained in s 741 of the
Companies Act 1985. Of that definition Harman J said (at 620):
‘… those words can only mean … that the shadow director must be, in effect, the puppet master controlling the actions of the board. The
directors must be (to use a different phrase) the “cat’s paw” of the shadow director. They must be people who act on the directions or instructions
of the shadow director as a matter of regular practice. That last requirement follows from the reference in the subsection to the directors being
“accustomed to act”. That must refer to acts not on one individual occasion but over a period of time and as a regular course of conduct.’
28. In Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180 Millett J contrasted a de facto director with a shadow director. He considered (at 183) that the
terms do not overlap: ‘They are alternatives, and in most and perhaps all cases are mutually exclusive.’ Thus, he suggested, it would be embarrassing to
allege, without distinguishing between them, that the respondent acted as a de facto or alternatively a shadow director. He continued (at 183):
‘A de facto director … is one who claims to act and purports to act as a director, although not validly appointed as such. A shadow director, by
contrast, does not claim or purport to act as a director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind
others who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a director by the company. To
establish that a defendant is a shadow director of a company it is necessary to allege and prove: (1) who are the directors of the company, whether
de facto or de jure; (2) that the defendant directed those directors how to act in relation to the company or that he was one of the persons who did
so; (3) that those directors acted in accordance with such directions; and (4) that they were ­ 373 accustomed so to act. What is needed is first, a
board of directors claiming and purporting to act as such; and secondly, a pattern of behaviour in which the board did not exercise any discretion or
judgment of its own, but acted in accordance with the directions of others.’
29. Section 60 of the Corporations Law (Australia) is in the same terms as s 22(5) save that the proviso is not confined to advice given in a
professional capacity but extends to advice given in the proper performance of the functions attaching to a business relationship with the directors. In
Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 Finn J, sitting in the Federal Court of Australia, was concerned with petitions to
wind up various trust companies of which Windsor was a manager. Finn J held (at 52) that:
‘The reference in the section to a person in accordance with whose directions or instructions the directors are “accustomed to act” does not in
my opinion require that there be directions or instructions embracing all matters involving the board. Rather it only requires that, as and when the
directors are directed or instructed, they are accustomed to act as the section requires.’
Later, he concluded that it could and should be found that Windsor was a director. He continued (at 52–53):
‘This finding does not … require it to be shown that formal directions or instructions were given in those matters in which he involved himself.
The formal command is by no means always necessary to secure as of course compliance with what is sought. There is no reason to construe the
section so as to deny this … The idea of the section, as Wells J noted of its predecessor … is that the third party calls the tune and the directors
dance in their capacity as directors. This aptly describes Windsor’s role. The question the section poses is: Where, for some or all purposes, is the
locus of effective decision making? If it resides in a third party such as Windsor, and if that person cannot secure the “advisor” protection … then it
is open [to the court] to find that person a director for the purposes of the Corporations Law.’
In Secretary of State for Trade and Industry v Laing Evans-Lombe J adopted the propositions enunciated by Millett J in Re Hydrodam (Corby) Ltd.
30. In Re Kaytech International plc [1999] 2 BCLC 351 the Court of Appeal was concerned with alleged de facto directors. Robert Walker LJ (at
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424), with whom Thorpe and Stuart-Smith LJJ agreed, commented on the observations of Millett J in Re Hydrodam (Corby) Ltd in relation to the two
concepts of de facto and shadow director that they—
‘have at least this much in common, that an individual who was not a de jure director is alleged to have exercised real influence (otherwise than
as a professional adviser) in the corporate governance of a company. Sometimes that influence may be concealed and sometimes it may be open.
Sometimes it may be something of a mixture, as the facts of the present case show.’
31. I have referred to these cases in some detail as setting the context for the comments of Judge Cooke and the arguments of counsel for the
Secretary of State. In section four of his judgment, described as the ‘Legal Framework’, the judge set out the relevant provisions of the Act. In para
4.2.A he set out four ­ 374 categories of director which, he considered the law had developed so as to identify. They were: (1) directors properly
so-called because they had been validly appointed; (2) de facto directors type 1 being those who assume to act, claim to be and are held out by the
company as being directors; (3) de facto directors type 2 being those who directly assume the functions of the directors and act on an equal footing with
those who are but without having any sort of label; and (4) shadow directors as defined by Millett J in Re Hydrodam (Corby) Ltd. He then set out the
passage from the judgment of Millett J which I have already quoted as embodying the test which the Secretary of State had to satisfy so as to establish his
case against Mr Deverell and Mr Hopkins.
32. In para 4.2.C Judge Cooke identified various points which he described as problems with the shadow director test. The relevant problems so
identified are (1) whether the ‘directions or instructions’ referred to in s 22(5) can include ‘advice’, and (2) the extent to which such directions or
instructions on which the board is accustomed to act must cast the board in a subservient role. In respect of the first point he held that:
‘… advice on its own will not do. Only if such advice is so given and so accepted as to amount to a direction or instruction (coupled with a
pattern of the board being accustomed to act on it) is it relevant.’
With regard to the second point the judge considered that:
‘Directions or instructions are both words with a mandatory effect. Coupled with the word “accustomed” they … contemplate a situation where
the board has cast itself in a subservient role to the “shadow”, ie it does what it is told or to borrow an expression from trust law it “surrenders its
discretion” to the shadow. Being accustomed to follow what somebody says does not of itself make what is said a direction/instruction … what the
court has to find, whether on direct evidence or inference is that the board does what [the shadow] tells it and exercises no (or at least no
substantial) independent judgment.’
33. For the Secretary of State it is submitted that the judge adopted too strict a test in both the problem areas he identified. It is suggested that the
definition is concerned to identify those with real influence in the corporate affairs of the company whatever the label given to the communications from
the shadow to the board. Thus, it is argued, all that is required is that what is said by the shadow to the board is not by way of professional advice but is
usually followed over a wide enough area and for long enough. In other words frequent non-professional advice usually acted on is sufficient.
34. Either or both counsel for Mr Deverell and Mr Hopkins accepted that the instructions or directions did not have to cover the whole of the
company’s activities but must cover at least those matters essential to the corporate governance of a company including control of its financial affairs.
They also accepted that the label attached to the communications from the shadow to the board were immaterial provided that the communication was
understood or expected by both giver and receiver to be followed by the latter.
35. I propose to express my conclusions on these and other issues in a number of propositions. (1) The definition of a shadow director is to be
construed in the normal way to give effect to the parliamentary intention ascertainable from the mischief to be dealt with and the words used. In
particular, as the purpose of the Act is the protection of the public and as the definition is used in other ­ 375 legislative contexts it should not be strictly
construed because it also has quasi-penal consequences in the context of the 1986 Act. I agree with the statement to that effect of Browne-Wilkinson V-C
in Re Lo-Line Electric Motors Ltd [1988] 2 All ER 692 at 699, [1988] Ch 477 at 489. (2) The purpose of the legislation is to identify those, other than
professional advisers, with real influence in the corporate affairs of the company. But it is not necessary that such influence should be exercised over the
whole field of its corporate activities. I agree with the statements to that effect of Finn J in Australian Securities Commission v AS Nominees Ltd (1995)
133 ALR 1 at 52–53 and Robert Walker LJ in Re Kaytech International plc [1999] 2 BCLC 351 at 424. (3) Whether any particular communication from
the alleged shadow director, whether by words or conduct, is to be classified as a direction or instruction must be objectively ascertained by the court in
the light of all the evidence. In that connection I do not accept that it is necessary to prove the understanding or expectation of either giver or receiver. In
many, if not most, cases it will suffice to prove the communication and its consequence. Evidence of such understanding or expectation may be relevant
but it cannot be conclusive. Certainly the label attached by either or both parties then or thereafter cannot be more than a factor in considering whether
the communication came within the statutory description of direction or instruction. (4) Non-professional advice may come within that statutory
description. The proviso excepting advice given in a professional capacity appears to assume that advice generally is or may be included. Moreover the
concepts of ‘direction’ and ‘instruction’ do not exclude the concept of ‘advice’ for all three share the common feature of ‘guidance’. (5) It will, no doubt,
be sufficient to show that in the face of ‘directions or instructions’ from the alleged shadow director the properly appointed directors or some of them cast
themselves in a subservient role or surrendered their respective discretions. But I do not consider that it is necessary to do so in all cases. Such a
requirement would be to put a gloss on the statutory requirement that the board are ‘accustomed to act in accordance with’ such directions or instructions.
It appears to me that Judge Cooke, in looking for the additional ingredient of a subservient role or the surrender of discretion by the board, imposed a
qualification beyond that justified by the statutory language.
36. In substance I would accept the submissions of counsel for the Secretary of State and reject those of counsel for Mr Deverell and Mr Hopkins.
Before leaving this part of the case I would add two observations. The first relates to the use of epithets or descriptions in place of the statutory definition
of a shadow director. They may be very effective in graphically conveying the effect of the definition in the light of the facts of that case, as shown by
their frequent use in the reported cases to which I have referred. But, it seems to me, they may be misleading when transposed to the facts of other cases.
Thus to describe the board as the cat’s paw, puppet or dancer to the tune of the shadow director implies a degree of control both of quality and extent over
the corporate field in excess of what the statutory definition requires. What is needed is that the board is accustomed to act on the directions or
instructions of the shadow director. As I have already indicated such directions and instructions do not have to extend over all or most of the corporate
activities of the company; nor is it necessary to demonstrate a degree of compulsion in excess of that implicit in the fact that the board are accustomed to
act in accordance with them. Further, in my view, it is not necessary to the recognition of a shadow director that he should lurk in the shadows, though
frequently he may. For example, in the case of a person resident abroad who ­ 376 owns all the shares in a company but chooses to operate it through a
local board of directors. From time to time the owner, to the knowledge of all to whom it may be of concern, gives directions to the local board what to
do but takes no part in the management of the company himself. In my view such an owner may be a shadow director notwithstanding that he takes no
steps to hide the part he plays in the affairs of the company. Lurking in the shadows may occur but is not an essential ingredient to the recognition of the
shadow director. The second observation relates to the classification of directors to which Judge Cooke referred. It was not relevant to the resolution of
this appeal to consider either the subdivision of de facto directors into types 1 and 2 nor whether the categories of shadow director and de facto director
are mutually exclusive. I express no view on either of those matters.

The evidential burden

37. It follows from my conclusions on the proper interpretation of s 22(5) that I consider that the judge directed himself by reference to too strict a
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test as a matter of law. Before turning to the facts it is also necessary to consider whether he properly directed himself in respect of the burden of proof.
38. In para 4.4(e) the judge properly directed himself that the standard of proof is the civil standard, that is the balance of probabilities. He also
considered, in my view rightly, that the nature of the charge is one which requires proof of the relevant facts clearly and with conviction. But there are
passages in the judge’s judgment which suggest that he did not follow his own precept. In para 4.4(b) he observed in relation to ‘circumstantial evidence’
that its purpose is ‘to produce a situation where the court says ‘there can be no other sensible explanation’. If the respondent gives evidence that the court
feels bound to accept as truthful and which provides a different explanation, the value of the circumstantial evidence is lost’. The judge returned to this
point in para 5.4.1 of his judgment in relation to the case for the Secretary of State that at all times Mr Deverell and Mr Hopkins owned or controlled the
company. Having considered the various episodes in the history of the company he accepted Mr Hopkins as a witness of truth. He continued:
‘The facts which I have found are in some cases consistent with the “ownership/control” theory most notable perhaps the [First European]
negotiations (a curious affair on any view) and the “palace coup” [the removal of Mr Besant]. But like all circumstantial evidence it is only
ultimately probative of an allegation if it leads to a conclusion to which there is no other rational alternative. Here there are rational alternatives.
The fact that there is enough evidence to found a theory (there is such) will not do. I will consider the rational alternative and my ultimate
conclusions below.’
39. I would make three observations. First, the evidence to which the judge referred was not circumstantial in the sense in which that expression is
normally used for the evidence related directly to the relevant acts and events on which the Secretary of State’s case depended. Second, the references to
the absence of a sensible or rational alternative are appropriate to questions of fact to be proved beyond reasonable doubt, namely the criminal standard of
proof, not on a balance of probability. Third, the credibility of a witness is to be determined in the light of many factors; one of the more important is the
extent to which it is consistent with other evidence concerning the same events. In other words the credibility of a witness is to be determined in the light
of all the evidence and not ­ 377 independently of other evidence as to the same events which is categorised as circumstantial. Accordingly I approach
the judge’s factual conclusions on the basis that not only did he direct himself by reference to too strict a test but also with concern that, though he
correctly directed himself as to the standard of proof, there are grounds for thinking that he may not have applied that standard.

Mr Deverell
40. As I have already indicated I propose to consider first the contention of the Secretary of State that the judge reached wrong factual conclusions in
respect of Mr Deverell, that is issue 2. The alleged errors are specified in para 6 of the notice of appeal. The Secretary of State contends that the judge
should have determined that Mr Deverell was one of the effective owners or controllers of the company. Though raised separately from the comparable
allegation made in respect of Mr Hopkins the two contentions overlap.
41. In para 5.1 of his judgment Judge Cooke described how this allegation came to be made. Originally the case for the Secretary of State relied on a
number of disparate events demonstrating that Mr Deverell and Mr Hopkins were much more closely connected with the management of the company
than their declared positions as consultants would suggest. The Secretary of State then obtained copies of the correspondence between Mr Deverell and
First European suggesting that he and Mr Hopkins were in a position to sell the entire company or its assets as they might choose. The third and final
stage came when the Secretary of State adduced the evidence of Mr Charlwood who asserted in terms that the shares ostensibly owned by Messrs Besant,
Stevens, Blyth and Mays were held by them as nominees for Mr Deverell and Mr Hopkins. This is the case the judge considered at considerable length
and rejected.
42. He started by considering the various individuals involved. This was not helped by the fact that none of Mr Besant, Mr Stevens or Mr Mays gave
oral evidence. He considered Mr Blyth and Mr Charlwood to be unreliable witnesses. He accepted Mr Lyne, appointed a director on 20 January 1992
having been employed in connection with the Kaleidoscope part of the business, and Mr Standen, a partner in the firm responsible for the audit of the
company’s accounts, as witnesses of truth.
43. In relation to the company’s history the judge concluded that there was no evidence that Mr Deverell had a beneficial interest in the issued share
capital at any stage before the management buyout or in consequence of it. He considered that it was consistent with the facts giving rise to the departure
of Mr Besant and the negotiations with First European that Mr Stevens should be a nominee shareholder for Mr Deverell. Ultimately the judge concluded
that the case was not made out because he accepted the evidence of Mr Hopkins that he, Mr Hopkins, did not own or control any shares in the company.
44. The suggestion that the judge reached the wrong conclusion rests on a number of separate matters. First, the judge did not adequately appreciate
that the ABTA rules required Mr Deverell to conceal his shareholding as well as his part in the management of the company. Second, the fact that the
acquisition of the shares from Pilgrim Air by means of what was described as a management buyout did not justify a conclusion that the acquisition was
by Mr Besant alone because, as the judge found, Mr Deverell was equally concerned in the management of the company. Third, the judge failed to give
adequate weight to his finding that Mr Stevens was Mr Deverell’s stooge. Fourth, the judge made no reference to two letters dated August 1991 from Mr
Deverell to Mr Standen in ­ 378 which Mr Deverell appeared to consider in relation to the appointment of Mr Blyth as a director that the composition
of the board of directors of the company was a matter for him and Mr Hopkins. Finally the judge appeared to reject the clear inference from the
documents that Mr Deverell was negotiating the sale to First European as a substantial shareholder without giving any reasons for doing so.
45. I do not consider that these matters or any combination of them entitles this court to reach different factual conclusions from those of the judge.
The first point arises in connection with the suggestion that Mr Deverell was the beneficial owner of the shares registered in the names of Mr Besant or
Mr Stevens. There is no evidence at all that Mr Deverell provided any part of the purchase price or that Mr Besant or Mr Stevens entered into any
assignment or declaration of trust in respect of their respective holdings of shares in the company so as to confer a beneficial interest on Mr Deverell.
None of the matters on which the Secretary of State relies justifies an inference of beneficial ownership. The fact that the rules of ABTA would have
necessitated the concealment of any beneficial ownership of shares in the company is not a ground from which to infer such ownership. The use of the
commonly used label management buyout cannot predicate that one of the purchasers was Mr Deverell when it is beyond doubt that Mr Besant was at
least part of the management and the sole director. Similarly the description of Mr Stevens as the stooge of Mr Deverell says nothing about the beneficial
ownership of the shares in the company. I would accept that the fourth and fifth matters are a good indication of the views of Mr Deverell. But they are
not proof of the beneficial ownership of shares registered in the names of Mr Besant and Mr Stevens; for that purpose it is the views or admissions of Mr
Besant and Mr Stevens which matter.
46. I do not understand the Secretary of State to rely on any control of the company other than that which stems from share ownership. If he did then
it would have to rest on some contract with the shareholders. But, as in the case of ownership, there is no evidence at all of any such agreement. I do not
consider that it can be inferred from all or any of the matters relied on by the Secretary of State.
47. I turn then to issue (3). In para 5.4.2 Judge Cooke considered whether Mr Deverell or Mr Hopkins could be regarded as shadow directors on
some basis other than ownership or control of the company. With regard to Mr Deverell he found, in para 5.4.2(a), that: (a) Mr Deverell was brought in
by Mr Besant to be an essential part of management; (b) Mr Deverell could not be a director because of the ABTA rules but from start to finish he was a
key member of management; though his involvement in management was itself a breach of the ABTA rules it was easier to conceal; (c) Mr Deverell was
a party to the exclusion of Mr Besant; (d) Mr Deverell was personally involved in the share issue which occurred in February 1992; (e) Mr Deverell
undoubtedly played a prominent part in management though finance was customarily left to Mr Blyth and Mr Charlwood and Mr Deverell did not tell the
directors what to do; (f) Mr Deverell played a prominent role in the First European negotiations; (g) Mr Deverell bossed everyone around from the
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directors downwards; (h) Mr Deverell (and Mr Hopkins) stood out as far more capable than Mr Blyth and more involved than Mr Stevens but Mr Lyne
was not a puppet and exercised clear independence.
48. In para 5.4.2(c) the judge gave what he described as his final conclusions. He stated: ­ 379 ‘In my judgment the facts which I have found do
not support the central thesis of shadow directorship, viz that [Mr Deverell] was somebody on whose directions/instructions the directors were
accustomed to act. He was a prominent and powerful member of management who took part in that management on a broad and wide ranging basis on
occasion on almost an equal footing with the directors. “Consultant” certainly does not describe what he did. But this sort of open and equal participation
is in my judgment the very antithesis of the “eminence grise”/puppet-master activity (or inactivity) required of a shadow director.’
After again referring to the judgment of Millett J in Re Hydrodam (Corby) Ltd the judge returned again to the evidence of Mr Lyne. He said:
‘In my judgment [Mr Lyne’s] evidence even though directed to his own erroneous definition goes strongly to show that the board did not act in
a way that would satisfy the correct definition.’
49. The Secretary of State relies on a number of other findings of fact made by the judge but which were not included in the summary in para
5.4.2(a). They are: (a) Mr Lyne and Mr Blyth were unable to think of an example of where the Board did not follow Mr Deverell; (b) Mr Deverell had
been responsible for the growth of the business of the company and had succeeded in recruiting excellent senior management to support him; (c) until
1990 Mr Deverell and Mr Besant managed the business and were the only signatories to the bank account; (d) Mr Deverell was involved, with Mr Besant,
in bringing Mr Hopkins into the company; (e) it was the disagreement of Mr Deverell with Mr Besant which led to the exclusion of Mr Besant; (f) the
authority of Mr Deverell within the company with regard to expenses and the operation of the company’s bank accounts was equivalent to that of the
directors; (g) Mr Deverell’s pay and benefits in kind exceeded in value those of the directors; (h) Mr Deverell was involved in the original deception
arising from the subordinated loan from Linberg and the continued fiction; (i) Mr Deverell caused the company to make the loan of £180,000 to the lessor
of the premises to which the company moved in 1992; (j) Mr Deverell was at the heart of the deception of Civil Aviation Authority by the
window-dressing of the company’s accounts for the year ended 31 October 1992 with the repayment from SARL.
50. Counsel for Mr Deverell placed considerable emphasis on the judge’s acceptance of the evidence of Mr Lyne (see paras 47(h), 48, 49(a) above
and 52 below). With regard to the finding I have summarised in para 49(a) counsel relies on the fact that Mr Lyne was not asked for an example. It was
also suggested that to reach a conclusion contrary to that of the judge would involve not only a rejection of the evidence of Mr Lyne which the judge
accepted but also the acceptance of the evidence of Mr Charlwood which the judge rejected.
51. I can state my conclusion more shortly. First, I do not accept that to reach a conclusion different to that of the judge would involve accepting the
evidence of Mr Charlwood. The Secretary of State does not now rely on it, nor did the judge. If a different conclusion is to be reached it is on the basis
of the judge’s own findings not the evidence of Mr Charlwood.
52. Second, it is necessary to bear in mind the relatively limited involvement of Mr Lyne. He was employed by the company from April 1991 in
flight programming in connection with the business of Kaleidoscope. He was described by the judge as being involved on the Kaleidoscope side. He
became a ­ 380 director of the company on 20 January 1992 and resigned under ten months later on 7 November 1992. His cross-examination by
counsel for Mr Deverell, to which the judge referred with approval in para 1.2, was, in terms, directed to whether at the management meetings either he or
any of the other directors were told what to do. He said that they were not. But many matters concerning the company were evidently dealt with outside
the management meetings and involved persons other than Mr Lyne. Thus the exclusion of Mr Besant occurred before he became a director. Mr Lyne
was not in fact involved with the subordinated loans from Linberg in 1991, the share issue in February 1992, the initial negotiations with First European
in June 1992, the loan to the lessor of the new office premises in September 1992 or the window dressing of the accounts for the year ended 31 October
1992 with the SARL repayment. The change in the nature of the transaction with First European to an asset sale which occurred in December 1992 was
after Mr Lyne had resigned.
53. The reference in the passage from the judge’s judgment which I have quoted in para 48 to eminence grise/puppet-master suggests that the judge
had in mind a need to lurk and the adoption by the board of a subservient role as conditions for a finding of shadow directorship. This appears to be borne
out by the fact that his conclusion is inconsistent with his own findings which I have recorded at paras 47 and 49. They make it plain that Mr Deverell
was concerned at the most senior level and with most aspects of the direction of the company’s affairs. This could only be achieved by an ostensible
consultant if those who were directors acted upon his directions or instructions conveyed by words or conduct. The judge held in terms that Mr Deverell
‘bossed everyone around from the directors downwards’. It is immaterial that, as the judge observed, he was the sort of man who would boss anyone
around. The facts, as found, show that he bossed the directors around and, because what he achieved was within the province of the directors, the
directors were accustomed to submit to his requirements.
54. For all these reasons I conclude that the judge was wrong to find that Mr Deverell was not a shadow director of the company. I will consider
later, after dealing with issues (4) and (5), the consequences of that conclusion.

Mr Hopkins
55. Issue (4), like issue (2) in the case of Mr Deverell, raises the question whether the judge was wrong to conclude that Mr Hopkins did not, together
with Mr Deverell, own and control the company. In the case of Mr Hopkins the question of ownership is clear. He acquired from Mr Besant one third of
the shares then in issue in early 1990. By July 1990 he had divested himself of his beneficial ownership by the creation of the Languedoc Trust. It
appears that he had some entitlement as an object of the discretionary powers conferred on the trustees of that settlement but it would be inconsistent with
the evident intention to pre-empt the consequences of his impending bankruptcy that he should retain any beneficial interest. In late 1991 or 1992 the
shares were charged to the bank but by then Mr Hopkins had been made bankrupt and his interest (if any) had vested in his trustee.
56. The case for the Secretary of State was that the shares issued in February 1992, and therefore after the bankruptcy of Mr Hopkins, to Mr Blyth
and Mr Mays amounting in all to 85,833 were held by them as nominees for Mr Hopkins. It was suggested that they matched the 85,834 shares held by
Mr Stevens, as alleged, as nominee for Mr Deverell. In addition there were holdings of 6,667 shares ­ 381 registered in the name of Mr Besant and
6,666 shares registered in the name of Checkout Ltd or Chalfont Enterprises Ltd.
57. But the judge considered that this issue of shares was a sham anyway. Even if it was genuine there is no evidence at all that the registered
shareholders, Mr Blyth and Mr Mays, were trustees of their shares for Mr Hopkins. The judge accepted the evidence of Mr Hopkins that he was not the
beneficial owner. In my view he should more correctly have determined that there was no evidence that he was.
58. With regard to Mr Hopkins the judge’s factual summary contained in para 5.4.2 is much more limited than in the case of Mr Deverell. It may be
summarised as follows: (a) Mr Hopkins was brought in initially in a limited role, which later grew substantially with the creation of Kaleidoscope; (b) on
Mr Lyne’s evidence neither Mr Lyne nor the other directors were told by Mr Hopkins what to do; (c) Mr Hopkins was more often than not abroad. He
gave a good deal of advice some of it unsolicited. People accepted it and acted on it. His activities were not limited to advice, he tended to spill over into
other matters and though he had a limited and sporadic involvement in some financial matters he was not concerned in finance on anything like a regular
basis; (d) Mr Hopkins stood out as far more capable than Mr Blyth and far more involved than Mr Stevens.
59. In para 5.4.2(c) Judge Cooke gave what he described as his final conclusion regarding Mr Hopkins. He said:
‘If, as I have held, the ownership/control theory is untenable on the evidence then much of the case against [Mr Hopkins] really goes. The
alternative ground is to say that the directors habitually acted on his advice. I would accept that when he gave advice they usually (if not always)
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took it. But that (as I have already explored when I considered the law) is in my judgment nowhere near saying that there was a “pattern of
behaviour in which the board did not exercise any discretion or judgment of its own, but acted in accordance with the directions of others” (see Re
Hydrodam (Corby) Ltd [1994] 2 BCLC 180 at 183). There is no evidence which suggests that in circumstances where [Mr Hopkins] was not giving
advice that the directors did not exercise their own discretion. Nor indeed is there evidence that suggests that the acceptance of advice was
mechanical as opposed to considered.’
In my view this passage discloses three errors of law. First the judge substituted a ‘pattern of behaviour in which the board did not exercise any discretion
of its own’ for the statutory test of being accustomed to act on the directions or instructions of the alleged shadow director. Second, if, as the judge
concluded, the directors usually took the advice of Mr Hopkins, it is irrelevant that on the occasions when he did not give advice the board did exercise its
own discretion. Third, if the board were accustomed to act on the directions or instructions of Mr Hopkins it is not necessary to demonstrate that their
action was mechanical rather than considered. None of the parties suggested that if we disagreed with the judge’s conclusions of law we should order a
new trial. Accordingly it is incumbent on this court to reach a conclusion on the basis of the facts as found by the judge.
60. The Secretary of State contends that the judge failed to give any weight to further significant aspects of the case against Mr Hopkins. He
contends that had the judge done so then he would not have accepted the truthfulness of Mr Hopkin’s evidence. Having considered these matters, set out
in para 8 of the notice of appeal, I do not think that separately or together they could justify this ­ 382 court reaching a different conclusion on Mr
Hopkins’ credibility with regard to the question of share ownership. But it is plain that the judge himself did not accept the evidence of Mr Hopkins
whereby he sought to characterise his role as that of a consultant and limit his participation to advice.
61. In that respect the Secretary of State contends that the judge’s conclusion is inconsistent with his own findings. Thus, in addition to the matters I
have summarised in para 58 above, he relies on findings that: (a) at the meeting held on 3 April 1992 it was Mr Hopkins who, in strong terms, convinced
the directors that the company was not trading while insolvent; (b) Mr Hopkins was paid substantially more than the directors; (c) Mr Hopkins intervened
at management meetings less than Mr Deverell but both of them appeared as men of importance whose words are listened to; (d) the directors were
accustomed to act on Mr Hopkins advice.
62. Counsel for Mr Hopkins placed great reliance on the evidence of Mr Lyne to which I have already referred which the judge accepted. In the case
of Mr Hopkins the judge pointed out that there was no evidence that Mr Hopkins was concerned with the exclusion of Mr Besant, the issue of shares in
February 1992 or the window-dressing of the accounts in October 1992. He found that Mr Hopkins’ involvement in the negotiations with First European
was minimal. Moreover Mr Lyne was concerned with the Kaleidoscope division of the company’s business and so better able than in the case of Mr
Deverell to assess the role Mr Hopkins played.
63. I return to the statutory test as I have explained it earlier in this judgment. Was Mr Hopkins a person in accordance with whose directions or
instructions the directors of the company were accustomed to act? In my view he was. First it is plain that his involvement went far beyond that of a
consultant and was not confined to the business of Kaleidoscope. Thus, to give two examples, it was Mr Hopkins who insisted that the company put
WMFerienhotels into credit and it was Mr Hopkins who took the lead on the issue whether the company was trading while insolvent. These were two
important matters directly affecting the company’s financial affairs and the interventions went beyond the giving of mere advice. Second, the position of
Mr Hopkins in the structure of the company, as in the case of Mr Deverell, gave to his ‘advice’ the potency of directions or instructions. As in the case of
Mr Deverell the directors listened to him. Third, his suggestions, to use a neutral word, when given were adopted. As the judge put it the directors were
accustomed to act on them. The fact that he did not at the management meetings tell the directors what to do is not sufficient to refute the case for the
Secretary of State. It is clear that he had no need to be so direct. Indeed the only difference between the case of Mr Deverell and of Mr Hopkins is that
there is more evidence of the participation of the former than of the latter. But, in my view, this is because Mr Hopkins lived abroad. On the occasions
when he did participate his role and the effect of his participation were no different to that of Mr Deverell.
64. For all these reasons I conclude that Mr Hopkins was a shadow director of the company.

The consequences
65. In para 6 of his judgment the judge reached certain conclusions as to the unfitness of both Mr Deverell and Mr Hopkins if, contrary to his
conclusions, either or both of them was a shadow director. In each case he considered that his conduct in relation to the company rendered him unfit to be
a director of a ­ 383 company. In the case of Mr Deverell this finding was based on: (a) the deliberate deception of and concealment from ABTA of his
involvement in the management of the company; (b) the deception of the Civil Aviation Authority involved in the Linberg subordinated loan transaction
in the summer 1991; (c) the deception of Civil Aviation Authority in relation to the window-dressing of the 1992 accounts with the repayment by SARL;
(d) trading whilst insolvent. In the case of Mr Hopkins the finding was based on: (a) the deliberate deception of ABTA in his failure to disclose his
bankruptcy; (b) trading whilst insolvent on the basis that it was his duty as a director to keep his finger on the company’s financial pulse at what was
clearly a difficult time. No party has challenged these findings. The Secretary of State does not contend that the judge should have found other episodes
to constitute unfitting conduct as well.
66. We did not hear argument during the hearing of the appeal on the penalty to be imposed. The question was raised which tribunal should deal
with the matter of penalty, the choices being this court, Judge Cooke or some other judge of the Chancery Division. Counsel for Mr Deverell and Mr
Hopkins opted for a judge of the Chancery Division and Judge Cooke respectively. Counsel for the Secretary of State submitted that this court should
decide the question of penalty as well.
67. I have no doubt that this court is entitled to deal with the issue of penalty for it is a necessary ingredient in the disqualification order which the
court below might have made (see CPR Sch 1, RSC Ord 59, r 10(1)). Moreover it would be consistent with CPR 1.4(2)(i) to deal with this issue as well.
The only reason not to do so would be that Mr Deverell and Mr Hopkins would be denied a possible appeal against the penalty. The latter consideration
did not preclude this court from determining the length of disqualification to impose on Mr Solly in Re Kaytech International plc [1999] 2 BCLC 351. In
my view the court should do likewise in this case. Accordingly if this court decides that Mr Deverell and Mr Hopkins were shadow directors then, having
given them an opportunity to address the court in mitigation, this court should determine the period of disqualification.

Conclusion
68. For all these reasons I would allow this appeal, hold that both Mr Deverell and Mr Hopkins were shadow directors and, having given them the
opportunity to address the court in mitigation, determine the respective periods of their disqualification.

POTTER LJ. I agree.

MORISON J. I also agree.

Appeal allowed.
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Kate O’Hanlon Barrister.

[2000] 2 All ER 385

R v Secretary of State for the Home Department, ex parte Hindley

PRISONS

HOUSE OF LORDS
LORD BROWNE-WILKINSON, LORD NICHOLLS OF BIRKENHEAD, LORD STEYN, LORD HUTTON, LORD HOBHOUSE OF WOODBOROUGH
21–23 FEBRUARY, 30 MARCH 2000

Prison – Life sentence – Mandatory life sentence – Whole life tariff – Applicant serving mandatory life sentences for murder – Secretary of State deciding
whole life tariff appropriate in applicant’s case – Whether imposition of whole life tariff unlawful – Murder (Abolition of Death Penalty) Act 1965, s 1.

The applicant, H, was serving mandatory sentences of life imprisonment for murder. In February 1997 the then Secretary of State informed H that
detention for the whole of her natural life was the tariff necessary to satisfy the requirements of retribution and deterrence in her case. In November 1997
the next Secretary of State outlined his policy on the imposition of whole life tariffs, stating his openess to the possibility that, in exceptional
circumstances—including exceptional progress by the prisoner whilst in custody—a review and reduction of the tariff might be appropriate.
Subsequently, he informed H that, subject to consideration of whether it might be appropriate to reduce the tariff because of exceptional progress, her
tariff would remain a whole life tariff. In the meantime H had commenced judicial review proceedings, seeking an order quashing the decision to impose
a whole life tariff. Those proceedings were dismissed by the Divisional Court whose decision was subsequently affirmed by the Court of Appeal. H
appealed to the House of Lords, contending that the Secretary of State’s policy was unlawful. In particular, she contended that the mandatory sentence of
life imprisonment for murder under s 1a of the Murder (Abolition of Death Penalty) Act 1965 did not mean a lifelong period of imprisonment, that the
Secretary of State’s policy had fettered his discretion, that it excluded consideration of such cases by the Parole Board and that it was inconsistent with a
system which required the tariff to be expressed in a term of years. Alternatively, she contended that the imposition of a whole life tariff was unlawful in
the particular circumstances of her case.
________________________________________
a Section 1, so far as material, provides: ‘(1) … a person convicted of murder shall … be sentenced to imprisonment for life.
________________________________________

Held – Section 1 of the 1965 Act did not exclude the possibility that life sometimes meant life, and it was therefore impossible to conclude that life
imprisonment in that statute meant a finite period short of the natural life of the prisoner. When that provision had been enacted, it was clear from the
wording of s 27 of the Prison Act 1952 that, as a matter of law, a sentence of life imprisonment was understood to authorise the detention of a person for
an indeterminate period which was brought to an end only by the death of the prisoner or a decision by the Secretary of State to release him. Such a
conclusion was not affected by a ­ 385 judge’s power under s 1(2) of the 1965 Act to make a recommendation for a minimum period. The judge had a
discretion whether to make such a recommendation, and he was entitled to refuse to make one if he thought that no fixed term was sufficient in terms of
the need of deterrence and retribution. Moreover, it was impossible to say that the Secretary of State had unlawfully fettered his discretion in view of an
assurance, given by him in the course of argument, that his statement meant that he was prepared to reconsider and review any whole life tariff decision
from time to time even in the absence of exceptional progress. Nor was it possible to say that the Secretary of State was acting unlawfully by not
referring cases involving whole life tariffs to the Parole Board since their role was to advise on risk, not on tariff. Furthermore, there was nothing
logically inconsistent with the concept of a tariff in saying that certain crimes were so wicked that the requirements of retribution and deterrence would
not be exhausted even if the prisoner was detained until he died. It followed that the system of imposing whole life tariffs was not unlawful. Nor was it
unlawful, in the particular circumstances of the instant case, to impose such a tariff on H. Accordingly, the appeal would be dismissed (see p 387 a b, p
389 a to g, p 390 a to d f to p 393 b and p 394 g, post).
Pierson v Secretary of State for the Home Dept [1997] 3 All ER 577 considered.

Notes
For prisoners serving life sentences, see 37 Halsbury’s Laws (4th edn) para 1190.
For the Murder (Abolition of Death Penalty) Act 1965, s 1, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 314.

Cases referred to in opinions

Doody v Secretary of State for the Home Dept [1993] 3 All ER 92, [1994] 1 AC 531, [1993] 3 WLR 154, HL.
Findlay v Secretary of State for the Home Dept [1984] 3 All ER 801, [1985] AC 318, [1984] 3 WLR 1159, HL.
Pierson v Secretary of State for the Home Dept [1997] 3 All ER 577, [1998] AC 539, [1997] 3 WLR 492, HL.
R v North and East Devon Health Authority, ex p Coughlan [2000] 2 WLR 622, (2000) 51 BMLR 1, CA.
R v Secretary of State for the Home Dept, ex p McCartney (1994) Times, 25 May, [1994] CA Transcript 667.

Appeal
The applicant, Myra Hindley, a prisoner serving mandatory life sentences for murder, appealed with leave from the decision of the Court of Appeal (Lord
Woolf MR, Hutchison and Judge LJJ) on 5 November 1998 ([2000] 1 QB 152) dismissing her appeal from the decision of the Divisional Court (Lord
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Bingham of Cornhill CJ, Hooper and Astill JJ) on 18 December 1997 ([1998] QB 751) dismissing her application for judicial review of, inter alia, (i) the
decision of the respondent, the Secretary of State for the Home Department, communicated on 19 November 1997 to maintain the whole life tariff
imposed on the applicant, and (ii) the policy of the Secretary of State to maintain a category of whole life sentence prisoners. The facts are set out in the
opinion of Lord Steyn.

Edward Fitzgerald QC and Tim Owen (instructed by Taylor Nichol) for the applicant.
David Pannick QC and Mark Shaw (instructed by the Treasury Solicitor) for the Secretary of State.
­ 386

Their Lordships took time for consideration.

30 March 2000. The following opinions were delivered.

LORD BROWNE-WILKINSON. My Lords, I have read in draft the speech of my noble and learned friend, Lord Steyn. I agree with it completely and
for the reasons which he gives would dismiss this appeal.

LORD NICHOLLS OF BIRKENHEAD. My Lords, I have had the advantage of reading a draft of the speech of my noble and learned friend Lord
Steyn. I agree that, for the reasons he gives, this appeal should be dismissed.

LORD STEYN. My Lords, Myra Hindley is serving mandatory sentences of life imprisonment for murder. On 3 February 1997 the previous Secretary
of State for the Home Department (Mr Michael Howard) decided, and communicated to Hindley, that in her case the tariff necessary to satisfy the
requirements of retribution and deterrence would be a whole life tariff, ie detention for the whole of her natural life. By a letter dated 19 November 1997
the present Home Secretary (Mr Jack Straw) indicated that, subject to consideration of whether it might be appropriate to reduce Hindley’s tariff because
of exceptional progress she might have made in prison he ‘[saw] no reason to depart from the conclusion of his predecessor that a whole life tariff [was]
appropriate in all the circumstances of the case’.
In the meantime Hindley had commenced judicial review proceedings seeking an order quashing the decision of the Secretary of State for the Home
Department to impose on her a ‘whole life’ tariff. On 18 December 1997 the Divisional Court ([1998] QB 751, [1998] 2 WLR 505) dismissed her
application. She appealed against this decision. On 5 November 1998 the Court of Appeal ([2000] QB 1 152, [1999] 2 WLR 1253) dismissed her appeal
but gave her leave to appeal to the House of Lords. There is now before the House the appeal of Hindley which raises for the consideration of the House
the arguments which were rejected by the courts below. The context in which the issues arise is set out in the detailed and careful judgments.
Hindley is entitled to the full measure of the protection of the law and is therefore entitled to have her arguments examined afresh and with care by
the House.

The genesis of the whole life tariff

It is necessary to explain briefly the background to the whole life tariff. By a statement made to the House of Commons on 30 November 1983 the
Home Secretary (Mr Leon Brittan) introduced a tariff system for prisoners serving mandatory life sentences: 68 HC Official Report (6th series) written
answers cols 505–507. This system involved the setting of a term by the Home Secretary which must be served by a mandatory life sentence prisoner
before his or her release could be considered. Subject to the requirement that the Home Secretary must take decisions on tariff matters in accordance with
fair procedures, the House of Lords accepted in Doody v Secretary of State for the Home Dept [1993] 3 All ER 92, [1994] 1 AC 531 that the tariff system
is in principle compatible with the statutory powers of the Home Secretary: see s 61(1) of the Criminal Justice Act 1967. In 1988 the Home Secretary (Mr
Douglas Hurd) first ­ 387 imposed a whole life tariff. Since that date such a tariff has been imposed on 30 occasions. At present 23 prisoners,
including Hindley, are subject to such a tariff.
On 7 December 1994 the previous Home Secretary (Mr Michael Howard) explained his policy of imposing in some cases a whole life tariff: 251 HC
Official Report (6th series) written answers cols 234–235. On 10 November 1997 the present Home Secretary (Mr Jack Straw) explained his policy in
respect of such cases: 300 HC Official Report (6th series) cols 419–420. It will be necessary to return to the extant policy of the present Home Secretary.

The issues
By primary legislation Parliament has created fundamentally different regimes for the release of mandatory life sentence prisoners and discretionary
life sentence prisoners. It is important to bear in mind that this case is only concerned with the regime applicable to mandatory life sentence prisoners,
and with only one facet of the tariff system applicable to such prisoners, namely the whole life tariff.
The issues before the House fall into two categories. First, there are arguments to be considered that the Secretary of State’s policy of imposing
whole life tariffs on some mandatory life sentence prisoners is in principle unlawful. Under this heading the primary point is whether a whole life tariff is
inconsistent with the statutory concept of life imprisonment. The remaining points challenge the policy of the Secretary of State on the general grounds
that it fetters his discretion; it excludes all consideration of such cases by the Parole Board; and is inconsistent with the tariff system which is said to
require expression of the tariff in a term of years.
Secondly, Hindley challenges the imposition of a whole life tariff on her as being unlawful on various public law grounds.

Unlawfulness of whole life tariffs

The first ground put forward raises a point of statutory interpretation. Counsel for Hindley submitted that when in 1965 Parliament enacted s 1(1) of
the Murder (Abolition of Death Penalty) Act 1965, which in the case of murder replaced the sentence of death by a mandatory sentence of life
imprisonment, the substitute sentence did not mean a lifelong period of imprisonment. It contemplated that, if the prisoner was not a risk to others, he or
she would be released after a finite period of imprisonment. Counsel for Hindley pointed to the statement in the Report of the Royal Commission on
Capital Punishment 1949–1953 (Cmd 8932) p 226, para 644 that there is no recorded case in which it has been decided that a life sentence prisoner shall
be kept in penal servitude until he dies. On the other hand, before 1965 persons convicted of heinous murders were sentenced to death and executed. The
correctness of the legal submissions of counsel must be tested against the language of the statutory provisions. In 1965 Parliament was legislating against
the background of a tolerably clear meaning of ‘life imprisonment’. One does not need to go further back than s 27 of the Prison Act 1952. It provided as
follows:
‘(1) The Secretary of State may at any time if he thinks fit release on licence a person serving a term of imprisonment for life subject to
compliance with such conditions, if any, as the Secretary of State may from time to time determine.
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­ 388
(2) The Secretary of State may at any time by order recall to prison a person released on licence under this section º’
Section 27 shows that as a matter of law a sentence of life imprisonment was understood to authorise the detention of a person sentenced to life
imprisonment for an indeterminate period which is only brought to an end by the death of the prisoner or if and when the Secretary of State in the exercise
of his discretion decides to release him or her. Section 1 of the 1965 Act, read with s 27 of the 1952 Act, did not exclude the possibility that life
sometimes might mean life. It is therefore impossible to conclude that life imprisonment in the statute meant a finite period short of the natural life of the
prisoner. It is true that s 27 of the 1952 Act was subsequently repealed and replaced from time to time by other provisions. In 1967 s 27 of the 1952 Act
was repealed by the 1967 Act and replaced by a new provision: s 61(1). In 1991 the latter provision was replaced by s 35 of the Criminal Justice Act
1991. In 1997 a new provision was introduced by s 29 of the Crime (Sentences) Act 1997. It is however unnecessary to discuss the legislative
amendments of 1967, 1991 and 1997 since it is not suggested that in any material respect the concept of life imprisonment acquired a different meaning
through these changes.
One must therefore concentrate on the language of s 1(1) of the 1965 Act, read with s 27 of the 1952 Act. It yields no support for the argument of
counsel for the appellant. Counsel sought to rely on the provisions of s 1(2) of the 1965 Act which authorise a judge to make a recommendation for a
minimum period to be served by a defendant convicted of murder. But this provision cannot sustain the argument. After all, the judge has a discretion to
make or not to make a recommendation. If the judge thought that no fixed term was sufficient in terms of the need of deterrence and retribution he was
entitled on that ground to refuse to make a recommendation. This is not altogether surprising. In the Divisional Court Lord Bingham of Cornhill CJ
([1998] QB 751 at 769, [1998] 2 WLR 505 at 518–519) observed that he could ‘see no reason, in principle, why a crime or crimes, if sufficiently heinous,
should not be regarded as deserving lifelong incarceration for purposes of pure punishment’ (Lord Bingham CJ’s emphasis). I respectfully agree.
Looking at the matter more broadly there is therefore no reason to give to the concept of life imprisonment anything but the contextual meaning of the
legislation. I would reject the restrictive interpretation put forward on behalf of Hindley.
The second argument is that the Secretary of State’s policy in respect of whole life tariffs unlawfully fetters his discretion. The following passage in
the policy statement of the Secretary of State of 10 November 1997 is relevant:
‘So far as the potential for a reduction in tariff is concerned, I shall be open to the possibility that, in exceptional circumstances, including for
example, exceptional progress by the prisoner whilst in custody, a review and reduction of the tariff may be appropriate. I shall have this
possibility in mind when reviewing at the 25 year point the cases of prisoners given a whole life tariff and in that respect will consider issues
beyond the sole criteria of retribution and deterrence described in the answer given on 7 December 1994. Prisoners will continue to be given the
opportunity to make representations and to have access to the material before me.’ (My emphasis.)
­ 389
Ambiguities inherent in this statement were exposed in oral argument. On instructions counsel for the Secretary of State volunteered and gave assurances
to the House that this statement means that the Secretary of State is prepared to reconsider and review any whole life tariff decision from time to time
even in the absence of exceptional progress. In these circumstances counsel for the Secretary of State submitted that the policy of imposing a whole life
tariff merely involves the expression of the current view of the Secretary of State that the requirements of retribution and deterrence make it inappropriate
ever to release such a prisoner. It does not rule out reconsideration. The Secretary of State envisages the possibility of release in the event of exceptional
progress in prison; and, even in absence of such progress, the Secretary of State is prepared to reconsider any whole life tariff decision from time to time.
Given this clarification on behalf of the Secretary of State I would hold that it is impossible to say that the Secretary of State has unlawfully fettered his
discretion.
The third contention is that the policy of the Secretary of State excludes consideration by the Parole Board of whole life tariffs. Acting under his
powers under s 35 of the 1991 Act the Secretary of State gave directions to the Parole Board in 1993. Those directions make it clear that the role of the
Parole Board is to advise on risk, not on tariff. The lawfulness of the directions is not challenged. The Secretary of State is not obliged to refer cases
involving whole life tariffs to the Parole Board. In any event, in the case of Hindley the Secretary of State has the recommendation by the Parole Board
given in early 1997 advising that Hindley should be transferred to open prison conditions with a further review two years later. This was the most
favourable recommendation Hindley could have hoped for. The Secretary of State rejected this recommendation and it was within his power to do so.
Reverting to the general position affecting whole life tariffs, it is not possible to say that the Secretary of State is acting unlawfully by not referring such
cases to the Parole Board.
The last submission is that the policy of imposing whole life tariffs is inconsistent with the notion of a tariff which requires expression in a term of
years. This is an appeal to legal logic. But there is nothing logically inconsistent with the concept of a tariff by saying that there are cases where the
crimes are so wicked that even if the prisoner is detained until he or she dies it will not exhaust the requirements of retribution and deterrence.
In my view therefore the four grounds of attack on the system of imposing, where considered appropriate, whole life tariffs must be rejected.

Unlawful treatment of Hindley

The second part of the appeal raises the question whether in the particular circumstances of Hindley’s case the imposition of a whole life tariff on her
was unlawful.
The first ground put forward is that the imposition on Hindley of a whole life tariff amounted to ‘an increase in the 1985 tariff’. This was a reference
to an internal decision made by the Secretary of State (Mr Leon Brittan) in March 1985. The argument is that the decision was contrary to legal principle
and unlawful. For this argument counsel for Hindley relied on statements of the law enunciated by Lord Hope of Craighead and myself in Pierson v
Secretary of State for the Home Dept [1997] 3 All ER 577, [1998] AC 539 to the effect that it is contrary to principle for the Secretary of State to increase
retrospectively a tariff fixed by himself (or a predecessor) and communicated to a prisoner. But Lord Browne-Wilkinson and Lord Lloyd of Berwick
denied the existence of such a principle. And Lord Goff of ­ 390 Chieveley made no clear ruling on this point. For my part it is unnecessary in this
case to resolve the conflict which emerged in Pierson’s case. The argument fails on the facts. The decision made by the Secretary of State in March
1985 was expressed to be ‘provisional’ and was not either directly or indirectly communicated to Hindley. She was unaware of it until 1994 when she
was told of the provisional decision and was also told that in 1990 the Secretary of State (Mr Waddington) reconsidered the tariff in her case and decided
that it should be on whole life tariff. The argument based on observations in Pierson’s case fails at the threshold. But counsel for Hindley made a more
far-reaching submission. He argued that the principle stated by Lord Hope and myself in Pierson’s case can be broadened to apply to a provisional and
uncommunicated decision. There is no principled basis for this argument and I would reject it. Moreover, there is a second and independent reason why
on the facts the argument of counsel for Hindley cannot succeed. The view of the Secretary of State in 1985 was based on an incomplete knowledge of
the role of Hindley in the three murders upon which she faced trial and in ignorance of her involvement in two other murders. Until 1987 Hindley
concealed her role. In that year she made confessions about her greater involvement in the course of police interviews. Through her advisers she asked
the Secretary of State to consider her account of her involvement in the five murders under the influence and intimidation of Brady. In this context the
Secretary of State was entitled to look at the whole of the available evidence. In deciding on her tariff the Secretary of State was not entitled to increase it
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as retribution and deterrence for murders of which she had not been convicted. But in deciding what was proper retribution and deterrence for the
murders of which she had been convicted he was entitled to take into account that she committed them knowing the fate of Brady’s earlier victims. Even
if a tariff had been fixed and communicated in 1985, fairness in a public law sense would not have entitled Hindley to rely on the earlier decision taken in
ignorance of material facts. For these reasons I would reject the arguments about an increase of sentence on the particular facts of the case.
The second argument is that the Secretary of State gave no weight to the appellant’s expectation of a finite time to her tariff. Counsel for Hindley
relied on the doctrine of substantive legitimate expectations, as explained in R v North and East Devon Health Authority, ex p Coughlan [2000] 2 WLR
622, (2000) 51 BMLR 1. There are dicta in Findlay v Secretary of State for the Home Dept [1984] 3 All ER 801, [1985] AC 318 which appear to run
counter to counsel’s argument on substantive legitimate expectations. Counsel invited the House to hold that Findlay’s case is distinguishable or,
alternatively, that it was wrongly decided. Counsel for the Secretary of State has however persuaded me that on the facts of this case these legal issues do
not arise for decision. Hindley did not know her tariff date until after 1994. She was never given any assurance about her tariff. She was told to make no
assumption one way or the other about when she may be released. She had no reasonable basis for any expectation that she would be released at any
particular time. There is no scope for applying the doctrine of legitimate expectations. Counsel for Hindley also relied on a principle prohibiting the
retrospective fixing of sentence which he derived from the judgment of Hoffmann LJ (now Lord Hoffmann) in R v Secretary of State for the Home Dept,
ex p McCartney, (1994) Times, 25 May, [1994] CA Transcript 667. This case concerned discretionary life sentence prisoners. Under the applicable
legislation the trial judge fixed the tariff. But there were transitional provisions which required the Secretary of State to fix the tariff for discretionary
lifers who had been sentenced ­ 391 before the new judicialised regime came into force. In that context it is understandable that the Secretary of State
had to observe the same standards as the judge. The case is therefore distinguishable. In any event, counsel for Hindley argued that the observations of
Lord Hoffmann rest on a twin footing, namely unfairness to a prisoner in the retrospective fixing of a sentence and the danger of the retrospective
adjustment of a sentence in the light of public response to a sentence. Both parts of this rationale are inapplicable to the provisional and uncommunicated
decision of the Secretary of State. I would reject the reliance on Ex p McCartney.
The third contention is that the imposition of the whole life tariff was conditioned by an increase in tariffs from 1988 onwards. I would accept that
there has been an increase in tariffs since that date and 1988 certainly marks the first imposition of the whole life tariff. The wisdom of this shift in penal
policy is not a matter that arises for decision. It is sufficient to say that I do not accept that the adoption of a more severe policy by the last three Home
Secretaries was per se beyond the statutory powers granted to them by Parliament.
The fourth issue is whether the Secretary of State failed to address the arguments put to him against an increase in Hindley’s case and failed to
indicate whether he accepted her account that she acted under threats and intimidation throughout. The Secretary of State indicated that he proceeded on
the assumption (without deciding) that the alleged facts put forward in mitigation by Hindley were correct. There were grounds on which he could have
questioned those assertions. It might have been open to him to question the reliability of Hindley’s statements in mitigation as being self-serving and
unreliable. The Secretary of State did not adopt this course. He made an assumption in favour of Hindley. This was a perfectly rational decision which
affords Hindley no justifiable ground of complaint.
The last point is that in this case a whole life tariff is disproportionate. Counsel for Hindley argued that in the light of her age at the time of the
murders (22 to 23 years), the dominance of Brady over her and that she has now spent 34 years in prison, there is now no justifiable basis for maintaining
a whole life tariff in her case. On the other hand, even in the sordid history of crimes against children the murders committed by Hindley, jointly with Ian
Brady, were uniquely evil. Hindley invited the Secretary of State to take into account her wider involvement with Brady as explained in her interviews
with the police in 1987. She did so in order to emphasise the mitigation on which she relies but against that must be considered the aggravating
circumstances. The Secretary of State was therefore entitled to take into account that the two murders of which she had been convicted in 1965 were the
culmination of a series of five murders committed by her and Brady. They abducted, terrified, tortured and killed their victims before burying their bodies
on Saddleworth Moor. Hindley was a woman of competent understanding. The argument that she was not the ‘actual killer’ must be put in perspective.
Her role in the murders was pivotal. Without her active participation the five children would probably still be alive today. The pitiless and depraved
ordeal of the victims, and the torment of their families, place these crimes in terms of comparative wickedness in an exceptional category. If it be right, as
I have held it to be, that lifelong incarceration for the purposes of punishment is competent where the crime or crimes are sufficiently heinous, it is
difficult to argue that this case is not in that category. In my view the decision of the Secretary of State to maintain a whole life tariff in the case of
Hindley is lawful.
­ 392

Conclusion
I would reject the arguments advanced on behalf of Hindley and dismiss the appeal.

LORD HUTTON. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Steyn. I agree with it and for
the reasons he gives I would dismiss this appeal.

LORD HOBHOUSE OF WOODBOROUGH. My Lords, I too agree that this appeal should be dismissed. Since I agree with the substance of the
reasons given by my noble and learned friend, Lord Steyn and in view of the judgments given in the Court of Appeal ([2000] 1 QB 152, [1999] 2 WLR
1253), I will only add a footnote.
Myra Hindley was convicted in May 1966 and sentenced as required by the Murder (Abolition of Death Penalty) Act 1965 to life imprisonment.
This was a mandatory life sentence. It is subject to a discretionary executive power vested in the Home Secretary at any time to direct her release on
licence. At the time this power was contained in s 27 of the Prison Act 1952. There have been various re-enactments of this power but its essentials have
remained the same. In so far as the statutory provisions define the scope of the discretion given to the Home Secretary in respect of mandatory life
sentences, they underline that he is under no obligation to direct the release of any person who has been sentenced to life imprisonment as a convicted
murderer. He is not under any statutory obligation to refer their case to the Parole Board nor is he under any statutory obligation to accept a
recommendation of the Parole Board. The discretion is his alone.
However during the years since 1966 there have been changes in the structures and practices relating to life sentence prisoners, mandatory and
discretionary. These developed in a piecemeal fashion giving rise to a number of contradictions and, as has been recognised in the present litigation,
illegalities. The history has been summarised in the speech of my noble and learned friend and on other occasions, including in the speech of Lord
Mustill in Doody v Secretary of State for the Home Dept [1993] 3 All ER 92, [1994] 1 AC 531. The developments were of two types. First, Home
Secretaries by a series of ministerial statements gradually introduced an extra-statutory scheme distinguishing between mandatory and discretionary life
sentences and between periods of incarceration required respectively for the purpose of retribution and deterrence and for the purpose of the protection of
the public. Secondly, as regards discretionary life prisoners, these developments have been put onto a statutory basis and the discretion of the Home
Secretary has been superceded; the regime is now under the control of the judiciary and the Parole Board. As regards mandatory life prisoners, the
regime remains extra-statutory with the discretion and decision whether to release remaining with the Home Secretary. The policy, therefore, in this
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regard still has to be found in ministerial statements which have frequently followed judicial decisions when his decisions or policies have been
challenged resulting in their judicial review.
The current statement of policy is that contained in the written answer given by Mr Straw on 10 November 1997 following the decision of your
Lordships’ House in Pierson v Secretary of State for the Home Dept [1997] 3 All ER 577, [1998] AC 539. It refers to earlier statements and brings
together a number of points—the distinction between retribution and deterrence and risk, the obligation to act fairly and give an opportunity to make
representations, the fact that a tarriff ­ 393 always remains open to review, the fact that a whole life tarriff will also be reviewed at appropriate intervals.
The distinction between mandatory and discretionary life sentences is maintained and the ultimate need to maintain public confidence in the system of
criminal justice stressed.
The feature of this policy and its more recent predecessors which the appellant has attacked is the whole life tarriff. The attack fails for the reasons
given by my noble and learned friend. The Home Secretary has retained the residual discretion. He does accept the obligation to keep the exercise of his
discretion under review and to act fairly. He is acting within the statutory powers given to him. He is not applying improper criteria. The previous
illegalities and inconsistencies of policy have been resolved.
The other grounds of appeal relied upon relate to the application of the policy to the appellant and the decisions which the Home Secretary made
concerning her culminating with that of Mr Straw dated 19 November 1997 affirming a full life tarriff for her. I agree with your Lordships that this aspect
of the appellant’s case fails on the facts. It has, therefore, not been necessary to consider the submissions made by Mr Fitzgerald QC seeking to criticise
the speech of Lord Scarman in Findlay v Secretary of State for the Home Dept [1984] 3 All ER 801, [1985] AC 318 and those of Lord Browne-Wilkinson
and Lord Lloyd of Berwick in Pierson’s case and nothing I have said should be taken as an acceptance of those criticisms. Nor has it been necessary to
consider the reliance which Mr Fitzgerald placed upon the valuable judgment delivered by Sedley LJ in R v North and East Devon Health Authority, ex p
Coughlan [2000] 2 WLR 622, (2000) 51 BMLR 1.
One point which did concern me at one stage of the argument was whether the Home Secretary had appropriately responded to the confessions which
Myra Hindley made in 1987. Normally a willingness to confess would be mitigation which would justify making an assessment more favourable to the
defendant. However in the present case, the new information which she provided concerning her knowledge of the earlier killings showed that a more
serious view had to be taken of her participation in the crimes for which she had been tried, convicted and sentenced. The Home Secretary was entitled in
the light of this additional information which she had provided and asked him to take into account to take the view that the offences of which she had
been convicted were more serious than had previously been thought.
Myra Hindley’s appeal must fail and be dismissed as your Lordships have proposed.

Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 395

Federal Bank of the Middle East Ltd v Hadkinson and others

CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

NOURSE, PILL AND MUMMERY LJJ
15–18 November 1999, 9 MARCH 2000

Practice – Pre-trial or post-judgment relief – Mareva injunction – Assets – Assets covered by injunction – Claimant obtaining freezing order prohibiting
defendants from disposing or dealing with ‘their assets and/or funds’ – Principal defendant transferring funds from accounts held in his name to accounts
held in wife’s name – Whether transfers breaching order if defendant having no beneficial interest in accounts.

In the course of proceedings against H and various companies in which he was involved, the claimant bank obtained a worldwide freezing order. That
order was in the standard form, prohibiting the defendants from disposing of or dealing with or diminishing the value of any of ‘their assets and/or funds’,
whether in their own name or not and whether solely or jointly owned, and also ordered disclosure of all of ‘their assets and/or funds’. Without the bank’s
knowledge or the court’s permission, H transferred funds from two accounts held in his name in a Jersey bank to accounts at the same bank held in his
wife’s name. On a subsequent application by H to discharge the disclosure provisions against him, the bank contended that those transfers constituted a
breach of the freezing order. In response, H contended that he had not been beneficially entitled to the relevant accounts, and that the freezing order did
not extend to assets of which he was the bare legal owner. For the purposes of the application, it was assumed that H had no beneficial interest in the
accounts, and the hearing was therefore confined to the construction of the freezing order, with H giving no evidence about the alleged contempts. The
judge held that the order extended to assets of which H was the bare legal owner, and that accordingly he was in breach of the order and in contempt of
court, even on the assumption that he had no beneficial interest in the accounts. She therefore prohibited H from taking any further step in the action
without leave of the court until he had purged his contempt on an application brought on proper evidence. H appealed, challenging the judge’s
construction of the freezing order.

Held – The words ‘his assets and/or funds’ in the standard form of freezing order were not apt to cover assets and funds which belonged, or were assumed
to belong, beneficially to someone other than the person restrained. Rather, they were confined to assets and funds belonging to the defendant, and which
were and should remain available to satisfy the claim against him. Such a construction was consistent both with everyday usage of the term ‘his assets’
and with the purpose of a freezing order. However, the court could make an appropriately worded order to cover assets and funds which might not belong
beneficially to the defendant. For example, the order could refer to bank accounts ‘in the name of’ the person restrained or preferably to bank accounts
identified by number and branch. Such accounts would then be caught by the order, even if it were discovered after fuller inquiry on notice that the assets
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belonged beneficially to a third party and that the order therefore had to be modified or discharged. In the ­ 395 instant case, the order contained no
words extending its effect to the bank accounts which were assumed not to be in H’s beneficial ownership, and it followed that, on the basis of that
assumption, H had not breached the order. Furthermore, it had been premature to mete out punishment for contempt on an informal application made at
short notice before all the relevant facts had been put before the court. Rather, the judge should have exercised her undoubted discretion to decline to deal
with the matter in the informal manner raised by the bank, granted an adjournment of the contempt point to enable the bank to issue and serve a proper
application for committal supported by evidence and given H an opportunity to serve evidence. Accordingly, the appeal would be allowed (see p 409 a to
g, p 410 e to g, p 411 f to j, p 414 e j and p 415 j to p 416 d j to p 417 a c, post).

Notes
For freezing orders (formerly known as Mareva injunctions), see 24 Halsbury’s Laws (4th edn reissue) paras 866–871.

Cases referred to in judgments

A v C [1980] 2 All ER 347, [1981] QB 956, [1981] 2 WLR 629.
Hadkinson v Hadkinson [1952] 2 All ER 567, [1952] P 285, CA.
Iberian Trust Ltd v Founders Trust and Investment Co Ltd [1932] 2 KB 87, [1932] All ER Rep 176.
Jackson v Sterling Industries Ltd (1987) 162 CLR 612, Aust HC.
Mareva Cia Naviera SA v International Bulkcarriers SA, The Mareva (1975) [1980] 1 All ER 213, CA.
R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59, WA SC.
R v City of London Magistrates’ Court, ex p Green [1997] 3 All ER 551, DC.
SCF Finance Co Ltd v Masri [1985] 2 All ER 747, [1985] 1 WLR 876, CA.
Searose v Seatrain (UK) Ltd [1981] 1 All ER 806, [1981] 1 WLR 894.
Westpac Banking Corp v Gill (No 1) (1987) 2 PRNZ 52, NZ HC.
Z Ltd v A [1982] 1 All ER 556, [1982] QB 558, [1982] 2 WLR 288, CA.

Appeals
In three appeals in proceedings brought by the claimant, Federal Bank of the Middle East Ltd (the bank) against Charles Hadkinson, eight companies in
which he was involved (Worldwide Corporation Ltd, Worldwide Countertrade Ltd, Worldwide (Developments) Ltd, CG Worldwide Co Ltd, H & R
Holdings Ltd, H & R (Europe) Ltd, H & R (Middle East) Ltd and H & R Import and Export Ltd) and Edmund Clive Sutton, (i) Mr Hadkinson appealed
with permission of Arden J from her decision on 21 May 1999 that he was in contempt of court through breach of a freezing order granted by Eady J on
12 November 1997 and continued by Holland J on 3 December 1997; (ii) Mr Hadkinson and three of the Worldwide companies appealed with permission
of the Court of Appeal granted on 22 April 1999 from the decision of Judge Hedley, sitting as a judge of the High Court, on 17 April 1998 granting the
bank summary judgment against them in the sum of $11·5m; and (iii) the bank’s controlling shareholders, Fadi Michel Saab and Ayoub Farid Michel
Saab, the bank and an associated trading company, Trade & Financial Services Ltd, appealed from the decision of Arden J on 24 May 1999 allowing an
appeal by Mr Hadkinson and two of the Worldwide companies from the decision of ­ 396 Master Ungley on 13 October 1998 striking out their
counterclaim in the proceedings. The facts are set out in the judgment of Mummery LJ.

Richard McCombe QC and Matthew Collings (instructed by D J Freeman) for Mr Hadkinson.

Lawrence Cohen QC and Stephen Smith (instructed by Lovells) for the bank.

Cur adv vult

9 March 2000. The following judgments were delivered.

MUMMERY LJ (giving the first judgment at the invitation of Nourse LJ).

THE THREE APPEALS

Three appeals arise out of a series of disputes with a long and complex factual and procedural history. 1. An appeal against a finding of contempt of
court and a consequent order made by Arden J on 21 May 1999. This appeal raises a general point on the meaning and effect of the standard wording of
freezing orders and on the proper procedure to be followed in cases of contempt of court. It is by far the most important and the most difficult of the three
appeals. I would allow this appeal. 2. An appeal against summary judgment for $11·5m granted by Judge Hedley on 17 April 1998. I would dismiss this
appeal. 3. A cross-appeal against Arden J’s order of 24 May 1999 allowing an appeal against the decision of Master Ungley to strike out a counterclaim.
I would dismiss this appeal.

THE BACKGROUND TO THE LITIGATION

A. The parties
The claimant is the Federal Bank of the Middle East Ltd (the bank), a private bank established in Cyprus and registered in the Cayman Islands. Mr
Farid Saab is the chairman of the bank. He and his brother, Mr Fadi Saab, are the controlling shareholders and directors.
The first defendant is Mr Charles Hadkinson. He is an international entrepreneur dealing principally through the Worldwide group of companies
based in Cyprus. Their customers are mainly in the Lebanon and Iraq. Mr Hadkinson is the driving force behind two groups of companies. (1) The
Worldwide group. (This includes the 2nd–5th defendants: Worldwide Corporation Ltd, Worldwide Countertrade Ltd, Worldwide (Developments) Ltd and
CG Worldwide Co Ltd.) (2) The H & R group. (This includes the 6th–9th defendants: H & R Holdings Ltd, H & R (Europe) Ltd, H & R (Middle East)
Ltd, and H & R Import and Export Ltd.)
The bank claims that it is owed a total of $28m by Mr Hadkinson and his companies.

B. Others
Mr Imad Al-Jibouri is an Iraqi national and businessman. He was the principal customer of the Worldwide companies in the early days. He also
became a customer of the bank.
Mr Asmar is a Lebanese national based in Romania. He was a business partner of Mr Hadkinson in the sale of cigarettes to Romania.
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­ 397

C. The main events in outline

In 1987 Mr Hadkinson approached the bank for banking facilities, which were granted to him and to the Worldwide companies in the form of letters
of credit and warehousing finance. Mr Hadkinson gave the bank a number of guarantees, including an unlimited guarantee for the debts of Worldwide
Corporation Ltd.
Mr Hadkinson introduced Mr Al-Jibouri to the Bank. His overdraft with the bank was guaranteed by Mr Hadkinson and the Worldwide companies.
They also had overdrafts with the bank.
The arrangement was that the Worldwide companies bought goods and supplied them to Mr Al-Jibouri. He sold the goods in Iraq. He then paid the
Worldwide companies for the goods.
In August 1990 Iraq invaded Kuwait. The Gulf War broke out. This brought the business of Mr Al-Jibouri and the Worldwide companies with Iraq
to an abrupt halt. The Worldwide companies became dormant. They owed $16m to the bank and they were liable under a guarantee for another $2m.
The banking relationship with Mr Al-Jibouri was also affected. He owed $3·5m to the bank. Relations between Mr Hadkinson and the Saab brothers
cooled.
On 12 March 1991 Mr Hadkinson and the Worldwide companies made a new agreement with Mr Al-Jibouri. They would supply him with goods in
the Zarka Free Zone in Jordan. Profits were to be split 75% to Worldwide and 25% to Mr Al-Jibouri. Mr Fadi Saab refused Mr Hadkinson’s request to
give financial backing to this project on the ground that Mr Al-Jibouri had failed to honour commitments to the bank in the past.
Late in 1991 Mr Hadkinson discovered that the bank had taken up this trading opportunity, which had been disclosed by Mr Hadkinson to the bank,
and had exploited it through an associated Liberian trading company, Trade & Financial Services Ltd (TFS). This has given rise to a counterclaim by Mr
Hadkinson and the Worldwide companies against the bank, TFS and others for alleged misuse of confidential information imparted to the bank.
Another part of the counterclaim arises out of alleged breaches of a joint venture agreement made between Mr Hadkinson and Mr Fadi Saab on 17
May 1991. It was for the sale of tobacco products in the Middle East and Romania via a company called Bridge Overseas Ltd (Bridge). Cigarettes were
to be supplied to a company called Romas Impex owned by Mr Asmar. In late 1991 Mr Fadi Saab told Mr Hadkinson that the bank was unwilling to
continue to deal with Mr Asmar and Romas Impex because of their commercial unreliability and their failure to pay sums owed to the bank. Mr Fadi
Saab then told Mr Asmar that he had acquired Bridge from Mr Hadkinson and the Worldwide companies. He told him that he should not communicate
with Worldwide. If he did the bank would withdraw finance facilities from Romas Impex. Mr Hadkinson counterclaims on the basis that he only
discovered in 1997 that business was diverted by Mr Fadi Saab from the joint venture to TFS.
On 10 November 1993 an agreement (the 1993 agreement) was made with the bank to resolve the financial difficulties of Mr Hadkinson and his
companies by re-scheduling the existing indebtedness. It provided for a joint and several liability to repay in instalments the indebtedness of Mr
Hadkinson and the Worldwide companies to the bank out of 50% of the profits of Worldwide. Mr Hadkinson agreed to work only for the Worldwide
companies. Minimum repayments of the global debt were spread over five years.
­ 398
No repayments were made. The bank’s claims against Mr Hadkinson and the Worldwide companies are based on breach of the 1993 agreement and a
supplemental agreement made on 18 October 1995 (the 1995 agreement).
In the 1995 agreement Mr Hadkinson and the Worldwide companies undertook further obligations with regard to new companies in which Mr
Hadkinson was or might become interested.
In January 1996 Mr Hadkinson became a major shareholder in H & R Middle East Ltd. On 31 December 1996 H & R Holdings Ltd was formed. In
January 1997 further H & R companies were formed in the Isle of Man. This was done without the knowledge of the bank.

D. The proceedings in outline

1997—Freezing order
On 12 November 1997 Eady J granted a worldwide freezing order on a without notice application by the bank against Mr Hadkinson, the Worldwide
companies and the H & R companies. The order was in the standard form prohibiting them from disposing of or dealing with or diminishing the value of
any of ‘their assets and/or funds’, whether in their own name or not and whether solely or jointly owned, up to the value stated ($11·5m for each
defendant), and in particular with a numbered bank account (No 695254) and any other account of any of the defendants at Chase Manhattan Private
Bank, Geneva; ordering disclosure of all of ‘their assets and/or funds’; advising those restrained to consult a solicitor as soon as possible; and warning
them that they might be found guilty of contempt of court if they disobeyed the order.
The defendants were also ordered to make immediate disclosure in writing of ‘all their assets and/or funds’, whether in their own name or not and
whether solely or jointly owned, giving value, location and details of the assets and funds and information concerning the disposal and transfer since 10
November 1993 by the defendants of any and all of their assets or funds. The order was effective up to and including 3 December 1997 and contained the
usual liberty to apply to the court at any time to vary or discharge the order.
On 18 November the writ was issued by the bank. The main claim was for payment of $11·5m due under the 1993 agreement in respect of the
period 31 December 1994 to 31 December 1995. Other claims were made, and later amplified by amendment, for damages for breach of contract, breach
of fiduciary duty, conspiracy and inducing breach of contract. The present appeals are not concerned with those claims.
On 2 December the freezing order was served on Mr Hadkinson.
On 22 November Mr Hadkinson disclosed in a letter certain assets, including bank accounts, said to be Mr Hadkinson’s, in Cyprus, United Kingdom,
Cairo and Switzerland. Putting on one side loans to his companies and future dividends and commissions, the assets disclosed had a net value of less than
£250,000. No mention was made in the letter of very substantial sums in bank accounts held in the name of and under the control of Mr Hadkinson with
Credit Lyonnais in Geneva, with Barclays Bank in Jersey, with Menatap Bank in Nicosia or with Credit Libanais in Beirut or of transfers from those
accounts by Mr Hadkinson.
On 24 November Mr Hadkinson, without notice to and without the knowledge of the bank and without the permission of the court, transferred
£4·325m from an account held in his name on deposit at Barclays Bank in Jersey into an account at ­ 399 the same bank held in the name of Mrs
Hadkinson, his wife, re his children (Tiffany, James and Poppy) whose names and dates of birth were provided. This transfer only came to light in
October 1998 when Mr Hadkinson’s trustee in bankruptcy obtained disclosure of information from Barclays Bank plc (Jersey) and Barclays Bank Finance
Co Ltd under an order of the Jersey Court. This information was made available, with the permission of the Jersey Court, for use in these proceedings.
It was later discovered that in March 1997 very substantial sums ($3·5 m) had been transferred from accounts of Mr Hadkinson with Chase
Manhattan Bank in Geneva to an account opened by Mr Hadkinson in his sole name with Barclays Bank plc in Jersey and that on 15 March 1996 Mr
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Hadkinson had declared that he was the beneficial owner of assets deposited with the Chase Manhattan Bank in Geneva in two accounts, No 695254 and
No 695163.
On 3 December Holland J continued the freezing orders. Mr Hadkinson was represented at that hearing. On 5 December Mr Hadkinson verified by
affidavit the accuracy of the contents of his disclosure letter of 22 November.
On 8 December he transferred, again without notice to and without the knowledge of the bank and without the permission of the court, £35,117·68
from a Barclays Bank current account held in his name in Jersey to a current account opened in his wife’s name at the same bank. He gave instructions to
close the account in his name. Mr Hadkinson’s trustee in bankruptcy has since obtained search orders and disclosure orders against Mrs Hadkinson and
freezing orders against bank accounts held at various banks in her name.

1998—The summary judgment

On 11 February 1998 an Ord 14 summons was issued on behalf of the bank for final judgment against Mr Hadkinson and the Worldwide companies
for $11·5m with interest.
On 27 February Mr Hadkinson was made bankrupt on his own petition. He cited in his statement of affairs debts of about £15·5m due to the bank. It
was not stated that they were in dispute.
An application by Mr Hadkinson to set aside the freezing order was dismissed by Judge Hedley on 4 March. Leave to appeal was refused by the
Court of Appeal on 2 April. On 17 April Judge Hedley granted summary judgment to the bank against Mr Hadkinson and three of the Worldwide
companies for $11·5m with interest to be assessed and costs to be taxed. He refused leave to appeal.
On 25 June a defence and counterclaim was served by Mr Hadkinson and the Worldwide companies. The defence pleaded non-disclosure and
misrepresentation as grounds for setting aside the 1993 agreement. On 13 October Master Ungley struck out the counterclaim by Mr Hadkinson and two
of the Worldwide companies against Mr Fadi Saab, Mr Farid Saab and TFS. That order was appealed to Arden J who allowed the appeal. The appeal
against that order is before this court.
Leave to appeal against the summary judgment was granted by the Court of Appeal on 22 April 1999. That appeal by Mr Hadkinson and the
Worldwide companies is also before this court.

1999—The contempt hearing

Following an unsuccessful application before Jackson J on 12 February 1999 for further security in support of the freezing orders, Mr Hadkinson
issued an ­ 400 application on 12 March to discharge the disclosure provisions in the orders against him.
Mr Farid Saab had sworn an affidavit on 3 January 1999 complaining of breaches of the freezing orders made by Eady J and Holland J (see paras 53
and 58–61). But no committal application for contempt was made by the bank against Mr Hadkinson. This was not considered necessary in the light of
the decision of the Court of Appeal in the (coincidentally named) case of Hadkinson v Hadkinson [1952] 2 All ER 567, [1952] P 285 that a court could
refuse to hear an application (other than an application to purge contempt) by a party who was in continuing disobedience to a court order. Shortly before
the hearing of the application by Mr Hadkinson to discharge the disclosure provisions, the bank’s solicitors wrote to Mr Hadkinson’s solicitors on 12 May
about the hearing. The letter stated:

‘We shall generally be taking the point that as your client, Mr Hadkinson, is in contempt of the Mareva that he should not be heard and it
appears to us that this, in any event, is a point that should be dealt with at the outset of the hearing.’

At the request of Arden J a list of issues to be dealt with at the hearing before her the following week was prepared by counsel for the bank. The
issues listed under the heading ‘Standing of D1 [Mr Hadkinson] with the Court/discharge of disclosure obligations’ included the following:

‘(i) Did D1 breach the Order of 12.11.97 by making the two transfers on 24.11.97 and 8.12.97 to his wife? (ii) Did D1 breach the Order of
12.11.97 by failing to disclose bank accounts/assets in his solicitors’ letter dated 2.12.97? (iii) Did D1 breach the Orders of 12.11.97 and 3.12.97
by failing to disclose bank account/assets in Hadkinson 1 [Mr Hadkinson’s affidavit 5 December 1997]? (iv) Does Hadkinson 1 contain material
untruths? (v) Is D1 in breach of paras. 2.1(b) of the Orders of 12.11.97, 3.12.97 and 16.10.98 (statement in writing plus confirmation by affidavit of
past transactions)?’

Counsel for the bank prepared a more detailed list of complaints of Mr Hadkinson’s breaches of court orders. That was not available until after the
first day in court on 18 May, though counsel had dealt with the breaches in his skeleton argument which was received by those representing Mr
Hadkinson on 14 May.
At the hearing before Arden J, which started at 2 p m on 18 May, Mr Hadkinson was represented by leading and junior counsel. There was no
affidavit or oral evidence from Mr Hadkinson about the alleged contempts. No reference was made to Mr Hadkinson’s affidavit evidence sworn in the
bankruptcy proceedings on the issue of ownership of certain assets. No application was made by his counsel for an adjournment of the hearing in order to
file evidence or on any other ground.
Mr Hadkinson’s position was that the alleged breaches of the freezing order related to transfers from bank accounts which, although held in his
name, were assets beneficially owned by others. The contempt part of the hearing proceeded on the basis of an assumption in Mr Hadkinson’s favour that
he was not beneficially entitled to the assets and funds transferred. The contempt case was argued on the basis that it turned on the construction of the
freezing order.
After hearing argument on the construction question Arden J held that Mr Hadkinson had committed breaches of the freezing order. I shall refer
later to the reasons for the findings. The judge went on to hold that, as Mr Hadkinson ­ 401 was in contempt of court, the court had a discretion
whether to allow Mr Hadkinson to make any application (other than the application for discharge of the disclosure obligations in the freezing order)
before he had given the disclosure ordered. In exercising that discretion Arden J referred to the fact that Mr Hadkinson had made transfers from an
account in his name at Barclays Bank in Jersey; that he had failed to disclose that account to the bank; and that there was no evidence from Mr Hadkinson
as to why he had not disclosed the transfers. The judge stated the principle that orders of the court should be obeyed promptly and without question. Her
view was that Mr Hadkinson should ‘as a general principle not be at liberty to take any further step in these proceedings without the leave of the court’
until he had complied with the disclosure provisions of the freezing order (and a further disclosure order made by Arden J) and purged his contempt on an
application made on proper evidence. This stay would also apply to Mr Hadkinson’s application to stay or discharge his bankruptcy, though not to his
appeal from the order of Master Ungley or an application by him for leave to amend.
The relevant parts of the order accordingly provided that Mr Hadkinson was not at liberty to take any further step in the action without the leave of
the court until he had purged his contempt on an application brought on proper evidence and on notice to the bank in respect of the specified breaches.
He was also ordered to pay 80% of the bank’s costs to be taxed on the indemnity basis, if not agreed, and paid forthwith. Mr Hadkinson was granted
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permission by Arden J to appeal against the order, but only on the question of construction of the freezing order.
Mr Hadkinson later made applications to Arden J to lift the stay. He filed affidavit evidence in support of his application and was cross examined on
the affidavits on 28 and 29 July 1999. His applications were ruled on by Arden J on 20 October. It was ordered that the stay be lifted provided that Mr
Hadkinson complied with conditions as to the payment of costs and the provision of information.
A further application by Mr Hadkinson to remove the condition as to payment and for a partial lifting of the stay was dismissed by Arden J on 2
November. Further conditions were imposed.
In the meantime these appeals attracted a flurry of last minute activity. An application was made by the bank to the Court of Appeal for security for
the costs of the appeal. On 27 October Morritt LJ ordered security to be given. Mr Hadkinson then appealed to the full court on the ground that the effect
of the order would be to stifle his appeals. On 5 November the security for costs appeal was dismissed. Despite Mr Hadkinson’s fear that the appeals
would be stifled, security was in fact provided as ordered.

PRELIMINARY APPLICATIONS
At the outset of these appeals applications were made by Mr McCombe QC, on behalf of Mr Hadkinson, for leave to appeal notwithstanding the stay
ordered by Arden J and to extend the grounds of appeal to include complaints about the procedure followed by the judge on the contempt issue.
It was clearly necessary to clarify the position on Mr Hadkinson’s ability to proceed with his appeals against the contempt order and the summary
judgment. Mr Cohen QC took the point on behalf of the bank that Mr Hadkinson had been found by Arden J to be in contempt of court in this action; that
he had not purged his contempt; that he was subject to an order staying his proceedings unless he ­ 402 complied with conditions; that those conditions
had not been satisfied; and that the court should not hear his appeals, even though he had been granted permission to appeal.
The court ruled that it should hear the appeals on the ground that, as the judge recognised, the crucial issue for determination by this court is the
construction of the freezing order. If, contrary to the judge’s view, Mr Hadkinson is correct on the construction question, he has not committed breaches
of the court orders and all the orders made in consequence of the finding of contempt are open to challenge.
The court accordingly held that, notwithstanding the stay, Mr Hadkinson should be allowed to pursue his appeals. It was also decided (a) to hear full
argument on the additional procedural points before a ruling was given on whether to grant the application for permission to extend the grounds of appeal
and (b) to give permission to the bank to adduce some additional evidence.

THE CONTEMPT APPEAL

A. The judgment
The judge dealt with the contempt issue on the basis that, as there were no proceedings for contempt, the bank could only rely on clear breaches of
the freezing order which Mr Hadkinson could not contest. It is common ground that Arden J rightly declined to decide at that hearing the dispute whether
the sum of £4·235m transferred by Mr Hadkinson from the Barclays Bank Jersey account after the freezing order belonged beneficially to Mr Hadkinson,
as the bank contended, or on trust, as Mr Hadkinson contended. That is the principal issue for decision in the bankruptcy proceedings. It could not be
resolved at the hearing on 18 May 1999.
As Mr Hadkinson made no admissions about the facts of the alleged breaches, the judge examined contemporaneous documentary evidence which he
had not sought to meet. That showed that he had authorised transfers of £4·235m (on 24 November 1997) and £35,117·68 (on 8 December 1997) from
accounts held in his name with Barclays Bank Jersey into the name of his wife after the date of the freezing order. Counsel informed the court that Mr
Hadkinson contends in the bankruptcy proceedings that these assets are and were owned beneficially by third party investors who entrusted the money to
Mr Hadkinson for investment. He had not disclosed in his letter or in his affidavit the existence of any account held in his name with Barclays Bank
Jersey.
The legal submissions focused on the question whether the freezing order covers assets of which Mr Hadkinson claims that he has only the bare legal
ownership. The bank contended that it does. Mr Hadkinson contended that it does not because that order affects only assets which Mr Hadkinson owns
beneficially. It does not apply to assets held by him as a bare trustee. They are not ‘his assets’ within the meaning of the order. (I shall use the expression
‘his assets’ as if that expression was used in the order, although the freezing order, for obvious reasons, is in the plural.)
The judge rejected Mr Hadkinson’s contention and held that:

‘… the order must extend to assets of which [Mr Hadkinson] is only the legal owner. Bare legal ownership is none the less a form of
ownership. Accordingly, for [Mr Hadkinson] to authorise the transfer of monies in an account held in his name but owned by a third party amounts
to a dealing with the account contrary to the freezing order. Likewise, non-disclosure of ­ 403 that account is a breach of the order. [Mr
Hadkinson] would need the court’s permission to authorise the transfer. However, the value of the asset for the purpose of calculating the minimum
value of unencumbered assets to be retained would be nil, since on this basis [Mr Hadkinson] has no beneficial entitlement.’
In this court the construction issue has been argued in greater depth by reference to authorities not cited to the judge. Indeed, after judgment was
reserved additional authorities and other legal materials came to the notice of the court. The court decided that it was necessary to invite the parties to
consider whether they wished to make submissions on the additional materials. Both sides indicated that they wished to do so in writing. The Christmas
vacation intervened. So this process was not completed until mid-January 2000.

B. The issues
The focus of submissions both here and below was on this question: if, as was assumed solely for the purpose of deciding the contempt issue, Mr
Hadkinson held the accounts at Barclays Bank Jersey upon trust and had no beneficial interest in them himself, were they ‘his assets and/or funds’ within
the meaning of the freezing order?
This restricted approach to the contempt issue, coupled with a more informal procedure than is normal in dealing with questions of contempt of
court, may have led to compressed treatment of the various issues. There are, in my view, four aspects of the contempt question for consideration. (1)
What is the scope of the freezing order? What assets and funds does it cover? This is a question of construction of the order of 12 November 1997. It
raises a question of general interest because the relevant wording of the order is in a standard form which has been in use for nearly 25 years. (2) Did Mr
Hadkinson commit acts which, in all the circumstances, constituted breaches of the freezing order? This is a question of fact which is usually determined
on the evidence. No admissions were made by Mr Hadkinson. The unusual course taken in this case was that the crucial and most contentious fact
(namely, the nature of Mr Hadkinson’s interest in the bank accounts held in his name at Barclays Bank Jersey) was not decided at all, but was assumed to
be the fact in Mr Hadkinson’s favour. The principal issue on contempt was the construction of the freezing order. There was no evidence at all from Mr
Hadkinson about the circumstances of his alleged contempts. It is doubtful whether all the ramifications of this approach and of the absence of evidence
from Mr Hadkinson were fully appreciated when that assumption was made. (3) Even if Mr Hadkinson had committed breaches of the freezing order,
was it correct in all the circumstances to treat him as in contempt of court? This is a question of mixed law and fact. The basic principle in the civil law of
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contempt is that, although there is an obligation to comply strictly with the terms of an order, the court will only punish a person for contempt of court
upon adequate proof that the terms of the order are clear and unambiguous and that he has broken those terms: Iberian Trust Ltd v Founders Trust and
Investment Co Ltd [1932] 2 KB 87 at 95, [1932] All ER Rep 176 at 179, recently applied in R v City of London Magistrates’ Court, ex p Green [1997] 3
All ER 551 at 558. (4) If it was correct to treat Mr Hadkinson as being in contempt of court, what should the court have done? This was a matter of
discretion to be exercised judicially having regard to all the circumstances of the case. Very little evidence about the ­ 404 circumstances of the alleged
contempts was available to the court when it came to exercise its discretion.

C. Mr Hadkinson’s submissions
In his excellent submissions on behalf of Mr Hadkinson, Mr McCombe submitted that bank accounts in the name of Mr Hadkinson, but assumed to
be beneficially owned by others, were not ‘his assets’. They were not caught by the freezing order. He argued by reference to law dictionary definitions
that a person’s ‘assets’ are items belonging to him which are available for the payment of his debts or which can be converted into money for his benefit.
This sense of ‘assets’ in a freezing order was consistent with the purpose of making such an order: to prevent dissipation of assets available to meet a
potential judgment for the claimant against the person restrained. It was inconceivable that such an order should cover assets in fact held, or assumed to
be held, by the person restrained upon trust for others.
If a claimant was in doubt as to the beneficial ownership of assets held in the name of a defendant or in the name of a third party, it was for the
claimant to seek from the court, on the basis of adequate evidence, a specific and express extension of the standard form of order so as to cover the assets
in question. Mr McCombe did not dispute the power of the court, in appropriate cases, to make a freezing order specifically covering assets held by a
defendant or by a third party in cases where the ownership of those assets was unknown, uncertain or in dispute at the time of the application for the
freezing order and where it might turn out, on a fuller inquiry by the court on notice, that they did not belong beneficially to the defendant. In such a case
it would be advisable to identify the assets intended to be caught by the freezing order in a more specific way than by simple use of the possessive
pronoun ‘his’ or ‘their’ eg by specific identification, such as the number of the bank account and the name and address of the branch of the bank at which
it is held.
If any authority is needed for what is advanced as a self evident proposition support can be found in the decision of the Supreme Court of Western
Australia in R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59. In that case a freezing order had been granted
restraining the defendants from disposing of their interest in any of ‘their present or future assets’. It was argued on a committal motion that the order had
been breached by a defendant who had exercised his power as appointor under a trust deed to vary the trust by removing himself as appointor and
substituting his son, who then appointed a new trustee. The new trustee, with the consent of the defendant, declared that the defendant was excluded as a
general beneficiary under the trust. The judge held that none of the defendant’s actions amounted to a contempt of court. His interest under the trust was
simply a right to have the trust fund duly administered; it was not a legal or equitable estate in trust property or an asset for the purpose of a freezing
order.
The appeal against that decision was dismissed by a majority on the ground that the terms of the freezing order did not make it clear to the defendant
what he was prohibited from doing. The difficulties in construing the order and the inherent ambiguity of its terms precluded a finding of contempt. I
shall return to that aspect of the case when I consider whether Arden J was correct in treating Mr Hadkinson as in contempt of court.
For the purpose of construing the ambit of the freezing order the value of this case, which was not cited to Arden J, is to be found in the observations
of the ­ 405 majority on the meaning of ‘assets’ in this context. Owen J, with whom Ipp J agreed, expressed the view (at 78) that it was implicit that
‘when applied in the context of a mareva injunction … an “asset” must be a thing of value and it must be capable of application to satisfy debts’.
He concluded (at 83) that it was equally arguable that the combination of powers under the trust might constitute some form of property interest in
the underlying assets of the trust fund and that the powers were not ‘assets’ as that phrase was used in the order. Clarity of language was absent from an
order where it was required. The order was ambiguous. Contempt was not therefore established.
Ipp J (at 69) agreed that there were two reasonably possible constructions of the word ‘assets’ in the court order. He added that: ‘Contempt of court
is not established if, on the proper construction of an ambiguous court order, it is revealed that the order has been breached by the conduct of the
defendant.’

D. The bank’s submissions

Mr Cohen submitted that the accounts held by Mr Hadkinson at Barclays Bank Jersey were ‘his assets or funds’ within the meaning of the freezing
order. He contended that the order, based on the standard form order, covered assets and funds held in Mr Hadkinson’s name or under his control, even if
he honestly believed that those assets or funds did not belong to him beneficially and even if he in fact had no beneficial interest in them.
He made the following points.
(1) The specific reference in the freezing order to the account No 695254 with the Chase Manhattan Private Bank Geneva and any other accounts of
any of the defendants at that bank made it clear to Mr Hadkinson that the order covered all bank accounts in his name or under his control and funds
standing to their credit, regardless of what he may have believed to be the position regarding beneficial ownership of funds in the accounts. He was the
legal owner of those funds. Emphasis was placed on the reference in the freezing order to ‘funds’ as well as to ‘assets’ in answer to the contention that
‘assets’ could not properly include property which was unavailable to satisfy the debts of the person restrained. In the case of an account holder he could
sue the bank for the funds regardless of the position as to beneficial ownership. Indeed, freezing orders are commonly served on banks which may have
no means of knowing who is the beneficial owner of monies held in the account holder’s name. In the case of foreign legal systems (which were a
relevant factor in the case of a worldwide freezing order, such as this) there might not even be any recognised distinction between legal and beneficial
ownership. The true position was that an honest person served with such an order would disclose all assets and funds, including those held in trust for the
benefit of others. He would then disclaim any beneficial interest in the trust assets and funds and he would seek a variation of the freezing order from the
court to enable continued dealings with the trust assets and funds.
(2) If assets and funds legally held or controlled in this way were not caught by a freezing order in this form, an unscrupulous defendant of the kind
against whom freezing orders are usually directed could undermine and nullify the object of the order by simply saying that he did not believe that he was
the beneficial owner of the fund or asset in question. He could then withhold its existence from his disclosure affidavit and secretly deal with it. The
defendant would in effect be given a licence to decide for himself whether or not an asset or ­ 406 fund belonged to himself or to a third party. This
was unrealistic, impractical and contrary to the rationale of the jurisdiction to make freezing orders.
(3) If a defendant served with a freezing order believed that he was not the beneficial owner of the assets and funds held by him and caught by the
order the proper course was for him or the third party to supply details of the third party interest or claim so that the court could decide whether or not to
order an inquiry to be held in accordance with the procedure laid down by Lloyd LJ in SCF Finance Co Ltd v Masri [1985] 2 All ER 747 at 750, 753,
[1985] 1 WLR 876 at 881, 884. In that case a freezing order was made which applied to all accounts held by the defendant at three named banks in
London. The order was later extended to cover the accounts held by or on behalf of the defendant in the name of his wife, as it was believed that the
defendant might be using those accounts to carry on his business. The wife applied to discharge the injunction as against her accounts. In dismissing the
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wife’s appeal against the refusal of the judge to discharge the order without further inquiry into her claim to ownership of the accounts Lloyd LJ ([1985] 2
All ER 747 at 750, [1985] 1 WLR 876 at 881) held that the court was not obliged to discharge the freezing order on—‘the mere say-so of the third party.
If the court were so obliged, then the Mareva jurisdiction would be in danger of being nullified at the whim of the unscrupulous.’
Lloyd LJ saw no difficulty in the court’s resolving any dispute which may arise between a plaintiff and a third party as to ownership of assets to
which the Mareva injunction has been applied. He outlined the appropriate procedure:

‘(i) Where a plaintiff invites the court to include within the scope of a Mareva injunction assets which appear on their face to belong to a third
party, eg a bank account in the name of a third party, the court should not accede to the invitation without good reason for supposing that the assets
are in truth the assets of the defendant. (ii) Where the defendant asserts that the assets belong to a third party, the court is not obliged to accept that
assertion without inquiry, but may do so depending on the circumstances. The same applies where it is the third party who makes the assertion, on
an application to intervene. (iii) In deciding whether to accept the assertion of a defendant or a third party, without further inquiry, the court will be
guided by what is just and convenient, not only between the plaintiff and the defendant, but also between the plaintiff, the defendant and the third
party. (iv) Where the court decides not to accept the assertion without further inquiry, it may order an issue to be tried between the plaintiff and the
third party in advance of the main action, or it may order that the issue await the outcome of the main action, again depending in each case on what
is just and convenient …’ (See [1985] 2 All ER 747 at 753, [1985] 1 WLR 876 at 884.)

E. Conclusion

1. Construction—scope of the order

It is surprising that this point of construction is not covered by any reported case in this country. This year is the silver anniversary of the Mareva
decision (see Mareva Cia Naviera SA v International Bulkcarriers SA, The Mareva (1975) [1980] 1 All ER 213). Many thousands of orders must have
been made in this form.
The decision in R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd does not clearly cover the point. That case turned principally
on the ambiguity in the terms of the order. The decision in SCF Finance Co Ltd v Masri does not ­ 407 assist on the issue of construction. The order in
that case was specifically made against a bank account held in the name of the defendant’s wife. The case was concerned with the procedure for
determining whether the monies in that account belonged to her or to her husband.
Both sides relied on a decision of the High Court of New Zealand uncovered in the article in the new material, ‘Mareva Injunctions and Third
Parties: Exposing the Subtext’ by Mr Peter Devonshire of the University of Auckland, (1999) 62 MLR 539. In Westpac Banking Corp v Gill (No 1)
(1987) 2 PRNZ 52 a Mareva order had been obtained ex parte by a bank against a defendant, who made an application to rescind it on the ground that the
residential property affected by the order and of which he and his wife were registered proprietors was held by him as trustee of a trust established by him
and his wife 12 years previously. The precise terms of the freezing order are not set out in the report, but it is reasonable to assume that it was in the
standard form. Heron J discharged the order holding that the property belonged to the trustees and that it was not relevant property against which a
Mareva order could be directed (see (1987) 2 PRNZ 52 at 56). He said (at 54) that assets appropriate for inclusion in a Mareva order are those—

‘in which the defendant has some beneficial interest entitling him to deal with them as his own property. It goes without saying, it is against
that property the plaintiffs are seeking recourse in the ultimate if judgment is obtained.’

That case shows that, on the one hand, a freezing order had been made in a form which, until it was discharged by the court, was assumed by the
applicant and the court to cover the trust property. On the other hand, the order was subsequently discharged on the ground that property held by a
defendant on trust was not an ‘asset’ caught by a freezing order in proceedings for a money judgment against a defendant personally.
It might be possible for the court to decide this case solely on the basis that the expression ‘his assets and/or funds’ is ambiguous. On the one hand,
it could be confined, as Mr McCombe contends, to assets and funds owned by Mr Hadkinson beneficially. On the other hand, it could extend, as Mr
Cohen contends, to assets and funds held in the name of and under the control of Mr Hadkinson, even though it might turn out on fuller investigation that
they are not assets or funds beneficially owned by him and that the freezing order should be varied or discharged accordingly. If the court regarded the
contentions on each side as reasonably arguable that conclusion would, for the reasons already explained, mean that the appeal should be allowed on the
contempt issue.
The court has heard full argument on the construction point. In my judgment, the court should make a definite ruling on that point one way or the
other. It is important for practitioners and for the courts exercising this exceptional jurisdiction to be aware of the potential difficulty in determining the
precise scope of the standard form of order and of the need to draft this type of order with special care to meet the circumstances of each case.
I have not found this an easy point to decide. My views on it fluctuated during the course of the hearing. They have continued to fluctuate in the
time for reflection and writing since. My main source of doubt has been not so much the actual language of the freezing order as the possible
repercussions of the construction contended for on behalf of Mr Hadkinson on the effectiveness of freezing orders made in this form.
­ 408
I start from the position that in everyday usage the expression ‘his assets’ refers to assets belonging to that person, not to assets belonging to another
person. I recognise that everyday usage does not always reflect precisely the shades of meaning that an expression may have in the context of a legal
document, such as a court order.
It is necessary to examine the context in which the expression is used and, in particular, to identify the purpose of making the freezing order. A
freezing order is only available in cases where the claimant can show that there is a real risk that the defendant will dissipate his assets. The application
and the order are often made on incomplete information about the nature, extent, location and value of the assets and funds which the defendant may
have. The order is designed to prevent injustice to a successful claimant by preserving assets and funds and guarding so far as possible against the risk
that they will be disposed of or dissipated before a judgment is satisfied so as to render ineffective the claimant’s attempts to recover what is due to him.
Ancillary orders may be made in re-enforcement of the freezing order by requiring full disclosure of the nature, location and value of assets and funds and
the dealings with them.
In my judgment, the language of the freezing order, read in context and with regard to the object of the order, naturally refers to assets and funds
belonging to the defendant and which are and should remain available to satisfy the claim against him. Assets and funds which belong, or, as in this case,
are assumed to belong, beneficially to someone else would not be available for that purpose.
I fully appreciate the force of the point that the meaning of ‘his assets’ may be coloured by the fact that a freezing order is a precautionary measure
taken urgently to protect the claimant against a risk of dissipation and disposal of assets pending a fuller investigation by the claimant and the court to
determine who is the beneficial owner of the assets. That is not, however, a sufficient reason for giving the expression a meaning which it cannot
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reasonably bear. The order should, when appropriate, be made in a different form.
As already indicated, it is accepted by Mr McCombe that the court can make an appropriately worded order to cover assets and funds which may not
belong beneficially to the defendant. For example, if the order refers to bank accounts ‘in the name of’ the person restrained (rather than ‘his’ accounts or
assets) or better still simply to bank accounts identified by number and branch, the freezing order will apply to them, even if the assets turn out after fuller
inquiry on notice to belong beneficially to a third party, so that the freezing order has to be modified or discharged. (See A v C [1980] 2 All ER 347,
[1981] QB 956 and Z Ltd v A [1982] 1 All ER 556, [1982] QB 558.)
Indeed earlier decisions have prudently emphasised the desirability of the claimant making every effort to indicate which banks hold the accounts in
question, at which branches and, if possible, under what numbers: see Z Ltd v A [1982] 1 All ER 556 at 574, [1982] QB 558 at 588 per Kerr LJ. Orders in
more specific terms than the standard form would not give rise to the present problem.
I would refer finally to the judgment of Robert Goff J in Searose v Seatrain (UK) Ltd [1981] 1 All ER 806 at 808, [1981] 1 WLR 894 at 897. After
mentioning the value of and the need for this jurisdiction and the care to be taken to ensure that such orders are only made for the purpose for which they
are intended (‘to prevent the possible abuse of a defendant removing assets in order to prevent the satisfaction of a judgment in pending proceedings’) and
do not bear harshly upon innocent third parties, he said:
­ 409
‘It follows that, first, an order for a Mareva injunction should not be sought in terms wider than are reasonably required in the circumstances of
the case. Second, any asset in respect of which an order for Mareva injunction is sought should be identified with as much precision as is
reasonably practicable. Third, as regards any asset to which the order applies but which has not been identified with precision in the form of order
proposed (eg money held in an unidentified bank account), the plaintiff may be required to give an undertaking to pay reasonable costs incurred by
any person (other than the defendant) to whom notice of the terms of the injunction is given in ascertaining whether or not any asset to which the
order applies, but which has not been identified in it, is within his possession and control. Of course, in many cases (for example where, as is
usually the case, the plaintiff is unable to identify assets of the defendant which are known to be greater in value than the sum in respect of which
he seeks a Mareva injunction) it will be appropriate for the court to give the Mareva injunction in the now hallowed form, under which the
defendant is restrained from removing from the jurisdiction or otherwise disposing of any of his assets … so far as the value of such assets exceeds
a certain sum. But if an injunction is given in such terms the court may require, and indeed in my judgment should ordinarily require, that the
plaintiff gives an undertaking in the form I have indicated.’
I conclude that the ‘hallowed’ or standard form of freezing order referring to ‘his assets or funds’ is not apt, without the addition of words clearly
extending its effect, to cover an unidentified bank account held in the name of and under the control of Mr Hadkinson, but which is assumed not to be his
beneficially. Even if the bank intended that the order should be effective to cover all bank accounts, such as the unknown Barclays Bank account in the
name of Mr Hadkinson in Jersey, the language of the order does not achieve that result.

2. Breach of order
The judge was entitled to find that the evidence established the existence of the accounts, the payments out of them after the making of the order and
the non-disclosure of these matters. But it also had to be proved that the accounts were caught by the terms of the order. There was no proof of breach of
the order. An assumption was made by the judge and the parties for the purposes of the contempt point. The appeal has been argued on the same
assumption. On that assumption there was no breach of the order on its proper construction.

3. Contempt of court
Even if the above conclusion on the construction issue is wrong, it has not been established that the terms of the freezing order were clear and
unambiguous. Arden J was wrong to treat Mr Hadkinson as in contempt of court and to make orders consequent on that finding.

4. Consequences of contempt finding

The procedure adopted by the judge had the advantage of enabling a decision to be made at that hearing without the need for an adjournment of a
case in which there was some urgency. But it had the disadvantage that, by acting on assumption about the nature of Mr Hadkinson’s interest in the bank
accounts instead of acting on evidence, the court deprived itself of relevant evidence, ­ 410 which it was necessary for the court to have in order to
decide how to deal with Mr Hadkinson on the finding of contempt.

5. Contempt of court procedure

The court normally adjudicates on a charge of civil contempt on an application for an order to commit the person alleged to be in breach of the order.
The application is made by the person to whom the order was granted. The application is served on the respondent in accordance with the rules. It is
supported by affidavit evidence. The defendant is entitled to answer by affidavit evidence denying the contempt or showing that, if there was a contempt,
it was not wilful and setting out the circumstances of the alleged breach and any matters relevant to the exercise of the court’s discretion on punishment of
any contempt which is established. If a wilful breach of the injunction is established beyond reasonable doubt the court has a very wide discretion in
deciding how to treat the contempt. Like all judicial discretions it must be exercised fairly and reasonably in a principled way and having regard to all the
relevant facts. The powers at the disposal of the court range from making orders as to costs to imprisonment and sequestration.
In the circumstances already described this procedure was not followed in this case. It can now be seen, with the benefit of hindsight, that it would
have been better if the normal procedure had been followed. In one respect the procedure followed appeared to favour Mr Hadkinson. The court made an
assumption that was favourable to him on the crucial issue whether the sums in the accounts in question were held by him on trust for his wife. But the
procedure followed was unsatisfactory. There was no motion to commit with supporting affidavit evidence. There was no evidence for Mr Hadkinson to
answer. There was no evidence from Mr Hadkinson. So the judge did not have the benefit of any evidence from either side about the circumstances of
the alleged breach of the freezing order. The judge was deprived of material which might well have been relevant to the exercise of the court’s discretion
on the treatment of the contempt. It was premature to mete out punishment for contempt on an informal application made at short notice and before all the
relevant facts had been put before the court.
It would have been more appropriate for the court to exercise its undoubted discretion to decline to deal with the matter of continuing contempt in the
informal manner raised by the bank; to grant an adjournment of the contempt point to enable the bank to issue and serve a proper application for
committal supported by evidence; and, instead of criticising Mr Hadkinson for the absence of evidence, to give him an opportunity to serve evidence,
even though no application for an adjournment for that purpose was made by counsel.
When the evidence was complete the judge would have been in a better position to decide how to deal with the contempt question; whether to deal
with it substantively; or whether to direct an inquiry in accordance with the Masri procedure; or whether to adjourn the contempt application to await the
outcome of the bankruptcy proceedings; and to proceed in the meantime to deal with the other applications without waiting for the outcome of the
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contempt application.
In these circumstances I would allow the appeal of Mr Hadkinson against the order of 21 May 1999. I would also grant leave to amend the notice of
appeal to argue the additional points.
­ 411

THE SUMMARY JUDGMENT APPEAL

Judge Hedley granted summary judgment to the bank against Mr Hadkinson for the following reasons. 1. Mr Hadkinson was liable as a principal
debtor and not as a surety. 2. The 1993 agreement (a) was between the bank as creditor and the defendants (including Mr Hadkinson) as debtors; (b)
contained re-scheduling arrangements for the payment of a simple debt for which the defendants were jointly and severally liable; and (c) was in respect
of a debt no part of which had been paid to the bank. 3. The dealings involving the bank, the Saab brothers, Bridge, TFS and Romas Impex did not afford
a real and substantial defence to the claim for payments under the 1993 agreement. 4. The fact that there was a clause in the 1993 agreement which was
alleged by Mr Hadkinson to be in restraint of trade did not afford a defence to the claim for payment, even if it was assumed, contrary to the judge’s view,
that the clause was in fact void.
On the appeal the main points taken on behalf of Mr Hadkinson were that (a) the bank failed to disclose to the defendants the trading activities
between TFS, Romas Impex and Mr Asmar; (b) that was a material non-disclosure and a misrepresentation on the part of the bank in respect of those
activities; (c) the defendants are therefore entitled to rescind the 1993 agreement and the 1995 agreement on which the bank’s claims for payment are
based; and (d) those activities also give rise to arguable counterclaims against the bank for compensation and accounts of profits which, if successful at
trial, would extinguish or significantly reduce the claims of the bank.
The essence of the argument is that the case ought to go to trial as there is evidence from Mr Hadkinson that Mr Fadi Saab represented to Mr
Hadkinson in late 1991 that links with Romas Impex had been severed because he found Mr Asmar unreliable in paying what he owed to the bank; that
this has since been discovered to be untrue; and that, if Mr Hadkinson had known the truth, he would not have been willing to enter into the re-scheduling
arrangements in the 1993 agreement and the 1995 agreement. It is also argued that there was a fiduciary relationship between the bank and the defendant
customers and that this gave rise to duties of loyalty and good faith which were breached by the bank in respect of the Romas Impex affair.
I am unpersuaded by these arguments that the judge was wrong to grant summary judgment for $11·5m. In my judgment, the legal position is as
follows. 1. Putting the counterclaim on one side, there is no dispute that Mr Hadkinson and the Worldwide companies owed very substantial sums to the
bank before the 1993 agreement was made. It is true, as pointed out by Mr McCombe, that the case is pleaded as a claim for payment due under the terms
of the 1993 agreement, as amended, and not as a claim for the recovery of the pre-existing debt. But it is clear that the 1993 agreement was made
substantially for the benefit of the defendants in respect of the discharge of their existing liabilities, including the guarantee liabilities of Mr Hadkinson, to
the bank; they were given time to pay over several years so that they could try to trade their way out of their financial problems. Even if they entered into
the 1993 agreement as a result of a misrepresentation or a material non-disclosure rescission of the 1993 agreement would not be granted by the court as it
would not confer any benefit on them and would not serve any useful or sensible purpose. If the 1993 and 1995 agreements were set aside the defendants
would be no better off as they would still owe to the bank the sums which they owed before they entered into those agreements. 2. There are also fatal
evidential flaws in the defendants’ case. In particular there is no real prospect of establishing that an allegedly false statement ­ 412 made by Mr Fadi
Saab in 1991 was relied on by the defendants two years later so as to induce them to enter into the 1993 agreement. All the available evidence points to
the conclusion that (a) the defendants would have entered into the 1993 agreement even if the alleged misrepresentation had never been made and (b) they
knew in 1993 what they claim to have since discovered about the Romas Impex affair. 3. As to the allegation of material non-disclosure, even if the bank
owed duties of loyalty and good faith to the defendants, there is nothing to suggest that those fiduciary duties were breached by the bank entering into the
1993 agreement and 1995 agreement.
As to the remaining points the position is as follows. (a) The argument advanced below that Mr Hadkinson was sued as a surety was not pursued on
appeal. (b) The contention that provisions in the 1993 agreement were void as being in restraint of trade was not advanced on the appeal as a defence to
the claim for payment but only to prevent the judge’s ruling on that point from constituting an issue estoppel on a claim by the bank to enforce those
provisions. Leave to defend is not given on that point. (c) An issue of illegality under Cypriot law was not raised below and permission to appeal on that
point was not obtained. In any case the point relates to only a small part of the total debt—about £895,000. (d) There has been no stay of the summary
judgment pending the trial of the counterclaim. Clause 5.2 of the 1993 agreement provides that payments to the bank under it are to be made without
set-off or counterclaim. The counterclaim does not amount to a defence to the claim. And, even assuming complete success of the counterclaim, there is
nothing to indicate that the sum recoverable could approach the outstanding indebtedness.
I would dismiss the appeal of Mr Hadkinson and the Worldwide companies against the order of 17 April 1998 for summary judgment in the sum of
$11·5m and interest to be assessed.

THE STRIKE OUT APPEAL

On 13 October 1998 Master Ungley struck out the counterclaim by Mr Hadkinson (as assignee of his trustee in bankruptcy) and the Worldwide
companies against the bank, TFS and the Saab brothers.
Arden J allowed the appeal for reasons given in her judgment of 24 May 1999 with which I agree. The counterclaim relates to the following matters.

1. The Al-Jibouri claim

This cause of action is for breach of confidence in respect of information alleged to have been imparted by Mr Hadkinson to Mr Fadi Saab about a
trading opportunity with Mr Al-Jibouri as evidenced by a letter of 12 March 1991. Financial backing was requested from the bank. It is claimed that Mr
Fadi Saab, in breach of a duty of confidence, disclosed to Mr Farid Saab and TFS confidential information which was used so that TFS could trade with
Mr Al-Jibouri.
The judge rightly rejected arguments that the claim should be struck out on the grounds that the claim is made by and against the wrong parties; that
it was necessary to show detriment; and that the claim was statute barred.
The question for whom Mr Hadkinson was acting is matter of fact for determination at trial. The defendants are potentially liable, as the recipients
of confidential information, in addition to Mr Fadi Saab as the person to whom the information was initially disclosed in confidence by Mr Hadkinson.
Detriment is not an essential constituent in a claim for breach of confidence. Even if it was the diversion of business opportunities could amount to
detriment to the person ­ 413 imparting the confidential information. There is no obvious argument available that the claim is barred by the Limitation
Act 1980.

2. The Romas Impex claim

The essence of the claim is that Mr Fadi Saab, in breach of duties in or arising out of the joint venture agreement with Mr Hadkinson to do business
via Bridge, diverted business with Romas Impex from Bridge to TFS.
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The objection taken to the pleading was that the proper plaintiff was Bridge, a Manx company which has since been dissolved, and that Mr
Hadkinson, as a shareholder in Bridge, was not entitled to bring a direct action against Mr Fadi Saab and against the other Pt 20 defendants who were not
parties to the joint venture agreement. Objections were also taken to the presence of the Worldwide companies as claimants on the counterclaim and the
Bank, TFS and Mr Farid Saab as defendants to the counterclaim.
In my judgment, these arguments do not justify a strike out order. The capacities in which Mr Hadkinson and Mr Fadi Saab entered into the joint
venture are matters for investigation at trial. Under the joint venture agreement Mr Hadkinson and his companies have a real prospect of establishing that
they had a direct interest in the profits of the joint venture, not just a shareholder’s interest in the dividends or profits of Bridge. The claims against the
defendants to the counterclaim are not for breach of contract but for diversion of business to TFS and for conspiracy with intent to injure the joint venture
to which Mr Hadkinson and his companies were parties.
I would dismiss the appeal by the bank and the other defendants to the counterclaim.

PILL LJ. I agree on all issues. I too have experienced fluctuations of view on the issue as to the meaning of the expression ‘his assets and/or funds’.
In some cases there will be concern, in the light of the decision of this court, that a defendant may defeat the effect of a freezing order in the standard
form by claiming that he holds assets as trustee for others, for example spouse or children or, as in this case, third party investors, and transfers the legal
title. This is the converse of the situation considered by Lloyd LJ in SCF Finance Co Ltd v Masri [1985] 2 All ER 747, [1985] 1 WLR 876 cited by
Mummery LJ. It is the ‘mere say-so’ of the defendant that he holds as trustee. (The course of the present case has been much influenced by the
assumption made in Mr Hadkinson’s favour that he was not beneficially entitled to the assets and funds transferred.) If a court is persuaded that there is a
real risk that this procedure will be followed merely as a device to avoid the effect of the freezing order, an extended form of order which covers the
situation may be appropriate. Any resulting difficulties may be resolved by the procedures contemplated by Lloyd LJ in SCF Finance Co Ltd v Masri, as
adapted.

NOURSE LJ. For the reasons given by Mummery LJ, I too would dismiss the appeal of Mr Hadkinson, Worldwide Corporation Ltd and Worldwide
Countertrade Ltd against Judge Hedley’s order for summary judgment and also the appeal of the bank against Arden J’s refusal to strike out Mr
Hadkinson’s counterclaim. I do not wish to add anything in regard to either of those appeals.
I too would allow Mr Hadkinson’s appeal against Arden J’s order of 21 May 1999, by which she held him to be in contempt of court. In this case,
however, I wish to add some observations of my own. Whilst agreeing with Mummery LJ in the ­ 414 result, I do not share his doubts as to the
construction and effect of Eady J’s worldwide freezing order of 12 November 1997 (the 1997 order). In my view, on the assumption, favourable to Mr
Hadkinson, that it is necessary for us to make, it is plain that he has committed no breach of it.
Mr Hadkinson is the first defendant in the action. Paragraph 1 of the 1997 order is headed ‘Disposal of assets’. So far as material, sub-para 1.1
provides:

‘The First to Ninth Defendants must not (a) remove from England and Wales or in any way dispose of or deal with or diminish the value of any
of their assets and/or funds which are in England and Wales whether in their own name or not and whether solely or jointly owned up to the value
of US$11,500,000 for each Defendant … (b) in any way dispose of or deal with or diminish the value of any of their assets and/or funds whether
they are in or outside England and Wales whether in their own name or not and whether solely or jointly owned up to the same value …’

Paragraph 2 of the 1997 order headed ‘Disclosure of information’ provides that the first to ninth defendants must inform the plaintiff in writing at
once of ‘all their assets and/or funds’ and other matters. The order runs to ten pages in all and may be said to be in the now standard form of freezing
order which has been developed since the decision in Mareva Cia Naviera SA v International Bulkcarriers SA, The Mareva (1975) [1980] 1 All ER 213.
There are many other references in it to ‘assets and/or funds’ but none of them casts further light on the meaning of ‘their assets and/or funds’ in the
operative provisions of paras 1.1(a) and (b) and 2. The question is whether that expression includes not only assets and funds to which the defendants are
beneficially entitled but also assets and funds which are held by them for the benefit of others.
The essential facts against which the question of construction must be judged are these. On 18 November 1997 the 1997 order was served on Mr
Hadkinson. On 24 November, six days later, he transferred £4·325m from an account in his name at Barclays Bank, Jersey to an account in the name of
his wife at the same bank. On 8 December 1997 he transferred a further £35,117·68 from an account in his name at Barclays Bank, Jersey to an account
in the name of his wife at the same bank. Mr Hadkinson claims that at the time they were respectively transferred the £4·325m and the £35,117·68 were
held by him for the benefit of third party investors who had entrusted the money to him for investment. Both here and below it has been assumed in Mr
Hadkinson’s favour that that claim is correct.
It follows that, in construing the 1997 order, we must proceed on the footing that, at the time that it was made, the £4·325m and the £35,117·68 were
not moneys to which Mr Hadkinson was beneficially entitled but moneys which were held by him for the benefit of others. Since we are only concerned
with alleged breaches by Mr Hadkinson, the convenient course is to construe the 1997 order as if it had been made against him alone and had referred
throughout to ‘his assets and/or funds’. What does that expression mean? That question must be answered, first, by reference to the ordinary meaning of
the words and then by reference to the context in which they are here found.
As a matter of ordinary language assets or funds, in reference to an individual, cannot be said to be ‘his’ unless they belong to him or, in legal
parlance, are assets or funds to which he is beneficially entitled. When Iago, affecting to prize only his good name, says to Othello, ‘Who steals my
purse, steals trash; ‘tis something, nothing; Twas mine, ‘tis his, and has been slave to thousands’, though a modern ­ 415 restitution lawyer might
conjecture that the thief becomes a constructive trustee of the purse, Iago himself will have none of it. ‘Tis his’. So far as he is concerned, the purse now
belongs to the thief. Assets which are held by someone for the benefit of another do not belong to him and are not his. Arden J said that bare legal
ownership is none the less a form of ownership. So indeed it is. But that does not make the assets ‘his’.
I turn to the expression ‘his assets/funds’ in the context of the 1997 order. Not only is there nothing in that context to deprive the words of their
ordinary meaning; there is everything to confirm it. First and most significantly, the purpose of every freezing order is to prevent the person against whom
it is made from disposing of assets which would otherwise be available to satisfy a judgment against him. Assets which he holds for the benefit of another
are not assets which can be resorted to for that purpose. So, in the absence of a specific provision to that effect, the order cannot be taken to extend to
such assets. Secondly, both (a) and (b) of para 1.1 of the 1997 order refer to [his] assets and/or funds ‘whether in [his] own name or not’. Those words
recognise that assets or funds may be ‘his’ if they are held for the defendant’s benefit by another. That is a formidable confirmation of the view that, if
the order had been intended to extend to assets and funds held by the defendant for the benefit of another, it would have said so. In my view there is no
ambiguity in the order.
Such authority as has been found supports the view I have expressed. In R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd
(1993) 10 WAR 59, a decision of the Supreme Court of Western Australia, one of the questions for decision was whether ‘a combination of powers,
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discretions, authorities or expectancies which, if used, would affect the administration and enjoyment of a trust fund’ was an ‘asset’ for the purposes of a
freezing order in standard form. It was held that it was not. Having referred to the dictionary definition of ‘asset’ as ‘property available to meet debts’,
Owen J, with whose reasons and conclusions Ipp J agreed, said of that definition: ‘There is implicit in this definition, when applied to the context of a
mareva injunction, that an “asset” must be a thing of value and it must be capable of application to satisfy debts.’ (See (1993) 10 WAR 59 at 78.) Earlier,
building on some observations of Brennan J in the High Court of Australia in Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 620–621, Owen J
had said of the mareva injunction: ‘Its purpose is to ensure, so far as is possible, that the pool of assets against which a court order might be enforced in
due course is not diminished in a manner which would be an abuse of its process.’ (See (1993) 10 WAR 59 at 77.)
The views expressed by Owen J afford valuable confirmation of the meaning of ‘assets’ in the standard form of freezing order. Further confirmation
is to be found in the judgment of Heron J in the High Court of New Zealand in Westpac Banking Corp v Gill (No 1) (1987) 2 PRNZ 52 at 54 where, in
dealing with the requirement that the defendant must hold appropriate assets within the jurisdiction, he said that ‘appropriate’ clearly referred to ‘assets in
which the defendant had some beneficial interest entitling him to deal with them as his own property’. He added that it went without saying that it was
against that property that the plaintiffs were seeking recourse in the ultimate if judgment was obtained. There appears to be no other authority which
bears on the question we have to decide. That may be because, until now, it has not been seriously suggested that the standard form of freezing order can
extend to assets held for the benefit of others.
For these reasons I am in no doubt that, on the true construction of the 1997 order and on the assumption it is necessary for us to make, Mr
Hadkinson ­ 416 committed no breaches of it when he transferred the £4·325m and the £35,117·68 to his wife. With all due respect to the submissions
of Mr Cohen QC on behalf of the bank and the view of the judge, a commendable desire to ensure that a person against whom a freezing order is made
shall not defeat its spirit cannot affect a fair construction of its letter. Nor is it helpful to say that such a person is free to apply for a variation of the order
so as to exclude from its operation assets which he can demonstrate are held for the benefit of another. The boot, as it seems to me, is on the other foot.
The question is whether the order applies to such assets in the first place. In answering that question, it must not be forgotten that in their infancy both
freezing and search orders were regarded as intrusive and not to be enforced except according to their letter.
It may be that the standard form of freezing order is one of imperfect operation. But unless and until it includes the words ‘and whether held for his
own benefit or for the benefit of others’ or the like, the imperfections will persist. For myself, I would think that such words could only be properly
included in an exceptional case. But whether that be right or wrong, the imperfections cannot be cured by giving the standard form of order a meaning it
will not bear.

Appeal from Arden J’s order of 21 May 1999 allowed but appeal from her order of 24 May 1999 dismissed. Appeal from Judge Hedley’s decision
dismissed.

Kate O’Hanlon Barrister.

[2000] 2 All ER 418

R v Bowden

CRIMINAL; Criminal Law

COURT OF APPEAL, CRIMINAL DIVISION

OTTON LJ, SMITH AND COLLINS JJ
2 SEPTEMBER, 10 NOVEMBER 1999

Criminal law – Indecent photographs or pseudo-photographs of children – Making indecent photographs of children – Whether offence encompassing
downloading or printing out of computer data – Protection of Children Act 1978, ss 1(1)(a), 7.

The appellant, B, downloaded indecent photographs of young boys from the Internet, and either printed them out or stored them on his computer disks.
He was charged, inter alia, with 12 counts of having ‘made an indecent photograph’ of children contrary to s 1(1)(a)a of the Protection of Children Act
1978. Under s 7b of that Act, the term ‘indecent photograph’ included a copy of such a photograph, and references to ‘a photograph’ included data stored
on a computer disk which was capable of conversion into a photograph. Although B initially pleaded not guilty, he changed his plea to guilty after the
judge rejected a submission that the circumstances of the case fell outside the scope of s 1(1)(a). B appealed, contending that the offence of making an
indecent photograph of a child did not encompass the mere downloading or printing out of computer data.
________________________________________
a Section 1, so far as material, is set out at p 420 h to p 421 a, post
b Section 7, so far as material, is set out at p 421 b to d, post
________________________________________

Held – The offence of making an indecent photograph of a child contrary to s 1(1)(a) of the 1978 Act was not confined to original photographs. Rather,
by virtue of s 7 of that Act, it also applied to negatives, copies of photographs and data stored on computer disks. Thus a person who downloaded images
onto a disk or printed them off was making them within the meaning of s 1(1)(a) of the 1978 Act. That Act was concerned not only with the original
creation of images, but also with their proliferation. Photographs or pseudo-photographs found on the Internet could have originated from outside the
United Kingdom, and downloading or printing them within the jurisdiction created new material that might not have hitherto existed therein.
Accordingly, the appeal would be dismissed (see p 423 e to h and p 424 e, post).

Notes
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For offences concerning indecent photographs of children, see 11(1) Halsbury’s Laws (4th edn reissue) paras 365–366.
For the Protection of Children Act 1978, ss 1, 7, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 706, 711.

Cases referred to in judgment

Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, [1992] 3 WLR 1032, HL.
R v Fellows, R v Arnold [1997] 2 All ER 548, CA.
­ 418

Appeal against conviction and sentence

Jonathan Bowden appealed with leave from his conviction before Judge Haworth in the Crown Court at Cambridge on 25 January 1999 on 12 counts of
having made an indecent photograph of children contrary to s 1(1)(a) of the Protection of Children Act 1978. He also appealed with leave of Colman J
granted on 11 March 1999 against sentences of four months’ imprisonment concurrent imposed on him for those offences, and of three months’
imprisonment concurrent imposed in respect of each of nine counts of possessing an indecent photograph of a child contrary to s 160 of the Criminal
Justice Act 1988. The facts are set out in the judgment of the court.

Sadakat Kadri (instructed by the Registrar of Criminal Appeals) for the appellant.
Michael Crimp (instructed by the Crown Prosecution Service, Cambridge) for the Crown.

On 2 September 1999 the court announced that the appeal against conviction would be dismissed and the appeal against sentence would be allowed for
reasons to be given later.

10 November 1999. The following judgment of the court was delivered.

OTTON LJ. The question raised by this appeal is whether downloading and/or printing out of computer data of indecent images of children from the
Internet is capable of amounting to an offence contrary to s 1(1)(a) of the Protection of Children Act 1978.
In the Crown Court at Cambridge, before Judge Haworth following an unsuccessful submission, the appellant changed his pleas to guilty to 12
counts of having made an indecent photograph contrary to s 1(1)(a) of the Act. He also pleaded guilty to nine other offences which had been committed
to the Crown Court by magistrates under s 41 of the Criminal Justice Act 1988 of possessing an indecent photograph of a child under the age of 16 years
contrary to s 160 of the 1988 Act. For the 1978 Act offences he was sentenced to four months’ imprisonment concurrent, and for the possessing offences
he was sentenced to three months’ imprisonment on each count concurrent. An order was made under s 43 of the Powers of Criminal Courts Act 1973 for
forfeiture of the computer and equipment and the destruction of the photographs.
He appealed against conviction on counts 1 to 12 following a certificate of fitness for appeal granted by the trial judge:
‘On a ground which involved a question of law alone, namely, whether upon agreed statement of facts attached, the defendant has committed
offences contrary to section 1(1)(a) of the PCA 1978.’
He also appeals against sentence by leave of the single judge who granted bail. We heard this appeal on 2 September and indicated that the appeal against
conviction would be dismissed but quashed all the sentences of imprisonment. We indicated that we would give our reasons at a later date. These are the
reasons.

Background
The appellant took his computer hard drive to a computer firm for repair. While examining the computer, the repairer found indecent material on the
hard drive. As a result of a subsequent investigation, police seized a computer ­ 419 and equipment including hard disk and floppy disks from the
appellant. They examined the disks which contained indecent images of young boys. The appellant had downloaded the photographs from the Internet,
and either printed them out himself, or stored them on his computer disks. It was not contested that all the photographs were indecent and involved
children under 16 years. When arrested and interviewed the appellant accepted that he had obtained the indecent material from the Worldwide Web
Internet and downloaded them onto his hard disk in his computer for his own personal use. He did not know it was illegal to do this. He admitted that he
had printed out photographs from the images he had downloaded. One of the images existed only as data on disks owned by the defendant and was a
pseudo-photograph.
At trial there was an agreed statement of facts:

‘The exhibits referred to in the Indictment are:

—in the case of Counts 1–3, printouts seized from the Defendant. They were made by him by viewing on his screen a photograph received via
the Internet and then instructing his computer to print one paper copy of that photograph.
—in the case of Count 4, a printout made by the police of a pseudo- photograph stored in a data file on a computer disc seized from the
defendant. That data file was downloaded by the defendant from the Internet and stored by him on his own computer disc.
—in the case of Counts 5–12, printouts made by the police of photographs stored in data files on computer discs seized from the defendant.
Those data files were downloaded by the defendant from the Internet and stored by him on his own computer discs.’

The photographs are all indecent, and all depict children.

It is not part of the Crown’s case that the defendant distributed any images. It was accepted that all the images were downloaded for his own use.
It is not part of the Crown’s case that the defendant created for the first time any image that did not already exist in a visually identical form.
The appellant’s counsel submitted that the appellant was not guilty of ‘making’ photographs contrary to the section. He submitted that the appellant
was in possession of them but nothing more. The trial judge rejected the defence submission and ruled that on the agreed facts the behaviour amounted to
the taking or making an indecent photograph or pseudo-photograph and was caught by the Act. Whereupon the defence entered a plea of guilty.

The law
Section 1 of the 1978 Act provides (as relevant) that:

‘1.—(1) It is an offence for a person—(a) to take, or permit to be taken or to make, any indecent photograph or pseudo-photograph of a child;
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or (b) to distribute or show such indecent photographs or pseudo-photographs; or (c) to have in his possession such indecent photographs or
pseudo-photographs, with a view to their being distributed or shown by himself or others; or (d) to publish or cause to be published any
advertisement likely to be understood as conveying that the advertiser distributes or shows such indecent photographs or pseudo-photographs, or
intends to do so …
(4) Where a person is charged with an offence under subsection 1(b) or (c), it shall be a defence for him to prove—(a) that he had a legitimate
reason for ­ 420 distributing or showing the photographs or pseudo-photographs or (as the case may be) having them in his possession; or (b) that
he had not himself seen the photographs or pseudo-photographs and did not know, nor had any cause to suspect, them to be indecent.
(5) References in the Children and Young Persons Act 1933 (except in sections 15 and 99) to the offences mentioned in Schedule 1 to that Act
shall include an offence under subsection 1(a) above.’

Section 7 of the 1978 Act provides, among other things, that:

‘7.—(1) The following subsections apply for the interpretation of this Act.
(2) References to an indecent photograph include an indecent film, a copy of an indecent photograph or film, and an indecent photograph
comprised in a film …
(4) References to a photograph include—(a) the negative as well as the positive version; and (b) data stored on a computer disc or by other
electronic means which is capable of conversion into a photograph …
(7) “Pseudo-photograph” means an image, whether made by computer- graphics or otherwise howsoever, which appears to be a photograph …
(9) References to an indecent pseudo-photograph include—(a) a copy of an indecent pseudo-photograph; and (b) data stored on a computer disc
or by other electronic means which is capable of conversion into a pseudo-photograph.’

Section 160 of the 1988 Act provides:

‘160.—(1) It is an offence for a person to have any indecent photograph or pseudo-photograph of a child in his possession.
(2) Where a person is charged with an offence under subsection (1) above, it shall be a defence for him to prove—(a) that he had a legitimate
reason for having the photograph or pseudo-photograph in his possession; or (b) that he had not himself seen the photograph or pseudo-photograph
and did not know, nor had any cause to suspect, it to be indecent; or (c) that the photograph or pseudo-photograph was sent to him without any prior
request made by him or on his behalf and that he did not keep it for an unreasonable time.
(3) A person shall be liable on summary conviction of an offence under this section to imprisonment for a term not exceeding six months or a
fine not exceeding level 5 on the standard scale, or both.
(4) Sections 1(3), 2(3), 3 and 7 of the Protection of Children Act 1978 shall have effect as if any reference in them to that Act included a
reference to this section.’

Section 1 of the 1978 Act, at its inception, was designed to deal with aspects of child pornography above and beyond simple possession. In its
original form, the only verb used in s 1(1)(a) was ‘take’. In 1988 by s 160 of 1988 Act the possession of indecent photographs became a summary
offence. By 1990 society had become concerned that the law was inadequate to deal with the less desirable developments in computer technology. As a
result Pt VII of the Criminal Justice and Public Order Act 1994 was enacted to amend particulars of existing legislation. By s 84:

‘(1) The Protection of Children Act 1978 shall be amended …

­ 421
(2) In section 1 (which penalises the taking and distribution of indecent photographs of children and related acts)—(a) in paragraph (a) of
subsection (1)—(i) after the word “taken” there shall be inserted the words “or to make”, and the words following “child” shall be omitted; (ii) after
the word “photograph” there shall be inserted the words “or pseudo-photograph” …’
Thus s 1 of the 1978 Act as amended reads:

‘(1) It is an offence for a person—(a) to take, or permit to be taken or to make, any indecent photograph or pseudo-photograph of a child …’

Section 84(3)(c) of the 1994 Act provided that in s 7 of the 1978 Act:
‘… after subsection (5) there shall be inserted the following subsections … (7) “Pseudo-photograph” means an image, whether made by
computer- graphics or otherwise howsoever, which appears to be a photograph …’
Similar amendments were made to s 160 of the 1988 Act and by s 86 (1) simple possession of an indecent photograph under s 160 became imprisonable
(on summary conviction) for the first time.
In R v Fellows, R v Arnold [1997] 2 All ER 548 this court (Evans LJ, Cresswell and Butterfield JJ) held that the scope of the definitions of indecent
photographs in ss 1 and 7 of the 1978 Act were wide enough to include a form of technology not anticipated when that Act was passed; that although a
computer disk was not a photograph, it contained data which could be converted into a screen image and into a print exactly reproducing the original
photograph from which it was derived; that there was no restriction on the nature of a copy and the data represented the original photograph in another
form; and that, accordingly, the judge was correct to rule that the disk held data which came within the definition of ‘photograph’ for the purposes of the
1978 Act.
Mr Sadakat Kadri in an attractive argument submits that on a true construction of s 1(1)(a) of the 1978 Act as amended:
‘(i) there is no offence of “making” a photograph. The conduct criminalised by the statute is either taking etc. a photograph, or making a
pseudo-photograph; (ii) alternatively, the verb “make” is used in the sense of “create”, and should not be understood to encompass mere
downloading or printing out of computer data.’
It is submitted that none of the changes alter the fact that the mischief at which s 1(1)(a) has always been aimed is the active creation of indecent
child pornography. It is accepted that the 1994 amendments altered this position to the extent that s 1(1)(a) now covers those involved in the creation of
pseudo-photographs who may have no contact with the subjects of the images. However, the addition of the verb ‘make’ did not alter the fundamental
nature of the s 1(1)(a) offence. It was inserted there by s 84(2)(a) because it was the most natural way of describing the creation of composite images. It
merely complemented the offence of ‘taking’ etc ordinary photographs. Counsel suggests that the 1994 amendments might have been more felicitously
drafted and in particular it would have been clearer if it had specified that the activities to be penalised were the ‘taking of photographs and the making of
pseudo-photographs’. Thus there exists at the very least ambiguity about the true intention of Parliament which should be resolved in the appellant’s
favour.
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­ 422
This is particularly so as the principle of statutory construction is that a narrow construction of an ambiguous penal statute is to be preferred to a
wider one. Moreover, the relevant debates in Hansard make clear that the purpose of amendments to the 1978 and 1988 Acts were simply to clarify the
law’s definitions, and to deal with the mischief of pseudo-photographs.
Counsel also invokes art 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950;
TS 71 (1953); Cmd 8969) (the ECHR):

‘1. Everyone has the right to respect for his private and family life, his home and his correspondence.
2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is
necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of
disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.’

He submits that the advent of the Human Rights Act 1998 should leave the court to prefer an arguable interpretation that would avoid conflict with the
articles. In particular, the court should prefer a construction of s 1 that will more easily accord with the well established principles surrounding the terms
‘necessary’ and ‘proportionate’. In the absence of a clearly contrary legislative intention, it should be presumed that Parliament did not intend to legislate
contrary to the international obligations of the United Kingdom.
We are unable to accede to this interesting argument. In our judgment s 1 as amended is clear and unambiguous in its true construction. Quite
simply, it renders unlawful the making of a photograph or a pseudo-photograph. There is no definition section. Accordingly the words ‘to make’ must be
given their natural and ordinary meaning. In this context this is ‘to cause to exist; to produce by action, to bring about’ (OED). As a matter of
construction such a meaning applies not only to original photographs but, by virtue of s 7, also to negatives, copies of photographs and data stored on
computer disk.
We do not accept that s 1 in its present form is either ambiguous or obscure. We are certainly not persuaded that in some way the draftsman nodded
and produced an ambiguous, obscure or illogical result. Nor do we accept that the natural interpretation leads to any absurdity suggested by counsel. We
prefer the submission of Mr Michael Crimp on behalf of the respondent:

‘A person who either downloads images on to disc or who prints them off is making them. The Act is not only concerned with the original
creation of images, but also their proliferation. Photographs or pseudo-photographs found on the Internet may have originated from outside the
United Kingdom; to download or print within the jurisdiction is to create new material which hitherto may not have existed therein.’

Moreover, we do not see any necessity to refer to Parliamentary material for assistance in interpretation. In Pepper (Inspector of Taxes) v Hart [1993] 1
All ER 42 at 64, [1993] AC 593 at 634 Lord Browne-Wilkinson said:

“… reference to parliamentary material should be permitted as an aid to the construction of legislation which is ambiguous or obscure or the
literal meaning of which leads to an absurdity. Even in such cases references in ­ 423 court to parliamentary material should only be permitted
where such material clearly discloses the mischief aimed at or the legislative intention lying behind the ambiguous or obscure words.’

As we are satisfied that there is no ambiguity, obscurity or absurdity there is no necessity to refer to such material. However, excerpts from Hansard were
appended to the appellant’s skeleton argument, we have considered them and we find it impossible to conclude that the reproduction of indecent material
to be found on the Internet was not within the mischief aimed at by the legislation when the words ‘to make’ were included in the amending statute.
Similarly we see no necessity to consider the jurisprudence of the European Community.
Similarly we see no need to resort to the ECHR in interpreting a domestic statute which was amended in 1994 so that the presumption that
Parliament intended to legislate in conformity with the ECHR, and not in conflict with it, applies.
Even if we were to do so we are satisfied that the interpretation we place upon this section is not inconsistent with an interpretation arrived at by the
use of the ECHR. Article 8 provides for a qualified right to respect for private and family life, home and correspondence. This right may be legitimately
interfered with where necessary: ‘… for the protection of health or morals, or for the protection of the rights and freedoms of others.’
Accordingly we have come to the conclusion that despite the fact that he made the photographs and the pseudo-photographs for his ‘own use’, his
conduct is clearly caught by the Act. The judge’s ruling was correct, the appellant correctly changed his pleas to guilty on counts 1–12, the convictions
must stand and we dismiss the appeal against conviction.

Sentence
Mr Kadri submitted that an immediate custodial sentence was wrong in principle in the circumstances of this case. There was no evidence of risk to
the public. Although he was a school teacher there was a total absence of any evidence or history of inappropriate behaviour towards children. There was
no breach of trust. Mr Bowden’s position in the chain of production of indecent material was as low as could be consistent with the commission of the
offences. There was no further dissemination of the material. Above all he had no previous convictions of any sort.
We accepted this submission without any reservation. This was not a case where a custodial disposal was the only appropriate course. We are
satisfied that the sentences of imprisonment were wrong in principle and manifestly excessive. We therefore imposed a conditional discharge for 12
months in respect of each count in the indictment.
To that extent the appeal was allowed.

Appeal against conviction dismissed, but appeal against sentence allowed.

Caroline Stomberg Barrister.

[2000] 2 All ER 425
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Atkins v Director of Public Prosecutions

Goodland v Director of Public Prosecutions

CRIMINAL; Criminal Law

QUEEN’S BENCH DIVISION, DIVISIONAL COURT

SIMON BROWN LJ AND BLOFELD J
18 FEBRUARY, 8 MARCH 2000

Criminal law – Indecent photographs or pseudo-photographs of children – Making indecent photographs of children – Possessing indecent photographs
of children – Whether making encompassing unintentional copying – Whether possession requiring knowledge – Whether image consisting of two
different photographs capable of being pseudo-photograph – Protection of Children Act 1978, ss 1, 7 – Criminal Justice Act 1988, s 160.

In the first of two cases raising issues on the proper construction and application of the Protection of Children Act 1978 and s 160a of the Criminal Justice
Act 1988, indecent photographs of children, downloaded from the Internet, were discovered on the hard disk of a computer used by A. Some of those
photographs had been deliberately stored by A on the computer’s J directory. However, photographs were also stored in the computer’s ‘cache’, a
temporary information store created automatically by an Internet browser programme when accessing a site on the Internet. A was charged, in respect of
both the J directory photographs and the cache photographs, with making ‘indecent photographs’ of children contrary to s 1(1)(a)b of the 1978 Act, a term
which, by virtue of s 7c, included a copy of an indecent photograph and data stored on a computer disk which was capable of conversion into a
photograph. He was also charged with possessing indecent photographs of children contrary to s 160(1) of the 1988 Act, but the possession charges were
confined to the photographs in the cache. At trial, the stipendiary magistrate was not sure that A had been aware of the operation of the computer’s cache.
He nevertheless convicted A of the possession offences, holding that the offence under s 160(1) was one of strict liability, and did not therefore require
any knowledge on the part of the defendant. However, the magistrate held that A had no case to answer on the ‘making’ charges since that term required
an act of creation and was not satisfied by storing or copying a document. A appealed by way of case stated against his conviction on the possession
charges, contending that knowledge was an essential ingredient of the offence under s 160(1). The Crown appealed against A’s acquittal on the ‘making’
charges, contending that the offence under s 1(1)(a) extended to copying, whether done knowingly or not.
________________________________________
a Section 160 is set out at p 430 c to f, post
b Section 1, so far as material, is set out at p 429 e to h, post
c Section 7, so far as material, is set out at p 429 j to 430 c, post
________________________________________
In the second case, G was found in possession of an indecent item, which consisted of two photographs sellotaped together, and was charged with
having in his possession an indecent pseudo-photograph of a child contrary to s 160(1) of the 1988 Act. Under s 7(7) of the 1978 Act, a
pseudo-photograph was defined as ‘an image … which appears to be a photograph’. The magistrates convicted G, ­ 425 rejecting his contention that
the item was not a pseudo-photograph within the statutory definition. G appealed by way of case stated.

Held – (1) On its true construction, s 1(1)(a) of the 1978 Act did not create an absolute offence, encompassing the unintentional making of copies. A
conclusion to the contrary would produce a striking oddity in the criminal law, namely a situation where the self-same set of facts involved the
commission of two quite distinct offences, possession under s 160 of the 1988 Act and ‘making’ under s 1(1)(a) of the 1978 Act. However, the offence
created by the latter provision did include intentional copying. It followed that in the first case the magistrate had properly acquitted A of making the
photographs stored on the cache files, but should have convicted him of the ‘making’ counts which related to the photographs stored on the J directory.
Accordingly, the Crown’s appeal would be allowed (see p 435 g to p 436 c, p 437 g and p 439 f, post); R v Bowden [2000] 2 All ER 418 applied.
(2) The offence of possession under s 160 of the 1988 Act was not committed unless the defendant knew that he had, or had once had, the
photographs in his possession. Accordingly, an accused could not be convicted where, as in A’s case, he could not be shown to have been aware of the
existence of a cache of photographs in the first place. Accordingly, A’s appeal would be allowed (see p 437 e to g and p 439 f, post, post); R v Buswell
[1972] 1 All ER 75 and R v Steele [1993] Crim LR 298 distinguished.
(3) An image made by an item which obviously consisted of parts of two different photographs could not be said to appear to be a photograph within
the meaning of s 7(7) of the 1978 Act. It followed that in G’s case the magistrates had been wrong to hold that the item appeared to be a photograph, and
accordingly the appeal would be allowed (see p 439 c d f, post).
Per curiam. The question of whether a person has, for the purposes of the defences provided by ss 1(4)(a) of the 1978 Act and 160(2)(a) of the 1988
Act, a legitimate reason for distributing, showing or possessing indecent photographs of children is purely one of fact. Where the defence is one of
legitimate research, the central question is whether the defendant is essentially a person of unhealthy interests in possession of indecent photographs in the
pretence of undertaking research or, by contrast, a genuine researcher with no alternative but to have such unpleasant material in his possession. Other
categories of ‘legitimate’ reason will have to be considered on their own facts, and courts will be entitled to bring a measure of scepticism to bear upon
such an inquiry, and should not too readily conclude that the defence has been made out (see p 432 j to p 433 a, p 437 g and p 439 f, post).

Notes
For offences concerning indecent photographs of children, see 11(1) Halsbury’s Laws (4th edn reissue) paras 365–366.
For the Protection of Children Act 1978, ss 1, 7, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 706, 711.
For the Criminal Justice Act 1988, s 160, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 1089.

Cases referred to in judgments

Morelle Ltd v Wakeling [1955] 1 All ER 708, [1955] 2 QB 379, [1955] 2 WLR 672, CA.
Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, [1992] 3 WLR 1032, HL.
­ 426
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R v Bowden [2000] 2 All ER 418, CA.

R v Buswell [1972] 1 All ER 75, [1972] 1 WLR 64, CA.
R v Fellows [1997] 2 All ER 548, CA.
R v Hussain (1972) 56 Cr App R 165, CA.
R v Steele [1993] Crim LR 298, CA.
Tuck & Sons v Priester (1887) 19 QBD 629, CA.

Case also cited or referred to in skeleton arguments

R v Graham-Kerr [1988] 1 WLR 1098, CA.

Appeals

Atkins v DPP
Dr Antony Rowan Atkins appealed by way of case stated against his conviction by the Avon Metropolitan Stipendiary Magistrate at Bristol Magistrates’
Court on 27 May 1999 of ten offences of having in his possession indecent photographs of children between specified dates in October 1997 contrary to s
160(1) of the Criminal Justice Act 1988. The Director of Public Prosecutions appealed from the magistrate’s decision on 25 May 1999 upholding a
submission that Dr Atkins had no case to answer in respect of 21 counts of making indecent photographs of children between the same dates contrary to s
1(1)(a) of the Protection of Children Act 1978. The questions posed in the case stated are set out a p 432 d to g, post. The facts are set out in the judgment
of Simon Brown LJ.

Goodland v DPP
Peter John Goodland appealed by way of case stated against his conviction by the Avon Justices at Bristol Magistrates’ Court on 21 April 1999 on one
count of having in his possession on 5 November 1998 an indecent pseudo-photograph of a child contrary to s 160(1) of the Criminal Justice Act 1988.
The question posed in the case stated is set out at p 438 g h, post. The facts are set out in the judgment of Simon Brown LJ.

Helen Malcolm (instructed by Offenbach & Co) for Dr Atkins.

Peter Blair (instructed by Nile Arnall, Bristol) for Mr Goodland.
Robert Davies (instructed by the Crown Prosecution Service, Bristol) for the DPP.

Cur adv vult

8 March 2000. The following judgments were delivered.

SIMON BROWN LJ. These two appeals by way of case stated raise a number of interesting and difficult questions as to the proper construction and
application of the Protection of Children Act 1978 and s 160 of the Criminal Justice Act 1988, provisions concerned with indecent photographs of
children.
Antony Rowan Atkins was convicted by the Avon Metropolitan Stipendiary Magistrate at Bristol Magistrates’ Court on 27 May 1999 of ten offences
of having in his possession indecent photographs of children between specified dates in October 1997 contrary to s 160(1) of the 1988 Act. On 25 May
1999 the magistrate had upheld a submission that Dr Atkins had no case to answer in respect of 21 additional counts of making indecent photographs of
children between the same dates contrary to s 1(1)(a) of the 1978 Act. Dr Atkins appeals against his conviction on the ten possession counts; the DPP
appeals against Dr Atkins’ acquittal on the 21 ‘making’ counts.
­ 427
Peter John Goodland was convicted by the Avon Justices at Bristol Magistrates’ Court on 21 April 1999 on one count of having in his possession on
5 November 1998 an indecent pseudo-photograph of a child contrary to s 160(1) of the 1988 Act. He now appeals against that conviction.
Although the two appeals raise entirely different points (both coming by sheer chance from Bristol Magistrates’ Court), it has seemed to us
convenient to make them the subject of a single judgment, if only to avoid the need to set out the legislation twice over.

The Atkins appeal

The stipendiary magistrate is much to be commended for the great care he took in the conduct of this trial and the preparation of the case stated
(which extends to no fewer than 38 pages). The facts he found can, I think, fairly and sufficiently be summarised as follows. Dr Atkins was appointed to
a lectureship in the Department of English at Bristol University on 1 October 1997. He had available to him there both a Viglin computer set up in his
office and also a departmental computer mostly used by others in the department’s main office. On 16 October 1997 another member of the department
logged into the departmental computer and was immediately concerned by the menu of internet addresses recently called up. To cut a long story short, a
Mrs Dunderdale, executive assistant, was amongst those consulted and she in turn called in her husband who for a number of years had run an information
technology centre. Mr Dunderdale checked the computer’s cache file and found there pictures of naked young girls in crude postures. The history of
computer use pointed to Dr Atkins. On 18 October 1997 Mr and Mrs Dunderdale decided to examine Dr Atkins’ Viglin computer. Similar pictures were
found in the Viglin cache and Mr Dunderdale was also able to locate within that computer a directory (the J directory) in the drive which had a number of
files of similarly indecent material. Mr and Mrs Dunderdale made copies of the material in the two caches and in the J directory onto floppy disks. Dr
Atkins was shortly afterwards suspended.
The expert evidence before the magistrate was this:
‘The internet is a medium to publish and obtain information using computers. A browser programme, for example the Netscape browser, can be
used to access the internet. The browser is able to locate servers and in doing so the user is able to download information, or “documents”. A user
can deliberately choose to download or save documents, but it is not commonly known by users that the browser automatically creates a temporary
information store, a “cache”, of recently viewed documents. The reason for this is that when the user revisits the documents the browser may use
the locally stored cache, provided that it is not too old and does not need updating, which saves time in fetching the documents … The cache is
automatically emptied of documents as it becomes full, but even then it is possible to retrieve information forensically. Expert computer users can
access the cache directly … The J directory does not form part of the cache and must have been created separately.’
The position in short is this. The photographs in the J directory were there because Dr Atkins had deliberately chosen to store them there. The
photographs found in the caches, however, although voluntarily called up onto the screen when initially Dr Atkins was browsing the netscape programme,
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were ­ 428 deliberately not saved. The magistrate concluded that he could not be sure that Dr Atkins knew of the operation of the computer’s cache,
knew in other words that the computer would automatically retain upon its hard disk information sent to it at the user’s request.
Paradoxically, as at first blush it appears, the ten counts of which Dr Atkins was convicted related to photographs recovered from the caches (nine
from his Viglin computer, one from the departmental computer), photographs he had deliberately not saved, whereas the 11 further counts relating to the J
directory photographs, those which he deliberately had saved, were dismissed. The main reason for this, I should make plain, is that the prosecution had
been out of time to charge Dr Atkins with possession of the J directory material and it was only offences of possession of which the magistrate ultimately
found Dr Atkins guilty.
Put at this stage at its simplest, it is Dr Atkins’ argument that he ought not to have been convicted of possession given that knowledge of the
existence of the caches could not be proved against him; it is the DPP’s argument that Dr Atkins should have been convicted on the ‘making’ counts in
relation both to the J directory material and also the material in the caches irrespective of whether he knew of their existence.
I must at this point refer to the main legislative provisions in play. I shall set them out in their amended form, although it will be necessary to return
later to indicate something of when and how those amendments came about.
The 1978 Act, as amended, provides so far as material:

‘1.—(1) It is an offence for a person—(a) to take, or permit to be taken or to make, any indecent photograph or pseudo-photograph of a child; or
(b) to distribute or show such indecent photographs or pseudo-photographs; or (c) to have in his possession such indecent photographs or
pseudo-photographs, with a view to their being distributed or shown by himself or others; or (d) to publish or cause to be published any
advertisement likely to be understood as conveying that the advertiser distributes or shows such indecent photographs or pseudo-photographs, or
intends to do so …
(3) Proceedings for an offence under this Act shall not be instituted except by or with the consent of the Director of Public Prosecutions.
(4) Where a person is charged with an offence under subsection 1(b) or (c), it shall be a defence for him to prove—(a) that he had a legitimate
reason for distributing or showing the photographs or pseudo-photographs or (as the case may be) having them in his possession; or (b) that he had
not himself seen the photographs or pseudo-photographs and did not know, nor had any cause to suspect, them to be indecent …
2.—(3) In proceedings under this Act relating to indecent photographs of children a person is to be taken as having been a child at any material
time if it appears from the evidence as a whole that he was then under the age of 16 …
7.—(1) The following subsections apply for the interpretation of this Act.
(2) References to an indecent photograph include … a copy of an indecent photograph …
(4) References to a photograph include—(a) the negative as well as the positive version; and (b) data stored on a computer disc or by other
electronic means which is capable of conversion into a photograph …
(6) “Child”, subject to subsection (8), means a person under the age of 16.
­ 429
(7) “Pseudo-photograph” means an image, whether made by computer-graphics or otherwise howsoever, which appears to be a photograph.
(8) If the impression conveyed by a pseudo-photograph is that the person shown is a child, the pseudo-photograph shall be treated for all
purposes of this Act as showing a child and so shall a pseudo-photograph where the predominant impression conveyed is that the person shown is a
child notwithstanding that some of the physical characteristics shown are those of an adult.
(9) References to an indecent pseudo-photograph include—(a) a copy of an indecent pseudo-photograph; and (b) data stored on a computer disc
or by other electronic means which is capable of conversion into a pseudo-photograph.’

Section 160 of the 1988 Act, as amended, provides:

‘(1) It is an offence for a person to have any indecent photograph or pseudo-photograph of a child in his possession.
(2) Where a person is charged with an offence under subsection (1) above, it shall be a defence for him to prove—(a) that he had a legitimate
reason for having the photograph or pseudo-photograph in his possession; or (b) that he had not himself seen the photograph or pseudo-photograph
and did not know, nor had any cause to suspect, it to be indecent; or (c) that the photograph or pseudo-photograph was sent to him without any prior
request made by him or on his behalf and that he did not keep it for an unreasonable time.
(3) A person shall be liable on summary conviction of an offence under this section to imprisonment for a term not exceeding six months or a
fine …
(4) Sections 1(3), 2(3), 3 and 7 of the Protection of Children Act 1978 shall have effect as if any reference in them to that Act included a
reference to this section.’

I come next to the magistrate’s rulings; (a) that there was no case for Dr Atkins to answer on the ‘making’ charges, and (b) that Dr Atkins was guilty
of possession in respect of the photographs held in the caches. As to ‘making’, the case stated reads as follows:

‘Mr Davies [counsel for the DPP both below and before us] urges upon me two views in relation to “making”. Firstly, he says that in relation to
those found in J directory, they were “made” by the positive act of the defendant in choosing to store them in that separate directory. Secondly he
says that, as in his submission these items are clearly “data stored within a computer hard disc”, and arrived there as a result of the defendant’s
choice to access them for perusal from the Internet, even those found in the cache are “made”. He urges upon me that the 1978 Act creates in s
1(1)(a) an offence of strict liability—ie that “making” occurs with or without the knowledge of the maker. I must say that I can accede to neither of
these submissions. Since biblical times, the maker has been the creator, that is he has fashioned something new. I have read Hansard and the
Reports of the Committee Stages and I accept that Parliament has tried steadfastly to counter a rising tide of child pornography. It has firstly added
the concept of “making” to prohibited activities, and has later defined the pseudo-photograph. It has sought to extend the possible net of
manufacture as wide as is possible.
­ 430
All that has, to an extent, been achieved. There is no doubt that indecent pictures “made” in any creative way are caught. It has not however in
my judgment altered the basic principle of manufacture. “Made” still means “created”, “novated”, “fabricated”—all definitions from the Oxford
English Dictionary. It does not mean “stored”, “isolated”, or “reserved” in whatever form. For those reasons I say now that I find the concept of
“making” in this case difficult in relation to [the “making” charges] and I say that there is no case to answer in respect of them.’

The magistrate’s eventual ruling on possession was as follows:

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‘I have said that I am not sure, upon the evidence, that the defendant knew of the nature of the operation of the netscape cache. I am urged by
the defence to say that any de facto possession was thus unknowing and that possession within the meaning of s 160(1) by the defendant is not
made out. I deal with that submission in the alternative. Firstly, it is my view that the offence created by s 160(1) is an offence of strict liability,
the effect of which is mitigated only by the three statutory defences set out in sub-s 2. If that is right, then once the fact of de facto possession is
established, the existence or not of knowledge of that fact by the defendant is irrelevant. My view that this is an offence of strict liability is
strengthened by the fact that the lack of knowledge which amounts to the defence is precisely restricted by sub-s 2(b), namely that the defendant
was not only unaware of the indecent nature of the photograph but had not himself seen it. Both limbs of that subsection must be established by the
defendant on the balance of probabilities. He has established neither. The fact is that the defendant by his own act put himself in the position
whereby, by the press of a button, transient prohibited material could become stored upon his hard disk. Due to his mistake as to the consequences
of his initial act, the prohibited material did indeed transmute to his hard disk, albeit to a different part of it. As I have said, if this is an offence of
strict liability, the defendant’s mistake is irrelevant. If, however, my view as to strict liability is incorrect in law, my conclusion of fact that the
eventual possession of this material upon the hard disk of the computer arose as the direct and sole result of the defendant’s initial voluntary act
satisfies me that he is in possession of the material for the purposes of s 160(1).’

The magistrate then turned to consider a particular defence which Dr Atkins had raised under s 160(2)(a), namely that he had a legitimate reason for
having the photographs in his possession, the purpose of legitimate academic research. The magistrate in the case stated deals with this defence as
follows:

‘I have read the reports of the committee stage of this bill, and indeed those of the Protection of Children Bill in Hansard. I am satisfied that
Parliament intended to take whatever steps were necessary to eliminate such material and to restrict as far as was possible any lawful possibility of
possession. Those who work to those ends must, as a matter of common sense, have to handle such material. Specified anti-pornography
campaigners or precisely defined medical researchers were mentioned by the standing committee. I add to those, in common sense, those within the
criminal justice system—magistrates, judges, jurors, lawyers and forensic psychiatrists whose duties in the enforcement of the law necessitate the
handling of the material in each particular case. I find however not the slightest evidence of ­ 431 any intention of Parliament to extend those
categories to those with any other agendae, however cerebral or esoteric. It follows therefore that I find that, even were I satisfied that there was
indeed no other explanation for the possession of these images save that of an honest and straightforward desire to research the subject of child
pornography, such research does not fulfil the criteria which could properly be regarded as “legitimate”.’

The case stated indicates, however, that the magistrate would in any event have rejected this defence on the facts:

‘I am satisfied that at least a very significant purpose of his [Dr Atkins’] viewing these images was for either the satisfaction of his curiosity, or
a more prurient interest, neither of which can amount to “legitimate reason”. Were it possible for the defence of legitimate reason to extend beyond
the barrier that I have mentioned to purely sociological research, I find as a fact that such reason could not justify the possession of the particular
images in this case.’

I can now set out the three questions posed in the case stated for the opinion of the High Court:

‘1. In respect of a charge of “possession” of an indecent photograph of a child under s 160(1) of the Criminal Justice Act 1988, was I right to
hold that it is an offence of strict liability, mitigated only by the three available statutory defences in sub-ss (2)(a), (b) and (c)?
2. In respect of the defence of “legitimate reason” under s 160(2)(a) was I right to hold that the defence is limited to specified anti-pornographic
campaigners, defined medical researchers and those within the criminal justice system, namely magistrates, judges, jurors, lawyers and forensic
psychiatrists whose duties in the enforcement of the law necessitate the handling of the material in each particular case, and that the defence is not
capable of including research into child pornography even if “honest and straightforward”?
3. In respect of a charge of “making” an indecent photograph of a child under s 1(1)(a) of the Protection of Children Act 1978 was I right to
hold that it requires some act of manufacture namely: “creation, novation or fabrication” and that “making” does not mean “stored, isolated or
reserved in whatever form”, or copying an image or document whether knowingly or not.’

I shall address these questions in a different order.

Legitimate reason
As already indicated, however this question falls to be answered, the answer cannot avail Dr Atkins because the magistrate found that in any event he
was not conducting ‘honest and straightforward research into child pornography’. We are nevertheless invited to consider the question so that courts may
have some guidance on the point. The answer seems to me plain. The question of what constitutes ‘a legitimate reason’ (for the purposes of both s
160(2)(a) of the 1988 Act and s 1(4)(a) of the 1978 Act) is a pure question of fact (for the magistrate or jury) in each case. The central question where the
defence is legitimate research will be whether the defendant is essentially a person of unhealthy interests in possession of indecent photographs in the
pretence of undertaking research, or by contrast a genuine researcher with no alternative but to have this sort of ­ 432 unpleasant material in his
possession. In other cases there will be other categories of ‘legitimate reason’ advanced. They will each have to be considered on their own facts. Courts
are plainly entitled to bring a measure of scepticism to bear upon such an enquiry: they should not too readily conclude that the defence has been made
out.
I should add only that in my judgment it is not appropriate here to consult the Parliamentary discussions on the point: the conditions specified by the
House of Lords in Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593 are not satisfied.

Making
In considering this question it is necessary to bear in mind how the legislation stood before s 1(1)(a) of the 1978 Act and s 160(1) of the 1988 Act
simultaneously came to be amended by s 84 of the Criminal Justice and Public Order Act 1994.
Section 1(1) as originally enacted read:

‘(1) It is an offence for a person—(a) to take, or permit to be taken, any indecent photograph of a child (meaning in this Act a person under the
age of 16) …’
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Section 160(1) as originally enacted read:

‘(1) It is an offence for a person to have any indecent photograph of a child (meaning in this section a person under the age of 16) in his
possession.’

Until 1994, therefore, there was no offence of ‘making’ indecent photographs, nor was there any reference in the legislation to pseudo-photographs.
Similarly, I may add, until the 1994 amendments, photographs were not defined to include ‘data stored on a computer disc or by other electronic means
which is capable of conversion into a photograph’, although the Court of Appeal, Criminal Division held in R v Fellows [1997] 2 All ER 548 that the
scope of the original definition was wide enough to include such data. Another amendment introduced in 1994 was that possession contrary to s 160(1) of
the 1988 Act, although remaining a summary offence, became imprisonable (six months maximum) rather than merely fineable as previously it had been.
Section 1(1) of the 1978 Act remained an either way offence, imprisonable for up to three years.
Miss Malcolm submits on behalf of Dr Atkins that the magistrate was correct in ruling that ‘making’ requires an act of creation and is not satisfied
either by copying or storing an image or document, whether knowingly or not. True, she recognises, ‘an indecent photograph’ is defined by s 7(2) of the
1978 Act to include ‘a copy of an indecent photograph’, and s 1(1)(a) of the 1978 Act as amended makes it an offence ‘to make any indecent photograph’,
so that prima facie the offence would appear to be committed by anyone making a copy of an indecent photograph. She nevertheless argues that this is
not the case; rather, she submits, the word ‘make’ was introduced into s 1(1)(a) of the 1978 Act solely to deal with pseudo-photographs—the real problem
which Parliament was addressing in 1994. In other words, the amended s 1(1)(a) should be construed as if it read: ‘It is an offence for a person to take, or
permit to be taken, any indecent photograph of a child, or to make any pseudo-photograph of a child.’ What para (a) is aimed at is the creation of indecent
child pornography, not its proliferation.
Not the least difficulty with this argument (as, indeed, with the magistrate’s ruling on the meaning of ‘making’ in this legislation) is that it flies
directly in the ­ 433 face of R v Bowden [2000] 2 All ER 418 where the Court of Appeal, Criminal Division (Otton LJ, Smith and Collins JJ) expressly
rejected a similar argument and came to the contrary conclusion. The court in R v Bowden was concerned with printouts made: (a) by the defendant
copying photographs which he had called up onto his computer screen via the Internet, and (b) by the police of photographs (and in one instance a
pseudo-photograph) stored in data files downloaded by the defendant from the Internet and deliberately stored by him on his own computer disks.
Essentially, therefore, the material in R v Bowden was equivalent to the J directory material in the present case.
Having outlined much the same argument as Miss Malcolm advanced before us (save for one of her main submissions which she suggests was
unfortunately not made there), the court in R v Bowden said (at 423):

‘We are unable to accede to this interesting argument. In our judgment s 1 as amended is clear and unambiguous in its true construction. Quite
simply, it renders unlawful the making of a photograph or a pseudo-photograph. There is no definition section. Accordingly the words “to make”
must be given their natural and ordinary meaning. In this context this is “to cause to exist; to produce by action, to bring about” (OED). As a matter
of construction such a meaning applies not only to original photographs but, by virtue of s 7, also to negatives, copies of photographs and data
stored on computer disk. We do not accept that s 1 in its present form is either ambiguous or obscure. We are certainly not persuaded that in some
way the draftsman nodded and produced an ambiguous, obscure or illogical result. Nor do we accept that the natural interpretation leads to any
absurdity suggested by counsel. We prefer the submission … of the respondent: “A person who either downloads images onto disc or who prints
them off is making them. The Act is not only concerned with the original creation of images, but also their proliferation”…’

I may perhaps observe that it was because of the court’s decision in R v Bowden, so we were told, that Gary Glitter shortly afterwards pleaded guilty
to similar offences.
It is Miss Malcolm’s submission, however, that R v Bowden was wrongly decided and, moreover, that we (although an inferior court) are entitled to
disregard it on the footing that it was decided per incuriam of a crucially important submission. That submission is this. Section 1(1) of the 1978 Act, as
originally enacted, created a hierarchy of offences in descending order both geographically and in terms of moral culpability. Paragraph (a) criminalised
the taking of indecent child photographs, or permitting them to be taken, an activity involving the direct exploitation of children in their actual presence;
para (b) involved the distribution or showing of such photographs; para (c) the possession of such photographs with a view to their distribution or
showing; and para (d) the advertising of such distribution or showing. Importantly, by s 1(4) of the 1978 Act the statutory defences are made available
only to those charged with offences under para (b) or (c). There can be no defence whatever to an offence under s 1(1)(a) (or, indeed, under para (d))
since there could never be any excuse for such activities.
If, in 1994, as the Crown contends, making a copy of an indecent child photograph became a criminal offence under s 1(1)(a) as amended, then this
can only have been on the basis that Parliament intended not merely to criminalise this activity for the first time but to make it an absolute offence. That,
submits ­ 434 Miss Malcolm, is highly unlikely. It would, indeed, necessarily follow—and Mr Davies for the DPP accepts this—that all sorts of
innocent people could fall foul of its provisions. In this very case, for example, Mr and Mrs Dunderdale committed the offence when making copies of
the material they found in Dr Atkins’ computer, and had they been prosecuted they would have had no defence whatever. True, they could not have been
prosecuted save with the DPP’s consent. But the decision whether to grant consent, we are told, is routinely devolved to grade five officials in the CPS so
that the safeguard may not invariably be effective.
For my part I see the force of this argument and would accept that s 1(1)(a) should be construed as narrowly as it reasonably can be to avoid the
unwelcome consequences to which Miss Malcolm refers. In any event, as Lord Esher MR said in Tuck & Sons v Priester (1887) 19 QBD 629 at 638:

‘If there is a reasonable interpretation which will avoid the penalty in any particular case we must adopt that construction. If there are two
reasonable constructions we must give the more lenient one. That is the settled rule for the construction of penal sections.’

But that said, I am wholly unpersuaded that we should regard R v Bowden as wrongly decided, let alone as decided in the strict sense per incuriam.
In the first place, there remains the apparently unambiguous language of the subsection. Secondly, it may be that this further argument was in any event
addressed to the court in R v Bowden: there is, after all, a reference in the judgment, albeit unparticularised, to the ‘absurdity suggested by counsel’.
Thirdly, the per incuriam exception to the principle of stare decisis is a notably narrow one. As Evershed MR said in Morelle Ltd v Wakeling [1955] 1 All
ER 708 at 718, [1955] 2 QB 379 at 406:

‘As a general rule the only cases in which decisions should be held to have been given per incuriam are those of decisions given in ignorance or
forgetfulness of some inconsistent statutory provision or of some authority binding on the court concerned: so that in such cases some part of the
decision or some step in the reasoning on which it is based is found, on that account, to be demonstrably wrong. This definition is not necessarily
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exhaustive, but cases not strictly within it which can properly be held to have been decided per incuriam must, in our judgment, consistently with
the stare decisis rule which is an essential feature of our law be … of the rarest occurrence.’

It follows that in my judgment we are bound by R v Bowden and the magistrate here ought properly to have convicted Dr Atkins of ‘making’, at least
in respect of the 11 J directory counts.
But what of the other ten counts of ‘making’, those relating to the material unknowingly stored in, and recoverable from, the caches? R v Bowden, it
is clear, says nothing as to these: it was simply not concerned with data inadvertently stored on a computer disk. Mr Davies, however, argues that this
material too is caught by s 1(1)(a) of the 1978 Act. The plain fact is, he says, that Dr Atkins caused these indecent photographs to be stored in the cache
of the hard disk whether he knew it or not. Anyone who accesses child porn on their computer screen necessarily there and then commits two offences:
he is both in possession of the image and, whether knowingly or not, copying it onto the disk.
I would unhesitatingly reject this argument. For the reasons already given, it seems to me problematic enough to construe s 1(1)(a) (an offence to
which no ­ 435 defence whatever is available) as encompassing the intentional making of copies. To construe it as creating an absolute offence in the
sense contended for by the DPP, ie to encompass also the unintentional making of copies, in my judgment would go altogether too far. It would,
moreover, as Miss Malcolm points out, represent a striking oddity in our criminal law: a situation where the self-same set of facts involves the
commission of two quite distinct offences, possession under s 160 of the 1988 Act and ‘making’ under s 1(1)(a) of the 1978 Act, no additional ingredient
being required for proof of the more serious offence.
In short, it is my conclusion that whilst ‘making’ includes intentional copying (R v Bowden), it does not include unintentional copying.

Possession
As already indicated in respect of the J directory material Dr Atkins could and, but for the delay, would have been prosecuted for possession under s
160. Nevertheless, as stated, he was in my judgment also properly prosecuted for, and should have been convicted of, ‘making’ in respect of those
particular counts.
So far as the cache material is concerned, it was also common ground before us that Dr Atkins would have had no defence to charges of possession
had the prosecution case been put simply on the basis of the transient downloading of the image onto the screen rather than on the basis of its subsequent
inadvertent storage in the cache. As Mr Davies made plain in argument, however, ordinarily it might be difficult to establish when the initial transient
viewing occurred and a prosecution on that basis might well be out of time. True, that was not the situation here, but, he says, the DPP is anxious to
establish a precedent with regard to material stored in the cache and it is his case that the user is in continuous possession of this material from the
moment of downloading it.
The central question, therefore, arising in this part of the case is whether or not knowledge of the existence and effect of the cache is an essential
ingredient of the offence of possession under s 160. Miss Malcolm submits that it is and that the possession counts against Dr Atkins should accordingly
have been dismissed. Mr Davies argues that knowledge is immaterial and therefore that the magistrate was correct to rule that this is ‘an offence of strict
liability’.
Before addressing counsel’s main arguments, I should make just two brief comments on the magistrate’s ruling quoted above. First, I cannot accept
that the relevance or otherwise of the defendant’s knowledge is to be dictated (‘precisely restricted’) by s 160(2)(b) of the 1988 Act: that defence goes
only to the defendant’s knowledge of the indecent nature of photographs in his possession, not to the question whether he is in possession of photographs
of any sort. Secondly, the difficulty with the magistrate’s alternative basis of ruling is that it appears to be founded on the transient viewing on the screen
when the image was first downloaded—the very basis of prosecution which the Crown here have disavowed.
In my judgment, therefore, the relevance of knowledge of possession falls to be decided in accordance with general principle and in this regard Mr
Davies invites our attention to three authorities in particular— R v Hussain (1972) 56 Cr App R 165, R v Steele [1993] Crim LR 298 and R v Buswell
[1972] 1 All ER 75, [1972] 1 WLR 64. R v Hussain and R v Steele both concerned the possession of firearms without a certificate which the court decided
was an absolute offence—in the sense that Hussain was guilty because he knew he had the relevant article even though he did not know it was a firearm,
and Steele was guilty because he knew he had a holdall with contents even though he did not know what those contents ­ 436 were. R v Buswell was a
very different case and concerned the possession of drugs. The drugs in question had been medically prescribed by the defendant’s doctor. After he had
taken them home he genuinely thought that they had been accidentally destroyed by his mother when washing his jeans. Thereafter he discovered them
still in his bedroom drawer where later still they were found by the police. Allowing his appeal against conviction the Court of Appeal held:

‘… (ii) where a person who was in lawful possession of drugs forgot their existence, or mistakenly thought that they had been disposed of or
destroyed, although in fact they remained in his custody, he did not thereby cease to be in possession of them; it followed that the continued
possession remained lawful; accordingly the tablets were in the appellant’s possession by virtue of the doctor’s prescription …’ (See [1972] 1 All
ER 75 at 76.)

In my judgment none of those authorities make good the DPP’s argument. On the contrary, I accept Miss Malcolm’s submission that the firearms
cases are readily distinguishable on the footing that the holdall in R v Steele is to be equated to the cache here and Dr Atkins was not proved to know even
that he had the cache. R v Buswell too is to my mind distinguishable: nothing in the present case equated to Buswell’s undoubted initial storage of the
tablets in his drawer. R v Buswell might well have been in point had Dr Atkins sought (and unknowingly failed) to cancel the material stored in the J
directory and then been prosecuted for possession of it. That, however, is not the present case.
Once again, therefore, I prefer Miss Malcolm’s argument that knowledge is an essential element in the offence of possession under s 160 of the 1988
Act so that an accused cannot be convicted where, as here, he cannot be shown to be aware of the existence of a cache of photographs in the first place.
Returning to s 160(2)(b), it seems to me indeed that the very fact that Parliament created a defence for those possessing photographs reasonably not
known to be indecent, strongly suggests that there was no intention to criminalise unknowing possession of photographs in the first place.
I would therefore answer the three questions raised in the Atkins’ appeal as follows: (1) No: the offence of possession under s 160 is not committed
unless the defendant knows he has photographs in his possession (or knows he once had them—R v Buswell). (2) No: it is a question of fact in each case
whether honest research into child pornography constitutes a ‘legitimate reason’ for possessing (or making) it. (3) No: ‘making’ includes copying
photographs providing that it is done knowingly.
In the result both parties succeed in their appeals.
Miss Malcolm invited us to exercise our discretion not to remit the case to the magistrate for conviction on the 11 counts of ‘making’ in respect of
the J directory material bearing in mind the lapse of time since the offence was committed and the fact that but for the initial delay the prosecution would
have been for possession rather than ‘making’. For my part I would decline the invitation. I really think this case calls for a conviction.

The Goodland appeal

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The sole issue before the justices was whether a particular item (which I shall shortly describe and which for convenience I shall call the exhibit) is a
pseudo-photograph within the meaning of s 7(7) of the 1978 Act. The case was decided by the justices on the basis of the following admitted facts:
­ 437
‘(a) on 5 November 1998 police officers attended … the home address of the defendant and seized [the exhibit] from a secure and locked
cabinet at that address; (b) prior to [that] seizure the exhibit was in possession of the defendant with his full knowledge … It had been made by him
by sellotaping two separate pieces of paper together, which are individually photographs; (c) the defendant had no legitimate reason for having the
item in his possession.

It was further undisputed that the person pictured in the exhibit was a child and that the exhibit is indecent.
Before turning to the argument it is, I think, necessary to explain rather more clearly just what the exhibit consists of. The main photograph is of a
girl aged perhaps ten in a gymnastic outfit standing with her arms up-stretched facing the camera. The second photograph (a small piece plainly cut from
a larger photograph) is of the naked abdomen, genital area and upper thighs of a girl or young woman. A corner of the second photograph has been
affixed to the main photograph by sellotape so that, as if on a hinge, it can either be turned away from the clothed girl or superimposed over the lower
section of the girl’s outfit.
The case for the prosecution below is summarised in the case stated as follows:

‘The item was a photograph. It is made up of two separate items and was two photographs put together. The act of putting them together did
not destroy the fact that it was a photograph … The question was “does the sellotaping of two photographs destroy the fact that it was a
photograph?”’

The case for the defence was that:

‘The item made up of two photographs sellotaped together did not appear to be a photograph. On a common-sense interpretation, the item
could not be a photograph. It is a collage, two pictures stuck together … As a matter of law the item does not appear to be a photograph and is not
a photograph. If it was photocopied or photographed it may have been an image.’

The justices’ central conclusion was as follows:

‘The [exhibit] made up of two photographs sellotaped together appears to be a photograph. We accepted the respondent’s contention that two
photographs sellotaped together does not destroy the fact that it is a photograph. Both parts of the photograph are in proportion. The image is not
distorted. We did not accept the defence contention that two photographs sellotaped together is a collage, not a photograph. It does not matter how
it is produced because of the words “or otherwise howsoever”.’

The single question posed for the High Court’s opinion is whether in coming to that conclusion the justices were wrong in law.
In seeking to uphold this conviction Mr Davies makes two main submissions. First he argues that the phrase ‘which appears to be a photograph’ in s
7(7) of the 1978 Act is a qualitative requirement, not a numerical requirement. The exhibit must appear to be a product of photography rather than, for
example, a cartoon, sketch, painting or other indecent representation of a child. Secondly he contends that the exhibit is a single image which appears to
be photographic in nature, given that it is created by combining two photographic sources into one image.
­ 438
Mr Blair for the appellant submits that these arguments, although ingenious, are fundamentally flawed as a method of statutory interpretation. The
question is not whether the exhibit is ‘a product of photography’ or ‘photographic in nature’. Rather it is whether the exhibit is ‘an image … which
appears to be a photograph’.
In my judgment Mr Blair’s argument is clearly correct. The justices’ own conclusion that ‘two photographs sellotaped together appears to be a
photograph’ seems to me self-contradictory.
I recognise, of course, that were the exhibit itself to be photocopied the result could well be said to constitute a pseudo-photograph. (The mere fact
that in this particular case it would plainly appear not to be a genuine photograph—there being several features of this combination of images which give
the lie to that—would not be inconsistent with such a conclusion—see particularly s 7(8) of the 1978 Act.) That, however, cannot decide this appeal. In
my judgment an image made by an exhibit which obviously consists, as this one does, of parts of two different photographs sellotaped together cannot be
said to appear to be ‘a photograph’. I would accordingly answer the question posed in the case stated: Yes, the justices were wrong in law.
Mr Goodland’s appeal accordingly succeeds.
I add this footnote. The exhibit in the Goodland appeal is pitifully crude in both senses. It is hardly surprising that the penalty imposed was only a
two year conditional discharge with an order to pay £50 costs. The sting, however, lies in the requirement to register with the police under the Sexual
Offenders Act 1997 for a period of five years. I seriously question whether a prosecution with that result is appropriate in a case of this character. It
seems to me that the DPP may wish to instruct those exercising his devolved discretion in future to be rather more fastidious in giving their consent to
prosecutions.

BLOFELD J. I agree.

Appeals allowed. Dr Atkins’ application for permission to appeal refused, but court certifying that a point of law of general public importance was
involved in its decision, namely whether the offence of making an indecent photograph was committed by a person if he/she (a) knowingly or (b)
unknowingly copied an indecent photograph or pseudo-photograph of a child.

Dilys Tausz Barrister.

[2000] 2 All ER 440
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Storer v British Gas plc

CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

HENRY, ROBERT WALKER LJJ AND SCOTT BAKER J
27 JANUARY, 25 FEBRUARY 2000

Industrial tribunal – Procedure – Hearing – Public hearing – Industrial tribunal holding preliminary hearing – Hearing taking place behind locked door
in secure area because of lack of courts – Whether tribunal breaching rule that hearing to be conducted in public – Industrial Tribunals (Constitution and
Rules of Procedure) Regulations 1993, Sch 1, r 8(2).

The appellant, S, brought industrial tribunal proceedings against his former employer for constructive dismissal. Those proceedings had been brought
outside the three-month limitation period running from the termination of employment, and accordingly it was necessary to hold a preliminary hearing to
determine whether or not it had been reasonably practicable for the complaint to be presented within that period. Due to the absence of available
courtrooms, the hearing was held in a room in a secure area behind a door with a coded lock. That door was clearly marked ‘private’, and the access stairs
to the secure area had signs forbidding access to the public. The chairman of the tribunal refused the application to extend time and accordingly
dismissed the proceedings. S appealed to the Employment Appeal Tribunal (EAT), contending that the hearing had failed to comply with r 8(2)a of Sch 1
to the Industrial Tribunals (Constitution and Rules of Procedure) Regulations 1993 which provided that any hearing ‘of or in connection with an
originating application shall take place in public’. That contention was rejected by the EAT which held that the hearing could be described as a public
one. On S’s subsequent appeal to the Court of Appeal, the employer contended that the question of whether a hearing was in public was one of fact and
degree, and that the tribunal had been entitled to find that the hearing had been in public having regard to the absence of available courtrooms, the
desirability of not wasting the parties’ time and expense, and the lack of evidence that any of the public had been excluded.
________________________________________
a Rule 8(2) is set out at p 443 g, post
________________________________________

Held – Although the question of whether a court was sitting in public was a question of fact and degree for the judge, and thus a matter for his discretion,
it would be an incorrect exercise of that discretion not to take proper account of the reason for the general rule requiring a public hearing, namely the need
to remove the possibility of arbitrariness in the administration of justice. That principle was no less important in industrial tribunal proceedings than in
other proceedings. Parliament had not provided for any chambers-type procedure in such proceedings, and the ‘industrial jury’ was intended to function
in public. Indeed, the obligation to sit in public was fundamental to the tribunal’s function, and the importance of the principle was reflected in the use of
the mandatory word ‘shall’ in r 8(2) of Sch 1 to the 1993 regulations, which raised an inference that the failure to do the required act rendered the decision
unlawful. In the instant case the coded door lock was an actual physical barrier to prevent all access to the public and there was no chance of a member of
the public dropping in to see how the tribunal was ­ 440 conducted. Moreover, the fact that no one had attempted to gain access did not show that the
tribunal was conducting the hearing in public. Rather, the tribunal had been sitting in private, and it had no jurisdiction to do so. Accordingly, its
decision would be quashed and the matter remitted for rehearing before another tribunal (see p 445 e f and p 446 h to p 447 d fj, post).
Scott v Scott [1911–13] All ER Rep 1 and McPherson v McPherson [1935] All ER Rep 105 applied.

Notes
For the requirement of a public hearing in employment tribunal (formerly industrial tribunal) proceedings, see 16 Halsbury’s Laws (4th edn reissue) para
520.
For the Industrial Tribunals (Constitution and Rules of Procedure) Regulations 1993, Sch 1, r 8, see 7 Halsbury’s Statutory Instruments (1998 issue)
294.

Cases referred to in judgments

Hodgson v Imperial Tobacco Ltd [1998] 2 All ER 673, [1998] 1 WLR 1056, CA.
McPherson v McPherson [1936] AC 177, [1935] All ER Rep 105, PC.
R v Denbigh Justices, ex p Williams [1974] 2 All ER 1052, [1974] QB 759, [1974] 3 WLR 45, DC.
Scott v Scott [1913] AC 417, [1911–13] All ER Rep 1, HL.

Appeal
Roger Storer appealed with permission of the Court of Appeal (Beldam and Ward LJJ), granted on 9 February 1999, from a decision of the Employment
Appeal Tribunal (Judge Peter Clark, K M Hack JP and R Sanderson OBE) on 16 October 1998 dismissing his appeal from the decision of an industrial
tribunal sitting at Croydon on 4 November 1997 dismissing proceedings for constructive dismissal which he had brought against his former employer,
British Gas plc. The facts are set out in the judgment of Henry LJ.

Mr Storer appeared in person.

Sean Wilken (instructed by Denton Wilde Sapte) for British Gas.

Cur adv vult

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25 February 2000. The following judgments were delivered.

HENRY LJ.
1. This is an appeal from the decision of the Employment Appeal Tribunal dismissing Mr Storer’s appeal against the decision of the industrial
tribunal dismissing his application (inter alia) for constructive unfair dismissal on the grounds that his originating application was not filed in time.
2. The appellant, Mr Storer, was employed (ultimately as assistant financial services manager) by British Gas from 1967 (when he was 18) until 23
December 1996. The last years of his employment were not happy: by his account (which I have no reason to doubt) he was victimised and bullied
throughout 1994 by his then manager, resulting in stress, followed by depression, culminating in the recognition of certain symptoms of post-traumatic
stress disorder by his consultant psychiatrist a year before the termination of his contract. He took paid sick leave for two months later that year. He was
clinically depressed, and reluctant to take the drugs prescribed. When he returned to work after his sick leave, he was offered voluntary redundancy,
­ 441 which he finally took, leaving with an agreed severance payment of £85,163.47. It was the employer’s case that this voluntary departure
accompanied by a substantial payment put significant hurdles in the way of any further claim against them, but that was never explored before us because
this claim was dismissed for failure to comply with time limits, and therefore the merits have not been considered.
3. Mr Storer’s claim was founded on the fact that he had been victimised and bullied, that to permit such treatment of him was a breach of his
contract of employment, and that the termination of his employment was constructive unfair dismissal.
4. Section 111(2) of the Employment Rights Act 1996 provided that:
‘… an industrial tribunal shall not consider a complaint under this section unless it is presented to the tribunal—(a) before the end of the period
of three months beginning with the effective date of termination, or (b) within such further period as the tribunal considers reasonable in a case
where it is satisfied that it was not reasonably practicable for the complaint to be presented before the end of that period of three months.’
5. Here, his originating application making these claims was presented to the tribunal on 20 June 1997, nearly six months after termination, or nearly
three months too late.
6. This point was taken at a preliminary hearing before and by direction of an industrial tribunal chairman, Mr D M Booth sitting alone, held on 4
November 1997. Mr Storer was presenting his own case. British Gas were represented by counsel. Mr Storer expected to go first, and had prepared a
262 page bundle documenting his case, which he hoped to take the chairman through.
7. Instead, the chairman took matters into his own hands, and questioned Mr Storer for an hour and a half. Mr Storer in the result feels that he was
not given the chance to do his case justice. His case was that he was simply too ill, too depressed, to contemplate over that period anything to do with the
last years of his employment. His mother, who lived a long way away in Clacton (he lived in Edgware) was dying. He visited her often, sometimes as an
emergency. She died on 4 June, two weeks or so before he presented his originating application. Until then he felt he had to be ready to drive to see her
at a moment’s notice. So he could not look at work-connected papers for fear that they would so upset him that he would have to take to his bed. He
knew of the three month time limit, but was sure that the tribunal would recognise that it was not reasonably practicable for him to submit his originating
application in time while he was in the grip of disabling depression. I have no doubt but that he was depressed, and was also telling us the truth as he saw
it of how he felt at the time.
8. He also had another reason, itself typical of the man. He was aware that costs could be ordered against him if his claim was frivolous or
vexatious. This caused him considerable anxiety. It was not until June that he believed his case was strong enough to put forward.
9. The chairman reserved his decision in order to have time to properly consider the bundle of documents that Mr Storer had produced so that he
‘could consider more fully the nature of the illness which [Mr Storer] said prevented him from completing this form’.
­ 442
10. He refused Mr Storer’s application to extend time. His conclusion was:
‘I have concluded that it would not be unreasonable to expect an intelligent man of Mr Storer’s standing and experience to be able to fill in a
two page form at some time between his weekly visits to his mother, albeit some of them may have been at short notice. It was quite open to him to
seek legal advice to take any of the drafting pressure off his shoulders, and whilst he may have not liked to address the issues at that stage and
indeed found it uncomfortable to do so, that does not mean it was not reasonably practicable. It is significant that he was able to write significant
letters about the bullying aspect of his case.’

11. Mr Storer sought a review of its decision, which was refused. He then appealed to the Employment Appeal Tribunal (EAT). There he took a
new point, namely his case had not been heard in public, as the regulations required. The EAT rejected that on the basis that, on the facts, the hearing
could be described as a public hearing.
12. In relation to the other points, the EAT concluded: (i) the chairman was entitled to conduct the case in the way he had; (ii) no injustice had been
caused by the respondent sending to the chairman, after the hearing but before the decision, copies of four letters Mr Storer had written (including one to
the chairman of British Gas) over the months in question; (iii) there was no basis under the ‘just and equitable’ or the ‘reasonably practicable’ tests for
extending time.
13. Accordingly, there was no arguable point of law in the appeal and it was dismissed.
14. Mr Storer appealed to the Court of Appeal. The full court gave leave on one point only: that the hearing of the industrial tribunal on 4
November was not a public hearing, and both the industrial tribunal and the EAT erred in law in asserting that it was.
15. This was a point that Mr Storer had not taken before the industrial tribunal. It arises in this way. Rule 8(2) and 8(3) of Sch 1 to the Industrial
Tribunals (Constitution and Rules of Procedure) Regulations 1993, SI 1993/2687 provide:

‘(2) Any hearing of or in connection with an originating application shall take place in public except where a Minister of the Crown has directed
a tribunal to sit in private on grounds of national security in accordance with paragraph 1(4A) of Schedule 9 to the 1978 Act.
(3) Notwithstanding paragraph (2), a tribunal may sit in private for the purpose of—(a) hearing evidence which in the opinion of the tribunal
relates to matters of such a nature that it would be against the interests of national security to allow the evidence to be given in public; or (b) hearing
evidence from any person which in the opinion of the tribunal is likely to consist of—(i) information which he could not disclose without
contravening a prohibition imposed by or under any enactment, or (ii) any information which has been communicated to him in confidence, or
which he has otherwise obtained in consequence of the confidence reposed in him by another person, or (iii) information the disclosure of which
would cause substantial injury to any undertaking of his or any undertaking in which he works for reasons other than its effect on negotiations with
respect to any of the matters mentioned in section 244(1) of the 1992 Act.‘
­ 443
16. The gravity of the limited exceptions to the rule that industrial tribunals (as they were then called) must sit in public points to the importance of
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the rule.
17. The facts are these. At this centre, 12 industrial tribunals were sitting on that day. The lists of cases to be heard in each were on public display.
There was also a list of floating cases, ie cases which had not been allocated to a court, but would be heard as and when a court became available. Mr
Storer’s case was one of these. As the morning wore on, it seemed clear that his case would not be reached unless it was heard in a room not normally
used as a court room. One was available—namely the office of the regional chairman, as that position was unfilled at the time. As a judge was available,
and as the room was available, the court authorities took the decision to have the hearing there. They did not consult Mr Storer on this. The parties
(including Mr Storer’s wife) were escorted there by a guide. No member of the public accompanied them. It is accepted that Mr Storer’s application for
leave to appeal to the Court of Appeal accurately summarises the geographical situation of the room that was used:

‘(a) The hearing was held behind a locked door which separated the area to which the public had access from that part which the learned judge
described as the “secure area” on the second floor of the Tribunal office. This “secure area” [is] protected by the door locked with a push-button
coded lock [which] provides the only means of access to the large open plan office off which the Regional Chairman’s room is located. (b) This
locked door is clearly marked with a large sign stating “Private” in black letters on a white background. (c) All access stairs from the public areas
on the ground and first floors to the second floor where [the] locked door is located are marked clearly with a large sign stating PRIVATE NO
ADMITTANCE TO PUBLIC BEYOND THIS POINT.’

18. When the point was taken on appeal to the EAT, they held:

‘It is right to say that [the regional chairman’s office] is in the secure part of the building, but there is no suggestion that any member of the
public was prevented from attending the meeting, and in our view it can properly be described as a public hearing.’

19. It is plain that the test as to whether a hearing is in public or in private cannot depend on whether in fact any member of the public was
prevented from attending the hearing. Were that not the case, then it would be a simple stratagem not to list any case which the court administration
wished to be heard in private.
20. Before us, Mr Wilken for British Gas concedes first, that this hearing was ‘in connection with’ the originating application made by Mr Storer, so
the r 8(2) obligation of Sch 1 to the 1993 regulations to have a public hearing applied, second that the requirement to have such a hearing in public was
mandatory, and not merely directory, and third that he was not contending that the rules provided for a private hearing in chambers in interlocutory
matters, such as is the case in the High Court and the county court.
21. From this starting position he makes the following points.
22. First, whether a hearing is in public is a question of fact and degree for the trial judge. Therefore, it is a matter of discretion, to be exercised
with regard to the overall interests of justice. Second, the tribunal was entitled to find that this hearing was in public, having regard to the absence of
available courtrooms, the desirability of the parties’ time and expense not being wasted, and that there was no evidence that any member of the public was
excluded. Third, the decision was ­ 444 made public by entry on the register, and there was available (and now has taken place) a full appeal in public
to the EAT.
23. In general support of the first two submissions, Mr Wilken relied on R v Denbigh Justices, ex p Williams [1974] 2 All ER 1052, [1974] QB 759.
Though I will deal with each of those submissions in detail, that authority does not greatly assist him. There, the court was sitting in Llanrwst, in court 2,
a small court. There, in a list of minor offences, two members of the Welsh Language Society were being prosecuted for using their televisions without
licences. They attended for their trial with 20 or 30 friends or supporters. When the parties, their lawyers and the press had been admitted to the court,
only five seats were available for the general public. The chairman of the bench responsible for the conduct of the case in public, invited the defendants
to nominate five of their friends. When the first defendant’s application to have the case heard in Welsh was refused, the defendant and two of his friends
left the court, after creating a disturbance. When the second defendant’s similar application was also refused, he and the remaining supporters left. The
Divisional Court held that the court was undoubtedly sitting in public at the beginning of the trial, and (obiter) even if the court had refused to permit the
five vacated seats to be filled thereafter, there would have been every possible justification for the chairman to refuse to have the seats filled given the
behaviour of the first batch of friends and supporters. The court said:

‘… I do not think that the question: open court or no? can depend on such minutiae as to whether at a particular moment there was a particular
member of the public anxious to come in who was wrongly refused.’ (See [1974] 2 All ER 1052 at 1057, [1974] QB 759 at 766.)

24. I agree in general terms with that decision. Whether a court is sitting in public may be, in any individual case a question of fact and degree for
the judge, a matter of discretion. But it would be a wrong exercise of that discretion not to take proper account of the need for that rule. The source of the
debate on this issue is the well-known case of Scott v Scott [1913] AC 417, [1911–13] All ER Rep 1. That case concerned s 46 of the Divorce Act 1857
which:

‘… was substantially to put an end to the old procedure, and to enact that the new Court was to conduct its business on the general principles as
regards publicity which regulated the other Courts of justice in this country. These general principles … lay down that the administration of justice
must so far as the trial of the case is concerned … be conducted in open Court.’ (See [1913] AC 417 at 434, [1911–13] All ER Rep 1 at 8.)

25. That principle was to be subject to certain well-known exceptions (none of which apply here). Those exceptions are where a hearing in private
is required either to do justice or to prevent injustice:

‘As the paramount object must always be to do justice, the general rule as to publicity, after all only the means to an end, must accordingly
yield. But the burden lies on those seeking to displace its application in the particular case to make out that the ordinary rule must as of necessity
be superseded by this paramount consideration. The question is by no means one which, consistently with the spirit of our jurisprudence, can be
dealt with by the judge as resting in his mere discretion as to what is expedient. The latter must treat it as one of principle, and as turning, not on
convenience, but on necessity.’ (See [1913] AC 417 at 437–438, [1911–13] All ER Rep 1 at 9.)
­ 445
26. Later in that case, Lord Shaw of Dunfermline ([1913] AC 417 at 476, [1911–13] All ER Rep 1 at 29) said ‘that publicity in the administration of
justice … one of the surest guarantees of our liberties’, and cites passages from Bentham and Hallam ([1913] AC 417 at 477, [1911–13] All ER Rep 1 at
30) in support of the general thesis that in Bentham’s phrase ‘Publicity is the very soul of justice’. The principle is as important now as it was then—for a
modern statement of it see the passage from Sir Jack Jacob’s Hamlyn Lecture, The Fabric of English Civil Justice (38th series, 1987), quoted by Lord
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Woolf MR in Hodgson v Imperial Tobacco Ltd [1998] 2 All ER 673 at 685, [1998] 1 WLR 1056 at 1069.
27. An application of the principles in Scott v Scott is to be found in McPherson v McPherson [1936] AC 177, [1935] All ER Rep 105, a decision of
the Privy Council in a Canadian case. There the undefended divorce of a well-known politician was conducted not in a court room (though there were
empty courts available) but in the judges’ library. There was direct public access to the courts, but not to the judges’ library. It can be approached from
the same corridor which encircles the building and provides direct access to the courts, but only through a double swing door, one side of which is always
fixed, and on which there is a brass plate with the word ‘Private’ in black letters on it. Through this swing door was another corridor, on the opposite wall
of which was a further door to the judges’ library. Both this internal door and the free swinging half of the double doors were in fact open during this
hearing. The question for the court was:
‘… whether these swing doors with “Private” marked upon one of them were not as effective a bar to the access to the library by an ordinary
member of the public finding himself in the public corridor as would be a door actually locked.’ (See [1936] AC 177 at 198, [1935] All ER Rep
105 at 108.)
28. Their answer, while accepting that no actual exclusion of the public was intended, was that:
‘… even although it emerges in the last analysis that their actual exclusion resulted only from that word “private” on the outer door, the learned
judge on this occasion, albeit unconsciously, was, their Lordships think, denying his Court to the public in breach of their right to be present, a right
thus expressed by Lord Halsbury in Scott v. Scott ([1913] AC 417 at 440, [1911–13] All ER 1 at 11): “Every Court of justice is open to every
subject of the King”.’ (See [1936] AC 177 at 200, [1935] All ER Rep 105 at 109; that rule is of course subject to all the strictly defined exceptions
referred to above.)
29. Mr Wilken seeks to distinguish that authority by the nature of the proceedings—divorce—with which the court was concerned. He submits that
in such cases there is greater importance on cases being heard in public than in industrial tribunals. I do not accept that, certainly not where, as here,
Parliament has not only required all hearings ‘connected with’ an originating application to be heard in public, but has not provided for any
chambers-type procedure. The ‘industrial jury’ is intended to function in public, and in my judgment all the arguments of principle as to the importance
of that requirement apply here.
30. The reality is that this is a clear case. This is a stronger case than McPherson v McPherson, because the coded door lock would be an actual
physical barrier, lacking in McPherson v McPherson, to prevent all access to the public. There was no chance of a member of the public dropping in to
see how industrial tribunals (as they then were) were conducted, and the fact that none attempted to does nothing to show that this tribunal was
conducting the trial of this preliminary issue in public. I willingly accept that what was done was done for the best of ­ 446 motives, but the tribunal
was sitting in private, and (as r 8(3) of Sch 1 to the 1993 regulations did not apply) it did not have jurisdiction to sit in private.
31. What consequence follows from that? The principle is an important one. As the passage from Sir Jack Jacob quoted by Lord Woolf MR in
Hodgson v Imperial Tobacco Ltd [1998] 2 All ER 673 at 685, [1998] 1 WLR 1056 at 1069 reminds us:
‘The need for public justice, which has now been statutorily recognised, is that it removes the possibility of arbitrariness in the administration of
justice, so that in effect the public would have the opportunity of “judging the judges”: by sitting in public, the judges are themselves accountable
and on trial. This was powerfully expressed in the great aphorism that, “It is not merely of some importance but is of fundamental importance that
justice should not only be done but should manifestly and undoubtedly be seen to be done.” The opposite of public justice is of course the
administration of justice in private and in secret, behind closed doors, hidden from the view of the public and the press and sheltered from public
accountability.’
32. That importance is reflected in the use of the mandatory word ‘shall’ used in the rule, which raises an inference that the failure to do the required
act renders the decision unlawful (See De Smith, Woolf and Jowell Judicial Review of Administrative Action (5th edn, 1995) p 266 (para 5–058)).
33. While Parliament has laid down the prescribed manner for the hearing to be conducted (in public) it has not laid down the consequences for the
unlawful act of non-compliance. Under CPR 59.10(3) we have power to make any order which ought to have been given or made. So we have the full
range of powers open to us: from remitting for a rehearing in public to concluding that no rehearing was necessary. We look to the importance of the
provision made mandatory: ‘… particular regard being given to its significance as a protection of individual rights.’ (See De Smith, Woolf and Jowell, p
267 (para 5–061).)
34. I for my part regard the obligation to sit in public as being, on the facts of this case, both fundamental to the function of the employment tribunal
and important in its own right. I would accordingly quash the decision of the industrial tribunal and remit the matter for rehearing before another tribunal.
35. In order to overcome the time barrier, that hearing will be centrally concerned with how ill Mr Storer was in the three months following the
termination of his employment, and what, in his depressed state, was ‘reasonably practicable’. That factual decision seems to me to be pre-eminently one
for the full three-member panel of the ‘industrial jury’ to consider. I trust that can be arranged.
36. Further, on two occasions now different constitutions of this court have suggested that this case cries out for mediation. Twice British Gas has
refused that suggestion. It should be reconsidered in the light of Mr Storer’s 29 years service with the company. It was in their service that his health
suffered.

ROBERT WALKER LJ. I agree.

SCOTT BAKER J. I also agree.

Appeal allowed. Permission to appeal to the House of Lords refused.

Dilys Tausz Barrister.

[2000] 2 All ER 448

Practice Direction (Mercantile Lists: Wales and Chester)

PRACTICE DIRECTIONS
QUEEN’S BENCH DIVISION
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Practice – Queen’s Bench Division – Lists – Mercantile lists – Cardiff and Chester.

1. With effect from 16 December 1999 there will be a new Queen’s Bench list in the District Registry of Cardiff which will be known as the ‘Cardiff
Mercantile Court List’ and in the District Registry of Chester known as the ‘Chester Mercantile Court List’.
2. The Mercantile Courts and Business Lists Practice Direction (The Civil Court Practice (September 1999 reissue) pp 735–739, 1/PD/49H, Civil
Procedure (2nd edn, 1999) pp 798–801, paras 49HPD-001 to 49HPD-002) will apply to these lists.
3. The Lord Chancellor has appointed Judge Nicholas Chambers QC to be the judge for these lists.
15 December 1999. LORD BINGHAM OF CORNHILL CJ.

[2000] 2 All ER 449

R v Crown Court at Harrow and another, ex parte UNIC Centre Sarl

CONFLICT OF LAWS: INTELLECTUAL PROPERTY; Trade Marks

QUEEN’S BENCH DIVISION, CROWN OFFICE LIST

NEWMAN J
25 NOVEMBER, 15 DECEMBER 1999

Conflict of laws – Jurisdiction – Civil and commercial matters – Forfeiture proceedings in relation to unauthorised use of trademark and false trade
descriptions – Whether such proceedings a civil matter for purposes of jurisdiction convention – Civil Jurisdiction and Judgments Act 1982, Sch 1, art 1 –
Trade Marks Act 1994, s 97.

LS, a manufacturer of jeans, alleged that a consignment of jeans bearing its trademark were counterfeit, and brought two sets of proceedings in France
against the applicant French company, UNIC. Those proceedings were dismissed and UNIC subsequently exported the jeans to a company in England.
Following a request for assistance from LS, the respondent local authority brought proceedings before the magistrates for forfeiture of the goods under s
97a of the Trade Marks Act 1994, in respect of an alleged offence of unauthorised use of a trademark contrary to s 92 of the 1994 Act and an alleged
offence contrary to s 1 of the Trade Descriptions Act 1968. The magistrates granted the forfeiture order, and UNIC appealed to the Crown Court under s
97(5) as a person aggrieved by the order. At the hearing, UNIC contended that the proceedings before the magistrate had been a civil matter within the
meaning of art 1b of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (as set out in Sch
1 to the Civil Jurisdiction and Judgments Act 1982), and that accordingly the magistrates had not been entitled to make a forfeiture order in view of the
judgments in the French proceedings. The Crown Court held that the magistrates had been exercising their criminal jurisdiction, and UNIC applied for
judicial review of that decision. On the application, the local authority contended that the Crown Court proceedings had either been administrative or
criminal, and therefore outside the scope of the convention.
________________________________________
a Section 97 is set out at p 452 c to p 453 a, post
b Article 1, so far as material, is set out at p 454 b, post
________________________________________

Held – Forfeiture proceedings and appeals under s 97 of the 1994 Act fell within the scope of the convention. Such proceedings were a civil matter, not
criminal or administrative. Although a local authority had a duty to prosecute, it did not have a duty to bring forfeiture proceedings. Nor did it have an
exclusive status in bringing such proceedings. Rather, the relief obtained enured to the benefit of private interests or individuals, and the proceedings
were predominantly concerned with private interests. Furthermore, relief was granted according to the proper determination of private interests. It
followed that the proceedings in the Crown Court were subject to the convention (see p 459 f g and p 460 a, post).
Bavaria Fluggesellschaft Schwabe & Co KG and Germainair Bedarfsluftfarht GmbH & Co KG v Eurocontrol Joined cases 9/77 and 10/77 [1977]
ECR 1517 and Netherlands State v Reinhold Rüffer Case 814/79 [1980] ECR 3807 distinguished.
­ 449

Notes
For the subject matter of disputes for the purposes of the Brussels Convention and for proceedings for the forfeiture of counterfeit goods, see respectively
8(1) Halsbury’s Laws (4th edn reissue) para 626 and 48 Halsbury’s Laws (4th edn reissue) para 130.
For the Civil Jurisdiction and Judgments Act 1982, Sch 1, art 1, see 22 Halsbury’s Statutes (4th edn) (1995 reissue) 545.
For the Trade Marks Act 1994, s 97, see 48 Halsbury’s Statutes (4th edn) (1995 reissue) 189.

Cases referred to in judgment

Bavaria Fluggesellschaft Schwabe & Co KG and Germainair Bedarfsluftfarht GmbH & Co KG v Eurocontrol Joined cases 9/77 and 10/77 [1977] ECR
1517.
LTU Lufttransportunternehmen GmbH & Co KG v Eurocontrol Case 29/76 [1976] ECR 1541.
Netherlands State v Reinhold Rüffer Case 814/79 [1980] ECR 3807.
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Application for judicial review

UNIC Centre Sarl (UNIC) applied by way of judicial review for an order quashing the decision of Judge Southan and justices at the Crown Court at
Harrow on 29 June 1998, dismissing its appeal from the decision of the Brent Magistrates’ Court on 18 February 1998 granting an application by the
second respondent, the London Borough of Brent and Harrow Trading Standards Service (the local authority), for an order for forfeiture of a consigment
of jeans under s 97 of the Trade Marks Act 1994. The facts are set out in the judgment.

Alan Tyrrell QC and Marie-Claire Sparrow (instructed by South & Co) for UNIC.
Simon Mehigan QC and Miles Bennett (instructed by Martin Grout) for the local authority.

Cur adv vult

15 December 1999. The following judgment was delivered.

NEWMAN J. This is an application for relief by way of judicial review to quash a judgment of Judge Southan and justices given in the Harrow Crown
Court on 29 June 1998.
The proceedings were brought by UNIC Centre Sarl (UNIC) pursuant to s 97 of the Trade Marks Act 1994, being an appeal by an aggrieved person
against an order for forfeiture made in the Brent Magistrates Court on 18 February 1998. The London Borough of Brent and Harrow Trading Standards
Service (the local authority) had applied for and obtained an order in the Brent Magistrates’ Court for the forfeiture of 9,312 pairs of jeans, having an
approximate value of £200,000, bearing the Levi Strauss trademark. UNIC is a company registered in France and it carries on a wholesale business from
premises in Marseilles. There have been numerous proceedings, both criminal and civil, in France, in respect of this consignment of jeans, extending over
nearly nine years.
This court is concerned with two judgments of the Tribunal de Grande Instance of Marseilles. In the first, Levi Strauss, the trademark proprietor,
claimed against UNIC that the jeans infringed its trademark because they were not made by Levi Strauss. The action failed. In the second set of
proceedings ­ 450 Levi Strauss obtained an ex parte order in the nature of a freezing injunction which enabled it to seize the jeans. The court set aside
the order on a hearing between the parties on the ground that the issue was res judicata by reason of the previous judgment of the court. The jeans went
into free circulation in France. UNIC entered into a contract of sale of the jeans to a company called Kifol Ltd, and the jeans were exported to England.
The local authority was enlisted at the request of Levi Strauss and issued two informations dated 20 November 1997 against Kifol Ltd: (1) a summons
alleging an offence contrary to s 92(1) of the 1994 Act, and (2) a summons alleging an offence contrary to s 1(1)(b) of the Trade Descriptions Act 1968.
On the same day the local authority issued two complaints whereby it applied for forfeiture of the jeans. The complaints were made respectively by
reference to the provisions of the 1994 Act and the 1968 Act.
The informations were not proceeded with because an understanding was reached between the local authority and Kifol Ltd, including agreement
that Kifol would not oppose an application for forfeiture, which the local authority intimated it intended to make.
The application commenced with the consideration of a preliminary point. It does not appear that the point was drafted. I infer from the judgment
that its ambit evolved from the character of the argument before the court. The Crown Court confined itself to consideration of the question whether the
Civil Jurisdiction and Judgments Act 1982, which implemented the Convention on Jurisdiction and the Enforcement of Judgments in Civil and
Commercial Matters 1968 (set out in Sch 1 to the 1982 Act) (the Brussels Convention), applied to the proceedings in the magistrates’ court. The
judgment records that UNIC submitted that having regard to the judgments in the French courts, which had been registered in this jurisdiction, the
magistrates’ court acting in the exercise of its civil jurisdiction was not entitled to make an order for forfeiture of the jeans. The argument as to whether
the jurisdiction under s 97 of the 1994 Act was civil or criminal was advanced for both sides by reference to the character of the proceedings before the
magistrates. The judgment of the court, having recited the arguments advanced and the provisions which it had to consider, concluded:
‘In our view once proceedings have been brought the order by the magistrates was an order which they were entitled to make within their
powers under s 97(2)(a) and being made on application by the respondents in court on the basis that the agreement between the parties to the
criminal proceedings, it was made within the criminal jurisdiction of the court. In view of our finding we do not need to go on to consider the many
interesting questions which might have arisen under the Convention, but would have to go on to consider in the course of a rehearing the evidence
on other issues which may be outstanding.’
With respect, the agreement reached between the local authority and Kifol was irrelevant to the issue, which has to be determined by reference to the
1982 Act and the Brussels Convention.
Mr Alan Tyrrell QC, who appears for UNIC in this court and who appeared below, asked the court to adjourn the hearing so that the judgment could
be tested in the High Court.
Although Mr Tyrrell was minded to argue on this application that should the court be satisfied that within the meaning of the Brussels Convention
the forfeiture proceedings in the Crown Court were civil, it should also rule as to what effect the French judgments should have in the proceedings in the
Crown ­ 451 Court, he ultimately accepted in the face of the combined opposition of the court and Mr Mehigan QC, that such a course was not open to
him. The Crown Court decided only one point. If UNIC succeeds in this application the matter must go back to the Crown Court for the Crown Court to
consider, along with all the other material in the case, which the parties wish to place before the court, what effect the judgments have on the issues which
the court must determine. It follows that the only question which arises on this application is whether the proceedings in the Crown Court are civil or not,
within the meaning of the 1982 Act and the Brussels Convention.

The proceedings in the Crown Court

Section 97 of the 1994 Act provides as follows:

‘(1) In England and Wales or Northern Ireland where there has come into the possession of any person in connection with the investigation or
prosecution of a relevant offence—(a) goods which, or the packaging of which, bears a sign identical to or likely to be mistaken for a registered
trade mark, (b) material bearing such a sign and intended to be used for labelling or packaging goods, as a business paper in relation to goods, or for
advertising goods, or (c) articles specifically designed or adapted for making copies of such a sign, that person may apply under this section for an
order for the forfeiture of the goods, material or articles.
(2) An application under this section may be made—(a) where proceedings have been brought in any court for a relevant offence relating to
some or all of the goods, material or articles, to that court; (b) where no application for the forfeiture of the goods, material or articles has been
made under paragraph (a), by way of complaint to a magistrates’ court.
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(3) On an application under this section the court shall make an order for the forfeiture of any goods, material or articles only if it is satisfied
that a relevant offence has been committed in relation to the goods, material or articles.
(4) A court may infer for the purposes of this section that such an offence has been committed in relation to any goods, material or articles if it
is satisfied that such an offence has been committed in relation to goods, material or articles which are representative of them (whether by reason of
being of the same design or part of the same consignment or batch or otherwise).
(5) Any person aggrieved by an order made under this section by a magistrates’ court, or by a decision of such a court not to make such an
order, may appeal against that order or decision—(a) in England and Wales, to the Crown Court; (b) in Northern Ireland, to the county court …
(6) Subject to subsection (7), where any goods, material or articles are forfeited under this section they shall be destroyed in accordance with
such directions as the court may give.
(7) On making an order under this section the court may, if it considers it appropriate to do so, direct that the goods, material or articles to which
the order relates shall (instead of being destroyed) be released, to such person as the court may specify, on condition that that person—(a) causes
the offending sign to be erased, removed or obliterated, and (b) complies with any order to pay costs which has been made against him in the
proceedings for the order for forfeiture.
­ 452
(8) For the purposes of this section a “relevant offence” means an offence under section 92 above (unauthorised use of trade mark, &c. in
relation to goods) or under the Trade Descriptions Act 1968 or any offence involving dishonesty or deception.’

Thus s 97 of the 1994 Act entitles any person to apply for forfeiture where that person has come into the possession of goods in connection with the
investigation or prosecution of a relevant offence. There does not have to have been a prosecution to conviction, nor even an existing prosecution. An
investigation will be sufficient if combined with possession. The right to apply for forfeiture conferred by s 97 of the 1994 Act is obviously of particular
value to the trading standards service of a local authority, for it will, in a variety of circumstances, be a person coming into possession of goods in the
circumstances envisaged by the section. Important though the power may be to a local authority it is nevertheless capable of being exercised by any
person, for example the registered trademark proprietor or the licensee of the trademark, so long as the qualifying circumstances set out by the section
exist.
Sections 16, 17, 18 and 19 of the 1994 Act confer specific rights upon the proprietor of a registered trademark to apply to the court for similar relief.
Section 19(1) provides:

‘Where infringing goods, material or articles have been delivered up in pursuance of an order under section 16, an application may be made to
the court—(a) for an order that they may be destroyed or forfeited to such person as the court may think fit, or (b) for a decision that no such order
should be made.’

Sub-section (3) provides:

‘Provision shall be made by rules of court as to the service of notice on persons having an interest in the goods, material or articles, and any
such person is entitled—(a) to appear in proceedings for an order under this section, whether or not he was served with notice, and (b) to appeal
against any order made, whether or not he appeared …’

It follows that relief by way of forfeiture can be obtained by a registered trademark proprietor or licensee, according to his choice, in proceedings
commenced in the High Court (ss 16–19 of the 1994 Act) or in the magistrates’ court (s 97 of the 1994 Act).
The Brussels Convention, in company with other conventions, was incorporated into English law by s 2 of the 1982 Act. Section 3 of the 1982 Act
provides:

‘(1) Any question as to the meaning or effect of any provision of the Brussels Conventions shall, if not referred to the European Court in
accordance with the 1971 Protocol, be determined in accordance with the principles laid down by and any relevant decision of the European Court.
(2) Judicial notice shall be taken of any decision of, or expression of opinion by, the European Court on any such question.
(3) Without prejudice to the generality of subsection (1), the following reports (which are reproduced in the Official Journal of the
Communities), namely—(a) the reports by Mr. P. Jenard on the 1968 Convention and the 1971 Protocol; and (b) the report by Professor Peter
Schlosser on the Accession Convention; and (c) the report by Professor Demetrios I Evrigenis ­ 453 and Professor KD Kerameus on the 1982
Accession Convention; and (d) the report by Mr Martinho de Almeida Cruz, Mr Manuel Desantes Real and Mr P Jenard on the 1989 Accession
Convention, may be considered in ascertaining the meaning or effect of any provision of the Brussels Conventions and shall be given such weight
as is appropriate in the circumstances.’

In this case the meaning and effect of art 1 of the Brussels Convention is in issue. Article 1 provides:

‘This Convention shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to
revenue, customs or administrative matters. The Convention shall not apply to …’

Under the heading ‘Recognition and Enforcement’ the Brussels Convention provides:

‘Article 25
For the purposes of this Convention, “judgment” means any judgment given by a court or tribunal of a Contracting State, whatever the judgment
may be called, including a decree, order, decision or writ of execution, as well as the determination of costs or expenses by an officer of the court.
Recognition
Article 26
A judgment given in a Contracting State shall be recognized in the other Contracting States without any special procedure being required. Any
interested party who raises the recognition of a judgment as the principal issue in a dispute may, in accordance with the procedures provided for in
Sections 2 and 3 of this Title, apply for a decision that the judgment be recognized …
Article 29
Under no circumstances may a foreign judgment be reviewed as to its substance.’
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The provisions of the Brussels Convention relating to civil and commercial matters extend so as to require, where necessary, consideration to be
given to the character of the judgment in respect of which enforcement may be sought and to the character of the proceedings in which enforcement may
be required. No issue arises in respect of the two judgments which, as I have stated, have been duly registered under the 1982 Act. The issue arises as to
whether the Brussels Convention applies to the proceedings in the Crown Court. Case law exists in connection with the characterisation of judgments but
no case has been brought to my attention where specific consideration has been given to the character of the proceedings in which enforcement is sought.
The point, though drawn to my attention, can have no bearing on the approach, nor suggest differing approaches must be adopted, when interpreting the
same words in the same article.
Before I turn to consider the material which has been placed before me, which includes the reports specified in s 3(3) of the 1982 Act, I should set
out the hallmarks of proceedings by way of forfeiture under s 97 of the 1994 Act. The scheme and purpose of the forfeiture provisions (including ss
16–19) of the 1994 Act is to prevent infringing articles entering into circulation in the market to the prejudice of the registered trademark proprietor and to
the prejudice of traders and consumers, who may be induced to deal with the counterfeit items. It is ­ 454 common for there to be contractual
complexity underlying the sale of goods in the market and as a result a number of persons may acquire an interest in the goods and a right to be heard
before an order for forfeiture is made or, if made, upheld on appeal. Although for the magistrates to have jurisdiction under s 97 of the 1994 Act the
person in possession must be in possession for the purposes of prosecution or investigation into a relevant offence, the forfeiture order cannot be regarded
as a penalty or an essential part of the prosecution of the criminal offence. The forfeiture process comprises a court procedure for working out the
consequences of the commission of a criminal offence in connection with goods, having regard to the commercial and proprietary interests of persons
who have entered into transactions in connection with the goods in question. Section 97 of the 1994 Act provides a means whereby persons can apply to
the court to protect their private interests. Additionally, it avails local authorities in the conduct of their functions. Section 93 of the 1994 Act imposes a
duty on every local weights and measures authority to enforce the provisions of s 92 of that Act. In the discharge of that duty the authority will regularly
come into the possession of infringing goods in the course of the investigation or prosecution of a relevant offence. But the local authority have a duty to
prosecute, and do not have a duty to apply for forfeiture, although it is plainly a great convenience for them to be able to do so, in order to avoid being in
possession of an enormous number of infringing objects.
Further, it must be said that a local authority has a public interest, which it can serve by making an application for forfeiture, namely the protection
of many individuals who may be prejudiced should the infringing articles enter into the market. Although properly regarded as a public interest, it
represents a right and power to act in the public interest by bringing proceedings to protect the collective body of private interests, too numerous and
unidentified for it to be practical to envisage proceedings being taken by them. That said, the circumstances of possession are not unique to the local
authority, and the form of relief by way of forfeiture has no specific public authority character.

European law
Both sides drew my attention to the case of LTU Lufttransportunternehmen GmbH & Co KG v Eurocontrol Case 29/76 [1976] ECR 1541. Mr
Mehigan in addition drew my attention to the case of Netherlands State v Reinhold Rüffer Case 814/79 [1980] ECR 3807 and Bavaria Fluggesellschaft
Schwabe & Co KG v Eurocontrol Joined cases 9/77 and 10/77 [1977] ECR 1517. In the LTU Lufttransportunternehmen GmbH & Co KG v Eurocontrol
judgment, a German company, LTU Lufttransportunternehmen GmbH & Co KG, asserted that charges claimed by Eurocontrol, namely the European
Organisation for the Safety of Air Navigation, in respect of which an order for payment had been obtained in the Belgian courts, were charges claimed by
public law. The Belgian court declared that it had jurisdiction on the ground that the payment of the charges in the dispute arose out of an activity of the
defendant which was deemed to be commercial and it ordered LTU to pay the sum plus interest. Eurocontrol sought to enforce the judgment through the
Dusseldorf court and the Court of Justice of the European Communities was requested to give a preliminary ruling on the question—

‘whether, for the purposes of interpreting of the concept “civil and commercial matters” within the meaning of the first paragraph of Article 1
­ 455 of the Convention … the law to be applied is the law of the State in which judgment was given (in this instance Belgium) or the law of the
State in which the order for enforcement is to be issued.’ (See [1976] ECR 1541 at 1550 (para 1).)

The judgment in its material part states as follows:

‘3 … As Article 1 serves to indicate the area of application of the Convention it is necessary, in order to ensure, as far as possible, that the
rights and obligations which derive from it for the Contracting States and the persons to whom it applies are equal and uniform, that the terms of
that provision should not be interpreted as a mere reference to the internal law of one or other of the States concerned. By providing that the
Convention shall apply “whatever the nature of the court or tribunal” Article l shows that the concept “civil and commercial matters” cannot be
interpreted solely in the light of the division of jurisdiction between the various types of courts existing in certain States. The concept in question
must therefore be regarded as independent and must be interpreted by reference, first, to the objectives and scheme of the Convention and,
secondly, to the general principles which stem from the corpus of the national legal systems.
4. If the interpretation of the concept is approached in this way, in particular for the purpose of applying the provisions of Title III of the
Convention, certain types of judicial decision must be regarded as excluded from the area of application of the Convention, either by reason of the
legal relationships between the parties to the action or of the subject-matter of the action. Although certain judgments given in actions between a
public authority and a person governed by private law may fall within the area of application of the Convention, this is not so where the public
authority acts in the exercise of its powers. Such is the case in a dispute which, like that between the parties to the main action, concerns the
recovery of charges payable by a person governed by private law to a national or international body governed by public law for the use of
equipment and services provided by such body, in particular where such use is obligatory and exclusive. This applies in particular where the rate of
charges, the methods of calculation and the procedures for collection are fixed unilaterally in relation to the users, as is the position in the present
case where the body in question unilaterally fixed the place of performance of the obligation at its registered office and selected the national courts
with jurisdiction to adjudicate upon the performance of the obligation.’ (See [1976] ECR 1541 at 1551 (paras 3–4).)

The court therefore concluded that having regard to these criteria the judgment given in the action was excluded from the area of application of the
Brussels Convention.

Netherlands State v Reinhold Rüffer

In the Reinhold Rüffer case a vessel belonging to Reinhold Rüffer collided with another vessel in the Bight of Watum and sank. According to the
terms of a treaty between the Kingdom of the Netherlands and the Federal Republic of Germany, it was provided that the Netherlands should be
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responsible for the administration of the waterways in the Bight of Watum, which involved the removal of wrecks. The Netherlands state removed the
wreck. After selling the wreck there ­ 456 remained a balance of florins which the Dutch state claimed. The court held that the concept of ‘civil and
commercial’ matters within the meaning of the first paragraph of art 1 of the Brussels Convention did not include actions brought by the agent responsible
for administering public waterways against the person having liability in law to recover the costs incurred in the removal of a wreck carried out by, or at
the instigation of, the administering agent in the exercise of its public authority. The court placed no weight upon the distinction relied upon, namely that
the recovery was sought in the civil courts and not in some form of administrative process. The court concluded that the claim was outside the application
of the Brussels Convention. The second Eurocontrol case, Bavaria Fluggesellschaft Schwabe & Co KG v Eurocontrol, was brought to my attention as
confirming the jurisprudence of the first, and it was in fact relied upon in the Reinhold Rüffer case as an accurate statement of the jurisprudence in the
Court of Justice.

The reports of Mr Jenard and Professor Schlosser

Counsel observed that the reports and the cases reflect consideration of the character of a judgment for the purposes of the Brussels Convention
where enforcement is concerned as opposed to the character of the proceedings in which enforcement may be claimed. The observation is apt, but has no
bearing, in my judgment, upon the approach the court must adopt, which must be identical whichever aspect of the Brussels Convention is under
consideration. Mr Jenard (see OJ 1979 C59 p 1 at p 9) points out in his report:

‘III CIVIL AND COMMERCIAL MATTERS

The Committee did not specify what is meant by “civil and commercial matters”, nor did it point to a solution of the problem of classification
by determining the law according to which that expression should be interpreted.’

He goes on to state:

‘… it follows from the text of the Convention that civil and commercial matters are to be classified as such according to their nature, and
irrespective of the character of the court or tribunal which is seised of the proceedings or which has given judgment. This emerges from Article 1,
which provides that the Convention shall apply to civil and commercial matters “whatever the nature of the court or tribunal”. The Convention also
applies irrespective of whether the proceedings are contentious or non-contentious … The Convention covers civil proceedings brought before
criminal courts, both as regards decisions relating to the jurisdiction, and also as regards the recognition and enforcement of judgments given by
criminal courts in such proceedings …’

A little later in the report, Mr Jenard observes:

‘The Convention also applies to civil or commercial matters brought before administrative tribunals.’

Mr Jenard sets out in his report a formula adopted by a committee to the Brussels Convention which was as follows:

‘The expression “civil or commercial matters” is very wide and does not include only those matters which fall within the jurisdiction of civil
tribunals ­ 457 and commercial tribunals in countries where administrative tribunals also exist. Otherwise there would be a wholly unjustifiable
inequality between the Contracting States: service abroad of judicial instruments could take place on a wider scale for countries which do not have
administrative tribunals than for countries which have them. In brief, the Convention is applicable from the moment when private interests become
involved …’ (See OJ 1979 C59 p 1 at pp 9–10.)

It is pointed out by Mr Jenard that the ideal solution would certainly have been to apply the Brussels Convention to all civil and commercial matters.
However problems relating to the conflict of laws in respect of property rights gave rise to difficulties in that regard. He states:

‘The solution adopted implies that all litigation and all judgments relating to contractual or non-contractual obligations which do not involve the
status or legal capacity of natural persons, wills or succession, rights in property arising out of a matrimonial relationship, bankruptcy or social
security must fall within the scope of the Convention, and that in this respect the Convention should be interpreted as widely as possible.’ (See OJ
1979 C59 p 1 at p 10.)

Professor Schlosser
The report of Professor Schlosser in 1978 was given to mark the accession of the Kingdom of Denmark, Ireland and the United Kingdom and
Northern Ireland to the Brussels Convention (OJ 1978 L304 p 1). In his report the Professor states:
‘The distinction between civil and commercial matters on the one hand and matters of public law on the other is well recognised in the legal
systems of the original Member States and is, in spite of some important differences, on the whole arrived at on the basis of similar criteria. Thus
the term “civil law” also includes certain important special subjects which are not public law, especially, for example, parts of labour law. For this
reason the draftsmen of the original text of the 1968 Convention, and the Jenard report, did not include a definition of civil and commercial matters
and merely stated that the 1968 Convention also applies to decisions of criminal and administrative courts, provided they are given in a civil or
commercial matter, which occasionally happens. In this last respect, the accession of three new Member States presents no additional problems.
But as regards the main distinction referred to earlier, considerable difficulties arise.’ (See OJ 1979 C59 p 71 at p 82 (para 23).)
The Professor here had in mind the fact that in the United Kingdom and Ireland the distinction commonly made in the original member states
between private and public law was hardly known. Under the heading ‘Civil and Criminal Law’ the Professor stated as follows:

‘The Working Party considered it obvious that criminal proceedings and criminal judgments of all kinds are excluded from the scope of the
1968 Convention, and that this matter needed, therefore, no clarification in the revised text (see paragraph 17). This applies not only to criminal
proceedings stricto sensu. Other proceedings imposing sanctions for breaches of orders or prohibitions intended to safeguard the public interest
also fall outside the ­ 458 scope of civil law. Certain difficulties may arise in some cases in classifying private penalties known to some legal
systems like contractual penalty clauses, penalties imposed by associations, etc. Since in many legal systems criminal proceedings may be brought
by a private plaintiff, a distinction cannot be made by reference to the party which instituted the proceedings. The decisive factor is whether the
penalty is for the benefit of the private plaintiff or some other private individual. Thus the decisions of the Danish industrial courts imposing fines,
which are for the benefit of the plaintiff or some other aggrieved party, certainly fall within the scope of the 1968 Convention.’ (See OJ 1979 C59 p
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71 at p 84 (para 29).)

The argument
Mr Mehigan for the local authority submitted that the proceedings in the Crown Court were either (a) administrative; or (b) criminal and were
therefore outside the scope of the Brussels Convention. As to the administrative character of the proceedings he submitted that they were taken by a
public authority acting in the exercise of its public authority powers and, on the basis of the jurisprudence in Europe to which I have referred, the answer
was clear. As to the criminal character of the proceedings, having regard to the requirement that there be the investigation or prosecution of a relevant
offence, and the requirement that there can only be a forfeiture order made if the court is satisfied that the relevant offence has been committed, it should
be concluded that they are criminal proceedings. Additionally, he prays in aid the observation made by the editors of the Current Law Statutes that s 97
of the 1994 Act represents the criminal counterpart to the civil powers conferred under ss 16–20 of that Act. He also argues that the action has been taken
by the local authority in support of the public interest to prevent counterfeit articles entering into the market.
In the Reinhold Rüffer case and the Eurocontrol cases do not support the argument he advances. Those cases involve actions taken by public
authorities, which were peculiarly the power of the public authority to take by virtue of their status as a public authority and in respect of matters
governed by their public authority duties. Although a local authority is bound to prosecute, or has a duty to prosecute, it does not have a duty to bring
forfeiture proceedings, nor does it have any exclusive status in bringing such proceedings. The relief it obtains enures to the benefit of the private interests
of individuals. In my judgment the proceedings are predominantly concerned with private interests. Further, relief is granted according to the proper
determination of private interests. Professor Schlosser gives by way of example the fines in the industrial court in Belgium as comprising a pointer to the
character of the proceedings. Having considered the principles laid down by relevant decisions of the Court of Justice and the reports of Mr Jenard and
Professor Schlosser I am satisfied that the Crown Court proceedings are civil and not criminal or administrative.
I was treated to a limited survey of what the position might be under domestic law and such perusal was, in so far as it is a national law forming part
of the corpus of national laws in the European Union, permissible. Suffice it to say that by closely similar reasoning to the above, I am satisfied that had
the matter required a decision under domestic law, the proceedings by way of forfeiture would have been properly categorised as civil. There is a close
parallel to the position which arises in interpleader proceedings and another parallel in the provisions of the Customs and Excise Management Act 1979.
­ 459
It follows that in my judgment the correct answer to the preliminary point which has been argued before me is that the forfeiture proceedings
pursuant to s 97 of the 1994 Act and an appeal by way of an aggrieved person to the Crown Court in respect of a forfeiture order are proceedings to which
the Brussels Convention applies, being proceedings in a civil matter.

Application allowed.

Caroline Stomberg Barrister.

[2000] 2 All ER 461

Sinclair v British Telecommunications plc

ADMINISTRATION OF JUSTICE; Courts: CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

PETER GIBSON, JUDGE LJJ AND FERRIS J
8 DECEMBER 1999, 21 JANUARY 2000

Practice – Stay of proceedings – Jurisdiction – Company bringing action against defendant for sums allegedly due under contract – Company assigning
right of action under various contracts to claimant – Claimant bringing action against defendant based on same contract as company’s action – Court
dismissing company’s action for want of prosecution and ordering company to pay defendant’s costs – Whether court having jurisdiction to stay
claimant’s action until payment of costs in company’s action.

The claimant, S, was the controlling shareholder and a director of VTL. In 1992 VTL brought an action against BT, seeking an order for the payment of
sums allegedly due under a contract (the 1992 action). That action was apparently based on an agreement contained in a customer order bearing the
reference NSS 03056. In 1995 S brought an action against BT for breach of various contracts, including NSS 03056 (the 1995 action). In 1997 VTL
assigned to S any cause of action arising out of the contracts which formed the subject matter of the 1995 action. That same year, S brought another
action against BT as assignee of those contracts (the 1997 action). Subsequently, the 1995 action was struck out on the ground that S could not show that
he was the contracting party, while the 1992 action was dismissed for want of prosecution. On the dismissal of the 1992 action, VTL was ordered to pay
BT’s costs, but it failed to satisfy that order. In 1999 BT applied for an order staying the 1997 action until VTL paid the costs of the 1992 action. That
application was granted by the judge who held that the 1997 action was based, at least in part, on the same cause of action asserted by VTL in the 1992
action. S appealed, contending, inter alia, that the court had no jurisdiction to make such an order. Alternatively, he contended that the judge should have
ordered that the costs in the 1992 action were not to be satisfied until after the conclusion of the 1997 action, when they could be met out of the damages
which S expected to recover.

Held – The court had an inherent jurisdiction to prevent a claimant from subjecting a defendant to a second, substantially similar, action without
satisfying his obligations in respect of the first action. That jurisdiction was wide enough to enable the court to make an order against the claimant in the
second action who was the successor in title of the claimant in the first action. In such a case, the assignee ought not to be in any better position than the
assignor who had impaired his cause of action by conducting the first action in a manner that gave rise to the probability that a stay would be granted if a
new action was commenced without the costs of the first action being paid. Thus in the instant case the judge did have jurisdiction to make the order.
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Moreover, there were no grounds for interfering with the manner in which the judge had exercised that jurisdiction. Although it was within the scope of
the court’s discretion to postpone liability in the manner suggested by S, such a postponement would seldom, if ever, constitute a proper exercise of the
discretion. It would remove ­ 461 altogether the disciplinary impact of the jurisdiction and would probably leave BT unsatisfied in respect of the costs
awarded to it unless it lost the 1997 action. Accordingly, the appeal would be dismissed (see p 469 b to d, p 470 a b and p 473 c d, post).
Morton v Palmer (1882) 9 QBD 89 and Thames Investment and Securities plc v Benjamin [1984] 3 All ER 393 applied.
Norglen Ltd (in liq) v Reeds Rains Prudential Ltd [1998] 1 All ER 218 distinguished.

Notes
For stays under the court’s inherent jurisdiction, see 37 Halsbury’s Laws (4th edn) para 442.

Cases referred to in judgments

Advanced Technology Structures Ltd v Cray Valley Products Ltd, Pratt v Cray Valley Products Ltd [1993] BCLC 723, CA.
Eurocross Sales Ltd v Cornhill Insurance plc [1995] 4 All ER 950, [1995] 1 WLR 1517, CA.
Morton v Palmer (1882) 9 QBD 89, DC.
Norglen Ltd (in liq) v Reeds Rains Prudential Ltd, Circuit Systems Ltd (in liq) v Zuken-Redac (UK) Ltd [1998] 1 All ER 218, [1999] 2 AC 1, [1997] 3
WLR 1177, HL; affg [1996] 1 All ER 945, [1996] 1 WLR 864, CA, [1996] 3 All ER 748, [1997] 1 WLR 721, CA.
Thames Investment and Securities plc v Benjamin [1984] 3 All ER 393, [1984] 1 WLR 1381, Ch D.

Appeal
James Anthony Sinclair, the claimant in proceedings against British Telecommunications plc (BT) for sums allegedly due under various contracts,
appealed with permission of Sedley LJ granted on 23 July 1999 from the order of Buckley J on 28 January 1999 staying the proceedings until satisfaction
of an order requiring Vox Telecom Ltd (VTL), the plaintiff in an earlier action based on one of those contracts, to pay BT’s costs of that action, which
had been dismissed for want of prosecution. The facts are set out in the judgment of Ferris J.

Philip Engleman and Paul Spencer (instructed by Bettesh Fox) for Mr Sinclair.
Malcolm Chapple (instructed by Mr Miles Jobling, Head of BT Group Legal Services) for BT.

Cur adv vult

21 January 2000. The following judgments were delivered.

FERRIS J (giving the first judgment at the invitation of Peter Gibson LJ). This is an appeal by the plaintiff, James Anthony Sinclair, from an order of
Buckley J made on 28 January 1999. By that order Buckley J stayed the plaintiff’s action until after the defendant British Telecommunications plc (BT)
had been paid the sum of £3,000 which represented the assessed costs ordered to be paid to BT in an earlier action in which the plaintiff was a company
named Vox Telecom Ltd (VTL). If BT had not been paid that sum by 28 April 1999 it was ordered that the action be struck out and that judgment be
entered for BT, with consequential provisions in respect of costs.
In order to explain why that order was made and the basis of this appeal it is necessary to set out a considerable amount of background material.
­ 462
Since about 1985 BT has had in place a facility known as its Callstream Network. This network can be used for what are colloquially known as
‘Chatlines’, which enable a number of telephone callers to hold a conversation together. For some callers this represented a popular service which, with
the calls being charged for at premium rates, was highly profitable to the provider of the service. Originally this service was provided only by BT itself,
but after the first few years BT began to enter into arrangements with independent service providers under which those service providers organised the
service, the revenue for the calls being divided between BT and the relevant service provider.
Between 1989 and February 1991 Mr Sinclair or one or more entities connected with him (as will appear, the identity of the contracting party is a
matter of significance in these proceedings) entered into arrangements with BT under which he or they became the providers of chatline services. These
arrangements were made by means of the submission to BT of a customer order, on a standard printed form, seeking provision of the relevant telephone
lines and other facilities. This customer order, when accepted by BT, ripened into a contract. In these proceedings the contracts resulting from four such
customer orders are relevant. The numbers and dates of these orders and the date on which the relevant service was to commence were as follows:

Order Number Order date Commencement date

NSS 02269 3 June 1989 25 October 1989
NSS 02981 6 September 1989 27 April 1990
NSS 03056 15 November 1990 31 January 1991
SOL 00893 20 March 1991 28 March 1991

Unfortunately it is difficult to be certain about much of the contents of each order, largely because the material parts of the printed form have been
completed in manuscript and, in the copies before the court, these parts are largely illegible. There does, however, appear to be no dispute about the
particulars given in relation to each contract in an affidavit of Gordon Alexander Peilow sworn on behalf of BT on 10 August 1998. From these
particulars it appears that each customer order was signed on behalf of the customer by Mr Sinclair. The customer and Mr Sinclair’s relationship to it was
variously described. Thus in the case of order NSS 03056 the customer was named as ‘Mr James Sinclair, Vox Ltd, The Temple, 24 Dale Street,
Liverpool 2’. Mr Sinclair described his position in the company as ‘Secretary’. Other orders may have been placed on behalf of entities named ‘Status
Systems’ and ‘Digitsuge Ltd’.
It seems that there is no company whose name was simply ‘Vox Ltd’, but VTL, whose full name is, as I mentioned, Vox Telecom Ltd was in
existence and was, at least at that time, closely connected with Mr Sinclair. Figures produced by BT show that between June 1990 and February 1992 BT
paid very substantial sums to entities connected with Mr Sinclair whose names are recorded by BT as ‘Status Systems’, ‘Vox’ and ‘Vox Ltd’. It is not
known for certain which entity actually received these sums, but the actions of VTL referred to later clearly imply that it was a recipient.
During 1991 or at the beginning of 1992 BT became concerned at the way in which Mr Sinclair or the entities connected with him were carrying on
their chatline services. On 10 January 1992 BT wrote a letter addressed to ‘Mr James Sinclair, Vox/Vox Ltd’ at The Temple, 24 Dale Street, Liverpool 2
stating that, as a result of inquiries BT had reason to believe that ‘you have been conducting ­ 463 your business illegally and have not been providing
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bona fide services’. The letter went on to say that:

‘We have decided to exercise our right under condition 11.5 of our contract with Vox and Vox Ltd, Order Numbers NSS 02981, NSS 03056 and
SOL 00893 dated 27/4/90, 31/1/91 and 28/3/91, to suspend payments due.’

This letter was replied to by solicitors who expressly identified their client as ‘Vox Telecom Ltd’. In subsequent correspondence it was said by the
solicitors for VTL that ‘Vox’ and ‘Vox Ltd’ were trading names of VTL.
It is said by Mr Sinclair that at the time when BT suspended payment some £202,000 was due from BT to the entities in question and that BT
stopped payment of a cheque for more than £66,000 which had been drawn in favour of ‘Vox Ltd’. The suspension of payment has resulted in much
litigation. So far as material to the present proceedings the relevant events can be summarised as follows.
(1) On 29 January 1992 VTL commenced a High Court action against BT (the 1992 action) claiming an injunction to restrain BT from acting on its
decision to suspend payment of sums due to VTL, an account of what was due to VTL and an order for payment.
(2) In its statement of claim in the 1992 action VTL did not specify the order number which had given rise to the contract on which it sued, but it
referred to an agreement in writing between itself and BT made in or about January 1991. The only one of the four customer orders referred to in BT’s
letter which matches up with this reference is NSS 03056, which was in respect of a service which was to commence on 31 January 1991.
(3) In an affidavit sworn on 30 January 1992 in support of an application by VTL for an interlocutory injunction Mr Sinclair said:

‘In September 1988, together with my wife and some friends, I set up business operating on the “Callstream” service run by [BT]. The nature
of the operation is to provide one to one chat conversations. Subsequently we formed a company, and since 6th January 1991 the business has been
owned and run by the Plaintiff (Vox). I own a controlling shareholding in Vox, and was appointed a Director on 28th January 1992. I am
authorised to make this affidavit on Vox’s behalf.’

Later in his affidavit Mr Sinclair referred to the payments received from BT (then 22ÿ5 pence per minute) as being ‘our only source of revenue’ and
said that until the suspension of payments by BT Vox’s receipts from BT were of the order of between £60,000 and £65,000 per month, its overheads
being £50,000 to £55,000 per month.
(4) The application by VTL for an interlocutory injunction was unsuccessful. Thereafter no steps were taken in the 1992 action until it was struck
out as hereafter mentioned.
(5) On 5 December 1995 Mr Sinclair commenced a new High Court action against BT (the 1995 action). In this action Mr Sinclair claimed that he
personally was the contracting party in the contracts which resulted from customer orders NSS 02269, NSS 02981, NSS 03056 and SOL 00893 and sued
for breach of these contracts. In its defence, in addition to raising other objections, BT disputed this claim.
(6) Subsequently four deeds of assignment were entered into, each of them being dated 20 January 1997. Each deed was in the same form, except
for the ­ 464 name of the assignor. In one deed the assignor was named as VTL, in the second as Digitsuge Ltd, in the third as Status Properties (1989)
Ltd and in the fourth as Pullman (1991) Liverpool Ltd. By each assignment the assignor was expressed to assign to Mr Sinclair in consideration of £1
rights which were defined as follows:

‘1.4.1 the causes of action disclosed in [the 1995 action],

1.4.2 any and all cause of action against BT arising out of [the contracts arising out of customer orders numbered NSS 02269, NSS 02981, NSS
03056 and SOL 00893],
1.4.3 any and all causes of action arising out of the issue by BT of the Cheque [ie the cheque for £66,000 payment of which had been stopped
by BT in January 1992].’

(7) On 5 February 1997 Mr Sinclair commenced a new action against BT (the 1997 action). In his statement of claim Mr Sinclair asserted that he is
the assignee of the agreements resulting from customer orders NSS 02269, NSS 02981, NSS 03056 and SOL 00893. Clearly the assignments relied upon
are those dated 20 January 1997.
(8) On 26 November 1997 the 1995 action was struck out on the application of BT on the ground that Mr Sinclair could not show that he was the
party who had contracted with BT.
(9) In November 1998 BT applied for the 1992 action to be dismissed for want of prosecution, nothing having been done in it since the unsuccessful
application for an interlocutory injunction early in 1992. Master Turner made the order sought and ordered VTL to pay BT’s costs of the action, which he
assessed at £3,000. VTL has not satisfied this order for costs.
(10) On 8 January 1999 BT issued a summons in the 1997 action seeking an order staying proceedings in that action until after payment of the
£3,000 ordered to be paid by VTL in respect of the costs of the 1992 action and striking out the writ and statement of claim in the 1997 action if those
costs were not paid within three months. This summons came before Buckley J on 28 January 1999. Buckley J made the order sought. He held that the
1997 action includes at the least the 1992 action, by which I understand him to have meant that even if the 1997 action was partly based on other causes
of action it was also, at least in part, based on the same cause of action which VTL had asserted in the 1992 action. He found that the decision of the
House of Lords in Norglen Ltd (in liq) v Reeds Rains Prudential Ltd, Circuit Systems Ltd (in liq) v Zuken-Redac (UK) Ltd [1998] 1 All ER 218, [1999] 2
AC 1 was not in point. He was not satisfied that the order sought would stifle the action and he found that it was just and proper that such an order should
be made.
Mr Sinclair now appeals against the order made by Buckley J, permission to appeal having been granted by Sedley LJ on 23 July 1999. Four
grounds of appeal are advanced. In the order in which I propose to deal with them (which is not the same as that in which they were argued by Mr
Engleman on behalf of Mr Sinclair) they are as follows. (1) BT has not established that the 1997 action is based either wholly or partly on the same cause
of action as the 1992 action. Accordingly the unsatisfied costs order in the 1992 action constitutes no bar to the continuation of the 1997 action. (2) The
order made by Buckley J conflicts with the principle established in the Norglen case. (3) The order should not have been made because neither VTL nor
Mr Sinclair has any assets and it will stifle the 1997 action. (4) Even if it were right to order Mr Sinclair to satisfy VTL’s liability for the costs of the
1992 action this should have been achieved not by means of an ­ 465 order of the kind made by Buckley J but by an order under which the costs are to
be satisfied after judgment in the 1997 action, when they can be met out of the damages which Mr Sinclair expects to recover.

(1) 1997 action not based on the same cause of action as the 1992 action
Mr Engleman criticised BT for failing to identify precisely who was the party which made each contract with BT. If criticism be appropriate it
should, in my judgment, be directed not against BT but against Mr Sinclair himself. It is he who is suing on the contracts and it is a normal and
elementary requirement that the party suing on a contract must, if there is an issue about it, identify the parties to the contract on which the action is
brought. Mr Sinclair has not done this. His case appears to be based on the propositions that; (i) the only relevant contracts are those which resulted from
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customer orders NSS 02269, NSS 02981, NSS 03056 and SOL 00893; (ii) the only entity which can have placed any of those orders is one of the four
entities which has executed an assignment in favour of Mr Sinclair; and (iii) although Mr Sinclair cannot identify which entity assigned which contract he
must be treated as the assignee of all the contracts by virtue of one or other of the assignments. This is hardly a convincing position, particularly when
viewed in conjunction with Mr Sinclair’s conduct in relation to the 1992 and 1995 actions.
In reality, however, there is no doubt that VTL was, in the 1992 action, suing on one of the agreements which Mr Sinclair seeks to enforce in the
1997 action. It is not suggested that there were any relevant customer orders except the four which I have mentioned. Mr Sinclair, whose affidavit shows
that he must have known precisely what orders VTL had placed, clearly caused VTL to sue on the contract arising from one of these orders. While
neither Mr Sinclair nor VTL specifically identified the order number, the other facts asserted in relation to the contract, notably the date when it is said to
have been made, leave one in no doubt that it was the contract arising from order number NSS 03056. Accordingly Mr Sinclair, in the capacity of
assignee of VTL, is now suing on the very same contract which was the basis of the 1992 action.

(2) Buckley J’s order is contrary to the principle established in Norglen

The Norglen case and an earlier Court of Appeal decision in Eurocross Sales Ltd v Cornhill Insurance plc [1995] 4 All ER 950, [1995] 1 WLR 1517
concern the situation which arises when an individual takes an assignment of a cause of action vested in a company with a view to enforcing that cause of
action with the benefit of legal aid, which is available to the individual but not to the company. In order to determine whether, as Mr Engleman
contended, the decisions in those cases preclude the making of the order which Buckley J made in this case it is necessary to consider from a more general
point of view what jurisdiction exists to require the costs of a previous unsuccessful action to be paid before new proceedings based on the same cause of
action are brought.
An express power to this effect was to be found in RSC Ord 21, r 5(1), but it is clear from the terms of that rule that it applies only where a new
action is commenced after a previous action has been discontinued. But the following statement appears in the note at para 21/5/24 of The Supreme Court
Practice 1999 vol 1:

‘Rule 5 … applies to discontinued actions or counterclaims the principle on which the Court under its inherent jurisdiction stays actions in cases
where a previous action brought for substantially the same cause of action has been ­ 466 dismissed or stayed, and the plaintiff has not paid to the
defendant costs of such previous action ordered to be paid by him.’

This principle was applied by Goulding J in Thames Investment and Securities plc v Benjamin [1984] 3 All ER 393, [1984] 1 WLR 1381. In that
case the defendants had been ordered to pay the plaintiff’s costs of two motions, which had been dismissed when the defendants failed to appear to move
them. The defendants, who had not yet paid the costs of the dismissed motions (which remained to be taxed) subsequently sought to move two new
motions seeking identical relief. The plaintiff objected that the new motions could not be moved until the costs had been paid. The particular problem
which arose was how the position should be dealt with when the costs had not been ascertained by taxation, but in dealing with this problem Goulding J
began by approaching the matter more generally. He said:
‘Quite apart from authority, two propositions would seem to me plain as a general rule. The first is that where an application has been made for
particular relief and has been dismissed with costs because of some fault or lack of success on the part of the applicant, then, generally speaking, the
applicant ought not to be allowed to apply again for identical or equivalent relief if he is guilty of failure to pay the costs of the previous
application.’ (See [1984] 3 All ER 393 at 394, [1984] 1 WLR 1381 at 1383.)
The second proposition is not relevant here. Goulding J continued:
‘The first principle is put by Cave J in a judgment in the Queen’s Bench Division in Morton v Palmer (1882) 9 QBD 89 at 92, where, after
speaking of previous authorities both in the Court of Chancery and the common law courts, the judge said: “The principle of the practice in each
Court was the same, viz., that, if a litigant had brought an action or made a motion against another and had failed, he should not bring a fresh action
or renew his motion until he had paid the costs of the previous proceeding.”’ (See [1984] 3 All ER 393 at 394–395, [1984] 1 WLR 1381 at 1383.)
These statements clearly demonstrate that the jurisdiction exists. If therefore the 1992 action had been dismissed for want of prosecution in, say,
1995 (as it might well have been if the requisite application had been made) and if VTL had, without assigning the benefit of its contract to Mr Sinclair,
brought the 1997 action in its own name, there would have been jurisdiction to stay the 1997 action until the costs of the 1992 action had been paid.
The Eurocross case was a case of a different kind. There a company brought an action in the county court to enforce a claim under an insurance
policy. It subsequently assigned its cause of action to a director. The district judge refused the director’s application to be substituted as plaintiff in the
action and ordered the company to give security for costs under s 726 of the Companies Act 1985. On appeal to the county court judge it was ordered that
the director be joined as co-plaintiff with the company, but the director was ordered to give the same security as the company had been required to give.
The director appealed to this court against the imposition of this condition. This court held that:
‘… the judge was entitled to impose appropriate conditions which might in principle have included any term which matched the justice of the
case including (if appropriate on the facts) an order that [the director] give security for Cornhill’s costs.’ (See [1995] 4 All ER 950 at 956, [1995] 1
WLR 1517 at 1524.)
­ 467
The issue on the appeal was, therefore, whether in the circumstances of that case it was appropriate to impose a term as to giving security for costs.
In deciding that it was not, this court considered a number of matters, including an argument that the assignment was a device in the sense that it was
intended to circumvent a procedural disadvantage to which the company, but not the director, was thought to be subject, namely exposure to a
requirement to give security for costs. The court referred to Advanced Technology Structures Ltd v Cray Valley Products Ltd, Pratt v Cray Valley
Products Ltd [1993] BCLC 723, where it had been held that an assignment of the company’s cause of action to an employee who was eligible for legal
aid was a ‘sham’ (a proposition which was doubted in the Eurocross case and rejected in the Norglen case) and said:
‘… we do not think it [this authority] provides us with any ground for treating the sale in the present case, even if made with a view to avoiding
an order for security to which [the company] would have been subject, as a colourable device which the court should or properly could strike down.
The rules provide a safeguard against a defined risk: it cannot in our view be legally objectionable to remove the risk so as to remove the need to
provide the safeguard.’ (See [1995] 4 All ER 950 at 958, [1995] 1 WLR 1517 at 1526.)
On behalf of Mr Sinclair, Mr Engleman attached some importance to the statement in the last sentence. In its context it appears to me to mean no
more than that, when the rules provide a safeguard, in the form of a provision for security for costs, for defendants who may be exposed to an action
brought by an impecunious company, it cannot be objectionable to bring about a situation in which the action is brought by an individual who does not
have the protection of limited liability. In the present case, of course, the giving of security for costs, either by a company or an individual, is not in issue.
The principle which enables the court to require the payment of the costs of a previous unsuccessful action is one which applies whether the plaintiff is a
company or an individual.
In the Norglen case the House of Lords was concerned with two separate actions in each of which a company in liquidation had assigned a cause of
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action to an individual and the assignee sought to pursue the action with the benefit of legal aid. The primary issue for decision was whether an
assignment made for these purposes was a sham, as had been held to be the case in the Advanced Technology Structures case. Lord Hoffmann, with whom
the rest of their Lordships agreed, held that it did not and that the Advanced Technology Structures case must be overruled. In particular he said that it was
no objection to the validity of the assignment that it deprived the defendant of the right to apply for security for costs under s 726 of the 1985 Act.
In the action in which the Norglen case itself was the original plaintiff the additional question arose whether, the assignment being valid, the court
had a discretion to impose, as a condition of giving leave for the assignees to be substituted as plaintiffs, a condition that the assignees give security for
costs. On this matter Lord Hoffmann cited the material part of the decision in the Eurocross case and said that the reasoning in it suggested that it would
be wrong to impose such a condition. But he did not make this the ground of his decision to uphold the Court of Appeal’s refusal to do so. That part of
his decision was made on the basis that the Court of Appeal ([1996] 1 All ER 945, [1996] 1 WLR 864) had been entitled not to impose such a condition in
the circumstances of the particular case, even assuming that it had power to do so.
­ 468
It does not appear to me that any general principle relevant to the present case is to be derived from the Norglen case. In the present appeal the
validity of the assignment from VTL to Mr Sinclair is not challenged. While the Norglen case shows that any challenge to it on the basis that it renders s
726 of the 1985 Act inapplicable would have failed, this is of no assistance to Mr Sinclair. Nearer in point is the Eurocross decision, but that shows only
that the mere fact that security could have been ordered against the company under s 726 does not give the court a discretion to order security to be given
by an individual against whom there is no independent jurisdiction to order security.
The present case is concerned with a jurisdiction which is quite distinct from that conferred by s 726. It is an inherent jurisdiction which, in essence,
enables the court to prevent a plaintiff subjecting a defendant to a second, substantially similar, action without satisfying his obligations in respect of the
first action. In my judgment it is a jurisdiction which is fully wide enough to enable the court to make an order against the plaintiff in the second action
who is the successor in title of the plaintiff in the first action. To my mind it is as if the cause of action had become impaired by the plaintiff in the first
action in so conducting that action as to give rise to the probability that a stay will be granted if a new action is commenced without the costs of the first
action being paid. The assignee ought not to be in any better position than the assignor in respect of this impairment.

(3) The order appealed from will stifle the 1997 action
Buckley J rejected this contention on the ground that he was not satisfied that his order would have this effect. In this he was undoubtedly justified,
because there was no evidence at all before him as to the means of Mr Sinclair or VTL. On this appeal Mr Sinclair has sought to remedy this position by
placing before us an affidavit in which he says that he is unemployed, has no income except his unemployment benefit of £123 per week and has no assets
or expectations.
I am prepared to assume that in this case the court ought to approach the matter on the same basis as it would approach an application for security for
costs. I would add, however, that I have some reservations about this. In the ordinary case of an application for security the plaintiff is making his first
attempt to enforce his cause of action. In the present case the action represents the second such attempt and Mr Sinclair is unable to distance himself from
the conduct of VTL which led to the first action being struck out and the order for costs being made. Moreover the court is concerned with a present
liability to satisfy a judgment debt, not with a mere possibility that an adverse order for costs will be made at a future date. But the effect, if any, of these
considerations was not argued before us.
I would, however, take the same view as the judge, notwithstanding the additional material which is before us. Mr Sinclair’s affidavit consists of a
series of bald assertions. He does not deal at all with a number of matters which it would be relevant to take into account in considering the argument
advanced on his behalf. In particular he says nothing about the possibility of obtaining support from third parties. Nor does he give any explanation of
what interest he had in the various entities which carried on the chatline activities or what has happened to the very considerable sums which were paid to
those entities by BT. This is, in my judgment, wholly inadequate to sustain a plea that the court should not make the order that it would otherwise be
minded to make because to do so will stifle an otherwise well-founded action.
­ 469

(4) Any order in favour of BT should do no more than require Mr Sinclair to satisfy VTL’s liability for costs after judgment in this action
As the jurisdiction invoked by BT is discretionary it would, I think, be within the scope of the discretion to postpone liability in this way. But it
seems to me that to do this would seldom, if ever, constitute a proper exercise of the discretion. It would remove altogether the disciplinary impact of the
jurisdiction and would be likely to leave BT unsatisfied in respect of the costs awarded to it unless it loses the new action. It would certainly not be an
appropriate order to make in this case.
I therefore reject all the grounds of appeal advanced in this case. I would dismiss this appeal.

JUDGE LJ. When making the order now under appeal, Buckley J said:

‘The present 1997 action at the very least includes the 1992 action … The submission … is simply that Mr Sinclair and Vox Telecom are, in all
the particular circumstances of this case, to be regarded as one and the same for the purposes of triggering the court’s discretion to order the costs of
that first action to be paid before the 1997 action is pursued any further.’

The judge concluded that Mr Sinclair’s action, as assignee, was in truth ‘the same cause of action’ as that originally brought in 1992 by Vox, ‘a
company over he himself has asserted he had control as controlling shareholder’. Therefore it seemed ‘just and proper’ to order that the costs of the 1992
action should be paid.
Mr Philip Engleman’s main submission before the judge, renewed on appeal, was that the order sought, and made, contravened the principle
established in Norglen Ltd (in liq) v Reeds Rains Prudential Ltd, Circuit Systems Ltd (in liq) v Zuken-Redac (UK) Ltd [1998] 1 All ER 218, [1999] 2 AC
1. Buckley J swept aside the argument, saying simply that he did not think that ‘Norglen Ltd (in liq) v Reeds Rains Prudential Ltd was in point’.
To some extent the factual similarities between the Norglen case and those in the present case are obvious. In the Norglen case an order was made
under s 726 of the Companies Act 1985 ordering the plaintiff company to pay security for costs of an action for damages. The company was wound up.
The liquidator assigned the cause of action, and the right to pursue it, to one of the directors, who owned 98% of the shares. He was granted legal aid to
apply to be substituted as plaintiff instead of the company, and, if successful, to pursue the action. The Court of Appeal ([1996] 1 All ER 945, [1996] 1
WLR 864) set aside the order for security made by the judge, a conclusion upheld in the House of Lords.
The Norglen case decided that the assignment was not rendered invalid by the fact that the company—not otherwise eligible for legal aid—would
benefit directly from the legal aid granted to the company director personally, nor by the fact that the defendants were deprived of their right to apply for
security for costs under s 726 of the 1985 Act.
‘For better or worse, the law entitles a defendant to be protected against incurring irrecoverable costs in litigation brought against him by an
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impecunious company but not by an impecunious individual. But that cannot prevent companies from assigning property to individuals.’ ([1998] 1
All ER 218 at 228–229, [1999] 2 AC 1 at 16 per Lord Hoffmann.)
­ 470
Although the House of Lords considered it was in the end unnecessary for a final view to be expressed on the correctness of the decision in
Eurocross Sales Ltd v Cornhill Insurance plc [1995] 4 All ER 950, [1995] 1 WLR 1517, but no reason was given to doubt it, and it remains binding on us.
In the Eurocross case the facts were not dissimilar to the present case. After beginning an action the plaintiff company sold its assets to its major
shareholder and director. An order for security for costs was made against the company. The director applied to be substituted for the company as
plaintiff. In due course he was added as a co-plaintiff, conditional on paying £5,000 into court, that is ‘on terms similar to those of the order for the
security of costs against the plaintiff company’. The Court of Appeal set aside the order.
Bingham MR explained that had the director—

‘been ordered to pay, and give security for, the costs occasioned by or thrown away as a result of his joinder, there could in our judgment have
been no sustainable objection to the order. But we can find no justification for the order in fact made.’ (See [1995] 4 All ER 950 at 957, [1995] 1
WLR 1517 at 1524.)

In the Norglen case Lord Hoffmann affirmed the existence of a discretion to impose appropriate conditions to prevent the defendants from being put
in a worse position as to costs than they would have been ‘if the new party had been in the action from the beginning’. In such circumstances, he said, the
plaintiffs ‘… may be ordered to pay or give security for additional costs caused by or thrown away as a result of the joinder.’ (See [1998] 1 All ER 218 at
232, [1999] 2 AC 1 at 20.)
This power did not however authorise an extended order for security for costs against an individual party merely because the defendants were put ‘at
a greater risk as to costs than they would have been if no joinder had taken place’.
I agree with Buckley J that neither of these authorities answers the question whether he was entitled, as a matter of discretion, to make the order that
he did, not to provide BT with security against costs which they would or might incur when defending the current proceedings, but to enable effect to be
given to an existing order for costs before yet further expense was incurred defending a third set of proceedings, which repeated issues which had already
been raised, and failed, no less than twice before.
Accordingly the Norglen case submission fails. The question which remains is whether the court was entitled to make the order at all. This
jurisdiction issue was not directly addressed before Buckley J. It seems to have been assumed that if the judge was not persuaded that the Norglen case
principle precluded him from making the order, then, as a matter of discretion, he was entitled to impose the condition he did.
Mr Malcolm Chapple was unable to draw our attention to any express provision in the Rules of the Supreme Court, or indeed in the current Civil
Procedure Rules, which unequivocally and directly demonstrated the existence of this power. In the end his argument was that the order could properly
be made under the inherent jurisdiction of the court. When extensive and detailed provision is made for the conduct of civil litigation, and no express
power can be found to sustain a particular course of action, an appeal to the court’s inherent jurisdiction may sometimes, but not always, underline that, in
truth, the jurisdiction does not exist at all.
­ 471
Approaching the problem with an appropriate degree of caution, the starting point in this case is the well established principle that:

‘… if a litigant had brought an action or made a motion against another and had failed, he should not bring a fresh action or renew his motion
until he had paid the costs of the previous proceeding.’ (See Morton v Palmer (1882) 9 QBD 89 at 92.)

Subject to ascertaining the figure for such costs, the same principle was more recently applied in Thames Investment and Securities plc v Benjamin
[1984] 3 All ER 393 at 394, [1984] 1 WLR 1381 at 1383, when Goulding J regarded as plain the proposition that:

‘… where an application has been made for particular relief and has been dismissed with costs because of some fault or lack of success on the
part of the applicant, then, generally speaking, the applicant ought not to be allowed to apply again for identical or equivalent relief if he is guilty of
failure to pay the costs of the previous application.’

Examples of the operation of these principles spring readily to mind. Where, exceptionally, before the expiry of the limitation period an action is
struck out for want of prosecution, with costs, the costs should be paid before the fresh proceedings start, save perhaps when the limitation period is about
to expire and a protective writ is urgently needed. A similar approach may be detected when the late joinder of a party involves the other party in
consequential additional expense. As Lord Hoffmann observed in the Norglen case, an order for costs will normally be made for the additional or wasted
costs to be paid, and although he did not expressly say so, there is no doubt that they may be and usually are ordered to be paid forthwith. The same
principle applies in relation to amendments.
The question here is whether the power to make the order for costs was extinguished because Mr Sinclair chose to take a third, but separate, set of
proceedings, as assignee, so that he was not added, joined, or substituted as a party to either of the actions already in existence when the third set of
proceedings was begun. In relation to the 1992 proceedings in particular, although the company was the plaintiff, he was, even at that time, the
controlling shareholder and a director of the company and in effect the person responsible for the decision to begin and conduct the litigation.
Whether these events occurred by accident or design, the effect was to circumvent the ordinary principles in relation to costs which govern the
conduct of second or further proceedings arising out of the same issues, or those which govern the joinder or addition of parties, and to impose an unfair
and disproportionate burden on BT. The 1997 proceedings therefore involved a clear misuse of process. Part of the court’s inherent jurisdiction is to
ensure that its process is not so misused, and, if it is, that no corresponding benefit should be enjoyed by the party responsible and no disadvantage
suffered by the innocent litigant. BT has successfully defeated two separate claims arising out of the contracts NSS 02981, NSS 03056 and SOL 00893.
The costs of one set of proceedings are irrecoverable because the plaintiff was legally aided. An order to recover the costs of the other set has been made,
and the costs assessed. Buckley J was entitled to exercise the inherent jurisdiction of the court to prevent this particular misuse of process, without taking
the additional and disproportionate step of striking out the 1997 proceedings in their entirety. In short, his order put ­ 472 both parties to the litigation
in the position in which each would have been if the process had been properly used. If I may say so, it was an eminently sensible decision.
Mr Engleman sought to argue that the judge should not have exercised his discretion as he did. Mr Sinclair was legally aided with a nil contribution,
and the judge failed to consider that the consequence of his order would be that the proceedings would be stifled. There was no evidence to this effect
before the judge, and the fresh evidence put before us does not lead me to that conclusion. The affidavit in support is notable for its brevity. There is no
suggestion that Mr Sinclair has sought to find or borrow £3,000, nor any explanation of how he has come to dispose of the £100,000, or so, in Vox’s bank
account at the beginning of the 1992 proceedings, nor indeed of the vast figures paid by BT in the years before 1992. In circumstances like the present
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the conclusion that the action will be stifled for the lack of or inability to raise £3,000 requires more compelling evidence than that provided by the
affidavit put before us, or the metaphorical waving of a legal aid certificate with a nil contribution.
This order reflected the exercise of Buckley J’s discretion, and no basis for interfering with it has been shown. For these reasons, as well as those set
out by Ferris J after his detailed analysis of the material facts, I agree that this appeal should be dismissed.

PETER GIBSON LJ. I agree with both judgments.

Appeal dismissed. Permission to appeal to the House of Lords refused.

James Wilson Barrister (NZ).

[2000] 2 All ER 474

Kent v Griffiths and others

TORTS; Negligence

COURT OF APPEAL, CIVIL DIVISION

LORD WOOLF MR, ALDOUS AND LAWS LJJ
17, 18 JANUARY, 3 FEBRUARY 2000

Negligence – Duty to take care – Ambulance service – Doctor calling ambulance for patient suffering asthma attack – Ambulance failing to arrive within
reasonable time and patient suffering respiratory arrest – Whether ambulance service owing duty of care to patient.

K suffered an asthma attack and was attended at her home by a doctor. The doctor telephoned the defendant ambulance service on the emergency 999
line, requesting an ambulance to take K immediately to hospital. The ambulance did not arrive for 40 minutes, although a record prepared by a member
of the crew indicated that it had arrived after 22 minutes. K suffered a respiratory arrest, and subsequently brought proceedings for negligence against the
ambulance service. At trial, the doctor gave evidence that she would have asked K’s husband to drive her to the hospital if she had known that the
ambulance would take so long to arrive. The judge found that the record of the ambulance’s arrival had been falsified, that no satisfactory reason had
been given for the delay and that in those circumstances the delay was culpable. He further held that the respiratory arrest would very probably have been
averted if the ambulance had arrived in a reasonable time, and proceeded to award damages to K. The ambulance service appealed, contending that it had
owed K no duty of care. In so contending, it relied on cases in which it had been held that the police and the fire service owed no duty of care in
answering 999 calls.

Held – In appropriate circumstances, an ambulance service could owe a duty of care to a member of the public on whose behalf a 999 call was made if,
due to carelessness, it failed to arrive within a reasonable time. Such a service was part of the health service, and its care function included transporting
patients to and from hospital when it was desirable to use an ambulance for that purpose. It was therefore appropriate to regard the ambulance service as
providing services of the category provided by hospitals rather than services equivalent to those rendered by the police or fire service whose primary
obligation was to protect the public generally. Although situations could arise where there was a conflict between the interests of a particular individual
and the public at large, there was no such conflict in the instant case since K was the only member of the public who could have been adversely affected.
Similarly, although different considerations could apply in a case where the allocation of resources was being attacked, in the instant case there was no
question of an ambulance not being available or of a conflict of priorities. In those circumstances, the ambulance service, having decided to provide an
ambulance, was required to justify a failure to attend within a reasonable time. Moreover, since there were no circumstances which made it unfair or
unreasonable or unjust that liability should exist, there was no reason why there should not be liability if the arrival of the ambulance was delayed without
good reason. The acceptance of the call established the duty of care, and the delay caused the further injuries. Accordingly, the appeal would be
dismissed (see p 486 e to j, p 487 b d g h and p 488 c, post).
­ 474
Alexandrou v Oxford [1993] 4 All ER 328 and Capital and Counties plc v Hampshire CC, Digital Equipment Co Ltd v Hampshire CC, John Munroe
(Acrylics) Ltd v London Fire and Civil Defence Authority, Church of Jesus Christ of Latter Day Saints (Great Britain) v West Yorkshire Fire and Civil
Defence Authority [1997] 2 All ER 865 distinguished.

Notes
For tests for determining the existence of a duty of care, see 33 Halsbury’s Laws (4th edn reissue) para 604.

Cases referred to in judgments

Alexandrou v Oxford [1993] 4 All ER 328, CA.
Barrett v Enfield London BC [1999] 3 All ER 193, [1999] 3 WLR 79, HL.
Caparo Industries plc v Dickman [1990] 1 All ER 568, [1990] 2 AC 605, [1990] 2 WLR 358, HL.
Capital and Counties plc v Hampshire CC, Digital Equipment Co Ltd v Hampshire CC, John Munroe (Acrylics) Ltd v London Fire and Civil Defence
Authority, Church of Jesus Christ of Latter Day Saints (Great Britain) v West Yorkshire Fire and Civil Defence Authority [1997] 2 All ER 865,
[1997] QB 1004, [1997] 3 WLR 331, CA.
Costello v Chief Constable of the Northumbria Police [1999] 1 All ER 550, [1999] ICR 752, CA.
East Suffolk Rivers Catchment Board v Kent [1940] 4 All ER 527, [1941] AC 74, HL.
Haynes v Harwood [1935] 1 KB 146, [1934] All ER Rep 103, CA.
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Hill v Chief Constable of West Yorkshire [1988] 2 All ER 238, [1989] AC 53, [1988] 2 WLR 1049, HL.
Home Office v Dorset Yacht Co Ltd [1970] 2 All 294, [1970] AC 1004, [1970] 2 WLR 1140, HL.
Horsley v MacLaren, The Ogopogo [1971] 2 Lloyd’s Rep 410, Can SC.
McLoughlin v O’Brian [1982] 2 All ER 298, [1983] 1 AC 410, [1982] 2 WLR 982, HL.
OLL Ltd v Secretary of State for Transport [1997] 3 All ER 897.
Osman v UK (1998) 5 BHRC 293, ECt HR.
Stovin v Wise (Norfolk CC, third party) [1996] 3 All ER 801, [1996] AC 923, [1996] 3 WLR 388, HL.
X and ors (minors) v Bedfordshire CC, M (a minor) v Newham London BC, E (a minor) v Dorset CC [1995] 3 All ER 353, [1995] 2 AC 633, [1995] 3
WLR 152, HL.

Appeal
The London Ambulance Service (LAS), the third defendant in proceedings for negligence brought by the claimant, Mrs Tracey Kent, appealed with the
permission of Turner J from his decision on 16 July 1999 whereby he ordered the LAS to pay the claimant £362,377 in damages. The judge dismissed the
claimant’s claims against the first defendant, Dr Yvonne Griffiths, and the second defendant, Dr Marian Roberts, and she did not appeal from that
decision. The facts are set out in the judgment of Lord Woolf MR.

James Munby QC and Mary O’Rourke (instructed by Capsticks) for the LAS.
Elizabeth-Anne Gumbel QC (instructed by TG Baynes & Sons, Dartford) for the claimant.

Cur adv vult

­ 475

3 February 2000. The following judgments were delivered.

LORD WOOLF MR.

1. The issue on this appeal is whether an ambulance service can owe any duty of care to a member of the public on whose behalf a ‘999’ call is
made if, due to carelessness, it fails to arrive within a reasonable time.

The background
2. The appeal is against a judgment of Turner J given on 16 July 1999 by the third defendant, the London Ambulance Service (LAS). The judge
awarded the claimant damages amounting to £362,377. He dismissed the claims against the first and second defendants who were the claimant’s doctors.
The LAS was ordered to pay the claimant’s costs of the action, including the costs incurred by the claimant in respect of the claim against the first and
second defendants, and to indemnify the claimant in respect of her liability in costs to the first and second defendants. The judge gave the LAS
permission to appeal as the case raised a novel point of law. There is no appeal in relation to the decision as to the dismissal of the claim against the first
and second defendants. There is a cross-appeal by the claimant as to damages. That cross-claim is to be heard on a later date.
3. The facts relevant to the issue on this appeal can be stated shortly. They are not in dispute. They are set out clearly in the judgment.
4. The claimant is an asthmatic. On 16 February 1991 she suffered an asthma attack. The first defendant attended at her home. At 1625 the first
defendant telephoned the LAS, gave the claimant’s name, address and age and indicated that she was suffering from bronchial asthma and asked for an
ambulance to take her ‘immediately please’ to casualty where she was expected. The control replied ‘okay doctor’. By 1638 the ambulance had not
arrived so the claimant’s husband made a second call. The LAS’s response was ‘Yes. They are well on their way to you … give them another 7 or 8
minutes’. At 1654 the first defendant made a second call as the ambulance had still not arrived. The response was ‘Well it should be a couple of
minutes’. The ambulance did not arrive, as the judge found, until 1705. The claimant arrived at the hospital at 1717.
5. The record prepared by a member of the ambulance crew indicated that the time of arrival at the claimant’s home was not 1705 but 1647. The
judge found that there had been contemporary falsification of the records by the member of the ambulance crew. He considered that he had not been
given any satisfactory explanation for the ambulance taking 34 minutes to travel 6.5 miles from its base to the claimant’s home. The judge was satisfied
that the crew member had ‘withheld the true reason, whatever it might have been, why it took so long for the ambulance to reach the claimant’s house’.
The crew member ‘knew full well just how critical was going to be the record which he made’ of the time of arrival. In the absence of any reasonable
excuse for the delay, the judge was ‘driven to conclude that the delay was culpable’. The ambulance did not reach the claimant’s home within a
reasonable time. It could and should have arrived at the claimant’s home at least 14 minutes sooner than it did. If it had arrived in a reasonable time, as it
should have done, there was a high probability that the respiratory arrest, from which the claimant suffered, would have been averted. The judge also
made criticisms as to the information communicated by the LAS to the ambulance crew, which would also amount to carelessness, but he did not base his
decision on this additional finding.
­ 476
6. The doctor gave evidence that if she had been told, when she had first telephoned for the ambulance, that it would be 40 minutes before it arrived,
she would have probably asked the claimant’s husband to drive his wife to the hospital. She would have accompanied them.
7. I should set out the views of this very experienced judge as to the general merits of the claimant’s case. He said:

‘I should have found it offensive to, and inconsistent with, concepts of common humanity if in circumstances such as the present where there
had been an unreasonable and unexplained delay in providing the services which LAS were in a position to meet, and had accepted that it would
supply an ambulance, the law could not in its turn provide a remedy to the person whose condition was significantly exacerbated in consequence.’

8. I have already indicated that the issue on this appeal is whether the claimant was owed a duty of care. Originally in its defence the LAS admitted
that it was under a duty to respond. However, after the decision of this court in the case of Capital and Counties plc v Hampshire CC, Digital Equipment
Co Ltd v Hampshire CC, John Munroe (Acrylics) Ltd v London Fire and Civil Defence Authority, Church of Jesus Christ of Latter Day Saints (Great
Britain) v West Yorkshire Fire and Civil Defence Authority [1997] 2 All ER 865, [1997] QB 1004 (Stuart-Smith, Potter and Judge LJJ) that a fire brigade
was not under a common law duty to answer calls to fires or to take reasonable care to do so, an application was made to withdraw that admission by way
of amendment. An application was also made to strike out the allegations against the LAS. This was based on an allegation that the statement of claim
disclosed no cause of action in so far as it relied upon the delay in responding to the ambulance call.
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9. The application to strike out was dismissed by this court (Kennedy and Schiemann LJJ and Sir Patrick Russell) ([1999] PIQR P192). The court
considered that the Capital and Counties case was arguably distinguishable upon the grounds that the duty to fight fires remains throughout a duty owed
to the public at large. By contrast once a call to an ambulance service has been accepted, the service is dealing with a named individual upon whom the
duty becomes focused. Furthermore, if an ambulance service is called and agrees to attend the patient, those caring for the patient normally abandon any
attempt to find an alternative means of transport to the hospital.

The appellant’s case

10. Mr Munby QC advanced a powerful argument on the part of the LAS. He relies on two primary submissions. The first is that the only duty
which in private law the emergency services (including the ambulance services) owe to an individual member of the public is not, by their own acts,
negligently to create an additional danger which causes injury to the individual to whose assistance they have been called. In this respect the position of
the LAS in private law is no different from that of a volunteer who goes to the rescue of a person in difficulties. In particular the LAS is under no liability
to a member of the public if it refuses to respond to a 999 call or does so but does not arrive within a reasonable time. The position is indistinguishable
from the Capital and Counties case, to which I have already referred, in relation to fire brigades, the decision of this court in Alexandrou v Oxford [1993]
4 All ER 328 as to the police when responding to a ‘999’ call and OLL Ltd v Secretary of State for Transport [1997] 3 All ER 897 in relation to the
coastguards when making a rescue at sea.
­ 477
11. The second primary submission is that negligence in the performance of a statutory duty or in the exercise of a power could only in the
circumstances of this case give rise to liability if the three requirements laid down in Caparo Industries plc v Dickman [1990] 1 All ER 568, [1990] 2 AC
605 for establishing a free standing common law duty are met. It is accepted that two of the requirements, namely that of foreseeability and of it being
just, fair and reasonable for there to be a duty of care, are met. What is contended is that the additional requirement, that there should be a relationship of
sufficient proximity between the claimant and the LAS, does not exist. Mr Munby relies in particular on X and ors (minors) v Bedfordshire CC, M (a
minor) v Newham London BC, E (a minor) v Dorset CC [1995] 3 All ER 353, [1995] 2 AC 633.
12. Although Mr Munby advances separate submissions, both submissions require an understanding of the reasons given for the decisions in the
Alexandrou and Capital and Counties cases. Both cases are binding on this court and unless they can be distinguished this appeal has to be allowed.

The claimant’s case

13. Miss Gumbel QC, in her helpful argument, relies on three unchallenged findings of the judge. (1) The requisite degree of urgency was
communicated to the central ambulance control. (2) The LAS was in a position to accept the request and accepted that it would supply the ambulance in
accordance with the request. (3) The provision of the ambulance was unduly delayed.
14. These facts, she submits, were sufficient to establish proximity. She contends that, this being the case, Turner J’s decision was in accordance
with previous authority. She submits that there are distinctions between this case and Capital and Counties. First of all, she relies on the difference, apart
from the nature of the service that the LAS provides, between the facts of this case and the cases relied on by Mr Munby. Here, only a single individual
was involved who made a specific request that was accepted and therefore relied on. This was not a case of general reliance, but specific reliance. It was
foreseeable that the claimant could suffer personal injuries if there was delay. The nature of the damage was important. There was a contrast with a fire
or a crime, where an unlimited number of members of the public could be affected and the damage could be to property or only economic. In its statutory
context the ambulance service is more properly described as part of the National Health Service than as a rescue service. As part of the health service it
should owe the same duty to members of the public as other parts of the health service. The LAS had not been responsible for the claimant’s asthma but
it had caused the respiratory arrest and to this extent the LAS was the author of additional damage. There was no question of any conflict as to whom the
duty of care was owed, if there was a duty.

The authorities on volunteer rescuers

15. Mr Munby drew our attention to two lines of authorities on volunteers. The first starts with the leading case of East Suffolk Rivers Catchment
Board v Kent [1940] 4 All ER 527 at 530–531, 532–533, 538, 543, 544–545, [1941] AC 74 at 84–85, 87, 95, 102, 104. It deals specifically with the
situation where a claim is against a statutory body in relation to the performance of its statutory functions where the statute does not create any duty of
care on which the claimant is entitled to rely. As to such a situation Lord Romer made a statement with which Lord Porter agreed. He said:
­ 478
‘Where a statutory authority is entrusted with a mere power, it cannot be made liable for any damage sustained by a member of the public by
reason of a failure to exercise that power. If, in the exercise of their discretion, they embark upon an execution of the power, the only duty they
owe to any member of the public is not thereby to add to the damages which he would have suffered had they done nothing. So long as they
exercise their discretion honestly, it is for them to determine the method by which, and the time within which, and the time during which, the power
shall be exercised, and they cannot be made liable, except to the extent which I have just mentioned, for any damage which would have been
avoided had they exercised their discretion in a more reasonable way.’ (See [1940] 4 All ER 524 at 543, [1941] AC 74 at 102.)
16. Mr Munby also relies on Home Office v Dorset Yacht Co Ltd [1970] 2 All ER 294, [1970] AC 1004 and Capital and Counties and the other
cases that were cited in that case for the proposition I have quoted. However, while the proposition is acceptable, it only applies to this case if the LAS
did not owe the usual form of private duty of care to the claimant. I refer to the usual form of duty because, as the citation makes clear, even when the
responsibility is more limited there is still a residual responsibility.
17. In addition, it is argued that in this case the LAS did ‘add to the damage [that the claimant] would have suffered if they had done nothing’. But
for the acceptance of the 999 call the claimant would have been driven to the hospital and would have arrived prior to her ‘arrest’. Furthermore, although
I do not regard this as altering the duty that the LAS owed, even if the LAS was not under any private law duty, in this case it would certainly be under a
public duty to exercise its discretion to provide an ambulance. This is because on the evidence there was no rational reason which would justify the
LAS’s discretion being exercised in any other manner.
18. The other line of authorities is adequately reflected in the decision of the Canadian courts culminating in the Supreme Court’s decision in
Horsley v MacLaren, The Ogopogo [1971] 2 Lloyd’s Rep 410. They establish that the common law does not require a member of the public to act as
would the Good Samaritan. If he does so, however, the law does protect him from being liable in damages except to the extent that his own acts cause
damage beyond that which the claimant would have suffered if he had not intervened.
19. While I accept unhesitatingly the good sense of this line of authority I have difficulty in applying it to the present situation. The LAS was under
at least a public law duty for the reason I have given already. The provision of ambulances is its statutory function. The LAS and its crews are paid out
of public moneys to provide their services. It is wholly inappropriate to regard the LAS and its employees as volunteers.
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Alexandrou v Oxford
20. In Alexandrou v Oxford [1993] 4 All ER 328, the defendant was a chief constable who had been sued by Mr Alexandrou after the latter’s
clothing shop was burgled. The burglar alarm had been activated, but, when the police officers attended, they did not properly inspect the rear of the
premises. The judge held that the chief constable was liable to Mr Alexandrou because if the inspection had been carried out properly, the theft would
have been prevented. The chief constable appealed to this court. This court allowed the appeal. There were two ­ 479 grounds for the court doing so.
The first ground was that the relationship between Mr Alexandrou and the police was insufficient to create a duty of care. Glidewell LJ stated in the
principal judgment of the court, with which the other members of the court agreed (at 334):
‘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 McLoughlin v O’Brian [1982] 2 All ER 298 at 303,
[1983] 1 AC 410 at 420: “That foreseeability does not of itself, and automatically, lead to a duty of care is, I think, clear.’’’
21. Later Glidewell LJ added (at 338):
‘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 the Dorset Yacht case.’ (My emphasis.)
22. Having come to the conclusion that the relationship was not ‘special’, in case he was wrong, Glidewell LJ went on to consider whether as a
matter of general policy the police should be under such a duty. Here he attached importance to the well-known passage from Lord Keith’s speech in Hill
v Chief Constable of West Yorkshire [1988] 2 All ER 238 at 243–244, [1989] AC 53 at 63–64. In that passage of his speech, Lord Keith pointed out that
there are some situations where the imposition of a duty of care will result in the exercise of higher standards of care in the carrying out of various
activities. However, this was not true of police activities. It could result in a ‘detrimentally defensive frame of mind’. In addition Lord Keith considered
that police investigations must frequently involve a variety of decisions on matters of policy and discretion as to which particular line of inquiry it was
most advantageous to pursue and as to what was the most advantageous way to deploy the available resources. Such decisions were not regarded by the
courts as appropriate to be called into question. Both lines of reasoning of Lord Keith caused Glidewell LJ to express the view that it would not be
appropriate for there to be a duty of care.
­ 480
23. Slade LJ, in giving his additional reasons for allowing the appeal stated:
‘… 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 for holding that the police owed a duty of care to this plaintiff on or after receipt of the 999 call … if
they would not have owed a duty of care to ordinary members of the public who made a similar call.’ (See [1993] 4 All ER 328 at 344.)
24. It is to be noted that, in relation to 999 calls to the police, the law which is laid down in Alexandrou’s case and Hill’s case had at least two
important strands. The first is that the primary duty which the police are under is to the public at large to prevent crime. The second is that to impose a
liability on the police for the benefit of an individual member of the public to prevent a crime could interfere with the performance of that primary duty.
Issues will arise when difficult policy decisions have to be made involving conflicts between the interests of different members or sections of the public
and those situations should not be made more difficult by possible litigation having to be taken into account.
25. There are however a great variety of situations where the police provide assistance to the public because they decide to do so. In the well known
case of Haynes v Harwood [1935] 1 KB 146, [1934] All ER Rep 103, involving a policeman going to the rescue by stopping a bolting horse, Maugham LJ
said:
‘In my opinion the police constable was not in any true sense a volunteer. It is true that he was under no positive legal duty to run out into the
street and at the risk of his life to stop two galloping horses; and I quite accept that nobody would have thought of reprimanding him if he had done
nothing. It is also true that the primary duty of the police is the prevention of crime and the arrest of criminals; but that is only a part of the duties
of the police in London. There is a general duty to protect the life and property of the inhabitants; there is a discretionary duty to direct the traffic,
to help blind and infirm people to cross the road, and to direct people who have lost their way.’ (See [1935] 1 KB 146 at 161–162, [1934] All ER
Rep 103 at 110.)
26. The obligations of the police are rooted in the common law and not statute: they evolve to meet the current needs of society. I emphasised in my
quotation from the judgment of Glidewell LJ that he was careful to refer to the facts of the appeal which the court was considering. I consider he was
right to limit his remarks in this way. The reasoning of the judgments in that case cannot be applied sensibly to the police officer helping pedestrians
across the road. If the policeman assumes this task there is no reason of policy or proximity why he should be in any different position from a school
teacher who performs this task and, if this is appropriate on the facts, is liable for negligence.
27. Slade LJ used the shorthand of referring to 999 calls. However, it would amount to a misunderstanding of his approach to attach any magic to
the fact that the response is to a 999 call. It is the nature of and the circumstances in which the assistance is provided and required which is important.
The issue which can be important is whether it is an urgent call made by phone or otherwise for the assistance of the police involving conflicting priorities
or difficult decisions as to the best way to protect the public against crime, or whether it is a routine task which involves no policy or resource issues. In
the latter situation a duty can readily be inferred. In the former situation it is ­ 481 unlikely it will exist. In between there are a spectrum of different
situations which will have to be judged on their facts.

Capital and Counties plc v Hampshire CC

28. The decision in Alexandrou’s case [1993] 4 All ER 328 was applied in the Capital and Counties case [1997] 2 All ER 865, [1997] QB 1004.
This was after the court had examined in detail a large number of authorities and in the course of argument had been referred to further authorities.
Stuart-Smith LJ gave the judgment of the court. It dealt with three different sets of proceedings. In each case, there had been attendance at premises as a
result of a 999 call because of a fire. The court held that the relationship between the owner or occupier of the premises and the fire brigade was not
sufficiently proximate so as to impose a duty of care on the fire brigade to protect the property, simply based on the fire brigade’s attendance at the site of
a fire and involvement in fighting the fire. However, if the fire brigade by their own actions increased the risk of danger they would be liable for
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negligence in respect of the damage which was caused by the increased risk, unless damage would have occurred in any event.
29. In the judgment, Stuart-Smith LJ points out that, although there is not an express duty imposed on the fire services or an express power granted
to the fire services to fight fires by the Fire Services Act 1947, there is an implicit power. He then considered ‘whether, in the absence of a statutory duty,
a statutory power to act can be converted into a common law duty to exercise the power’ (see [1997] 2 All ER 865 at 875, [1997] QB 1004 at 1026). In
that connection he referred to the decision of the House of Lords in Stovin v Wise (Norfolk CC, third party) [1996] 3 All ER 801, [1996] AC 923 and in
particular the speech of Lord Hoffmann in that case. He rejected a suggestion that a claimant in that case was entitled to rely on the doctrine of general
reliance as giving rise to a duty to exercise a statutory power. Then, applying Alexandrou’s case, he summarised the court’s conclusion in these words:
‘In our judgment the fire brigade are not under a common law duty to answer the call for help and are not under a duty to take care to do so. If
therefore they fail to turn up or fail to turn up in time because they have carelessly misunderstood the message, got lost on the way or run into a
tree, they are not liable.’ (See [1997] 2 All ER 865 at 878, [1997] QB 1004 at 1030.)
30. Stuart-Smith LJ went on to consider what was the situation once the fire brigade had arrived at the fire ground and started to fight the fire. As to
the submission that the question of whether there was a private law duty should be approached by applying Lord Bridge’s three-fold test in the Caparo
case [1990] 1 All ER 568 at 573–574, [1990] 2 AC 605 at 617–618 of (1) foreseeability, (2) proximity and (3) legal policy, he said:
‘The peculiarity of fire brigades, together with other rescue services, such as ambulance or coastal rescue and protective services such as the
police, is that they do not as a rule create the danger which causes injury to the plaintiff or loss to his property. For the most part they act in the
context of a danger already created and damage already caused, whether by the forces of nature, or the acts of some third party or even of the
plaintiff himself, and whether those acts are criminal, negligent or non-culpable.’ (See [1997] 2 All ER 865 at 879, [1997] QB 1004 at 1031.)
­ 482
31. Stuart-Smith LJ then distinguished the situation where the ‘rescue/ protective service itself by negligence creates the danger’ (see [1997] 2 All
ER 865 at 880, [1997] QB 1004 at 1031) and indicated that the claimant in that situation could recover. He pointed out that in the cases where the
claimant had succeeded, with one possible exception, there had always been a new or different danger created. To establish liability in such a situation, it
was possible to rely upon the decision of the House of Lords in East Suffolk Rivers Catchment Board v Kent [1940] 4 All ER 527, [1941] AC 74.
32. Stuart-Smith LJ then considered the alternative ground relied upon, based on a contention that proximity will exist where some person
possessing ‘special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, and
there is direct and substantial reliance by the plaintiffs on the defendant’s skill’ (see [1997] 2 All ER 865 at 879, [1997] QB 1004 at 1031). As to this
submission Stuart-Smith LJ acknowledged that:

‘As a general rule a sufficient relationship of proximity will exist when someone possessed of special skill undertakes to apply that skill for the
assistance of another person who relies upon such skill and there is direct and substantial reliance by the plaintiff on the defendant’s skill.’ (See
[1997] 2 All ER 865 at 883, [1997] QB 1004 at 1034.)

33. If a doctor volunteers his assistance, ‘his only duty as a matter of law is not to make the victim’s condition worse’ (see [1997] 2 All ER 865 at
883, [1997] QB 1004 at 1035). He added that ‘the fire brigade’s duty is owed [to] the public at large to prevent the spread of fire’ and that ‘this may
involve a conflict between the interests of various owners of premises’ (see [1997] 2 All ER 865 at 884, [1997] QB 1004 at 1036). He also concluded that,
while there could be exceptional situations where the conduct of those involved created a relationship of proximity which would give rise to a duty of
care, it did not in the case of the present appeals. The position was that the fire brigade did not enter into a sufficiently proximate relationship with the
owner or occupier of premises to come under a duty of care ‘merely by attending at the fire ground and fighting the fire’ (see [1997] 2 All ER 865 at 886,
[1997] QB 1004 at 1038).
34. However, with regard to the question of public policy, Stuart-Smith LJ indicated that the court was sympathetic to the argument of the plaintiff.
He stated:

‘If we had found a sufficient relationship of proximity … we do not think that we would have found the arguments for excluding a duty of care
on the grounds that it would not be just, fair and reasonable convincing. The analogy with the police exercising their functions of investigating and
suppressing crime is not close. The floodgates argument is not persuasive; nor is that based on insurance. Many of the other arguments are equally
applicable to other public services, for example, the National Health Service. We do not think that the principles which underlie those decisions
where immunity has been granted can be sufficiently identified in the case of fire brigades.’ (See [1997] 2 All ER 865 at 891, [1997] QB 1004 at
1044.)

35. It is to be noted that Stuart-Smith LJ recognised that there could be differences between the approach in cases involving the police and the fire
service. I do not regard the fact that he referred to a common feature of the rescue and protective services meant that he was suggesting that the position
was ­ 483 identical in every case involving those services. I consider that he was applying established principles to the class of case with which he was
concerned. Even in relation to the appeals which the court was considering, the court came to different decisions on the facts applying those principles.
36. We were referred to a number of first instance decisions in which the principles which I have been discussing were applied. They are interesting
illustrations of the conclusions of the judges concerned in relation to the facts which the cases involved. They are not binding on this court and, without
intending any disrespect to the judges involved, I am content to regard them as being confined to their own facts.

Was the judge’s decision correct?

37. The line of authority reflected in the Alexandrou and Capital and Counties cases is not without its critics (see Markesinis, Auby,
Coester-Waltjen and Deakin Tortious Liability of Statutory Bodies: A Comparative and Economic Analysis of Five English Cases (1999) and Craig and
Fairgrieve ‘Barrett, Negligence and Discretionary Powers’ [1999] PL 626). However, unless the line of authority can be distinguished, it is clearly
binding on this court, although the adverse response of the European Convention for the Protection of Human Rights and Fundamental Freedoms (Rome,
4 November 1950; TS 71 (1953); Cmd 8969) (the ECHR) in Osman v UK (1998) 5 BHRC 293 may be influencing the House of Lords to adopt a more
restrictive approach to the exclusion of liability to categories of cases without first ascertaining their precise facts (see Barrett v Enfield London BC
[1999] 3 All ER 193, [1999] 3 WLR 79 and Markesinis (at pp 96–104)). In Barrett’s case, Lord Browne-Wilkinson indicated that he found Osman’s case
extremely difficult to understand; a view which has been echoed in a lecture of Lord Hoffmann and in the contribution to Public Law to which I have
referred. The possible consequences also concern me from a procedural point of view in the light of the new culture in litigation in this jurisdiction as a
result of the introduction of the Civil Procedure Rules. I should, however, acknowledge that there may well be a more positive consequence of the Osman
decision. It does draw attention to the fact that in this area of the law there is a danger that statements made in judgments will be applied more widely and
more rigidly than was in fact intended. The statements are intended to assist in the difficult task of determining whether a duty of care exists. They are
tools not rules. There are cases in which even the three requirements identified by Lord Bridge may not by themselves provide an answer. Other tools
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may be needed to provide assistance. It may help to consider whether the subject of the alleged breach is the manner in which a discretion was exercised
or the manner in which a decision was executed. With regard to the exercise of a statutory discretion it will be more difficult to establish that there is a
duty. If the allegation relates to an activity focused on a restricted number of individuals, the obstacles in the way of establishing an obligation will be
reduced. In these difficult cases it is necessary to examine the facts in detail. They are therefore usually not suitable for determination before the facts
have been fully investigated. Before you can apply one case by analogy to another you need to be clear as to the facts to which you are applying it.
Otherwise there is a risk that a principle can be applied to a situation where it produces a result which should offend your sense of justice. This, in Turner
J’s view and in my opinion, would be the consequence here of accepting Mr Munby’s argument.
­ 484
38. In so far as Osman’s case underlined the dangers of a blanket approach so much the better. However, it would be wrong for the Osman decision
to be taken as a signal that, even when the legal position is clear and an investigation of the facts would provide no assistance, the courts should be
reluctant to dismiss cases which have no real prospect of success. Courts are now encouraged, where an issue or issues can be identified which will
resolve or help to resolve litigation, to take that issue or those issues at an early stage of the proceedings so as to achieve expedition and save expense.
There is no question of any contravention of art 6 of the ECHR in so doing. Defendants as well as claimants are entitled to a fair trial and it is an
important part of the case management function to bring proceedings to an end as expeditiously as possible. Although a strike-out may appear to be a
summary remedy, it is in fact indistinguishable from deciding a case on a preliminary point of law.
39. That the line of authority on which Mr Munby relies is at least arguably capable of being distinguished, has already been held in the earlier
decision of this court in this case.
40. There are obvious similarities between the facts of this case and the facts in the Alexandrou and Capital and Counties type of situation. The
activities of the fire services are subject to a statutory framework, so are the functions of ambulance services. Section 3(1) of the National Health Service
Act 1977 imposes on the Secretary of State a duty to provide, throughout England and Wales, to such extent as he considers necessary to meet all
reasonable requirements, ‘medical, dental, nursing and ambulance services’ (ss 1 and 3(1) of the 1977 Act). This duty is an exhortatory or target duty
which does not create a statutory right, the breach of which can give rise to a private law right to damages. As the police and the fire services can be
summoned by 999 calls so can the ambulance service, as in this case. However, the tasks which they can be called on to do when summoned can be very
different. Mr Munby referred to examples of situations where to distinguish between one emergency service and another would suggest totally different
treatment if his argument was not correct. The examples were far from the facts of this case. Here his argument could involve two different services
provided under the same section of the same Act being treated very differently.
41. The approach in the Capital and Counties case has been extended to coastguards responding to an emergency at sea by May J in OLL Ltd v
Secretary of State for Transport [1997] 3 All ER 897. May J, following two earlier decisions at first instance, indicated that the distinctions between the
fire services and the coastguard were illusory and immaterial. He considered that it was not possible ‘sensibly’ to impose liability ‘by assessing a level of
intervention which falls short of intervention which results in positive injury directly inflicted … Directly inflicted physical injury is the first building
block of the law of negligence because, unless it is excused, it will almost always be a component of a breach of duty’ (see at 908). May J considered that
the position was sufficiently clear to strike out the statement of claim. However, again the facts here are very different.
42. While recognising the similarities, I have no reservations about expressing the view that the decision of Turner J was right. The starting point is
the fact that even when a statute only establishes a power for a body to act in a particular manner the body can be liable for negligence if there is also a
common law duty created on the particular facts of the case. As Lord Browne-Wilkinson states in his significant examination of this subject in X and ors
(minors) v Bedfordshire CC [1995] 3 All ER 353 at 368, [1995] 2 AC 633 at 735:
­ 485
‘It is clear that a common law duty of care may arise in the performance of statutory functions. But a broad distinction has to be drawn
between: (a) cases in which it is alleged that the authority owes a duty of care in the manner in which it exercises a statutory discretion; and (b)
cases in which a duty of care is alleged to arise from the manner in which the statutory duty has been implemented in practice.’
43. In the case of category (b) there is less difficulty in establishing that there is a duty of care, and in this case it is a (b) situation with which we are
concerned. In this passage it is duties not powers which are being considered. The distinction between duties and powers is important because, the
exercise of a power being discretionary, it is unlikely that there will be any duty of care. This is made clear by Lord Hoffmann in Stovin v Wise [1996] 3
All ER 801 at 825, [1996] AC 923 at 950. But this case is one in which it would have been irrational not to have accepted the request to provide an
ambulance and this can alter the situation (see Lord Hoffmann [1996] 3 All ER 801 at 826–827, [1996] AC 923 at 951–952).
44. Lord Slynn also deals with this subject in his opinion in Barrett v Enfield London BC [1999] 3 All ER 193 at 209–210, [1999] 3 WLR 79 at 95G
and 96. He indicates that, if what the authority has done is outside its discretion, the statute is no defence. Lord Slynn cautions against introducing
concepts of administrative law into the law of negligence (see [1999] 3 All ER 193 at 211, [1999] 3 WLR 79 at 97). But reading this comment in its
context, it is clear that Lord Slynn is not suggesting that the fact that an authority has acted perversely in a public law sense is to be ignored. On the
contrary he is adopting an approach which I would respectfully endorse of stressing the need to have regard to the facts.
45. Here what was being provided was a health service. In the case of health services under the Act the conventional situation is that there is a duty
of care. Why should the position of the ambulance staff be different from that of doctors or nurses? In addition, the arguments based on public policy are
much weaker in the case of the ambulance service than they are in the case of the police or the fire service. The police and fire services’ primary
obligation is to the public at large. In protecting a particular victim of crime, the police are performing their more general role of maintaining public order
and reducing crime. In the case of fire, the fire service will normally be concerned not only to protect a particular property where a fire breaks out but
also to prevent fire spreading. In the case of both services, there is therefore a concern to protect the public generally. The emergency services that can
be summoned by a 999 call do, in the majority of situations, broadly carry out a similar function. But in reality they can be very different. The
ambulance service is part of the health service. Its care functions include transporting patients to and from hospital when the use of an ambulance for this
purpose is desirable. It is therefore appropriate to regard the LAS as providing services of the category provided by hospitals and not as providing
services equivalent to those rendered by the police or the fire service. Situations could arise where there is a conflict between the interests of a particular
individual and the public at large. But in the case of the ambulance service in this particular case, the only member of the public who could be adversely
affected was the claimant. It was the claimant alone for whom the ambulance had been called.
46. Cases could arise where an ambulance is required to attend a scene of an accident in which a number of people need transporting to hospital.
That could ­ 486 be said to be a different situation, but, as the numbers involved would be limited, I would not regard this as necessarily leading to a
different result. The result would depend on the facts. I would be resistant to a suggestion that the ambulance service could be regarded as negligent
because by an error of judgment a less seriously injured patient was transported to hospital leaving a more seriously injured patient at the scene who, as a
result, suffered further injuries. In such a situation, on the facts, it is most unlikely that there would be conduct which could be properly regarded as
negligent. The requirement to establish that there has been a lack of care provides the LAS with the necessary protection.
47. An important feature of this case is that there is no question of an ambulance not being available or of a conflict in priorities. Again I recognise
that where what is being attacked is the allocation of resources, whether in the provision of sufficient ambulances or sufficient drivers or attendants,
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different considerations could apply. There then could be issues which are not suited for resolution by the courts. However, once there are available,
both in the form of an ambulance and in the form of manpower, the resources to provide an ambulance on which there are no alternative demands, the
ambulance service would be acting perversely ‘in circumstances such as arose in this case’, if it did not make those resources available. Having decided
to provide an ambulance an explanation is required to justify a failure to attend within reasonable time.
48. Mr Munby does not suggest that the danger to the claimant was not reasonably foreseeable. Nor does he base his case on policy considerations.
He focuses on the third strand, proximity, alone. The three strands are often intertwined. In the Caparo case [1990] 1 All ER 568 at 583, [1990] 2 AC
605 at 633 Lord Oliver states 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.’

49. So in my judgment here. The fact that it was a person who foreseeably would suffer further injuries by a delay in providing an ambulance, when
there was no reason why it should not be provided, is important in establishing the necessary proximity and thus duty of care in this case. In other words,
as there were no circumstances which made it unfair or unreasonable or unjust that liability should exist, there is no reason why there should not be
liability if the arrival of the ambulance was delayed for no good reason. The acceptance of the call in this case established the duty of care. On the
findings of the judge it was delay which caused the further injuries. If wrong information had not been given about the arrival of the ambulance, other
means of transport could have been used.
50. The ambulance call having been made, apparently attendance is automatic. This does not prevent acceptance. If having attended there was no
reason for the ambulance to go to the hospital there would be no obligation to make an unnecessary journey.
51. The reaction of the judge to the facts of this case accords with the likely reaction of any well-informed member of the public. In such a situation
it would be regrettable indeed if there were not to be a right to compensation. It is clearly ­ 487 a factor which influenced May LJ in another case
involving the police, Costello v Chief Constable of the Northumbria Police [1999] 1 All ER 550, [1999] ICR 752, where the chief constable was liable for
the negligence of a senior police officer who exposed another police officer to unnecessary risk of injury. May LJ said:

‘I am sure that Astill J was correct to say that the public would be greatly disturbed if the law held that there was no duty of care in this case.’
(See [1999] 1 All ER 550 at 564 g, [1999] ICR 752 at 767.)

52. I would say exactly the same of the facts in this case. As in Costello’s case they are out of the ordinary. I would hope that it is unusual in the
extreme for an ambulance to be delayed as this ambulance was delayed without the crew being able to put forward any explanation.
53. I would dismiss this appeal.

ALDOUS LJ. I agree.

LAWS LJ. I also agree.

Appeal dismissed. Leave to appeal to the House of Lords granted.

Kate O’Hanlon Barrister.

[2000] 2 All ER 489

Thornton Springer v NEM Insurance Co Ltd and others

INSURANCE

QUEEN’S BENCH DIVISION (COMMERCIAL COURT)

COLMAN J
8, 9, 13 DECEMBER 1999, 19 JANUARY, 6 MARCH 2000

Insurance – Liability insurance – Professional indemnity insurance – Accountant – Accountant in firm giving advice to client but also dealing with client
in personal capacity – Client bringing unsuccessful action against firm – Firm claiming costs of successful defence from insurers – Whether insurance
policy covering costs of successful defence – Whether consent to costs given by insurers under policy – Whether insurer estopped from denying consent –
Whether separate policy formed by correspondence – Whether claims relating to personal capacity of individual employed by assured or assured in its
professional capacity.

In previous proceedings, R had brought an action against the claimant firm of accountants in respect of work undertaken by K, a partner. The firm asked
its insurers to accept liability to indemnify it and pay for its defence. The insurers ‘confirmed indemnity’ to the firm in respect of the proceedings but
stated that there would be no indemnity for any claim arising from private business dealings between R and K. The insurers also indicated that they
would be prepared to indemnify the practice for past and future costs, except for those attributable to the investigation and defence of the allegations made
against K, and asked for an apportionment of costs. R’s action failed. Following the judgment, the insurers claimed back the money which they had paid
to fund the defence and the firm claimed from the insurers a sum in respect of the expense of the claim. Insuring clause 1 of the policy provided for an
indemnity against ‘any civil liability … incurred in connection with the conduct of any professional business carried on by … the assured’. Special
condition 1 provided that the insurers would ‘in addition indemnify the assured in respect of all costs and expenses incurred with their written consent in
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the defence or settlement of any claim made against the assured’. It fell to be decided whether the policy provided an indemnity to the firm in respect of
the cost of defending a claim which had failed and, if not, whether subsequent correspondence had given rise to an entitlement to such an indemnity.

Held – (1) The essence of an indemnity clause was that the assured must prove a loss before recovering from insurers. It followed that the required
intrinsic character of the eventuality insured against was the true liability of the assured, rather than the alleged liability advanced by a claim. In the
instant case, as insuring clause 1 had not been drafted so as to exclude that basic principle of liability insurance, the clause did not insure against the
eventuality of a claim alleging breach of professional duty but against an actual breach of professional duty as ascertained by judgment, arbitration or
settlement. Accordingly, as there had been no such ascertainment, insuring clause 1 was not engaged and provided no basis for the claim advanced by the
firm (see p 500 c to e, p 501 g to j, p 502 j and p 520 j to p 521 a, post); West Wake Price & Co v Ching [1956] 3 All ER 821 and Bradley v Eagle Star
Insurance [1989] 1 All ER 961 applied.
­ 489
(2) The starting point for the construction of special condition 1 was that the policy would pay only in respect of actual, as opposed to alleged,
liability. Further, the condition was concerned with costs and expenses incurred in the event of the defence of a relevant claim or the settlement of a
relevant claim. For a valid claim to be made out, the claim had to have arisen in connection with the professional business of the assured and further that
there was actual liability in respect of the claim. The words ‘any claim … which falls to be dealt with under this certificate’ in special condition 1 did not
require that the costs be incurred in respect of a successful as opposed to an unsuccessful claim against the assured, as such a construction would mean
that the words bore one meaning for settlements and another meaning for defences. It followed that the words meant that the claim had in substance to be
capable of falling within the scope of the indemnity under the insuring clauses; once the consent of the underwriters to a settlement had been given, they
could not impose a pre-condition of actual liability. On the facts, the correspondence had the effect of a consent by the insurers to the incurring of the
costs of the defence in respect of the claim for breach of professional duty. Such a reading of the correspondence was consistent with special condition 1
and, accordingly, was effective to render the insurers liable for the firm’s defence costs (see p 504 a b, p 505 a to f, p 511 b c and p 520 j to p 521 a, post).
Per curiam. Where work undertaken by solicitors or counsel has a dual purpose and is concerned with the defence of two defendants, but insurance
covers only work relating to the defence of one defendant, the indemnity extends to the dual purpose work and is not confined to work exclusively
referable to the defence of the defendant whose liability was insured by the policy (see p 520 b, post).

Notes
For professional indemnity insurance, see 25 Halsbury’s Laws (4th edn reissue) paras 692–697.

Cases referred to in judgment

Aluminium and Cable Co Ltd v Allstate Insurance Co Ltd [1985] 2 Lloyd’s Rep 280.
Azov Shipping Co v Baltic Shipping Co (No 3) [1999] 2 All ER (Comm) 453.
Baker v Black Sea and Baltic General Insurance Co Ltd (Equitas Reinsurance Ltd intervening) [1998] 2 All ER 833, [1998] 1 WLR 974, HL.
Bradley v Eagle Star Insurance Co Ltd [1989] 1 All ER 961, [1989] AC 957, [1989] 2 WLR 568, HL.
Brice v J H Wackerbarth (Australasia) Pty Ltd [1974] 2 Lloyd’s Rep 274, CA.
Capel-Cure Myers Capital Management Ltd v McCarthy [1995] LRLR 498.
Forney v Dominion Insurance Co Ltd [1969] 3 All ER 831, [1969] 1 WLR 928.
Goddard and Smith v Frew [1939] 4 All ER 358, CA.
MDIS Ltd (formerly McDonnell Information Systems Ltd) v Swinbank [1999] 2 All ER (Comm) 722, CA; affg [1999] LRLR 98.
New Zealand Forest Products Ltd v New Zealand Insurance Co Ltd [1997] 1 WLR 1237, PC.
Norwegian American Cruises A/S v Paul Munday Ltd, The Vistafjord [1988] 2 Lloyd’s Rep 343, CA.
Pictorial Machinery Ltd v Nicolls (1940) 67 Ll L Rep 461 and 524.
Post Office v Norwich Union Fire Insurance Society Ltd [1967] 1 All ER 577, [1967] 2 QB 363, [1967] 2 WLR 709, CA.
­ 490
Scottish Metropolitan Assurance Co Ltd v Groom (1924) 20 Ll L Rep 44, CA; affg (1924) 19 Ll L Rep 131.
West Wake Price & Co v Ching [1956] 3 All ER 821, [1957] 1 WLR 45.
Wyvern Developments Ltd, Re [1974] 2 All ER 535, [1974] 1 WLR 1097.

Cases also cited or referred to in skeleton arguments

Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1981] 3 All ER 577, [1982] QB 84, CA.
British General Insurance Co Ltd v Mountain (1919) 1 Ll LR 605, HL.
Commercial Union Assurance Co plc v Sun Alliance Insurance Group plc [1992] 1 Lloyd’s Rep 475.
Haydon v Lo & Lo [1997] 1 WLR 198, [1997] 1 Lloyd’s Rep 336, PC.
Hulton & Co v Mountain (1921) 8 Ll LR 249, CA.
Xenos v Fox (1869) LR 4 CP 665.
Yorkshire Water Services Ltd v Sun Alliance & London Insurance [1997] 2 Lloyd’s Rep 21, CA.

Action
The claimant, Thornton Springer, a firm of accountants, brought an action for a declaration that they were entitled to have the defendants, NEM Insurance
Co and eleven other insurers and agents, indemnify it against costs and expenses incurred in the defence of a claim for breach of professional duty. That
claim had been dismissed by Mr Christopher Symons QC sitting as a deputy High Court judge on 22 May 1998. The facts are set out in the judgment.

Anthony Speaight QC (instructed by Stonehams) for the practice.

Andrew Fletcher (instructed by Cameron McKenna) for the insurers.

Cur adv vult

6 March 2000. The following judgment was delivered.

COLMAN J.
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Introduction
1. This is a claim by a firm of accountants against insurers under a professional indemnity policy. It raises issues of general importance on the effect
of professional indemnity policies issued to accountants in this country. It arises out of a claim against the firm and its partners (the practice) brought by
a Mr Roscoe who alleged that he was entitled to recover damages against the firm for breach of contract, negligence, fraudulent or negligent
misrepresentation, conspiracy and breach of fiduciary duty. Two actions were started in 1992 (consolidated in 1994) and in the statements of claim Mr
Roscoe asserted that between 1983 and 1989 he had retained the practice as accountants to advise him as to his financial affairs and that during that period
the conduct of Mr Stephen Kaye, a partner in the practice, then under a different name, gave rise to liability on the part of the partnership.
2. The basis for these allegations can be outlined as follows. (i) In 1984 Kaye in his professional capacity as an accountant had advised Roscoe in
respect of a proposed sale by Roscoe and a Mr Mayers of their shares in Die Formes (Cutter Manufacturers) Ltd (DFL) to Janecroft Ltd, a company
owned by Roscoe and ­ 491 Mayers. (ii) Roscoe ought to have been advised to obtain independent advice in view of Kaye’s interest in Janecroft. (iii)
Roscoe was to receive convertible loan notes in Janecroft in consideration for his shares in DFL and Kaye represented that those loan notes would be
worth £1·6m within two or three years, allegedly the basis for a collateral contract. (iv) Kaye and the practice were said to be in breach of fiduciary duty
and/or guilty of fraudulent or negligent misstatement. (v) Kaye gave further advice in 1986 as to conversion of the loan notes into shares in Janecroft and
subsequently of those shares into other shares and that advice was negligent, in breach of contract and/or in breach of fiduciary duty and/or involved
fraudulent or negligent misstatements. (vi) Further negligent advice was said to have been given by Kaye during 1986 to 1989. (vii) Kaye conspired with
Janecroft and other companies controlled by him to injure Roscoe. (viii) The practice was said to be indebted to Roscoe to the extent of £33,500 in
respect of the proceeds of sale of three properties.
3. In the course of 1993 correspondence passed between the practice’s solicitors and the insurers and their solicitors. The practice wanted the
insurers to accept liability to indemnify it and to pay for the defence, but the insurers reserved their position and the practice instructed its own solicitors
and counsel to prepare the defence and paid for expert advice. The substance of the defence was that, apart from advice as to tax affairs after 1985,
Kaye’s conduct did not involve the rendering of professional services in his capacity as a partner in the practice. What he was doing was conducting
distinct commercial operations in his personal capacity so as not to engage the liability of the practice. Further, it was denied that Kaye owed a duty of
care in respect of any of that conduct and that there had been any negligence or breach of fiduciary or any other duty.
4. The insurers continued to reserve their position but indicated that they did not consider that the claim should be admitted. Indeed, by June 1997
they indicated that Roscoe ought to be offered a ‘walk away’ settlement. Inter-solicitor correspondence culminated in a letter of 5 June from Cameron
McKenna (CM) the insurers’ solicitors to Stonehams, the solicitors acting for the practice; which I shall have to consider in some detail later in this
judgment. The letter stated amongst other matters that, whereas the insurers ‘confirmed indemnity’ to the practice in respect of the proceedings issued by
Roscoe, there would be no indemnity in respect of such element of any damages payable to Roscoe as was ‘adjudged to have arisen from private business
dealings’ between Roscoe and Kaye, that is which had not been incurred in the conduct of any professional business carried on by the practice. The letter
further indicated that the insurers were prepared to indemnify the practice for past and future costs, except for those ‘attributable to the investigation and
defence of the allegations made against Mr Kaye acting in his personal capacity’. They asked for an apportionment of the costs.
5. It is contended by the practice that 5 June 1997 letter gave rise to an enforceable promise to indemnify the practice in respect of defence costs or at
least to an estoppel precluding denial of liability thus to indemnify it.
6. On 6 October 1997 the insurers paid £75,000 for the purpose of funding preparation for the trial, but did so expressly without prejudice to insurers’
position as to policy coverage and apportionment of defence costs. They said that the insurers could seek recovery of the money if it were determined
that the policy did not respond to Roscoe’s action. A further payment of £50,000 was made on the same terms on 11 November 1999.
­ 492
7. The trial of Roscoe’s claim was to have started on 30 June 1997 but it had to be adjourned due to last-minute disclosure of documents by Roscoe
and it eventually commenced on 16 February 1998. Both by the written opening and closing submissions and by oral submissions the case advanced on
behalf of Roscoe was that Kaye’s conduct in relation to the transactions involving the loan notes and their subsequent conversion into shares was in his
capacity as a professional accountant as distinct from in his personal capacity. The fraud claim was dropped. The matter was tried by Mr Christopher
Symons QC, sitting as a deputy High Court Judge. The reserved judgment was given on 22 May 1998. The claim was dismissed, although the deputy
judge rejected Kaye’s evidence on a number of matters. It is particularly relevant that it was held that Kaye never gave advice as an accountant in respect
of any of the transactions relating to the Janecroft loan stock or its conversion into shares or other material matters. The claims for breach of fiduciary
duty, breach of contract, misrepresentation and conspiracy failed. The fraud claim was withdrawn.
8. Consistently with that judgment and with the practice’s case in defence to Roscoe’s claim the following facts are now agreed for the purposes of
the present trial. (1) The practice had no financial interest whatsoever in the transactions involving any of Mr Kaye, Mr Roscoe, DFL, Janecroft, Roscoe
Industries plc or Hartley Baird pleaded in the statement of claim and amended statement of claim in the Roscoe v Kaye action (the relevant transactions).
(2) The roles of Mr Kaye and Mr Roscoe in the relevant transactions were respectively purchaser and vendor in negotiation and thereafter co-venturers
(on the one hand) rather than professional adviser and client (on the other hand). (3) Mr Roscoe did not retain the practice to advise in respect of the
relevant transactions. (4) No duty of care was owed by the practice to advise in respect of the relevant transactions. (5) The practice did not owe any
fiduciary duty to Mr Roscoe in respect of the relevant transactions. (6) In the relevant transactions Mr Kaye was undertaking personal business and not
professional business.
9. Following the judgment the insurers claimed back the £125,000 which they had paid to fund the defence and the practice claimed from the
insurers a further sum of £193,589·31 in respect of additional expenses of defending the claim.

The issues
10. The fundamental issue is whether the policy provides an indemnity in respect of the assured’s cost of defending a claim which has failed and, if
not, whether subsequent correspondence gave rise to the entitlement of the practice to such indemnity. The practice puts its case on the following four
bases.
11. Special condition 1. This provides as follows:
‘Underwriters shall in addition indemnify the Assured in respect of all costs and expenses incurred with their written consent in the defence or
settlement of any claim made against the Assured which falls to be dealt with under this Certificate provided that if a payment in excess of the
amount of indemnity available under this Certificate has to be made to dispose of any claim or claims against the Assured, Underwriters’ liability
for such costs and expenses shall be such proportion thereof as the amount of indemnity available under this Certificate bears to the amount
required to dispose of such claim or claims.’
­ 493
It is submitted that, although there was never an express written consent, there was implied consent to be found in the correspondence between solicitors
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between October 1991 and June 1997. Alternatively, it is submitted that insurers waived the requirement for consent by what Camerons wrote in that
exchange of correspondence and in particular in their letters of 5 June 1997 and 15 August 1997. In the further alternative it is submitted that it is to be
implied in special condition 1 that the consent of the insurers to expenditure will not be unreasonably withheld. It is further submitted that the claim in
this case was one which fell to be dealt with under the policy because it was a claim which, if successful, or if it caused other loss, would result in liability
on the insurers.
12. Section I of the insuring clauses. This provides as follows:

‘Now we the Underwriters to the extent and in the manner hereinafter provided hereby agree:—To indemnify the Assured against any claim or
claims first made against the Assured during the period of insurance as shown in the Schedule in respect of any Civil Liability whatsoever or
whensoever arising (including liability for claimants’ costs) incurred in connection with the conduct of any Professional Business carried on by or
on behalf of the Assured.’

It is argued on behalf of the claimants that the Roscoe claim was against the practice, was first made during the period of insurance (1 May 1991 to 30
April 1992), having first been notified on 14 October 1991. It alleged civil liability incurred in connection with the conduct of the professional business
carried on by the practice as a result of which claim the practice incurred a loss, namely the unfunded part of the cost of defending the claim. Such cost
was reasonably incurred.
13. Section III legal defence clause. This provides as follows:

‘Underwriters agree to pay all costs, charges and expenses (which are not otherwise covered by this Certificate) of legal representation of the
Assured at any proceedings before any duly constituted court or tribunal of enquiry or otherwise having the like power to compel attendance of
witnesses at which the Assured in the opinion of the Underwriters should be represented by reason of any conduct which might give rise to or has
given rise to a claim under this Certificate …’

It is submitted that by the correspondence, particularly 5 June 1997 letter, and by the two payments to fund the defence costs in October and November
1997 the insurers demonstrated their desire to ensure legal representation of their assured. It is accepted, however, that the maximum indemnity under
this provision cannot exceed £25,000.
14. The letter of 5 June 1997. If the policy does not provide coverage or provides only the limited coverage within section III, the claimants advance
a number of grounds of recovery based upon the letter of 5 June 1997. It is convenient to set out the contents of that letter in full:

‘We write further to our previous correspondence and telephone conversations to inform you that we now have our clients’ further instructions
with regard to policy coverage.
Our clients are prepared to confirm indemnity to your clients, subject to policy terms and conditions (see further below) in respect of the
proceedings issued by Mr Roscoe. Accordingly, and for the avoidance of doubt, there will ­ 494 no indemnity afforded in respect of: such
element of any damages payable to Mr Roscoe as is adjudged to have arisen from private business dealings between Mr Roscoe and Mr Kaye i.e.
which has not been incurred in the conduct of any professional business carried on by your clients. Our clients reserve their rights in respect of any
costs which are adjudged or agreed to be payable to Mr Roscoe; such element of any damages payable to Mr Roscoe which is adjudged to have
arisen from any fraudulent misrepresentation or conduct (as pleaded or otherwise) on the part of Mr Kaye. As mentioned above, to the extent that
any such fraudulent misrepresentation or conduct is adjudged to have been made by Mr Kaye in his capacity as a partner, our clients reserve their
rights to apply policy terms and conditions; any award of damages to Mr Roscoe (to which your clients would otherwise be entitled to indemnify)
in excess of the applicable limit of indemnity i.e. £500,000.
It follows from the above that our clients are prepared to indemnify your clients for both the costs which have been incurred to date and future
costs, save for those which are attributable to the investigation and defence of the allegations made against Mr Kaye acting in his personal capacity.
You have provided us with details of the total costs incurred by your clients to date; please can you now provide, as soon as possible, your
apportionment of the costs incurred in the investigation and defence of the allegations made against Mr Kaye in his personal capacity. Future costs
must be similarly apportioned.’

It is submitted firstly that this letter gave rise to a fresh agreement which operated as an acknowledgement of liability. It is said that it was a promise to
indemnify all the defendants (the practice and the individual partners) in respect of past and future costs except those as were properly to be apportioned
to Kaye alone rather than to the practice. The consideration for that promise is said to have been the practice’s forbearance to commence proceedings
against the insurers. Having threatened to do so on 30 April 1997, they did not take action against the insurers until 2 February 1998, some two weeks
before the trial commenced, after receipt of a letter dated 26 January 1998 from the insurer’s solicitors in which the solicitors stated that the insurers were
not prepared to make any further contributions to the practice’s defence costs and that they awaited a judicial determination of the issue of the practice’s
liability for Kaye’s activities. Further, the promise in 5 June 1997 letter is said to have caused the practice not to commence proceedings against the
insurers. Finally, the insurers are said to have derived a benefit from the practice’s forbearance to sue because had it done so in 1997, that would have
stretched its resources still further and interfered with preparations for the Roscoe trial and such proceedings might have come to the attention of Roscoe.
15. As an alternative to the claim based on 5 June letter as giving rise to an enforceable contract, the practice contends that a claim may be based on
estoppel by convention. The structure of that submission, as refined by Mr Anthony Speaight QC in the course of the hearing, is as follows. (i) The 5
June letter expressed the common assumption of the parties, namely that insurers would be liable to indemnify in respect of the defence costs, except
those incurred in the defence of claims against Kaye in his personal, as distinct from his professional, capacity, thus leaving open to resolution only the
issue of apportionment of the costs incurred. The practice proceeded to rely on it until insurers’ solicitors’ letter ­ 495 of 26 January 1998. (ii) During
April to June 1997 the practice investigated the cost of legal costs insurance. It approached Greystoke Legal Services Ltd (Greystoke) for quotations in
respect of the pursuit of a claim against insurers as well as the defence to Roscoe’s claim. A premium of £2,559 for £26,000 cover for a claim against
insurers was quoted by Greystoke on 4 June 1997 with cover for 50% of already incurred costs. The quotation for the Roscoe claim defence was £10,960
for £100,000 cover. (iii) Following receipt of 5 June letter, the practice gave up the idea of obtaining such insurance cover because it believed that the
insurers would fund the defence. (iv) Following receipt of insurers’ solicitors’ letter of 26 January 1998 the practice re-investigated legal costs insurance
but found that it would be much more expensive to take out cover in respect of the Roscoe defence than if it had done so in June 1997 and that the
premium quoted by First Legal Indemnity for an action against the insurers was £54,000 per £200,000. (v) Reliance on 5 June letter had therefore
prejudiced the practice in view of the increased premium.
16. As a yet further alternative basis for the claim the practice relies on promissory estoppel. It submits that insurers are precluded from going back
on the promise contained in 5 June 1997 letter that they would fund the defence of claims against the practice based on Kaye’s conduct in his professional
capacity as distinct from his personal capacity. The practice acted to its prejudice in relying on that promise and it would be unconscionable now to
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permit the insurers to resile from it.
17. Finally, as to the insurers’ claim to recover their funding of £125,000, the practice submits that, by reason of the terms on which payment was
made as expressed in the letter from the insurers’ solicitors of 6 October 1997, recovery could only be made if it were subsequently determined that the
insurers were not liable to indemnify under the general insuring clauses in the event that Roscoe’s claim succeeded. That conclusion could not be reached
because, had Roscoe succeeded, the insurers would have been liable.

Policy coverage issues

18. Although Mr Anthony Speaight QC, on behalf of the practice, put forward his primary case on the basis of condition 1 of the special conditions
to section I, the logical approach to the construction of this policy involves as a starting point consideration of the basic scope of coverage as defined in
the insuring clauses. In as much as special condition 1 is expressed to provide cover ‘in addition’ one is prompted to ask in addition to what? It is
therefore necessary first to answer that question.
19. Mr Speaight submits that the eventuality insured against under insuring clause 1 is a claim or claims which (i) are first put forward during the
period of insurance and (ii) allege any civil liability whatsoever or whensoever to have arisen in connection with the conduct of any professional business
carried on by or on behalf of the assured. Thus the policy is said to indemnify the assured if it is established that during the period of insurance a claim
has been made against the practice of the kind defined in (ii) and that the putting forward of that claim has caused loss to the assured. Fundamental to this
construction is that it is not relevant to investigate whether the claim was well-founded. What matters is whether the claim falls within the scope of the
description to be found in section I.
20. Apart from that, this is the natural meaning of the words used. Mr Speaight relies on a number of authorities in support of this construction.
­ 496
21. First amongst these is Pictorial Machinery Ltd v Nicolls (1940) 67 Ll L Rep 461 and 524. That was a claim under a Lloyd’s public liability
policy to be indemnified in respect of claims made against the assured plaintiff arising out of damage by fire to various third parties’ premises. The fire
occurred when a bottle of acetone was allowed to fall and spill its contents while it was being delivered by the assured’s employee to the premises in
question. The policy provided for an indemnity against ‘all sums which the assured shall become legally liable to pay in respect of claims’. At the trial
on liability there were two issues before the court: (i) whether the loss was an insured accident because it arose at premises other than those of the assured
as defined in the schedule; and (ii) whether the insurers were relieved from liability on the grounds that the assured had failed to comply with a condition
of the policy requiring it to exercise reasonable care that all reasonable safeguards and precautions against accident were provided and used.
22. Humphreys J rejected the insurers’ case on both points and declared them to be liable. However, a dispute subsequently arose as to whether the
insurers were liable for the costs incurred by the assured in initially defending the claim for damages advanced against it. Those costs had been incurred
prior to the settlement by the assured of the third party’s claim. The insurers argued that they had at no time approved such expenditure, that the policy
expressly provided for an indemnity in respect of costs which the insurers had approved and that there was no room for any additional area of indemnity.
Humphreys J, having observed that there was no doubt that the assured was liable to the third party, held that the insuring clause was wide enough to
cover costs which the assured had reasonably incurred in contesting the claim. Costs reasonably incurred, as a result of which the assured had become
legally liable to pay those costs, were recoverable.
23. This decision has no contribution to make to the main issue as to the scope of coverage provided under insuring clause 1. Liability of the assured
to the third party was never in issue. The only relevance is as to the ancillary issue whether, if the loss by way of liability to the third party falls within
the insuring clause, the insurers are liable for costs reasonably incurred by the assured, without the consent of the insurers, in defending the claim. The
decision does not suggest that in a case where there was no liability to the third party claimant the insurer would be liable in respect of the costs of the
assured in defending the claim.
24. In Forney v Dominion Insurance Co Ltd [1969] 3 All ER 831, [1969] 1 WLR 928 a solicitor sued under a professional indemnity policy in
respect of his liability in damages to a number of clients—all members of the same family—in respect of his professional negligence with regard to the
appointment of the wrong administratrix of the estate of a deceased motorist and with regard to his failure to issue proceedings against the estate on behalf
of the widow and other members of the family of the deceased who were injured in the accident. The issues before Donaldson J included the questions
whether there was more than one occurrence for the purposes of the limit of indemnity—expressed as ‘in respect of any one claim or number of claims
arising out of the same occurrence—£3,000’, whether the words of the indemnity were wide enough to include the insured’s own costs in defending the
claims against him and if those costs had to be included in computing the limit of indemnity and whether those costs were wholly or partly recoverable as
damages for repudiation of the policy by the insurers’ asserting that the limit was lower than in truth it was. It was held that there were two ­ 497
occurrences, thus giving rise to a maximum contractual indemnity of £6,000. It was further held that the words of indemnity—’in respect of loss arising
from any claim or claims which may be made upon him by reason of any neglect, omission or error committed in the conduct of’ his business were wide
enough to cover his own costs of defending the claim and that such costs were therefore subject to the policy limit of £3,000 any one occurrence, but that
such costs could be recovered as damages for breach of contract if and to the extent that they were caused by the insurers’ repudiation of liability in
excess of £3,000.
25. There can be no doubt that the case proceeded on the assumption as between the assured and the insurers that the assured was indeed liable in
negligence to his clients. The decision therefore cannot be treated as authority for the proposition that, even if there had been no such liability, the
insuring clause would have covered costs reasonably incurred in defending the claim. In my judgment, the wording of the clause made it abundantly clear
that it would not. The claim which triggered the indemnity was not expressed to be one which alleged neglect, omission or error, but one which was
made by reason of such neglect omission or error. This could only have referred to an actual, as distinct from an alleged, omission or error.
26. In as much as it was decided that the insuring clause was wide enough to cover the assured’s own defence costs, this does not assist in the present
case because the insuring clause was expressly and unambiguously designed to provide an indemnity for losses if and only if there were actual liability.
Here the question is what happens about the costs where there is alleged but not actual liability.
27. The decision of Mr Martin Collins QC, sitting as a deputy High Court judge, in Aluminium and Cable Co Ltd v Allstate Insurance Co Ltd [1985]
2 Lloyd’s Rep 280 is also relied upon by Mr Speaight in support of the proposition that where a liability policy provides for an indemnity ‘against all
sums for which the Insured shall become legally liable to pay as compensation for … Accidental loss of or damage to property’ the scope of indemnity
extends to the liability of the assured in respect of the third party claimant’s costs in pursuing the claim against the assured. This case, however, is clearly
not authority for the proposition that the assured can recover his own costs under such an insuring clause, either in a case where the assured has incurred
the costs in defence to a valid claim or in a case where the costs were incurred in defence to a bad claim.
28. Finally, Mr Speaight argues, in support of the construction for which he contends, that a background consideration relevant to this issue is that a
professional indemnity policy, such as this, is typically taken out by a firm of accountants so that they may have the benefit of continuing protection
against being harassed by claims good and bad and with the purpose of obtaining cover for, amongst other things, being obliged to pay defence costs.
29. Mr Andrew Fletcher, on behalf of the defendant insurers, has drawn attention to the then current professional indemnity policy wording approved
by the Institute of Chartered Accountants for England and Wales (ICAEW). This includes in the insuring clauses cl A1 which apart from minor
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differences in wording is in substance identical to cl 1 of the insuring clauses in this policy. The ICAEW had in force its Professional Indemnity
Insurance Regulations which laid down the professional indemnity insurance requirements for accountants in this country. It was a condition of
entitlement to hold a practising certificate that the accountant confirmed each year that his practice was covered at least to the ­ 498 minimum scope
and levels specified by the council’s regulations (Bye Law 60). In this connection, it is to be observed that general condition 9 of the policy expressly
incorporated the approved wording:

‘In any dispute in connection with the terms, conditions, exclusions or limitations of this certificate it is specifically understood and agreed that
the terms, conditions, exclusions and limitations of the Approved Wording contained in the Prospectus for Approved Insurers to the Institute of
Chartered Accountants (in England and Wales/of Scotland/in Ireland) shall take precedence over any terms, conditions, exclusions or limitations
contained herein which are less favourable to the Assured.’

30. On the afternoon of the fourth day of the trial before me Mr Speaight applied to put in evidence a witness statement of one Emile Harold Woolf,
a former Chairman of the Professional Indemnity Insurance Panel of the Institute of Chartered Accountants and Insurers. Mr Fletcher made submissions
to the effect that little or no weight should be attached to this evidence but stated that he did not propose to cross-examine on it. In substance, Mr Woolf
stated that until in 1990 the ICAEW introduced compulsory insurance the majority of accountants took out professional indemnity insurance to protect
themselves from claims. While acknowledging that the change to compulsion ‘was driven by the need to maintain the regulation of chartered accountants
by demonstrating an ability to meet claims’, Mr Woolf asserts that ‘the self preservation element was considered as remaining implicit in all insurance
arrangements’ and ‘in the vast majority of practices this self-preservation was the primary reason for having cover’. He goes on to state: ‘No practice
within my knowledge takes out independent insurance to cover the legal costs of defending claims against them. Practices rely on their Professional
Indemnity Insurance to provide such cover’ and ‘Practices continued to purchase such insurance solely to protect themselves from claims and the costs of
defending themselves from such claims’.
31. Whereas, I am prepared to accept that, when this risk was placed, the motivation on the part of the practice could be expected to some extent to
be directed to protection against claims by clients and that some accountants might have assumed that under this wording insurers would pay defence
costs, there can be no doubt, in my judgment, that an important consideration which must also have been present to the mind of insurers and accountants
alike was the professional requirement for cover in order to protect the clients. Accordingly, it is to be inferred that all concerned would be likely to
perceive a policy of this nature as performing a dual function—protection both of the practice and of the clients. The probability is that no accountants
would take out separate insurance to cover legal defence costs because, if they thought about it at all, they would assume that they would be adequately
protected by special condition 1 (costs and expenses incurred with the insurers’ consent) and by the legal defence clause in section III (cost of legal
representation in court when the insurers considered that the accountants ought to have representation).
32. Accordingly, whatever criticisms may be made as to the cogency and basis of this evidence, I am bound to say that I find it of no assistance in
relation to the construction of the policy. Above all, it does not support the proposition that insurers and assured would have had a common assumption
that the sole ­ 499 overriding purpose of such insurance was the protection of the assured from losses attributable to claims against them, whether
well-founded or not.
33. Consideration of the words of the insuring clause 1, without reference to authority, points strongly in favour of the construction advanced on
behalf of the insurers. In approaching this wording it is important to bear in mind that in liability policies such as this an insurance clause has to define
the eventuality insured against by reference both to its intrinsic character and to the period of cover provided by the policy. That against which the
insured is to be indemnified is loss caused by the eventuality as defined.
34. In the present case insuring clause 1 defines the intrinsic character of the eventuality insured against by reference to ‘any civil liability
whatsoever and whensoever arising (including liability for claimants’ costs) incurred in connection with the conduct of any Professional Business carried
on by or on behalf of the Assured’ (my emphasis). These words make it very clear that the eventuality is the actual liability of the insured, as distinct
from the alleged liability, of the assured. If the latter meaning had been intended the clause would hardly have referred to ‘Liability … incurred’. Nor
would it have expressly provided for liability for the claimants’ costs. When this wording refers to ‘liability’ it is thus referring to actual liability. When
the underwriters are expressed to ‘indemnify the Assured against any claim or claims first made … during the period of insurance’ the wording is directed
to defining the eventuality by reference to the period of cover. The scope of cover is thus defined as being against loss caused to the assured by their
actual liability incurred in connection with the conduct of any professional business, including their actual liability for claimants’ costs in respect of which
liability a claim or claims are first made during the period of insurance.
35. The conclusion that wording of this nature is to be construed as defining the relevant eventuality as the actual liability as distinct from a claim
alleging liability is supported by numerous authorities.
36. In West Wake Price & Co v Ching [1956] 3 All ER 821, [1957] 1 WLR 45 the insuring clause provided for indemnity against:

‘Loss for any claim or claims which may be made against them … in respect of any act of neglect, default or error on the part of the assured …
or their partners or their servants, in the conduct of their business as accountants …’

An action was started against the accountants claiming in respect of payments of money made by clients which could not be accounted for. The
claim was framed as one for negligence or breach of professional duty, alternatively, money had and received, alternatively moneys converted by the
assured to their own use. The issue related to the application of a ‘QC clause’ under which underwriters undertook to pay any such claim as was within
the insuring clause without requiring the assured to dispute it unless a QC advised that the claim could be successfully contested. Devlin J held that the
true nature of the claim as distinct from the way in which it was expressed, was for the fraud of the assured’s employee and that, accordingly, it fell
outside the scope of cover. In the course of his judgment Devlin J identified the scope of cover specified by the insuring clause and he observed:

‘The essence of the main indemnity clause, as indeed of any indemnity clause, is that the assured must prove a loss. The assured cannot recover
­ 500 anything under the main indemnity clause or make any claim against the underwriters until they have been found liable and so sustained a
loss. If judgment were given against them for the sum claimed, they would undoubtedly have sustained a loss and the question would then arise
what was the cause of the loss. If the proximate cause (this seems to be the test; Goddard and Smith v Frew [1939] 4 All ER 358) of the loss was
the dishonesty of their servant, they could not recover under the policy; if on the other hand it was their own neglect, they could recover. If the
action between the claimants and the assured did not settle the question of causation, it would in all probability settle the facts in the light of which
the question could be answered.’ (See [1956] 3 All ER 821 at 825, [1957] 1 WLR 45 at 49.)

He thus concludes that under such an insuring clause the required intrinsic character of the insured eventuality is the true liability of the assured as distinct
from the alleged liability advanced by the claim.
37. This statement was approved by the Court of Appeal and the House of Lords in Bradley v Eagle Star Insurance Co Ltd [1989] 1 All ER 961 at
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964–966, [1989] AC 957 at 964–966 per Lord Brandon of Oakbrook. The issue in that case was whether the plaintiff could obtain pre-action disclosure
of the former employer’s liability insurance policy for the purpose of deciding whether to advance a claim under the Third Parties (Rights Against
Insurers) Act 1930 against the insurers for personal injury for which the employer, then insolvent, was allegedly liable. It was held by the House of
Lords, in agreement with the Court of Appeal and the judge at first instance, that the application must be refused. The basic reason for this conclusion
was that entitlement to pre-action disclosure did not arise unless and until the liability of the assured to the claimant had been ascertained by judgment,
arbitration or agreement: unless the liability of the assured was thus established the liability insurers of the employers could not be liable. The Court of
Appeal followed its earlier decision in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 1 All ER 577, [1967] 2 QB 363. In that case it had
held that a policy providing an indemnity against all sums which the insured should ‘become legally liable to pay … in respect of … damage to property’
could not be sued on by the insured or therefore by a claimant under the 1930 Act unless liability of the assured had already been ascertained. Both Lord
Denning MR and Salmon LJ ([1967] 1 All ER 577 at 579, 582, [1967] 2 QB 363 at 373–374, 377–378) had approved the statement of principle by Devlin
J which I have already cited.
38. It is true that in none of these cases was it argued that the relevant insuring clause engaged the insurers’ liability upon the making of a claim as
distinct from the ascertainment of the assured’s liability. However, the approval of Devlin J’s analysis in these two subsequent cases, in my judgment,
leaves no room for such an argument unless the insuring clause is drafted to show in clear terms that this basic principle of liability insurance is intended
to be excluded. This could not be said of the wording in the present case: as I have already indicated, it points very strongly towards the application of
the usual principle.
39. The strong presumption that a liability policy is to be construed consistently with this principle is well illustrated by the recent decisions of
Mance J ([1999] LRLR 98) and the Court of Appeal in MDIS Ltd v Swinbank [1999] 2 All ER (Comm) 722. The insuring clause provided for
indemnity—

‘against any claim for which the Assured may become legally liable first made against the Assured and notified to the Underwriters during the
period ­ 501 of this certificate arising out of professional conduct of the Assured’s business … alleging (a) Neglect Error or Omission … (b)
Dishonesty of Employee …’

There was an exception in respect of dishonest, fraudulent, criminal or malicious acts perpetrated after the assured could reasonably have discovered
or suspected the improper conduct of the employee. A claim was made on the assured on the basis of misrepresentation made in order to induce the
making of a computer software and hardware supply contract. There was no allegation of fraud. The assured settled this claim and then sought to recover
under the policy. The insurers relied on the exception. The issue was whether, as suggested by the use of the words ‘any claim … alleging’, the
eventuality of the claim within the policy period engaged the policy cover or whether, as the insurers alleged, the true nature of the liability as ascertained
had to be established, in particular whether as ascertained there had been fraud and, if so, whether the exception did in fact protect the insurers. Mance J
followed the approach of Devlin J in the West Wake Price & Co case and held that the assured’s argument failed ([1999] LRLR 98 at 103):

‘Haphazard results are possible if the true construction of the policy involves them. But a court is entitled to ask whether they are really
sensible or likely to have been intended when the word “alleging” was deployed. The answer which I would give is that the use of that word is
understandable in the context of wording establishing the claims made nature of the cover. But, ultimately, as between insured and insurers, it is
established liability which this insurance pays, and it is upon the nature and causation of any liability established that I consider the insured’s right
to indemnification must depend. In a case which goes to judgment, the judgment will, as Devlin J said, “in all probability settle the facts in the light
of which the question could be answered”. In a case compromised short of judgment, it is necessary and appropriate to ascertain the real basis on
which the case was compromised. That depends not upon what the third party may have alleged, although that is of course an important
consideration when seeking to understand the overall position. It involves taking an overall view of the nature and causation of the liability
recognised by the compromise. A defendant who, confident of success on the allegations made, nonetheless settles before discovery knowing that,
if he continues, documents will reach the other side which will enable different allegations to be made to which he will or may have no answer,
cannot on this basis ground his claim against his insurers solely and artificially on the allegations which happen to be made against him. He must
address the real basis of such liability as is established by the compromise which he makes.’

40. His judgment was upheld in the Court of Appeal, Clark LJ observing ([1999] 2 All ER (Comm) 722 at 731) that it was necessary to identify the
true proximate cause of the loss to see whether that was an insured peril: ‘underwriters’ liability depends upon the true facts and not simply upon the way
in which the claimant chooses to put its case’.
41. Accordingly, I conclude that insuring clause 1 did not insure against the eventuality of a claim alleging breach of professional duty but against a
breach of professional duty as ascertained by judgment, arbitration or settlement which was the subject matter of a claim first made within the policy
period.
­ 502
42. The judgment of Mr Christopher Symons QC concluded that neither the practice nor Mr Kaye personally were under any liability to Roscoe.
That therefore leaves the insurers in the position of being able to show conclusively that there is no ascertainment of liability of the assured and that
therefore insuring clause 1 is not engaged.
43. Once it can be concluded that the clause is not engaged because no insured eventuality has been established, there can be no question of any
indemnity in respect of any costs sustained by the claimant assured in defence of the claim. In the course of the hearing there was much argument as to
whether the costs of successfully defending a claim, which, if established, would have been within the scope of cover and which had been incurred
without the insurers’ consent, would be recoverable. As a matter of principle the proposition that such costs are recoverable faces insuperable conceptual
obstacles. Thus, given that the indemnity under such a policy is in respect of the assured’s ascertained liability to a third party, there is no indemnity basis
upon which the cost of ascertaining the contrary could be recoverable.
44. In as much as the relationship between a reinsurer and its reassured is analogous to that between a liability insurer and its assured, the cases on
the question whether the reassured is entitled to recover the costs of successfully defending a claim by the primary assured are directly material. In
Scottish Metropolitan Assurance Co Ltd v Groom (1924) 20 Ll L Rep 44 the Court of Appeal agreed that in the absence of an express provision providing
indemnity for such costs they were not recoverable. At first instance, that extremely reliable exponent of the law of marine insurance, Bailhache J ((1924)
19 Ll L Rep 131 at 133), with whose judgment the Court of Appeal agreed, although not specifically referring to this point, said this:

‘When this claim on behalf of the Katina was fought and resisted, and judgment was given for the original underwriters, there was nothing left
in respect of which the original underwriters could sue the re-insuring underwriters. They could only sue upon the policy, and the policy on this
risk was a policy against total loss only, and the total loss had been shown by the Court to be not a total loss covered by the policy at all but a loss
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due to the scuttling of the owner. The original underwriters, in succeeding in defeating the owner’s claim, have prevented themselves from having
any claim at all in respect of the loss of the ship against the re-insurers, as in respect of the loss of the ship against the re-insurers it is obvious no
claim would lie.’

Accordingly, insuring clause 1 provides no basis for the claim advanced by the practice in this case.

Special condition 1
45. In order for the practice to recover under this provision it must establish that it has incurred costs or expenses in the defence or settlement of a
claim which fell to be dealt with under the policy and that the costs and expenses were incurred with the consent of the underwriters. This wording has to
be understood in the context of this particular policy. The following considerations are, in my judgment, relevant to a proper understanding of the
purpose and effect of this condition. (i) The condition is expressed as a special condition to section I of the policy. It is section I which contains the
insuring clauses. Consequently, if ­ 503 it were intended that the condition should displace the basis of indemnity provided for in the insuring clauses
very clear words to that effect could be expected to be used. The starting point for construction of this provision is therefore that this is a liability policy
which pays only in respect of actual, as distinct from alleged, liability. (ii) The condition is concerned with costs and expenses incurred in two
eventualities—(1) the defence of a relevant claim and (2) the settlement of a relevant claim. Expenditure of costs or expenses on defence may occur in
relation to a claim which is subsequently successful, but also to a claim which is subsequently unsuccessful. Equally, costs or expenditure incurred in the
settlement of a claim may be paid to settle a claim which may or may not have succeeded. In the context of this state of uncertainty as to whether the
claim is well-founded or not, the written consent of the underwriters is an agreed control mechanism. Decisions on expenditure have to be taken by the
assured before the determination of the claim or ascertainment of liability. If underwriters withhold consent, the assured is entitled not to defend or settle
the claim. (iii) This condition interlocks with general condition 2. This provides:

‘The Assured shall not admit liability for, or settle any claim or incur any costs and expenses in connection therewith, without the written
consent of the Underwriters who shall be entitled at their own expense at any time to take over and conduct in the name of the Assured or the
Firm(s) as the case may be the defence or settlement of any such claim and to receive at all times the full co-operation of the Assured for this
purpose. Nevertheless, neither the Assured nor the Underwriters shall be required to contest any legal proceedings unless a Queen’s Counsel (to be
mutually agreed upon by the Assured and the Underwriters) shall advise that such proceedings should be contested.’

It will be observed that in relation to incurring expenditure in order to contest legal proceedings, the insurers are not to be under any obligation to contest
(and therefore to give their consent to the assured’s incurring costs or expenses in defence) unless a QC advises that the proceedings should be contested.
46. Mr Andrew Fletcher argues on behalf of the insurers that there must be established not only that the underwriters have consented to the cost or
expenses being incurred by the assured but that the claim must be a valid claim as distinct from a claim not based on true liability. For this purpose, he
argues, it is necessary to show that the claim arises in connection with the professional business of the assured and further that there is actual liability in
respect of the claim.
47. Whereas I have no doubt that the claim, as advanced, must be one which alleges liability incurred in connection with the conduct of the assured’s
professional business, the further proposition is more difficult. Mr Fletcher relies on a statement in the text of MacGillivray on Insurance Law (9th edn,
1997) pp 791–792, paras 28–32 in which a common costs clause is set out. It is prefaced by the words ‘In respect of a claim for damages to which the
indemnity expressed in this policy applies the Company will also indemnify the insured …’ It then goes on to cover ‘all costs and expenses of litigation
incurred with the written consent of the company’. The editors express the view—which repeats that found in all previous editions—that such a clause
‘would probably not apply to the assured’s own costs of meeting an unsuccessful claim since such a claim would not be “a claim to which the indemnity
expressed in this policy applies”’. This must be ­ 504 right on the wording of the clause set out in the text. However, the wording of special condition
1 is far less specific—‘any claim … which falls to be dealt with under this certificate’. Does this mean a claim which, if successful, would render
underwriters liable or does it mean a claim which is successful?
48. In my judgment, special condition 1 does not require that the costs must have been incurred in defence of a successful as distinct from an
unsuccessful claim against the assured. It is significant that the condition is concerned not only with the costs of defence but with the expense and cost of
settlement of any such claim. If there were to be super-added to the requirement that the underwriters should have consented to the costs or expenses
being incurred also the requirement that there should be actual liability to the claimant, that requirement must apply equally to the expenses of settlement.
However, the assured is not permitted to enter into a settlement unless the underwriters have consented to it. A construction which left it open to
underwriters to decline indemnity in respect of such costs or expenses, when they had already consented to the settlement being entered into, on the
grounds that there had in truth been no liability of the assured to the claimant would, I have to say, be quite absurd. It would lead to the result that
insurers who had already consented to a settlement of a claim which in substance fell within the scope of cover might then decline to indemnify the
assured in respect of what he had paid unless he established that he was in truth liable in respect of the claim. That could not have been the mutual
intention of the parties. Since the words ‘which falls to be dealt with under this Certificate’ cannot have one meaning for settlements and another
meaning for defences, it must obviously follow that they bear the meaning merely that the claim is in substance one capable of falling within the scope of
indemnity under the insuring clauses. In both cases the underwriters are entitled to rely on their control mechanism of consent, but, once that has been
given, they cannot impose a pre-condition of actual liability in respect of the claim.
49. Some support for this conclusion is to be derived from the decision of Potter J in Capel-Cure Myers Capital Management Ltd v McCarthy [1995]
LRLR 498. That case raised issues of construction on the Stock Exchange Policy, Pt II—Errors and Omissions. Under that policy a provision in similar,
but not identical, language to special condition 1 provided:

‘Underwriters also agree to pay all costs and expenses incurred in the investigation, defence or settlement of any claim made against the
Assured which falls to be dealt with under this Part subject to the provisions of Special Conditions 4 and 5 below and provided always that
Underwriters shall have given their prior consent in writing to such costs and expenses being incurred.’

Potter J observed ([1995] LRLR 498 at 504):

‘… it also seems to me plain (and I am not sure that it was ever actively contested) that the sense of special condition 1 is that the costs incurred
by the plaintiffs should be paid “from time to time” on an interim basis and should not await the outcome of the proceedings in respect of which the
claim is made before the obligation to make payment of such costs begins to bite. I am therefore equally clear that, if a declaration is required in
terms of “prior consent” there should be a further declaration that such consent will not be unreasonably withheld.’
­ 505
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There is little or no reasoning in support of this conclusion, but it is, in my view, entirely correct in so far as it states that the indemnity ‘should not await
the outcome of the proceedings in respect of which the claim is made’. I have already explained why, in my view, that construction must be correct.
50. In order to ascertain whether the claim is in substance within the scope of the insuring clauses it may be necessary to investigate what the basis of
the claim really amounts to, as distinct from the manner in which it is expressed in the claimant’s pleadings, adopting an approach similar to that of
Devlin J in West Wake Price & Co v Ching [1956] 3 All ER 821 at 828, [1957] 1 WLR 45 at 53. In a case where on the face of it the claim is so
formulated that it falls in substance partly within the scope of cover and partly outside that scope, special condition 1 has the effect that only to the extent
that it falls within the scope of cover can the claim be treated as ‘falling to be dealt with’ under the policy. Accordingly, insurers might properly confirm
their consent to the assured incurring costs and expenses in respect of the defence or settlement only of that part of the claim which is in substance within
the cover. However, this is not required to satisfy a high threshold of substantiality. Thus, if a claim were to be formulated against the practice for breach
of its professional duty and in the alternative against a partner in his personal capacity, relying on the same allegations of fact, there would, in my
judgment, be a claim within special condition 1 unless the claim for breach of professional duty was on the face of it so manifestly untenable as to justify
being struck out, if it had been pleaded.

Did the underwriters give their consent?

51. Before considering this question it is necessary to identify the nature of the claim advanced by Mr Roscoe. It can be shortly summarised as
follows. It was alleged that Mr Kaye’s conduct in relation to the transaction with Mr Roscoe relating to DFL, Janecroft, the loanstock in Janecroft and
Roscoe Industries plc was conduct in his capacity as a partner in the practice and therefore as an accountant who throughout owed to Roscoe the duty of
an advising accountant in relation to various transactions. Statements made by Mr Kaye in relation to these transactions were alleged to be professional
advice given by him to Roscoe. It was thus alleged that, in as much as some of these statements were alleged to be untrue, there had been breach of
contract or negligence in relation to them or by failure to give further advice. It was further alleged that Mr Kaye had a conflict of interest in both being
an adviser and having a personal interest in the transactions in question, thus giving rise to a breach of fiduciary duty. In as much as the statements made
by Kaye were untrue they were fraudulent or negligent. Further, Kaye’s statements gave rise to a collateral contract or warranty relating to the conversion
of Roscoe’s loanstock in Janecroft. Further, Kaye’s conduct amounted to a conspiracy to injure Roscoe. Finally, Kaye received the proceeds of sale of
certain properties but failed to account to Roscoe in respect of them.
52. All these allegations were advanced in such a way that the practice was said to be liable to Roscoe as his advising accountant and because Kaye
was acting in his professional capacity throughout. However, in relation to the pleas of negligent and fraudulent misrepresentation, conspiracy and breach
of collateral contract, the claim extended to Kaye in his personal as distinct from his professional capacity. Therefore, had any of those allegations been
established at the trial, but it had also been established that Kaye was not acting in the capacity ­ 506 of a professional adviser, judgment might have
been given against him alone and not against the practice.
53. On behalf of the practice Mr Speaight concedes that there never was any express written consent to the incurring of defence costs, but he submits
primarily that there was implied written consent by what the insurers’ solicitors wrote to the solicitors for the practice up to and including their letter of 5
June 1997. I must now consider that correspondence.
54. When Camerons were first instructed to investigate these claims by the insurers in October 1991 they indicated by their letter of 31 October 1991
to the practice that insurers’ rights were generally reserved pending the outcome of their investigations.
55. From the outset of these claims Mr Kaye and the practice maintained that he was acting in his personal capacity in these transactions and not in
his professional capacity. Investigations of the claims proceeded slowly. Nor did Mr Roscoe pursue the proceedings with much urgency. Camerons
were asking for documents relating to Mr Kaye’s transactions but they were not forthcoming. By their letter of 7 January 1993 to the practice’s then
solicitors Memery Crystal, Camerons pressed for further information and reiterated that the insurer’s position was generally reserved. On 15 April 1993
Camerons repeated that insurers’ position remained the same until the true nature of the claims became clear and their investigations had progressed to the
extent where they were able to advise insurers fully with regard to policy coverage.
56. By April 1993 Stonehams had been instructed to act on behalf of the practice and in a letter dated 4 May 1993 to Camerons they pointed out that
the practice had been sued in their professional capacity. They called on the insurers to confirm indemnity and reserved the right to recover from insurers
the cost of defending the assured. By their letter of 10 May 1993 Stonehams again pressed Camerons to confirm that insurers would support the defence.
57. In their reply of 12 May 1993 Camerons stated that they were still waiting to hear from Stonehams with regard to their request for access to
relevant files and in the meantime they would be unable to advise their clients fully with regard to policy coverage. Accordingly, the practice must
continue to act as prudent uninsured.
58. On 15 June 1993 Stonehams replied to Camerons protesting at the non-committal stance adopted and warning that insurers would be held liable
for the defence costs.
59. There was further correspondence about disclosure of files by the practice. On 4 August 1993 Stonehams informed Camerons that the practice
had no other files. They added that they hoped this would persuade Camerons that the claims against the practice were unfounded and that the insurance
should therefore indemnify the practice in respect of the costs of the defence. They repeated this request in their letter of 31 December 1993.
60. The position of insurers was further discussed at a meeting between solicitors on 14 July 1994, but Mr Curd of Camerons raised the question of
whether the substance of the claim fell within the scope of cover. Mr Passmore of Stonehams said that the issue of entitlement of the practice to an
indemnity would be referred to arbitration if insurers did not change their position. Mr Curd further raised a non-disclosure point. The meeting ended
inconclusively.
­ 507
61. On 9 November 1994 Camerons maintained the insurers’ reservation of their rights but, recognising that there was a community of interest
between their clients, stated that they had been instructed to explore the possibility of the practice applying to strike out the claim assisted by funding
from insurers. The letter was carefully stated to be written without prejudice to insurers’ reservation of their rights and was not intended to and did not
constitute any waiver of insurers’ rights.
62. The strike-out application was not immediately proceeded with. Discovery was completed. By their letter of 7 April 1995 Stonehams again
pressed for a full indemnity thereby enabling the practice to continue its defence and to make a strike-out application if appropriate. In the absence of
insurers’ confirmation of indemnity, the practice would commence arbitration against insurers.
63. The Roscoe action became bogged down in interrogatories and made little progress. Although by January 1996 a trial date had been obtained for
3 February 1997, the practice’s evidence was still not finalised by 11 November 1996. In the result, on 19 December 1996 new pre-trial directions were
given leading up to a trial date postponed until 30 June 1997.
64. By their letter to Camerons of 8 January 1997 Stonehams asked for confirmation by return that the insurers would fully indemnify the Practice in
respect of the claim. No such confirmation was given.
65. By their letter of 3 March 1997 Stonehams invited Camerons to give reasons for insurers withholding their indemnity. By their reply of 7 March
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1997 Camerons reminded Stonehams that they were awaiting a report of the advice of the practice’s counsel as to the prospects of an application to
strike-out the Roscoe claim. Stonehams were already aware of insurers’ concerns in respect of coverage. In particular, there was the question whether the
claim arose from the practice’s professional business or from Kaye’s personal business dealings.
66. On 19 March 1997 Stonehams wrote to Camerons emphasising the seriousness of the situation that had arisen in relation to insurers’ position.
They called upon Camerons to indicate by 4pm on the following day whether or not insurers would provide a full indemnity. Failing that the practice
would be advised on the action to be taken, in particular whether to commence litigation or arbitration against the insurers. On the following day
Camerons by their reply drew attention to delay by Stonehams in providing information and documentation which they needed to assist in their
investigation of policy coverage issues but acknowledged that such information had now been provided. They said that they would revert as soon as they
had obtained further instructions from their clients. In the meantime, the underwriters’ rights remained ‘fully and generally reserved’.
67. By 15 April 1997 no response had been received from Camerons. In a number of further telephone conversations Stonehams pressed Camerons
to ascertain insurers’ decision. On 30 April Stonehams formally gave notice that unless within three days the insurers confirmed that they would
‘indemnify (the practice) … against liability arising in the action against (the practice)’ they would regard a dispute as having arisen between the parties
to the policy as to the insurers’ liability to indemnify the practice and would then forthwith issue a notice inviting insurers to concur in the appointment of
an arbitrator.
68. By this time settlement feelers were being put out by Roscoe’s lawyers. Stonehams by a further letter of 30 April 1997 informed Camerons that
since ­ 508 Roscoe’s case, as disclosed in his evidence, was in some disarray and demonstrated that in 1984, when the Janecroft transaction was
completed there had been no retainer of the practice, they believed that a settlement could well be achieved by a very modest offer combined with
payment of costs. They further pointed out that the practice’s resources had ‘reached a critical level’ and this was now jeopardising the preparation of the
case. An arbitration with insurers would further stretch such resources.
69. In the meantime, Stonehams had explored the market for legal costs insurance both in relation to the Roscoe action and in relation to a claim to
be made on the insurers and they had obtained quotations for cover for both from Greystoke Legal Services, including retrospective cover for 50% of the
practice’s own incurred costs to date.
70. It was not until their 5 June 1997 letter, which I have already set out in full at para 14 above, that Camerons conveyed a positive reaction from
the insurers.

The letter of 5 June 1997

71. The letter can be divided into three sections. (i) The second paragraph, first sentence, is a general statement that the insurers accept that they are
bound to indemnify the practice in accordance with the terms of the policy. This does not go beyond an acknowledgement that the policy is binding and
is capable of providing an indemnity in relation to the Roscoe claim. It was to be read in the context of the possibility that the insurers might have been
able to avoid, for non-disclosure of material facts, a matter which had been raised by Camerons at the meeting with Stonehams on 14 July 1994 in relation
to the failure of the practice to disclose to the insurers at the time of placing of the risk that in 1989 Mr Mayers, the associate of Roscoe, had started
proceedings against Kaye in relation to transactions also involved in the Roscoe claim. (ii) The second section begins with the second sentence of the
second paragraph which sought to expand on the acceptance of indemnity by indicating three areas of financial liability outside the scope of indemnity,
namely any element of damages payable to Roscoe which were adjudged to have arisen from private business dealings between Roscoe and Kaye and not
incurred in the conduct of the assured’s professional business; such element of damages payable to Roscoe as was adjudged to have arisen from any
fraudulent misrepresentation or conduct by Kaye, but if that conduct was adjudged to have been in Kaye’s capacity as a partner they reserved their rights
to apply the policy terms and conditions; and any award of damages to Roscoe for which the insurers would be liable to indemnify the practice to the
extent to which that amount exceeded the policy limits. It is to be observed that the letter is careful both to distinguish any liability in damages arising out
of Kaye’s private business transactions from liability arising out of the conduct of the practice’s professional business and to reserve the position on costs
awarded in favour of Roscoe. The letter thus far reflects the effect of insuring clause 1 of the policy. (iii) The third paragraph deals exclusively with
defence costs incurred or to be incurred by the practice. The statement:

‘It follows from the above that our clients are prepared to indemnify your clients for both the costs which have been incurred to date and future
costs, save for those which are attributable to the investigation and defence of the allegations made against Mr Kaye acting in his personal capacity’
­ 509
set out two material commitments on the part of the insurers: (a) they were in principle prepared to provide indemnity in respect of costs already incurred
and in respect of future costs subject to the following qualification; and (b) by parity of reasoning with their approach to indemnification for damages and
costs liabilities their indemnity in respect of costs would not extend to those attributable to investigation and defence of allegations against Kaye in his
personal capacity. Consistently with that statement Camerons asked for details of apportionment of the total amount of costs ‘incurred in the investigation
and defence of the allegations made against Mr Kaye in his personal capacity’.
72. On the meaning of that paragraph I have no hesitation in reaching the following conclusions. (i) There is an unequivocal and unqualified
acceptance of indemnity by the insurers in respect of past and future defence costs incurred in relation to Roscoe’s claims save in so far as they related to
investigation and defence of claims against Kaye in respect of conduct in his personal capacity. (ii) That acceptance of indemnity could be quantified
only by means of apportionment. (iii) Since the practice’s costs had not hitherto been apportioned, such apportionment was requested in respect of
already incurred costs. It was also requested in respect of future costs. (iv) In so far as the insurers unreservedly accepted indemnity for past and future
costs, subject to apportionment, they both approved the previous expenditure and consented to the future expenditure on such costs.
73. Mr Andrew Fletcher has strongly argued on behalf of the insurers that, in stating that they were ‘prepared to indemnify’ the practice, the insurers
were doing no more than saying that, subject to the policy terms, they were prepared to solve the problem of the issue whether Kaye’s conduct was in his
personal or professional capacity by offering to indemnify the practice in respect of costs incurred in defending only the claim based on his acting in his
professional capacity, subject always to the scope of cover provided for by the policy and provided that the practice accepted this offer by providing an
apportionment of the costs so far incurred and as and when they were incurred in future. As I understand his argument, the third section of the letter is to
be read not as accepting liability to indemnify the practice for such costs, but as offering gratuitously to widen the scope of indemnity beyond that
provided for in the policy.
74. I am not able to accept this analysis of the letter. That is because it has to be read against the background of a policy which contains not only the
insuring clause but also special condition 1 which has the meaning which I have already determined. I have no doubt whatever that this letter would have
been read by any reader in the position of Stonehams, against the background of both the policy and the previous correspondence, as having the effect of
a consent by insurers to the practice having already incurred the costs in respect of the preparation of the defence of the claim in so far as that preparation
was directed to the claim for breach of professional duty as distinct from the claim based on allegations against Kaye acting in his personal capacity and
to the incurring of such defence costs and expenses in future. The statement that the insurers were prepared to indemnify the practice in respect of such
costs would be understood as meaning that they would pay such costs in such circumstances as defence costs and expenses would be payable under
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special condition 1 if such costs had been incurred with the underwriters’ consent, subject always to apportionment and, if the defence were successful, to
rights of subrogation in respect of costs orders ­ 510 against Roscoe. The requirement for apportionment was an integral part of this acceptance of
indemnity because of the complexity of the allegations advanced on behalf of Mr Roscoe against Kaye and the practice and the limit on the scope of the
cover to liability incurred in the conduct of the professional business of the practice. In inviting Stonehams to apportion or break down the costs the
insurers were putting in place a method of quantifying the amount of their indemnity which had already accrued and which would in future accrue.
75. It follows that this letter did operate as a consent to the practice having incurred and incurring in future defence costs and expenditure to the
extent specified. To that extent it was entirely consistent with special condition 1 and, subject to quantification by means of apportionment, it was
effective to make the insurers liable to indemnify the practice in respect of defence costs.
76. In view of this conclusion, it is unnecessary to consider at length the alternative arguments, advanced on behalf of the practice, for the
proposition that on other grounds the insurers are liable to indemnify the practice under special condition 1. These are: (i) waiver; and (ii) an implied term
that consent will not be unreasonably withheld. I now deal briefly with these submissions.

Waiver
77. If the letter of 5 June 1997 did not contain a consent for the purposes of special condition 1, it is submitted that the effect of that letter and of
subsequent letters, in particular that of 15 August 1997, was to waive the requirement for consent under that special condition.
78. By letter dated 13 June 1997 Stonehams wrote to Camerons:

‘The allegations made by Mr. Roscoe are all in respect of alleged advice having been given by our clients under their retainer (as pleaded) as
accountants to Mr. Roscoe. Even where Mr. Kaye is named as being the individual who gave the advice, it is alleged throughout that the advice
was given or actions taken by Mr. Kaye were on behalf of the practice.
In the circumstances, every allegation is made against the practice and is said by Mr Roscoe to be advice given or actions taken by the practice.
Our advice in this matter, and the preparation of the whole case for the Defendants has been advice to all the defendants in their professional
capacity as accountants. The costs we have incurred to date, and expect to incur in the coming weeks, have not been in any respect higher, having
represented all the Defendants, including Mr. Kaye, than they would have been if we had been representing only the other Defendants who include
the practice sued as a firm.’

In the course of a telephone conversation on 26 June 1997 between Mr Passmore of Stonehams and Mr Bloomer of Camerons there was discussion of
leading counsel’s advice that he should be permitted to disclose to the court at the trial the fact that insurers had now agreed to indemnify the practice but
that before that the funding of the action was a matter of great difficulty and that this caused delay in trial preparation. Mr Bloomer objected to disclosure
of insurers’ position because it might have an adverse effect on the terms of any settlement, but suggested that counsel should say that his clients had been
under financial difficulty which had now been resolved. This response is explicable only on the assumption that insurers were to provide interim funding.
­ 511
79. By their letter of the same date Stonehams expressed counsel’s concern at being prevented from disclosing the insurance position. On the
following day Camerons replied, adverting to the insurers’ objection to disclosure and stating:

‘You will appreciate that the position in relation to the extent of the indemnity which may be afforded to your clients is yet to be resolved; our
letter of 5th June refers. Our clients’ rights in respect of this issue remain reserved and, therefore, reference to the insurance cover should not be
made. Accordingly, “full” indemnity may not be afforded to your clients; your letter of 26 June is inaccurate in this respect. You will, of course,
have no wish to mislead the Court in any event.’

In the course of a telephone conversation later that day it was agreed between the solicitors that leading counsel might tell the court that the indemnity
position had been reserved. This was consistent with the requirement of apportionment for, if all the practice’s costs had been incurred in preparing the
defence to the claim against Kaye in his personal capacity, there could be no indemnity and the insurers had not yet accepted Stonehams’ claim in their 13
June letter that all costs had been incurred in defence of the claim against the practice.
80. Just before the date fixed for the start of the trial those representing Roscoe dropped the fraud and conspiracy claims and indicated an intention to
amend the statement of claim. There was also substantial further discovery. Stonehams, by their letter to Camerons of 3 July 1997, informed them of this
and asked whether the position of insurers taken as to costs could be reconsidered and it be indicated that a full indemnity would be given and an interim
payment made.
81. On 15 July 1997 Camerons wrote that the issue of apportionment of the costs remained to be resolved and the position remained as set out in
their letters of 5 and 25 June 1997. However, they would take their clients’ instructions as to a payment on account.
82. I would interpose that the issue of apportionment remained unresolved following Stonehams’ letter of 13 June 1997 because the insurers had
failed to make any substantive response. On the hypothesis that 5 June letter did not amount to consent so as to engage special condition 1, the insurers
were entitled to sit on the fence: see Brice v J H Wackerbarth (Australasia) Pty Ltd [1974] 2 Lloyd’s Rep 274 at 277 per Roskill LJ.
83. On 23 July 1997 Stonehams again pressed Camerons to accept that no form of apportionment was necessary. All the fraud and conspiracy
allegations having been withdrawn by Roscoe, they were unaware of any allegations which related only to Kaye. They formally requested the insurers to
indemnify the practice in the amounts of £28,703·00 plus VAT, being costs and disbursements previously invoiced and a further £66,494·24 invoiced that
day. They called on the insurers to make a payment on account or to state their reasons for disputing their liability to indemnify the practice. In the latter
event the matter would be referred to arbitration under the policy.
84. On 15 August 1997 Camerons wrote to Stonehams stating that the insurers’ position in relation to both policy coverage and the apportionment of
defence costs had been made clear in previous correspondence but that in view of the increase in costs due to the adjournment of the trial and the
community of interest of insurers and assured in defeating the claim ‘albeit that your clients’ policy may not, ultimately, respond to the claim’, the
insurers, without prejudice to their previously expressed position—
­ 512
‘would be prepared to fund your clients’ defence costs up to £75,000 subject to prior written confirmation from you that your clients accept that,
in the event that it is determined that your clients’ policy does not respond to Mr Roscoe’s action, these sums will be repaid to our clients.’

The letter added for good measure that their proposal did not constitute any waiver or affirmation by the insurers.
85. By their letter of 21 August 1997 Stonehams rejected this offer. They stated that costs and disbursements had already reached £142,485·65
together with another £27,805·52 plus VAT in the expert witness’s fee note. They called on the insurers to meet all their costs and disbursements to date
and to confirm that all future costs, including those of the trial would be indemnified. They indicated that the practice would be sure to agree to accept a
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payment on account and confirmation of indemnity as to future costs but without prejudice to insurers’ contributions as to apportionment. No reply
having been received by 1 September 1997, Stonehams wrote to Camerons requiring the dispute to be referred to the president of the Institute of
Chartered Accountants.
86. Camerons replied on 3 September 1997 blaming the current situation on the failure of the practice to apportion its costs and inviting ‘a more
constructive response’.
87. By their letter of 10 September 1997 Stonehams asked for payment of all their clients’ costs and disbursements to date without prejudice to
determination of the policy dispute by the president of the ICAEW.
88. Then on 6 October 1997 Camerons wrote in the following terms:

‘We refer to our letter dated 1st October and enclose our cheque in the sum of £75,000 made payable to your firm. This payment is made
without prejudice to our clients’ position in relation to both policy coverage and the apportionment of defence costs as previously stated, in order to
defray the costs burden currently being experienced by your clients. For the avoidance of doubt, in the event that it is determined that your clients’
policy does not respond to Mr Roscoe’s action, our clients will seek recovery of these sums from your clients.’

It is to be observed that in both their letter of 15 August and that of 6 October 1997 Camerons referred to the payment being without prejudice to insurers’
position not only on apportionment but on policy coverage issues. This can only refer to the contention that an indemnity in respect of costs would be
available only if the practice was held liable to Roscoe at the trial because Kaye was acting in his capacity as a member of the practice and not in his
personal capacity. I have already held that this is not a pre-condition for the operation of the indemnity under special condition 1. It follows that the
insurers could not be understood as making these payments pursuant to that term. These payments could only be understood to be a special concession
made outside the terms of the policy. It further follows that there can be no basis for any implication that the insurers were prepared to dispense with
written consent as a prerequisite for indemnity under special condition 1. Accordingly the submission that by those letters insurers waived the need for
consent under that condition fails.

The implied term submission

89. It is submitted, on behalf of the practice, that it was an implied term of the policy that consent under special condition 1 would not be
unreasonably ­ 513 withheld. On that basis the insurers were acting unreasonably in refusing to give that consent.
90. Special condition 1 has to be construed in conjunction with general condition 2 (see para 45 above). The effect of that provision is: (i) to give
underwriters control over admissions of liability, entering into of settlements and the incurring of costs and expenses by the assured by prohibiting the
assured so to act otherwise than with the consent of the underwriters; (ii) to entitle underwriters to take over the defence of the claim and to receive the
full co-operation of the assured; and (iii) neither party is required to contest any legal proceedings unless a Queen’s Counsel advises that they should be
contested.
91. Therefore, if the assured is not permitted to incur defence costs except with the underwriters’ consent and underwriters are not obliged to contest
any legal proceedings unless a Queen’s Counsel advises that they should be contested, there is no room for the implication of a term which could oblige
underwriters to consent to the assured incurring defence costs in the absence of such advice. The effect of such a term would be to force underwriters to
give their consent and thereby in effect to contest the proceedings where there had been no Queen’s Counsel’s advice that they should be contested.
Absent such advice, there is no implication that underwriters should nevertheless give their consent and so assume a further indemnity obligation. The
term expressly legislates for what is to happen if underwriters do not wish to contest the claim. The implication of such a term is therefore not necessary
to give business efficacy to the policy or enable the policy to operate in accordance with its express terms. Indeed, such a term would in some respects be
inconsistent with the express terms.
92. Apart from the presence of general condition 2 there would be no implied term that under a liability policy insurers were under an obligation to
fund the assured’s own defence costs if the assured were under no liability to the third party claimant: see the Scottish Metropolitan Assurance Co Ltd
case and Baker v Black Sea and Baltic General Insurance Co Ltd [1998] 2 All ER 833 at 838–841, [1998] 1 WLR 974 at 979–982. If, as I have held, the
consent of insurers in special condition 1 is a control mechanism for the benefit of insurers and if, absent such consent, there would be no implied
obligation to indemnify against such defence costs, there can be no foundation for the implication of any term fettering the insurers’ right to withhold
consent.
93. In the Capel-Cure Myers Capital Management Ltd case, in the passage of his judgment to which I have already referred, Potter J observed in
relation to the form of declaration to be made as to the insurers’ obligations under the form of special condition 1 in that case that it should incorporate a
provision that the insurers’ prior consent should not be unreasonably withheld. That conclusion is stated by Potter J to follow from the view that the costs
should be paid from time to time prior to final determination of the issue of liability for the claim. I am bound to say that I do not follow that reasoning.
Once consent is a pre-condition to liability the fact that there may be a continuing incurring of costs by the assured would not seem to have any bearing
on the circumstances in which consent to further expenditure should be given. It appears that the point was not fully argued, if it was argued at all. It is
unclear whether the policy before Potter J contained a term of similar effect to general condition 2. Nevertheless, even if it did not, I consider that the
view there expressed is in principle unsustainable.
­ 514
94. I therefore reject the submission that a term is to be implied that in relation to special condition 1 insurers’ consent is not to be unreasonably
withheld.

Section III of the policy: legal defence clause

95. This provision, as is accepted by both parties, can only provide a very modest indemnity due to the limit on indemnity being agreed at £25,000.
96. I do not consider that this provision relates to proceedings between the claimant and the assured in which the liability of the assured is to be
determined. It is confined to costs, charges and expenses not otherwise covered by the certificate. Special condition 1 does expressly cover defence
costs, including costs of representation, incurred with the underwriters’ consent. Accordingly, it would be most improbable that this clause should be
intended to operate in parallel with and in respect of the same proceedings as the very specific kind of indemnity expressed in special condition 1.
Further, by proviso (b) insurers are not liable for costs awarded against the assured at such a hearing. Given that insurance clause 1 expressly covers such
costs, as may be awarded in relation to liability for the third party claim, it can hardly be that the legal defence clause was intended to operate in relation
to proceedings in which that claim was determined.
97. Further proviso (c) specifies that no costs, charges and expenses other than those incurred with the written consent of the underwriters are to be
payable. If written consent is to be a pre-condition under this provision, as well as under special condition 1, there is in this case no factual basis upon
which, in the absence of such consent for the purposes of that provision, there would yet be sufficient consent for the purposes of the legal defence clause.
98. Further, the words—
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‘at which the Assured in the opinion of the Underwriters should be represented by reason of any conduct which might give rise or which has
given rise to a claim … or by reason of any prejudice which might be occasioned to the Assured’s professional reputation’

strongly suggests that this clause is concerned with hearings before bodies other than the court determining liability to the claimant, the clause being
directed at hearings such as those before professional tribunals or in criminal courts which may give rise to or affect a claim against the assured or which
may prejudice the assured’s professional reputation.
99. In my judgment, therefore, the practice is not entitled to claim under the legal defence clause.

Implied contract of indemnity

100. It is argued on behalf of the practice that the letter of 5 June 1997 gave rise to an implied contract under which the insurers assumed an
obligation to indemnify the assured in consideration of the assured’s forbearance to sue on the policy.
101. It is argued on behalf of the insurers that if the letter of 5 June is to be regarded as an offer of indemnity, that offer was never accepted by the
practice for there was no point of time when the parties were ad idem.
102. I have already reviewed the correspondence leading up to the letter of 5 June 1997 as well as that which followed it. That letter called for an
apportionment of the costs incurred in the investigation and defence of the claim ­ 515 against Mr Kaye in his personal capacity. It clearly meant those
costs exclusively so incurred as distinct from costs incurred for the dual purpose of the defence of the claim against Mr Kaye and against the practice.
Unless and until the assured responded to that request with information on quantification, the indemnity would not have been provided. Thus Stonehams’
letter of 13 June 1997, from which I have already quoted, was a perfectly proper response. They accepted the terms of the indemnity and conveyed the
information that none of the costs incurred had been exclusively referable to the claims against Mr Kaye personally. There can be no doubt, in those
circumstances, that the practice accepted the terms of that letter.
103. Was the agreement on those terms supported by consideration? In particular, did the practice undertake an obligation not to sue?
104. Against the background of Stonehams’ letters to Camerons on 19 March and 30 April 1997 (referred to in paras 66 and 68 (above)), I have no
doubt that the letter of 5 June was put forward in order to deter the practice from commencing proceedings against the insurers and would clearly have
been so understood by anyone in the position of the solicitors to the practice. In accepting the terms of that letter by their letter of 13 June 1997
Stonehams clearly withdrew the practice from its threat to start proceedings. That letter may not have spelled it out in express words but the first
paragraph is inconsistent with the maintenance of the threat to start proceedings. There was, in my judgment, an implied promise not to take proceedings
provided that insurers performed the terms of their solicitors’ letter. That such an implied promise may be found in an acceptance of an offer put forward
in order to forestall the commencement of proceedings is illustrated by Re Wyvern Developments Ltd [1974] 2 All ER 535, [1974] 1 WLR 1097. I
therefore conclude that even if insurers were under no obligation to indemnify costs under the terms of the policy by 13 June there was a concluded
agreement, binding on the insurers to extend the scope of indemnity to such costs on the terms of 5 June letter.

Estoppel by convention
105. This point arises only on the hypothesis that contrary to what I have held, there was neither consent, for the purposes of special condition 1, nor
a binding agreement to extend the indemnity to defence costs based on 5 June 1997 letter. The structure of the submission advanced by Mr Speaight QC
on behalf of the practice has already been set out at para 15 of this judgment.
106. The common assumption relied upon is that expressed by 5 June 1997 letter. Mr Fletcher on behalf of the insurers submits that there never was
a common assumption on which to found an estoppel by convention. He submits that the parties never shared the same assumption as to what 5 June
letter provided. This was demonstrated by: (i) the letter from Stonehams of 13 June 1997 which did not apportion the costs and expenses, but instead
asserted that all the costs were incurred in preparation of the practice’s defence to the claims against it; (ii) the letter from Stonehams of 23 July 1997
calling for a payment on account or for the insurers’ reasons for disputing the indemnity, which showed that there was by then the development of a clear
dispute as to what each party assumed to be the nature of the indemnity, this state of dispute continuing right up to the letter of 26 January 1998; (iii) the
15 August 1997 letter from Camerons referring to the indemnity being without prejudice to the insurers’ position on the issue of policy coverage, a
position more explicitly repeated in Camerons’ ­ 516 letter of 6 October 1997 from which I have already quoted (para 88 above); and (iv) the
continuing dispute thereafter as to the terms of the indemnity.
107. This submission assumes that the insurers’ reservation of their position as to policy coverage as distinct from apportionment had continuously
run through the correspondence starting with 5 June letter and continuing throughout the period up to 26 January 1998. That, however, is not what
happened. Until 15 August 1997 letter from Camerons, the only matter standing in the way of indemnity was apportionment and that was a matter merely
of quantification. It was not until 15 August that there was introduced into the dialogue the further qualification that insurers reserved their position as to
policy coverage. At that point Camerons departed from what had hitherto been a common assumption, namely that they were entitled under the terms of
the policy to operate special condition 1 in the manner expressed in their 5 June 1997 letter. It was at that point that the insurers began to resile from their
position taken in that letter. The position was starkly set out in Camerons’ letter of 6 October 1997 in which they made it clear that they reserved the right
to claim back the money should it be determined that the policy did not respond to Roscoe’s action, reserving their position both on apportionment and
policy coverage.
108. By that time it should have been obvious to those advising the practice that the insurers were opening up an area of dispute beyond
apportionment. Whether it was open to them to do so would depend on whether it was unconscionable in all the circumstances for them to change their
position. That would depend in turn largely upon whether the practice would be irremediably prejudiced if the insurers pursued that course.
109. As indicated in para 15 above, the practice ceased to concern itself with legal costs insurance once it had received 5 June letter, for it then
believed that, apart from quantification by apportionment, there was no risk that the insurers would decline to pay defence costs if the defence claim
succeeded. Having regard to what I have held to be the proper construction of that letter, this was an entirely understandable and reasonable course. In
the event, the practice did not re-investigate such insurance until after it had received Camerons’ letter of 26 July 1998 which told them that insurers
would make no further contribution to defence costs beyond the two payments of £75,000 and £50,000 already made. By then the legal costs insurers
were quoting significantly higher premiums than had been offered in early June. Indeed, the decision was then taken that the cost of cover was so great
that the practice could not afford it. It is on that basis that it is submitted that it would suffer irremediable prejudice if the insurers were permitted to go
back on the terms of the letter of 5 June for by resiling from their position as to defence costs indemnity defined by the letter the insurers had effectively
deprived the practice of legal costs insurance at an affordable premium. I interpose that this would represent a typical estoppel by convention scenario, in
accordance with the principles approved in Norwegian American Cruises A/S v Paul Munday Ltd, The Vistafjord [1988] 2 Lloyd’s Rep 343.
110. It is submitted on behalf of the insurers that right from 5 June there was lack of a common assumption as to the terms of the defence costs
indemnity and, in any event, the insurers stated position was such that the practice ought to have taken out legal costs cover at once and certainly long
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before January 1998.
111. Although I cannot accept that the need for such cover would be reasonably apparent earlier than receipt of 15 August letter from Camerons, or
at ­ 517 the latest their receipt of 6 October letter, in my view, there was by that time an unambiguous assertion that policy coverage remained in issue
and that, depending on whether the policy responded to Roscoe’s claim, reimbursement of payments on account might have to be made regardless of
apportionment.
112. The question therefore arises whether the practice ought then to have taken steps to protect itself by taking out legal costs insurance for it might
be argued that, had it done so at that time, instead of waiting until January 1998, it might have obtained cover at rates similar to those offered in early
June 1997. Thus it would be said that the prejudice which it would sustain by inability to obtain affordable cover was caused by its own failure to act
reasonably in August or October 1997 rather than by underwriters’ adopting the position in their letter of 26 January 1998 of refusing to provide any more
funding on account.
113. I have come to the conclusion on balance that it could not be said that in response either to 15 August or 16 October letter the practice was
acting so unreasonably in not attempting to take out legal costs cover that it could be said that its inactivity then, rather than insurers’ unequivocal change
of position in 26 January 1998 letter, was the cause of the prejudice suffered by the practice due to its inability to obtain affordable cover. In August and
September the practice was in the position in which it appreciated that the issue of apportionment remained unresolved and therefore knew that, at least in
theory, payments on account might have to be refunded to underwriters. Nevertheless, they were receiving a payment on account and a further payment
was promised in November 1997. It was not unreasonable for them to assume that underwriters would make a further payment or payments as the costs
increased if the matter came to trial in early 1998. If they could continue to receive payments on account that would help them to solve their funding
problems. At least the trial could be started and proceeded with. If the practice lost, it would obtain the benefit of the policy indemnity. If the practice
won, it would rely on apportionment under 5 June letter to enable it to recover at least the greater part of its defence costs over and above the payments on
account and in so far as such costs were not recovered from Roscoe. If underwriters then further asserted that the policy did not cover the defence costs,
regardless of apportionment, there would be an order for costs against Roscoe in favour of the practice which would be available to fund any requirement
to repay the underwriters the amount of interim payments received. In these circumstances the practice was entitled to refrain from taking out any legal
costs insurance in August or October 1997.
114. Accordingly, I conclude that, if the practice is not entitled to an indemnity in respect of defence costs on the direct basis of special condition 1
or of a separate binding contract based on the terms of 5 June letter, it is entitled to succeed on the basis that the insurers are estopped from asserting that
the letter of 5 June did not accurately reflect their indemnity obligations under the policy.
115. Had I concluded that it was not reasonable for the practice to omit to re-investigate legal costs insurance following receipt of either Camerons’
letters of 15 August or 6 October and that such omission might therefore have caused it prejudice, the position would have arisen where there was no
evidence of what premium rates would have applied if quotations had been asked for at those earlier dates. Since the burden of proof of unconscionability
attributable to prejudice rests with the party asserting the estoppel, I should have concluded that the plea of estoppel failed for it might have been that the
rates then obtainable would have been similar to those available in early June.
­ 518

Promissory estoppel
116. This submission raises the same evidential problem as estoppel by convention in relation to the cause of prejudice to the practice. For reasons
which I have already given I should have held that the practice’s omission to take out legal costs cover in August or October 1997 was not unreasonable
and could not be the cause of prejudice.
117. However, it might not be open to the practice to use promissory estoppel to enforce the terms of 5 June 1997 letter because to do so would be to
enforce it as if it were a contract. The letter does not set out to refrain from enforcing an existing contract or other legal relationship. Instead, it assumes
additional obligations not previously resting on insurers, for one has to assume for the purposes of this argument that neither the policy nor some
subsequent agreement based on 5 June letter imposed an indemnity obligation in respect of defence costs on the insurers. If there were no subsequent
agreement, that could be because there was no consideration. In that event, promissory estoppel could not be relied upon to arrive at the same destination
as if there had been a contract. That would be because of the policy of the law in protecting the doctrine of consideration: see Azov Shipping Co v Baltic
Shipping Co (No 3) [1999] 2 All ER (Comm) 453 at 474–477. If, however, there was no contract on the terms of that letter because there had been no
acceptance by the practice of those terms but a requirement of forbearance to sue was implicit in the terms of that letter, an estoppel might be relied on,
for there would be no relevant policy consideration precluding what would in effect be enforcement of the insurers’ promise. It is unnecessary to
speculate further on this hypothetical aspect of the practice’s case.

Apportionment
118. I have already concluded that the letter of 5 June was an entirely proper mode of giving effect to special condition 1 in the context of the Roscoe
claim. Stonehams, on behalf of the practice, have throughout taken the line that all the work that was done to prepare this case for trial was necessarily
undertaken in order to prepare a defence to the claims against the practice as it also was in order to defend Mr Kaye in his personal capacity. For present
purposes, it will be sufficient for this judgment to indicate how in principle the indemnity ought to be quantified.
119. The claim against the practice and that against Mr Kaye in his personal capacity were very closely related. The relief sought against both was
based on a similar body of fact. There were essentially two underlying issues. (i) Did Kaye do or not do in relation to those transactions what was
alleged against him? (ii) If he did or, as the case may be, did not do those things, did that involve a breach of professional duty by the practice or
exclusively a breach of duty in contract or tort by him personally?
120. The apportionment exercise has to begin with the claims and to divide those claims which relate to the conduct of the practice from those which
exclusively relate to Kaye in his personal capacity. Amongst the latter are conspiracy, fraud, breach of collateral contract and the claim for an account.
Applying the approach of Devlin J in the West Wake Price & Co case it is impossible to see how any of these claims could have succeeded against the
practice. The approach must then be to ask whether any expenditure was incurred exclusively in preparing the defence to those claims. Clearly, the
problem with this type of exercise in a case like this, in which the transactions and the individuals involved ­ 519 are all closely connected, is to isolate
those parts of the work which did not have a dual purpose and were concerned only with Kaye’s personal liability from those parts of the work which did
have a dual purpose.
121. In principle, the approach required is that adopted by the Privy Council in New Zealand Products Ltd v New Zealand Insurance Co [1997] 1
WLR 1237. If the work has a dual purpose and is concerned with the defence of both of two defendants but the insurance covers the work relating only to
the defence of one of them, the indemnity extends to the dual purpose work and is not confined to work exclusively referable to the defence of the
defendant whose liability is covered by the policy. This is clear from the judgment (at 1246).
122. Accordingly, if it is impossible to identify any work which related exclusively to the claims which on the face of it were palpably sustainable
only against Mr Kaye in his personal capacity, the practice is entitled to an indemnity in respect of all such dual purpose work. This is also consistent
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with the approach followed by Potter J in Capel-Cure Myers Capital Management Ltd v McCarthy [1995] LRLR 498 at 504.
123. The precise calculation of the apportionment is not a matter for me. If the parties cannot agree on the apportionment, the matter will be remitted
to a costs judge for the details to be investigated and the amounts quantified.

The counterclaim by the insurers

124. Since the letter of 5 June effectively operated to provide an indemnity under special condition 1, it was not open to the insurers to revert to their
pre-5 June 1997 stance in October 1997 and to make a payment on a qualified basis. Above all, they were not entitled to make payment contingent on the
outcome of the Roscoe action. They are therefore not entitled to recover on that basis £125,000 in respect of the two payments made. It is not open to
them to rely on the fact that Roscoe lost his action and contend that there never was an obligation to indemnify because the practice was not truly under
any liability in respect of the claims.
125. The counterclaim as presently formulated therefore fails and is dismissed. Whether any of the counterclaimed amount could be recovered on
principles of subrogation has not been raised.

Conclusion
126. The insurers have claimed that they are entitled to avoid the policy by reason of non-disclosure of material facts. That point has not been
investigated at the trial before me and it is agreed that it should be left open for the time being. It is, however, undesirable that it should remain
unresolved on an open-ended basis. I shall therefore now give judgment in the form of a declaration and I shall also give directions as to the
determination of that outstanding issue as a matter of some urgency.
127. The declaration will be in the following form, subject to any submissions that counsel may wish to make:

‘Subject to any case which the defendants may advance based on their entitlement to avoid the policy for non-disclosure of material facts, the
defendants are liable to indemnify the claimants for all costs and expenses reasonably incurred in the preparation of the defence and presentation of
the defence at trial of the claims of Mr Roscoe against the practice in its professional capacity whether or not such costs and expenses were also
­ 520 incurred upon work before and during trial in relation to the defence of the claims against Mr Kaye in his personal business capacity.’

128. Finally, I should like to pay tribute to the clarity, meticulous preparation and legal research with which this case was presented by counsel
representing both the claimants and the defendants.

Order accordingly.

James Wilson Barrister (NZ).

[2000] 2 All ER 522

Morgans v Director of Public Prosecutions

CRIMINAL; Criminal Evidence

HOUSE OF LORDS
LORD NICHOLLS OF BIRKENHEAD, LORD MACKAY OF CLASHFERN, LORD STEYN, LORD HOPE OF CRAIGHEAD AND LORD CLYDE
13 DECEMBER 1999, 17 FEBRUARY 2000

Criminal evidence – Interception of communications – Telephone intercepts – Whether information obtained by call-logging device a communication –
Whether material obtained by unwarranted intercept admissible in evidence – Interception of Communications Act 1985, ss 1, 9.

The police suspected M of computer hacking, and sought the assistance of BT, the company which provided him with his telephone line. As a result, a
call-logging device, known as a Monolog, was fitted to M’s telephone line at the exchange. Information obtained from that device was reproduced in a
printout showing the time and date of the use of the telephone, the duration of each call and the digits dialled, whether before or after connection to
another telephone line. The investigation produced evidence that M’s telephone number had accessed the telecommunications networks of three
companies, and had then been used to make free calls by utilising that part of the companies’ systems which enabled authorised users to make free calls to
outside lines. M was subsequently charged with fraudulent use of a telecommunications system contrary to s 42 of the Telecommunications Act 1984, and
convicted by the stipendiary magistrate. On appeal to the Crown Court, M challenged the admissibility of evidence, obtained by the Monolog
interception, which had enabled the Crown to prove that the free calls had been made from M’s telephone number. He relied on s 9(1)(a)a of the
Interception of Communications Act 1985 which provided that, in any proceedings before a court or tribunal, ‘no evidence shall be adduced’ tending to
suggest that an offence had been committed under s 1b of the Act by any of the persons mentioned in s 9(2). Those persons included any public
telecommunications operator and any person engaged in the running of a public telecommunication system. Under s 1(1), it was an offence for a person
intentionally to intercept ‘a communication’ in the course of its transmission by means of a public telecommunication system, but no such offence was
committed where, inter alia, the communication was intercepted in obedience to a warrant issued by the Secretary of State under s 2c of the Act (s
1(2)(a)), or where the communication had been intercepted for the purposes set out in s 1(3). The Crown Court rejected M’s challenge to the admissibility
of the Monolog evidence, and upheld his conviction. A further appeal was dismissed by the Divisional Court which held, on the basis of binding Court of
Appeal authority, that s 9(1) only rendered inadmissible evidence obtained by
________________________________________
a Section 9, so far as material, is set out at p 530 j to p 531 b, post
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b Section 1, so far as material, is set out at p 530 e to h, post

c Section 2, so far as material, provides: ‘(1) … the Secretary of State may issue a warrant requiring the person to whom it is addressed to intercept, in the course of their
transmissions … by means of a public telecommunication system, such communications as are described in the warrant …
________________________________________
­ 522

warranted intercept. M appealed to the House of Lords, challenging the Divisional Court’s view of the effect of s 9(1). The Crown contended that the case
fell outside s 9(1) since information obtained by a Monolog was merely metering information, not the product of a communication within the meaning of
s 1(1).

Held – (1) In order to constitute a communication by means of a public telecommunication system for the purposes of the 1985 Act, it was sufficient for
an electrical impulse or signal to be transmitted from the telephone number from which the impulse or signal was sent to the telephone number with
which it had been connected. The sending of such an impulse or signal in either direction would do, irrespective of the response which it elicited from the
recipient and the length or content of the message which it conveyed. Thus any intentional interception of such an impulse or signal, while it was in the
course of transmission through a public telecommunication system, would be subject to the provisions of the Act. In the instant case, the information
intercepted by the Monolog could properly have been described as metering information if it had been confined to the recording of the numbers dialled by
M before making the connection to the companies’ networks. However, the numbers dialled after making that connection were in an entirely different
category, since at that stage M had been communicating with the networks to which he had been connected. It followed that information obtained by
means of the Monolog was the product of a communication within the meaning of s 1(1) of the 1985 Act (see p 524 f, p 526 g h, p 528 d, p 538 b to f and
p 544 h j, post).
(2) Save where a communication had been intercepted for the purposes mentioned in s 1(3) of the 1985 Act, s 9(1) always rendered inadmissible
evidence of material obtained through the interception of communications of the kind described in s 1(1) by the persons mentioned in s 9(2). A
conclusion to the contrary would produce a remarkable and unacceptable anomaly, namely that evidence obtained lawfully pursuant to a warrant was
inadmissible while evidence obtained unlawfully without a warrant was admissible. The latter category of evidence would not be subject to the statutory
safeguards governing warranted intercepts, and its admissibility would therefore jeopardise the integrity of a system which, consistent with pre-existing
practice, had confined the use of interceptions to the prevention or detection of serious crime and precluded their use by the prosecutor. Moreover, the
prohibitions set out in s 9(1) were inconsistent with the defendant’s right to a fair trial, and that consideration strongly indicated that Parliament had not
intended that evidence of material obtained by unwarranted interceptions should be admissible. Accordingly, the appeal would be allowed (see p 524f, p
526 h, p 528 d, p 542 d to p 543 a and p 544 h j, post); R v Preston [1993] 4 All ER 638 considered; R v Rasool [1997] 4 All ER 439 and R v Owen [1999]
1 WLR 949 overruled.
Per Lord Hope. The duty of the prosecution to give complete disclosure of unused materials does not extend to any material obtained by means of
an interception which is withheld from the prosecutor, whether or not it was obtained under a warrant and whether or not it is subject to the safeguards in
s 6 of the Interception of Communications Act 1985 (see p 544 b to e, post).

Notes
For the interception of communications, see 11(1) Halsbury’s Laws (4th edn reissue) paras 270–275.
For the Interception of Communications Act 1985, ss 1, 2, 9, see 45 Halsbury’s Statutes (4th edn) (1999 reissue) 289, 291, 298.
­ 523

Cases referred to in opinions

Malone v UK (1984) 7 EHRR 14, ECt HR.
R v Ahmed (29 March 1994, unreported), CA.
R v Effik [1994] 3 All ER 458, [1995] 1 AC 309, [1994] 3 WLR 583, HL; affg (1992) 95 Cr App R 427, CA.
R v Owen [1999] 1 WLR 949, CA.
R v Preston [1993] 4 All ER 638, [1994] 2 AC 130, [1993] 3 WLR 891, HL; affg (1992) 95 Cr App R 355, CA.
R v Rasool [1997] 4 All ER 439, [1997] 1 WLR 1092, CA.
R v Sang [1979] 2 All ER 1222, [1980] AC 402, [1979] 3 WLR 263, HL.

Appeal
Stephen Alan Morgans appealed with leave of the Appeal Committee of the House of Lords given on 9 July 1999 from the decision of the Divisional
Court of the Queen’s Bench Division (Kennedy LJ and Sullivan J) on 7 December 1998 ([1999] 1 WLR 968) dismissing his appeal by way of case stated
from the order of the Crown Court at Southwark on 29 May 1997 dismissing his appeal against his conviction by the Bow Street Stipendiary Magistrate
on 22 January 1997 on two charges of fraudulent use of a telecommunications system contrary to s 42 of the Telecommunications Act 1984. The
Divisional Court certified that its decision involved points of law of general public importance, set out at p 531 f to h, post. The facts are set out in the
opinion of Lord Hope of Craighead.

Lionel Blackman of Lionel E Blackman, Epsom for the appellant.

Bruce Houlder QC and David Perry (instructed by the Crown Prosecution Service) for the prosecution.

Their Lordships took time for consideration.

17 February 2000. The following opinions were delivered.

LORD NICHOLLS OF BIRKENHEAD. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hope
of Craighead. For the reasons he gives I would allow this appeal.

LORD MACKAY OF CLASHFERN. My Lords, I gratefully adopt the narrative and explanation of the issues in this case which is contained in the
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speech of my noble and learned friend, Lord Hope of Craighead, which I have had the advantage of reading in draft.
In view of the considerable importance of this case and its possible impact in other cases, I wish to add these observations.
The decision in this House in R v Preston [1993] 4 All ER 638, [1994] 2 AC 130 was concerned with the question whether there was an obligation
on the prosecutor to disclose to the defence material which had been obtained as a result of the interception of a telephone under a warrant issued by the
Secretary of State under s 2 of the Interception of Communications Act 1985. The House unanimously reached the conclusion that s 2(2)(b) of the 1985
Act ‘for the purpose of preventing or detecting serious crime’ did not include the purpose of gathering evidence for criminal proceedings in respect of
such crime. They held that the use of material gathered under warrant as evidence in such a prosecution was prohibited by the scheme of the 1985 Act
including s 6 and s 9. In particular, s 9(1)(a) prohibited in any proceedings before any court or tribunal evidence ­ 524 being adduced which tended to
suggest that a warrant had been issued. This prevented it being admitted as a matter of fact on which the court should proceed that a warrant had been
issued and it also prevented evidence being adduced and questions in cross-examination being asked which in either case tended to suggest that an offence
under s 1 of the 1985 Act had been, or was to be, committed by any of the persons listed in s 9(2), being persons holding office under the Crown, the Post
Office and any person engaged in the business of the Post Office, any public communications operator and any person engaged in the running of a public
telecommunications system. In the course of their consideration of these issues the members of the House who took part in the decision were led to the
view that the scheme of the 1985 Act in relation to warranted interceptions was intended to continue the previous practice and that no use in evidence of
the product of such intercepts is permissible. In my opinion this conclusion carries with it the consequence that where a warrant has not been obtained and
where the interception without a warrant would be unlawful the same consequence must apply. It would be quite extraordinary and unacceptable if the
contents of an intercept which had been unlawfully made could be used, whereas the content of an intercept lawfully made could not.
This leaves for consideration the precise limits within which this scheme derived from the 1985 Act extends. In his speech in R v Preston after
narrating the general prohibitions in s 1 of the 1985 Act Lord Mustill goes on:
‘To these general prohibitions s 1(2) creates exceptions in the case of (a) an interception made in obedience to a warrant issued by the Secretary
of State and (b) an interception made by someone who has reasonable grounds for believing that the person to or by whom, the communication is
sent has consented to the interception. Subsection 3 creates further exceptions, not here material.’ (See [1993] 4 All ER 638 at 651, [1994] 2 AC
130 at 149.)
This leads me to the conclusion that Lord Mustill, with whom the other members of the House agreed, did not have to consider whether the
provisions of s 1(3) fell within the scheme which he later described. This is important in the present case since this appeal relates to two convictions of
the appellant for offences contrary to s 42 of the Telecommunications Act 1984. However, it was conceded by the Crown in the Divisional Court that the
interception that took place was not to detect telephone fraud but to ‘investigate a case of suspected computer hacking’. And therefore in this case the
Crown accepted that the interception was not for purposes connected with provision of postal or public telecommunications services or with the
enforcement of any enactment relating to the use of those services, although the purpose of adducing the content of the intercepts was for the latter
purpose. In consequence s 1(3) did not apply to it.
When following the decision of Malone v UK (1984) 7 EHRR 14 in the European Court of Human Rights, it was decided to introduce legislation to
provide a statutory authority for what had previously been done on the authority of Secretaries of State without such authority, the pre-existing system in
relation to interception in the postal and public telecommunication services and with regard to the use of wireless telegraphy did not require to be
provided for in a new way. Just to take one example, interception by staff of the Post Office who have authority to open postal packets in certain
circumstances, for example under s 8(3) of the Post Office Act 1953, was a pre-existing statutory authority for interception. In my opinion therefore it is
reasonable to conclude that the House in R v Preston was not concerned with matters covered under s 1(3) of the 1985 Act. And therefore a construction
of s 9 should be sought which gives effect to ­ 525 the limits of the scheme of the 1985 Act described, in particular, by Lord Mustill in R v Preston
namely that the scheme described does not apply except to situations in which a warrant is required and where without it, the interception would be
without statutory authority. The challenge is to find a construction of s 9 which would provide a workable boundary. The difficulty is that any discussion
in evidence of the question whether a particular exception to s 1 applied would be in essence a discussion of whether or not the interception resulted from
an offence under that section. I have reached the view that this is best dealt with by saying that in construing s 9, it should not apply where the
proceedings are for the enforcement of any enactment relating to the use of postal or public telecommunications services or where the proceedings relate
to a communication being transmitted by wireless telegraphy and the communication is intercepted by the authority of the Secretary of State.
In my view, some such restriction on the scope of s 9 is required to give effect to the obvious intention of Parliament to exempt from the new regime
set up under the 1985 Act the existing statutory arrangements for postal public telecommunications services and wireless telegraphy. However, it is
possible as this case illustrates, that although proceedings are for the enforcement of one of these specified enactments the interception was not made for
purposes connected with such enforcement but for some other purpose, in which case it would be right to allow that to be the subject of evidence and if it
were demonstrated that the purpose was not connected with the enforcement of a specified enactment then the communication intercepted should not be
admitted in evidence. I have not found it possible to propose a form of words to be implied in s 9 to accord with what I believe to be the true construction
of the 1985 Act as a whole which would give effect to the exception in s 1(2)(b) since this could arise in any form of proceedings and therefore the
discussion in evidence cannot be related to the form of the proceedings. If the prosecutor and the accused were agreed that the interception had been
consented to, so as to bring the case within s 1(2)(b), I see no objection to evidence being led on the basis of that admission, since I do not consider that s
9 would prohibit that admission being made and once made s 9 would not have any residual application. However, if agreement between the prosecutor
and the accused was not forthcoming I find it difficult to see how the question whether s 2(1)(b) applied could be explored in evidence without
transgressing the provisions of s 9, and I can see no reasonable implication that can be formulated on s 9 to prevent this.
I should add that I entirely agree with my noble and learned friend that what has been founded on by the Crown in this case is a communication
within the meaning of s 1 of the 1985 Act.
Subject to the views I have expressed on the scope of the decision in R v Preston, I agree with the reasoning of my noble and learned friend Lord
Hope of Craighead and would allow this appeal.

LORD STEYN. My Lords, in giving the judgment of the Court of Appeal (Criminal Division) in R v Effik (1992) 95 Cr App R 427 I gave a restrictive
interpretation to s 9 of the Interception of Communications Act 1985, by holding that it contains no provision making clear that any evidence obtained as
a result of an interception will be inadmissible. Eight years later, aided by the incisive arguments of counsel in the present case, I have had an opportunity
to re-examine the point. I am now fully persuaded that my earlier interpretation was wrong. And I agree with the speech of Lord Hope of Craighead.
But it is ­ 526 appropriate, if only for the historical record, that I explain shortly the reasons for my conversion.
The starting point is the language of s 9 of the 1985 Act. I now accept that even if one concentrates only on the language of s 9 of the 1985 Act the
words ‘no evidence shall be adduced’ are at least capable of amounting to a general provision that any evidence obtained as a result of any interception
will be inadmissible. The second factor was lucidly and compellingly explained by Woolf LJ (now Lord Woolf MR) in R v Preston (1992) 95 Cr App R
355. The point (at 365) is that in practice—

‘to lay the groundwork for material to be admissible in evidence the manner in which the material has been obtained will normally have to be
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given in evidence in court and this will in turn tend to suggest either an offence under section 1 has been committed or a warrant has been issued
which therefore contravenes section 9.’

As Woolf LJ observed this practical consideration would—

‘other than possibly in the most exceptional case, prevent any material derived from an interception of the communication being adduced in
evidence.’

This observation about the way in which the section would operate in the real world of trials tends to support a wider construction of s 9 of the 1985
Act. Thirdly, before the passing of the 1985 Act the invariable practice was that material intercepted as a result of telephone tapping was not used in
evidence. (See the White Paper on The Interception of Communications in the United Kingdom (Cmnd 9438 (1985)), R v Preston [1993] 4 All ER 638 at
645 and 646, [1994] 2 AC 130 at 142 and 144, per Lord Jauncey of Tullichettle.) If Parliament in enacting the 1985 Act had not intended the practice to
continue one would have expected a clear provision to that effect. The importance of this contextual aid to the interpretation of s 9 was not considered by
the Court of Appeal in R v Effik. In combination these three substantive factors demonstrate that my narrow interpretation of s 9 was wrong.
In any event, as a matter of precedent the issue appeared to be finally and comprehensively settled by the decision of the House of Lords in R v
Preston [1993] 4 All ER 638, [1994] 2 AC 130 in which the decision of the Court of Appeal (Criminal Division) in R v Effik was expressly overruled.
But two decisions in the Court of Appeal have breathed new life into the decision in R v Effik. This result was achieved by holding that the House of
Lords in R v Preston only overruled R v Effik to the extent that it related to warranted intercepts (see R v Rasool [1997] 4 All ER 439, [1997] 1 WLR 1092
and R v Owen [1999] 1 WLR 949). My Lords, this will not do. In the leading judgment by Lord Mustill in R v Preston, crafted with his customary clarity
and precision, the overruling of R v Effik was expressly announced in general terms. In Cross and Harris on Precedent in English Law (4th edn, 1991) pp
127–128 it is stated:

‘There is nothing particularly novel about the conception of an express overruling. If in case B a court with power to overrule case A says that
case A is overruled, the ratio decidendi of case A ceases altogether to have any authority so far as the doctrine of precedent is concerned. It is
completely “wiped off the slate”, to borrow Lord Dunedin’s metaphor. The judgment may be of considerable historical value, and it may even
contain dicta which ­ 527 can be cited in the course of the argument in subsequent cases, but a case which has been overruled cannot be cited as
authority for the proposition of law which constituted its ratio decidendi.’

The ratio decidendi of R v Effik was that s 9 does not contain a sufficiently clear provision for the exclusion of evidence of an interception, ie R v
Effik did not differentiate between cases where a warrant was obtained or not. The decision of the House in R v Preston destroyed the foundation of this
reasoning. It would, of course, have been possible for the House to hold that the ruling in R v Effik was wrong only in respect of warrant cases. But it did
not do so. Like Lord Hope of Craighead I find the idea that R v Effik was only overruled in part quite implausible. Moreover, as counsel for the appellant
rightly emphasised, it would have been remarkable if the House, by only overruling R v Effik in part, sanctioned the absurd distinction that any evidence
obtained pursuant to a warrant is inadmissible but evidence obtained without a warrant is admissible. Rightly in the present case Kennedy LJ observed
that such a result would be ‘a somewhat astonishing state of affairs’ (see [1999] 1 WLR 968 at 977). It is perfectly plain that the decisions in R v Rasool
and R v Owen cannot stand and must be overruled.
I would allow the appeal.

LORD HOPE OF CRAIGHEAD. My Lords, the appellant was convicted by the Bow Street Stipendiary Magistrate of five charges of obtaining
unauthorised access to a computer system, contrary to s 1(1) of the Computer Misuse Act 1990 and two charges of fraudulent use of a
telecommunications system, contrary to s 42 of the Telecommunications Act 1984. He appealed against his conviction to the Crown Court at Southwark,
which dismissed his appeal. He then appealed by way of case stated to the Divisional Court. His appeal was allowed by the Divisional Court (Kennedy
LJ and Sullivan J) ([1999] 1 WLR 968) in respect of all five charges under s 1(1) of the 1990 Act, on the ground that these charges had been brought
against him when they were out of time. No appeal has been taken against that decision by the prosecutor. His appeal was dismissed in respect of the
two charges under s 42 of the 1984 Act.
The question in the appeal against his conviction on the charges under s 42 of the 1984 Act related to the admissibility of evidence resulting from the
interception of telephone calls on which his conviction had been based. This is the matter which is now before your Lordships. It raises important
questions as to the effect of the Interception of Communications Act 1985 on the admissibility of such evidence.

The facts
The charges which were brought against the appellant under s 42 of the 1984 Act alleged that on two occasions in July 1995 he dishonestly obtained
a telephone service by means of a telecommunication system belonging to Mobil Data Services Ltd with intent to avoid payment of the charge which was
applicable. Section 42 of the 1984 Act provides that a person who dishonestly obtains a service provided by means of a licensed telecommunications
system with intent to avoid payment of any charge applicable to the provision of that service shall be guilty of an offence. Prosecution for that offence
may be summary or on indictment. In this case the offences which the appellant was said to have committed were prosecuted summarily.
­ 528
In 1995 British Telecommunications plc (BT) were asked by the computer crime unit of New Scotland Yard to provide assistance in connection with
a case of suspected computer hacking. The appellant was suspected of using the telephone line provided to him by BT to obtain unauthorised access to
the computer systems operated by a number of different companies. At that stage it was not suspected that he was engaged in telephone fraud, that is to
say, the obtaining of telecommunication services without paying for them. Arrangements were made for a call logging device, called ‘Monolog’, to be
fitted to the appellant’s telephone line at the telephone exchange. Its function was to log all the digits dialled on that line, whether manually or otherwise.
The first device which was fitted developed a fault after a few days, so it was replaced by another one which remained in place until it was removed after
about two months.
The information which these devices obtained was reproduced in the form of a printout. This showed (1) the time and date of the use of the
telephone, (2) the duration of each call time and (3) the digits dialled, whether before or after connection to another telephone line. Information as to the
time and date, the call time and the digits dialled before connection is recorded as a matter of course by BT for the purposes of rendering an account for
the service to the subscriber. A significant feature of the Monolog device is that it is capable of recording the digits dialled after a connection has been
made to another telephone line.
Three companies, Hogg Robinson Ltd, GBC UK Ltd and Mobil Data Services Ltd, provided computer-generated printouts which recorded the
operation of their computer-controlled Meridien telecommunications networks for the relevant period. A comparison of these printouts with the printout
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of the information obtained by means of the Monolog showed that the appellant’s telephone number was responsible for accessing the Meridien tele-
communication networks of these companies. The Monolog showed that repeated attempts had been made to guess the personal identification number, or
‘PIN’, that was needed to gain access to the part of the computer system that enabled authorised users to telephone an outside line at the expense of the
company. There was evidence that, having identified the correct PIN, a caller was able to abuse the Meridien system by dialling into it without authority,
listen in on messages which had been recorded on voice mail and make use of that part of the system which enabled authorised users to telephone outside
lines free of charge. By linking the system to an 0800 number the caller was able to dial out free of charge to BT from his own telephone line. The
appellant’s telephone number had been used to make calls free of charge by means of this system to telephone numbers with the international dialling
code for the Philippines.
The Crown Court had before it evidence from representatives of BT and each of the three companies whose computer systems had been accessed, all
of whom were specialist telecommunications experts. They produced the computer- generated printouts which enabled the Crown Court, with the
assistance of another expert witness, to make findings of fact to the effect that the appellant’s telephone number had been used to make numerous calls of
significant length to the Philippines at the expense of the companies without incurring any charge on his own account with BT. These findings were
based on a comparison of the printouts of the information which the Monolog had obtained by intercepting the digits dialled on the appellant’s telephone
and the printouts from the telephone networks of the three companies.
­ 529
The appellant had admitted when he was interviewed by the police that he was the principal user of the telephone line and that he had scanned for
0800 numbers in order to search for free information from computers and to test out software. He said that he had been provided by a friend with a
telephone number through which he could obtain discounted telephone calls and that, as his wife came from the Philippines, he had been making
telephone calls at reduced charges to relatives there. He told the police that he stopped this practice when his BT telephone account showed that no
charges at all had been made for the calls which he had made in the belief that they would be charged for at a discount. He repeated this explanation
when he gave evidence, but the Crown Court held that he knew that his access to the Meridien systems was for the dishonest purpose of enabling him to
avoid having to pay for the telephone calls.
The evidence which had been obtained by means of the fitting of the Monolog devices to the appellant’s telephone line was an essential element in
the case for the prosecutor. Without that evidence it would not have been possible for the Crown to prove that the telephone calls made free of charge to
the user by means of the companies’ Meridien systems had been made from the appellant’s telephone number. At the outset of the hearing in the Crown
Court a challenge was made to the admissibility of this evidence. It was argued that s 9 of the 1985 Act prohibited the court from allowing in evidence
the product of the intercept on the appellant’s telephone line because to do so would be to adduce evidence which tended to suggest that that an offence
had been committed under s 1 of the 1985 Act.
Subsections (1), (2) and (3) of s 1 of the 1985 Act provide:

‘(1) Subject to the following provisions of this section, a person who intentionally intercepts a communication in the course of its transmission
by post or by means of a public telecommunication system shall be guilty of an offence and liable—(a) on summary conviction, to a fine not
exceeding the statutory maximum; (b) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both.
(2) A person shall not be guilty of an offence under this section if—(a) the communication is intercepted in obedience to a warrant issued by the
Secretary of State under section 2 below; or (b) that person has reasonable grounds for believing that the person to whom, or the person by whom,
the communication is sent has consented to the interception.
(3) A person shall not be guilty of any offence under this section if—(a) the communication is intercepted for purposes connected with the
provision of postal or public telecommunication services or with the enforcement of any enactment relating to the use of those services; or (b) the
communication is being transmitted by wireless telegraphy and is intercepted, with the authority of the Secretary of State, for purposes connected
with the issue of licences under the Wireless Telegraphy Act 1949 or the prevention or detection of interference with wireless telegraphy.’

Subsections (1), (2) and (3) of s 9 of the 1985 Act are in these terms:

‘(1) In any proceedings before any court or tribunal no evidence shall be adduced and no question in cross-examination shall be asked which (in
either case) tends to suggest—(a) that an offence under section 1 above has been or is to be committed by any of the persons mentioned in
subsection (2) below; or (b) that a warrant has been or is to be issued to any of those persons.
­ 530
(2) The persons referred to in subsection (1) above are—(a) any person holding office under the Crown; (b) the Post Office and any person
engaged in the business of the Post Office; and (c) any public telecommunications operator and any person engaged in the running of a public
telecommunication system.
(3) Subsection (1) above does not apply—(a) in relation to proceedings for a relevant offence or proceedings before the Tribunal; or (b) where
the evidence is adduced or the question in cross-examination is asked for the purpose of establishing the fairness or unfairness of a dismissal on
grounds of an offence under section 1 above or of conduct from which such an offence might be inferred …’
The expression ‘relevant office’ is defined in sub-s (4) of s 9. It includes various statutory offences relating to the interception and disclosure of
postal and telecommunication messages. This is in contrast to the offences mentioned in s 1(3)(a), which relate to the use of these services.
The argument that s 9 of the 1985 Act precluded the leading of this evidence was rejected by the Crown Court, which held that the evidence was
admissible. In the case stated for consideration by the Divisional Court the following question (this was the first of three questions in the stated case, the
other two of which are no longer in issue) was identified by the Crown Court:
‘Were we right in ruling that s 9 of the Interception of Communications Act 1985 did not preclude us from receiving in evidence the print outs
from the logging devices placed upon the appellant’s line?’
The Divisional Court answered that question in the affirmative. It certified that the following points of law of general public importance were
involved in the decision:
‘(1) Do sections 1 and 9 of the Interception of Communications Act 1985 on their true construction prohibit the adduction in any proceedings
before any court or tribunal of evidence of the contents of a communication made by means of a public telecommunication system that has been
obtained by the interception of that communication by a person within the categories specified in section 9(2) when no warrant in respect of that
communication has been issued under section 2 of the Act of 1985 and the situation does not fall within any of the categories specified in section
1(2)(b) and (3) of the Act? (2) Is the decision of the Court of Appeal (Criminal Division) in Reg. v. Effik ((1992) 95 Cr App R 427) overruled by
Reg. v. Preston ([1993] 4 All ER 638, [1994] 2 AC 130) only to the extent that it related to warranted intercepts: see Reg. v. Rasool [1997] 4 All ER
439 at 446, [1997] 1 WLR 1092 at 1100 and Reg. v. Owen ([1999] 1 WLR 949)?’
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The present state of the authorities

As a general rule evidence is admissible irrespective of the means used to obtain that evidence (see R v Sang [1979] 2 All ER 1222, [1980] AC 402).
The question whether or not an offence was committed in the course of obtaining evidence by intercepting a communication by post or by means of a
public telephone system is, in the absence of a statutory provision to the contrary, irrelevant to the admissibility of that evidence. Special rules apply to
admissions and confession and to evidence obtained from the accused after the commission ­ 531 of the offence that amounts to a confession. These
special rules do not arise for consideration in this case. However, as the court has a discretion under s 78 of the Police and Criminal Evidence Act 1984 to
exclude unfair evidence, fairness to the accused would entitle him to ask questions about the lawfulness of the interceptions and the nature and purpose of
the steps which were taken to obtain them by the prosecuting authorities, if evidence of the communications which were intercepted were to be held to be
admissible.
The question as to the effect of s 9 of the 1985 Act on the admissibility of evidence of intercepted telephone calls arose for the first time in R v Effik
(1992) 95 Cr App R 427. The appellants had been convicted of a number of offences of conspiracy to supply heroin and cocaine, which are controlled
drugs. The evidence against them included evidence of telephone calls made by the use of a cordless telephone. It was designed to transmit radio signals
to a base unit which was connected to a public telecommunication system. These calls had been intercepted and recorded by the police. It was admitted
that the police had not obtained a warrant to intercept them under s 2 of the 1985 Act. An application was made to the trial judge to exclude this evidence
on the ground that the calls had been intercepted in the course of their transmission through the public telecommunication system and that s 9 of the 1985
Act rendered them inadmissible. The judge held that, as the calls had been intercepted when they were passing between the cordless telephone and the
base unit and the cordless telephone was not part of the public telecommunication network, evidence of the intercepted calls was not excluded by the
1985 Act.
The appellants appealed against their convictions, and renewed their argument that s 9 of the 1985 Act rendered this evidence inadmissible. The
Court of Appeal (Criminal Division) assumed in the appellants’ favour that the cordless telephone in that case was part of a public telecommunication
system. It held that s 9 prohibited the asking of questions which tended to suggest that an offence had been committed. But the appeals were dismissed
on the ground that s 9 did not provide that evidence obtained as a result of an interception was inadmissible. Steyn LJ (at 432), giving the judgment of the
court, said:

‘The starting point is the principle that all logically probative evidence is admissible. Any legislative inroad on this principle requires clear
expression. Language to the effect that any evidence obtained as a result of an interception will be inadmissible could achieve such a purpose. But
that is not what section 9 provides. It merely provides that no questions may be asked which tend to suggest that an offence under section 1 has
been committed by specified persons or that a warrant has been or is to be issued to any of these persons … The express terms of section 9 do not
provide that no evidence obtained as a result of an interception may be admitted. The forbidden territory is drawn in a much narrower fashion. And
there is a logical reason for the narrow exclusionary provision. That is the reflection that it cannot be in the public interest to allow those involved
in espionage or serious crime to discover at a public trial the basis on which their activities had come to the notice of the police, the Customs and
Excise or the Security Services, such as, for example, by questions designed to find out who provided the information which led to the issue of the
warrant. So interpreted section 9(1) makes sense. And it would make no sense to stretch ­ 532 that language to become a comprehensive
exclusion of all evidence obtained as a result of any interception.’

When the case came before this House on appeal in R v Effik [1994] 3 All ER 458, [1995] 1 AC 309 the appellants succeeded on a ground which did
not raise any issue about the construction of s 9 of the 1985 Act. It was held, affirming the decision of the trial judge, that the material obtained by
intercepting signals passing between a base unit and the hand set of a cordless telephone was admissible because no communication was being made by
means of a public telecommunication system when the calls were intercepted by the police.
The question as to the effect of s 9 was raised again in R v Preston (1992) 95 Cr App R 355, which was heard in the Court of Appeal (Criminal
Division) just a few weeks after the decision by a differently constituted court in R v Effik. The appellants had been convicted of conspiracy to evade the
prohibition on the importation of cannabis resin, a controlled drug. They had been under intensive surveillance by the police. In the course of the
surveillance a warrant was issued to the police permitting the interception of telephone calls. The Crown relied on evidence of the fact that various
telephone conversations had taken place between the appellants. Schedules were produced of calls made during the material times to various addresses by
means of mobile telephones. But, with certain exceptions, the Crown did not seek to introduce evidence of the contents of the conversations. The
appellants contended on various grounds that there had been a material irregularity in their trial. One of these was that the prosecution had failed to
disclose details of the telephone communications which had been intercepted by the authorities. They said that the disclosure should have included the
content of each interception and the identity of the persons who had taken part in the conversations.
For the Crown, as Woolf LJ observed (at 364) and Lord Mustill ([1993] 4 All ER 638 at 666, [1994] 2 AC 130 at 165) was later to remark in the
House of Lords, the opposite contention was advanced from that which had been advanced in R v Effik. The warrant to intercept had been issued under s
2(2)(b) of the 1985 Act, which gives power to the Secretary of State to issue a warrant ‘for the purpose of preventing or detecting serious crime’. It was
submitted that the material revealed by an interception under a warrant would only be used to enable the Crown to take steps to obtain evidence, and that
no communication intercepted in the course of its transmission by means of a public telecommunication system could be disclosed to the prosecution or
the defence for the purposes of or in relation to a criminal trial. The Court of Appeal was of the view that the purpose identified in s 2(2)(b) did not
include obtaining evidence to be used for prosecuting offenders. Reference was made to the safeguards in s 6 of the 1985 Act, which lays down various
requirements designed to limit its disclosure that must be satisfied in relation to the intercepted material. These were said to show that this material
should not be disclosed or retained to the extent that would normally be necessary if it were to be used in proceedings in a court by the prosecutor.
As to the question whether, if evidence was in fact obtained as a result of an interception, it could be used as evidence in court proceedings, Woolf
LJ said:

‘Although we may have heard fuller argument than was advanced in Effik, we do not find it possible to regard that decision as other than
binding upon us. We therefore accept, in accord with the Effik decision, that section 9 does ­ 533 not directly prohibit the giving in evidence of
material obtained as a result of an interception of a telephone communication, notwithstanding that the White Paper suggests that this was not the
result which the government of the day intended to achieve. However, from a practical point of view, we doubt whether this is of any significance
and therefore regard [counsel for the Crown’s] concern about the effect of the Effik case as unjustified. This is because, notwithstanding the Effik
case, so far as telephone interceptions are concerned, we are firmly of the view that the literal application of the language of section 9(1) will, other
than possibly in the most exceptional case, prevent any material derived from an interception of the communication being adduced in evidence. We
will explain the reasons for our view. In order to lay the groundwork for material to be admissible in evidence the manner in which the material has
been obtained will normally have to be given in evidence in court and this in turn will tend to suggest either an offence under section 1 has been
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committed or a warrant has been issued which therefore contravenes section 9. It is this evidence of how the material was obtained which is the
“forbidden territory” and the fact that it should not be adduced in evidence will also usually prevent the material which was obtained as a result of
the interception being given in evidence.’ (See (1992) 95 Cr App R 355 at 365.)

He pointed out that it had been admitted in R v Effik that a warrant had not been issued. He observed that, on the basis of the reasoning in that case,
the effect of the admission was that the prohibition on the admissibility of what had been learned as a result of the interception was removed. The
admission, on a matter which Steyn LJ said in R v Effik it would usually be perfectly proper for counsel for the Crown to decline to say anything, meant
that the asking of the prohibited questions in that case was unnecessary. But he went on to say:
‘However, where no admission is made, the position is otherwise and as an admission should not be made, the effect of section 9(1) is to erect a
fence which will, other than in exceptional cases, prevent the use of the material obtained by the interception of a communication. This is because
it will not be possible to give evidence as to how that material has been obtained.’ (See (1992) 95 Cr App R 355 at 366.)
That case was then appealed to your Lordships’ House (see R v Preston [1993] 4 All ER 638, [1994] 2 AC 130). The leading speech was delivered
by Lord Mustill, with whom Lord Keith of Kinkel and Lord Browne-Wilkinson agreed and Lord Jauncey of Tullichettle, while adding further reasons of
his own, also expressed his entire agreement. Lord Mustill rejected the argument that the grounds for issuing a warrant under s 2(2)(b) included the
prosecution of crime as well as its investigation in favour of what he described as the ‘narrower reading’ of the subsection. On that reading its purpose
was confined to the forestalling of potential crimes not yet committed and to the seeking out of crimes already committed, at which point the purpose of
the warrant comes to an end. He observed that this conclusion accorded with the practicalities of s 6, the plain intention of which was to allow the
products of the interception the narrowest possible currency. He said that it also made sense ‘of the otherwise impenetrable s 9’:
‘… on the narrower reading of s 2 there would be no need to make explicit provision for the admissibility of materials which by virtue of s 6
would no longer exist, and the purpose of s 9 can be seen as the protection, not of the ­ 534 fruits of the intercepts, but of information as to the
manner in which they were authorised and carried out.’ (See [1993] 4 All ER 638 at 667, [1994] 2 AC 130 at 167.)

Lord Mustill said this of the decision in R v Effik:

‘My Lords, I am conscious that in giving my reasons for this opinion I have omitted any detailed analysis of the judgments of the Court of
Appeal in R v Effik and in the present case. In doing so I intend no discourtesy to the Court of Appeal whose judgments I have studied with care
and profit. The fact is, however, that the arguments addressed in R v Effik were fundamentally different from those which your Lordships have
heard, and the concentration on s 2 rather than s 9 has given a new perspective to the arguments in the present case. I therefore believe it
permissible not to prolong an already long judgment by discussion of these cases, and simply to say that I agree with the decision of the Court of
Appeal in the present case albeit not altogether with the reasons for it, and that in my opinion the decision in R v Effik should be overruled.’ (See
[1993] 4 All ER 638 at 669, [1994] 2 AC 130 at 169.)

It might have been thought that this express overruling of the decision of the Court of Appeal in R v Effik (1992) 95 Cr App R 427 had put an end to
the matter. But, as Kennedy LJ ([1999] 1 WLR 968 at 978) remarked in the present case, the decision of the Court of Appeal in R v Effik was given a new
lease of life by two further decisions in the Court of Appeal (Criminal Division) to which I must now refer.
In R v Rasool [1997] 4 All ER 439, [1997] 1 WLR 1092 objection had been taken to the admission of evidence which had been obtained by
recording a telephone conversation between the appellant and a police informer who had consented to the interception. The appellant did not know that
his conversation was being recorded, but it is sufficient for the purposes of s 1(1)(b) of the 1985 Act that only one of the parties to the communication has
consented, so no offence was being committed when the interception took place. After considering the relevant passages in the judgments which were
delivered in the House of Lords in R v Preston, Stuart-Smith LJ said:

‘It seems to me to be reasonably clear that the reason why the Court of Appeal judgment in R v Effik was overruled is as a result of the
combined effect of s 2(2)(b) and s 6 of the Act, and [counsel for the defendant] accepted this. These sections have no application to a consensual
interception … Accordingly it seems to me that the general statement of the law on the construction of s 9(1) to be found in the Court of Appeal
judgment in R v Effik (1992) 95 Cr App R 427, namely that it does not prevent the admission of the product of a telephone intercept to which the
1985 Act applies, is to be modified only to the extent that it relates to a warranted intercept. Accordingly s 9(1)(a) is not sufficient by itself to
prevent admissibility of the substance of a consensual interception. Furthermore since on the question of admissibility, the fact that the evidence
may have been obtained unlawfully is irrelevant, cross-examination to show that the intercept was not consensual cannot be entertained, quite apart
from the prohibition in s 9(1)(a).’ (See [1997] 4 All ER 439 at 446–447, [1997] 1 WLR 1092 at 1100.)
­ 535
In R v Owen [1999] 1 WLR 949 a telephone communication had been intercepted by the prison authorities in which one of the appellants, Stephen,
admitted to his wife that he had taken part in a robbery with which he had been charged. A transcript of a recording of the conversation was introduced
into the evidence. No warrant had been issued under s 2 of the 1985 Act. Objection was taken by Stephen’s counsel to this evidence on the ground that it
was inadmissible under s 9 of the 1985 Act as it tended to disclose the commission of an offence by the prison authorities. The judge found after holding
a voire dire that the prison authorities had reasonable grounds to believe that Stephen had given his knowing consent to the monitoring of his telephone
calls, so he allowed the transcript to be placed before the jury. The argument that this evidence was inadmissible was renewed in the Court of Appeal.
The court rejected this argument, for reasons which were explained by Buxton LJ (at 960):

‘We are therefore driven back to the conclusion that section 9(2)(a) prevents any investigation, in any proceedings, of whether in a non-warrant
case an interception by an officer of the Crown is covered by section 1(2)(b). That view is in accordance with the ruling of this court in Reg. v.
Effik, ((1992) 95 Cr App R 427), setting out the forbidden areas of inquiry, including whether or not the interceptor had the benefit of what is there
described as the defence afforded by section 1(2)(b). We are bound to follow that ruling in view of the further ruling by this court in Reg. v. Rasool
[1997] 4 All ER 439, [1997] 1 WLR 1092), equally binding upon us, that Reg. v. Effik is overruled by Reg. v. Preston ([1993] 4 All ER 638, [1994]
2 AC 130) only to the extent that it related to warranted intercepts. The effect in the present case is that it was not open to the defence to question
whether or not the interceptors had reasonable cause to believe that Stephen was consenting to the interception. Therefore the judge (with whom
we sympathise in having to deal with this intractable subject without even the full report of Reg. v. Rasool ([1997] 4 All ER 439, [1997] 1 WLR
1092)) was, in the circumstances of the case and of the arguments that were sought to be put against the admissibility of the intercept, wrong to
order a voire dire to investigate the existence or otherwise of a section 1(2)(b) belief on the part of the prison officers. The intercepts were
admissible without further such inquiry.’
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In the present case Kennedy LJ ([1999] 1 WLR 968 at 978 and 979) made it clear in the course of his judgment that he found it difficult to accept
that R v Effik had survived to the extent indicated in R v Rasool and R v Owen. He observed (at 979) that, if the court had been considering a consensual
interception in this case, it would have been bound to follow R v Rasool. That was not the type of interception which occurred in this case. But, having
identified the ratio decidendi in R v Owen in Buxton LJ’s statement ([1999] 1 WLR 949 at 960) that R v Effik had been overruled only to the extent that it
related to warranted intercepts, and having acknowledged that the court was bound by it, he said:

‘Since we must apply the approach in Reg. v. Effik, ((1992) 95 Cr App R 427) (in the Court of Appeal) not merely to consensual interceptions
but also to interceptions falling within section 1(3)(a) of the Act of 1985, it would seem to follow that the first question posed for our consideration
[which I have quoted above, at p 531 e] must be answered in the affirmative. Mr. Blackman valiantly sought to persuade us this morning that the
decision in Reg. v. Owen ([1999] 1 WLR 949) really turned on the question of whether or not there ­ 536 should have been a voire dire. That, I
am afraid, is not how I read the case and, in my judgment, the ratio decidendi of the decision is that which I have sought to identify.’ (See [1999] 1
WLR 968 at 980.)

From this review of the authorities it can be seen that the position which has now been reached in the Court of Appeal, as a result of its interpretation
of the extent to which the decision in R v Effik was overruled by the House of Lords in R v Preston [1993] 4 All ER 638, [1994] 2 AC 130, is that
evidence obtained by any of the persons mentioned in s 9(2) of the 1985 Act by the interception of communications for which a warrant has been issued
under s 2 of the 1985 Act is inadmissible. But evidence obtained by those persons by the interception of communications for which no warrant has been
issued but for which a warrant was required, as they were not carried out for the purposes mentioned in s 1(3) of the 1985 Act, is admissible—whether or
not the person who intercepted the communication had reasonable grounds for believing that the person to whom, or the person by whom, the
communication was sent had consented to the interception. This is because no inquiry may be conducted as to whether there was a reasonable belief on
their part that the interception was consensual. Kennedy LJ ([1999] 1 WLR 968 at 977) described this as a somewhat astonishing state of affairs. If this is
indeed the effect of the 1985 Act, it has created a remarkable and, one may reasonably think, an unacceptable anomaly.

The issues
After this introduction I can now return to the issues which arise for decision in this case.
In the first place I must deal with a preliminary point as to whether the material which was intercepted by the authorities in this case was a
‘communication’ within the meaning of s 1(1) of the 1985 Act. This is because the Crown have contended that the information which was obtained by
means of the Monolog devices was metering information only and not communication. Then I must examine the much more substantial issue as to the
effect of s 9(1) of the Act on the admissibility of evidence obtained by means of interceptions by any of the persons mentioned in s 9(2), other than
interceptions which have been carried out for the purposes mentioned in s 1(3) to which, as my noble and learned friend Lord Mackay of Clashfern has
observed, s 9(1) does not apply. When I am dealing with this issue I shall have to return to the judgment in R v Preston in order to identify the extent to
which the decision of the Court of Appeal (Criminal Division) in R v Effik (1992) 95 Cr App R 427 was overruled by it. Looking at the matter more
broadly, I shall have to address the anomaly revealed by the present state of the authorities, that evidence obtained legally by means of warranted
intercepts is inadmissible while evidence illegally obtained may be admitted because there can be no inquiry as to whether or not the interception without
warrant was consensual.

Communication
Mr Houlder QC for the Crown submitted that the information which was produced in evidence as a result of the interceptions was metering
information only, not the product of any communication which was being transmitted by the public telecommunication system. He said that it was
necessary to distinguish between evidence of the contents of a communication on the one hand and evidence as to the use of the system on the other.
Here the only information ­ 537 which had been obtained was of numbers dialled on the appellant’s telephone line before and after a connection had
been made between it and another telephone line. The dialling of these numbers was the means by which a communication was to be achieved. It was
merely a means to an end in the making of a communication and did not in itself amount to a communication. This was so closely analogous to metering
information as to be indistinguishable from it.
The comparison which was made between the information obtained from the appellant’s telephone number by means of the Monolog devices and the
printouts from the Meridien telecommunication networks of the three companies showed that the appellant was communicating with those networks when
he dialled numbers on the keypad of his telephone after making a connection with them. As Lord Oliver of Aylmerton said in R v Effik [1994] 3 All ER
458 at 464, [1995] 1 AC 309 at 317 a communication through a tele- communication system consists of a series of electrical impulses. By dialling a
number on the keypad of his telephone the appellant was able by means of an electrical impulse to activate a computer-generated response from the
network to which he was connected. By dialling the appropriate number he obtained access to messages which had been recorded on voice mail, and by
dialling another number he was provided with a connection from the company’s network to an outside line. The numbers which he dialled before making
the connection to the network can properly be described as the means by which he intended to make the connection. If the information which had been
intercepted by the Monolog devices had been confined to the recording of the numbers dialled at that stage it could properly have been described as
metering information. But the numbers which he dialled after making the connection were in an entirely different category. At this stage he was
communicating with the networks to which he had been connected. The numbers which he dialled resulted in the transmission of signals to those
networks. They produced the same kind of computer-generated response from them as he would have achieved if they had been programmed to respond
to the human voice. He was communicating with those networks, and obtaining responses from them, as effectively as if he had been issuing instructions
to them verbally.
In R v Effik [1994] 3 All ER 458 at 466, [1995] 1 AC 309 at 320 Lord Oliver referred with approval to the conclusion of the Court of Appeal
(Criminal Division) in R v Ahmed (29 March 1994, unreported) where Evans LJ, giving the judgment of the court, said:

‘… “communication”, in our judgment, does not refer to the whole of a transmission or message; it refers to the telephonic communication
which is intercepted in fact, and on the evidence to which I have referred that consists of what has been variously described as the electrical impulse
or signal which is affected by the interception that is made.’

In that passage Evans LJ was making an important point about the meaning of the expression ‘communication’ for the purposes of the 1985 Act. It is
sufficient, to constitute a communication by means of a public telecommunication system for the purposes of the 1985 Act, for an electrical impulse or
signal to be transmitted from the telephone number from which the impulse or signal is sent to the telephone number with which it has been connected.
The sending of an electrical impulse or signal in either direction will do, irrespective of the response which it elicits from the recipient and the length or
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content of the message which ­ 538 it conveys. Any intentional interception of that electrical impulse or signal while it is in the course of transmission
through a public telecommunication system will be subject to the provisions of the 1985 Act.
I would therefore reject Mr Houlder’s argument that the information which was obtained by means of the Monolog devices was not the product of a
communication within the meaning of the 1985 Act.

The decision of the House of Lords in R v Preston

The overruling by the House of Lords in R v Preston of the decision of the Court of Appeal in R v Effik is to be found in a short passage in Lord
Mustill’s judgment (see [1993] 4 All ER 638 at 669, [1994] 2 AC 130 at 169). As he himself remarked, he did not subject that decision to any detailed
analysis. But there is no indication in his judgment, with which Lord Keith, Lord Jauncey and Lord Browne-Wilkinson agreed, that it was his intention to
overrule that decision in part only with the result that it was to be regarded, as Stuart-Smith LJ in R v Rasool [1997] 4 All ER 439 at 446–447, [1997] 1
WLR 1092 at 1100 regarded it, as having been modified only to the extent that it related to a warranted intercept.
When, in the following year, the appeal in R v Effik was heard in this House, Lord Oliver ([1994] 3 All ER 458 at 459, [1995] 1 AC 309 at 312) said
that the question framed by the Court of Appeal when it certified that a point of law of general public importance was involved in their decision to dismiss
the appeals had already been answered by the House in R v Preston. He repeated that observation ([1994] 3 All ER 458 at 466, [1995] 1 AC 309 at 320),
and Lord Mustill said that he agreed with the speech which had been prepared by Lord Oliver. The question which the Court of Appeal had certified in R
v Effik was in these terms:

‘Whether sections 1 and 9 of the Interception of Communications Act 1985 render inadmissible evidence of the contents of any material
intercepted pursuant to the said Act notwithstanding the relevance of such evidence to the issues in a criminal trial.’

It is true, as Stuart-Smith LJ observed in R v Rasool [1997] 4 All ER 439 at 445, 446, [1997] 1 WLR 1092 at 1098, 1100 in his analysis of the
speeches in R v Preston, that the House of Lords held in R v Preston that it was the combined effect of s 2(2)(b) and s 6 of the 1985 Act which had the
result of prohibiting the product of telephone intercepts carried out under warrant from being admissible in evidence. Lord Mustill ([1993] 4 All ER 638
at 664–665, [1994] 2 AC 130 at 163–164) made it clear that he thought that the right place to search for a solution to the problem raised in that case was
in s 2 of the 1985 Act rather than s 9. He then examined both s 2 and s 6 and identified a reading of them which, in his words, ‘makes sense of the
otherwise impenetrable s 9’. (See [1993] 4 All ER 638 at 667, [1994] 2 AC 130 at 167.)
But this part of his speech does not explain his conclusion that the decision in R v Effik (1992) 95 Cr App R 427 should be overruled. In R v Effik the
court was dealing with interceptions by the police for which they had no warrant. The Crown argued that the evidence should nevertheless be held to be
admissible. In R v Preston the police had obtained a warrant, but the Crown did not seek to lead evidence of the material which had been obtained by the
interception of the telephone calls. The argument in that case was about the Crown’s decision not to disclose that material to the defence. The position of
the Crown was that the material which had been obtained under warrant in R v Preston should have been destroyed long before it came into the hands of
the ­ 539 counsel for the prosecution, let alone the trial. In the result, as Lord Mustill ([1993] 4 All ER 638 at 669, [1994] 2 AC 130 at 169) said, the
arguments addressed in R v Effik were fundamentally different from those which were addressed to their Lordships in R v Preston. It is to be noted, as
Lord Mustill ([1993] 4 All ER 638 at 666, [1994] 2 AC 130 at 166) mentioned, that it was the position of counsel for the Crown in R v Preston that the
judgment in R v Effik should be overruled.
The explanation for Lord Mustill’s opinion that the decision of the Court of Appeal in R v Effik should be overruled is to be found in the following
passage of his judgment:

‘When invited to explain how it happened that in R v Effik (1992) 95 Cr App R 427 the prosecution had successfully pressed for the admission
of evidence which according to the stance now taken should have been destroyed long before it reached counsel for the prosecution, let alone a trial,
[counsel for the Crown] could do no more than say that counsel in R v Effik had been wrongly instructed. This total failure to understand and apply
even the elements of the system does not inspire confidence in the delicate balance between destruction and disclosure which the decision-maker is
required to perform.’ (See [1993] 4 All ER 638 at 668, [1994] 2 AC 130 at 168.)

I think that it is clear from these observations that he regarded the position which the Crown had successfully adopted in R v Effik as wholly
incompatible with that which it had decided to adopt, in the result also successfully, in R v Preston. And observations which he made elsewhere in his
judgment show that, far from seeking to draw a distinction between warranted and unwarranted intercepts, he regarded the provisions of s 2 and s 6 as to
the treatment of warranted intercepts as indicative of the scheme of the 1985 Act as a whole. Observations to the same effect can be found in the speeches
of Lord Templeman and Lord Jauncey. The background to these observations is to be found in the passage which I have already quoted from Woolf LJ’s
judgment in the Court of Appeal in R v Preston (1992) 95 Cr App R 355 at 365 where he pointed out that, in order to lay the groundwork for material to
be admissible in evidence, it will normally be necessary for the manner in which the material has been obtained to be given in evidence. This will almost
inevitably extend into the ‘forbidden territory’ which Steyn LJ identified in R v Effik.
Lord Mustill said, after making his point that the narrower reading of s 2 made sense of s 9:

‘… the purpose of s 9 can be seen as the protection, not of the fruits of the intercepts, but of information as to the manner in which they were
authorised and carried out. Inquiries as to these matters were to be confined to the tribunal under s 7, and the defendant was not to have the
opportunity to muddy the waters at a trial by cross-examination designed to elicit the Secretary of State’s sources of knowledge or the surveillance
authorities’ confidential methods of work. Evidently the proscription of questioning on the existence of warrants was seen as an economical means
of achieving this result. The narrower reading of s 2 is strongly supported by the history of the Act. I need not repeat this. The criticisms in Malone
v. UK (1984) 7 EHRR 14 which prompted the government to change its mind and legislate were directed not to the long-established practice but its
inaccessibility, imprecision and lack of formal safeguards. The Act was plainly designed to put these matters right, and I can see no reason to
suppose that the government had suddenly and spontaneously decided to go much further ­ 540 and overturn the practice which had persisted for
decades of separating the process of surveillance from the prosecution of offenders.’ (See R v Preston [1993] 4 All ER 638 at 667, [1994] 2 AC
130 at 167.)

Lord Templeman said:

‘By s 9 of the Act in any court proceedings no evidence shall be adduced and no questions asked in cross-examination which tend to suggest
that a warrant has been issued. Thus the Act makes it impossible for a record of a telephone conversation to be given in evidence and makes it
impossible for evidence to be given that a warrant was issued for a telephone conversation to be intercepted.’ (See [1993] 4 All ER 638 at 643,
[1994] 2 AC 130 at 140.)
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Lord Jauncey ([1993] 4 All ER 638 at 645, [1994] 2 AC 130 at 142) said, after referring to various reports and white papers including the White
Paper on the Interception of Communications in the United Kingdom (Cmnd 9438 (1985)), that prior to the passing of the 1985 Act the invariable practice
was that material intercepted as a result of telephone-tapping was not used in evidence. The question which he then proceeded to consider was whether
the 1985 Act had altered this practice, even although the decision in Malone v UK (1984) 7 EHRR 14 did not require such alteration. He expressed his
conclusions, after quoting the terms of s 9(1):

‘It was argued by the defendants that this subsection merely prevented the asking of questions as to whether or not an intercept had taken place
but did not prevent the material derived from such intercept being introduced in evidence in some other way, such as by admission. However, the
clear purpose of the subsection is to prevent evidence being elicited which suggests that an intercept has been made and this would be a pointless
exercise if, nevertheless, the content of that intercept was to be disclosed. Indeed it is very difficult to see how such content could be used in
evidence without disclosure of the circumstances in which it became available. My Lords, I have no doubt that Parliament intended that the
existing practice of not using intercepted material as evidence should continue.’ (See [1993] 4 All ER 638 at 646, [1994] 2 AC 130 at 143–144.)

As R v Preston was a warrant case and the question of disclosure lay at the heart of the argument, their Lordships were drawn inevitably into a
consideration of the provisions of s 2 and s 6 and the light which these sections cast on s 9(1), whose provisions have caused so much difficulty. But, as I
read their judgments, they were able to find guidance in these sections as to the purpose of the 1985 Act as a whole and to express their conclusions in
terms which were not confined to the warrant cases. If there was a distinction to be drawn between the use of intercepted materials in non-warrant cases
and their use in warrant cases, one would have expected this to have been made clear by Lord Mustill in his most careful judgment. But he made no such
distinction. When the 1985 Act came before the House again in R v Effik [1994] 3 All ER 458, [1995] 1 AC 309, which was a non-warrant case, Lord
Oliver described the purposes of the Act in these terms:
‘It set out, as it seems to me, to achieve three objects, viz first, to protect the integrity of that system of communication which is under public,
and not under individual, control by creating a specific offence of interception of communications through the public system; secondly, to provide
for the authorisation of such limited exceptions, under proper safeguards, as are necessitated by the requirements of national security and the
prevention of ­ 541 serious crime; and, thirdly, to ensure that the use of material acquired by resort to these exceptional procedures is strictly
limited to the purposes for which it has been acquired and is not used for any other purpose.’ (See [1994] 3 All ER 458 at 465–466, [1995] 1 AC
309 at 319.)

It seems to me therefore that the Court of Appeal in R v Rasool took too narrow a view of the decision of this House in R v Preston, and that they
were wrong to conclude that the judgment of the Court of Appeal in R v Effik had been modified only to the extent that it related to a warranted intercept.
They should have treated the Court of Appeal’s decision in R v Effik as having been overruled in its entirety and the judgment of this House in R v
Preston as applicable also to consensual intercepts.
The situation in regard to interceptions carried out for the purposes mentioned in s 1(3) of the 1985 Act was not discussed in R v Preston. It appears
that the exception which was provided for by that subsection reflected the existing practice in regard to interceptions which were made for these purposes.
I do not think that anything in what was said in R v Preston suggests that s 9 renders evidence obtained for these purposes inadmissible in proceedings for
offences of the kind mentioned in that subsection.

Broader considerations
I do not however think that it would be satisfactory to decide this case on the basis that the issue which it raised had already been decided in R v
Preston. While I believe that this is how the decision in R v Preston should be read, there are a number of other considerations which have led me to a
firm conclusion that there is no room for the drawing of a distinction between interceptions under a warrant, which are undoubtedly lawful, and those
whose lawfulness will depend on whether or not they can be shown to have been consensual.
The most striking point, to which Mr Blackman for the appellant attached much importance in the course of his helpful and succinct argument, is the
anomaly which would be created if material which had been obtained by means of interceptions without a warrant were to be held to be available to the
prosecutor as admissible evidence. It would be quite extraordinary if material which had been obtained without authorisation, and which was not therefore
subject to the safeguards which the 1985 Act lays down in the case of warranted intercepts, were to be exempted from the system which, consistent with
pre-existing practice, has confined the use of interceptions to the prevention or detection of serious crime and precludes their use by the prosecutor. The
interception of communications by means of a public telecommunication system without a warrant is lawful if it is consensual. But s 9(1)(a) prevents the
leading of evidence or the asking of questions in cross-examination which tends to suggest that an offence has been committed by the persons mentioned
in sub-s (2). So the issue as to whether the interception was under a warrant or, if it was not, whether it was consensual cannot be made the subject of
evidence. The safeguards which the 1985 Act lays down in the case of interceptions under a warrant, the effect of which is to confine their use to the
purposes stated in s 2(2) of the 1985 Act, are absent in the case of those for which no warrant has been issued. The integrity of that system would be put
at risk if material obtained by interceptions for which a warrant was required but had not been issued were to be available for use in court by the
prosecutor, as the question whether or not they were consensual cannot be explored in evidence. Therein would lie the ­ 542 seeds of temptation for the
unscrupulous. It is difficult to imagine that there were sound reasons for creating such an anomaly.
There is another reason for regarding it as inconsistent with the scheme of the 1985 Act that evidence of interceptions for which no warrant has been
issued should be held to be admissible. The fact is, as Woolf LJ pointed out in the Court of Appeal in R v Preston (1992) 95 Cr App R 355 at 365, that a
basis will almost always have to be laid in practice for the leading of such evidence. Proof that the interceptions were of communications passing through
the public telecommunication system from a particular telephone number will require an explanation of the means by which the interceptions were carried
out and the circumstances in which this was done. The prosecutor may be able, by careful questioning, to avoid trespassing into the forbidden territory.
But the court has a discretion under s 78 of the Police and Criminal Evidence Act 1984 to exclude unfair evidence. Trespassing into the forbidden
territory is likely to be essential if the defendant’s interests are to be properly safeguarded. The prohibitions which are set out in s 9(1) are inconsistent
with the defendant’s right to a fair trial. This consideration provides a strong indication that it was not the intention of Parliament that evidence of
material obtained by interceptions for which no warrant has been issued should be admissible.
In the Court of Appeal in R v Effik (1992) 95 Cr App R 427 at 432 Steyn LJ said that it would make no sense to stretch the statutory bar imposed by s
9(1) so that it amounted to a comprehensive exclusion of all evidence obtained as a result of any interception. There is much force in his point that, in the
public interest, one should approach the departure from the express provisions of s 9(1) which this would involve with an initial element of scepticism.
But the more complete analysis of the 1985 Act which was undertaken by the House of Lords in R v Preston, and the wider considerations which I have
mentioned, lead inevitably to the conclusion that evidence of material obtained by the interception by the persons mentioned in s 9(2) of the 1985 Act of
communications of the kind described in s 1(1) of that Act, except for the purposes described in s 1(3), will always be inadmissible. It is not possible to
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say that s 9(1) of the 1985 Act provides for this in express language. But, in the context of the 1985 Act as a whole, the prohibitions which it contains
lead inexorably to that result. So I would hold that it has that effect by necessary implication.

Disclosure
The principal issue in the appeal to the House of Lords in R v Preston was that of disclosure. For the Crown it was contended that there was no need
for the material which had been obtained under warrant in that case to be disclosed to the defence since none of that evidence could be led at the trial.
Concern was expressed as to the consequences of this argument on the defendant’s right to a fair trial. Lord Mustill said this of the competing arguments:

‘In the end, however, I consider that the very real apprehensions voiced by counsel for the defendants cannot prevail over the plain intent and
wording of the Act. The need for surveillance and the need to keep it secret are undeniable. So also is the need to protect to the feasible maximum
the privacy of those whose conversations are overheard without their consent. Hence ss 2 and 6. These policies are in flat contradiction to current
opinions on the “transparency” of the trial process. Something has to give way, and the history, structure and terms of the statute leave me in little
doubt that this ­ 543 must be the duty to give complete disclosure of unused materials. The result is a vulnerable compromise, but it may be the
best that can be achieved. At all events I conclude that it is the one which the statute does achieve, and I therefore accept the argument for the
prosecutor on the principal issue in the appeal.’ (See [1993] 4 All ER 638 at 669, [1994] 2 AC 130 at 168–169.)
There remains the question whether the reasoning in this passage extends to unused materials which are the result of interceptions for which a
warrant was required, as the interception was not for the purposes mentioned in s 1(3), but for which no warrant has been issued. Sections 2 and 6 do not
apply to them. But the need for surveillance and the need to keep it secret are not confined to those cases where a warrant has been obtained for the
interceptions. A warrant is unnecessary if the interception is with the consent of one of the parties to the communication who, as he is an informer,
wishes to remain anonymous. Other cases may be envisaged where it is necessary for the authorities in an emergency to intercept a communication
without a warrant in the interests of national security or to prevent the commission of a serious crime. The scheme of the 1985 Act is that material
obtained by the interception of communications is to be used only for the purpose for which it was obtained and that, except where the interception was
for the purposes mentioned in s 1(3), none of this material, whether it has been obtained under a warrant or otherwise, is to be passed to the prosecutor. It
seems to me that it would be consistent with the scheme to hold that the duty to give complete disclosure of unused materials does not extend to any
material obtained by means of an interception which is withheld from the prosecutor, whether or not it was obtained under a warrant and whether or not
the safeguards in s 6 apply to it.

Conclusion
I would answer the second of the two certified questions in the negative. In my opinion R v Rasool [1997] 4 All ER 439, [1997] 1 WLR 1092 and R v
Owen [1999] 1 WLR 949 were wrongly decided and they should be overruled.
I would decline to answer the first of the two certified questions, because it seeks to draw a distinction between the situation where the case falls
within the category specified in s 1(2)(b) and the situation where it does not. In my opinion, as the effect of s 9(1) is to prevent evidence being led or
questions being put in cross- examination tending to show that an offence has been committed because the case does not fall within that category, no such
distinction is appropriate. Sections 1 and 9 of the 1985 Act prohibit the adducing in any proceedings before any court or tribunal of evidence of the
contents of a communication made by means of a public telecommunication system by a person within the categories specified in s 9(2), except where the
communication was intercepted for the purposes mentioned in s 1(3) of the 1985 Act or where the proceedings are for a ‘relevant offence’ as defined in s
9(4) or are before the tribunal established under s 7.
I would allow the appeal.

LORD CLYDE. My Lords, I have had the advantage of reading in draft the speech to be delivered by my noble and learned friend Lord Hope of
Craighead. For the reasons he has given I too would allow this appeal.

Appeal allowed.

Celia Fox Barrister.

[2000] 2 All ER 545

Wisely v John Fulton (Plumbers) Ltd

Wadey v Surrey County Council
QUANTUM: SOCIAL SECURITY

HOUSE OF LORDS
LORD SLYNN OF HADLEY, LORD WOOLF, LORD HOPE OF CRAIGHEAD, LORD CLYDE AND LORD MILLETT
21, 22 FEBRUARY, 6 APRIL 2000

Interest – Damages – Personal injury – Special damages – Claimants receiving state benefits – Whether benefits received to be deducted when
calculating interest on special damages – Social Security (Recovery of Benefits) Act 1997, s 17.

In two conjoined appeals, one Scottish and one English, the question arose whether, in an action for damages for personal injury, social security benefits
received by the claimant which were disregarded in the assessment of special damages were to be disregarded for the purpose of calculating interest on
those damages. The claimants in the two cases had sustained personal injury in the course of employment and had received damages which included a
sum for past loss of earnings upon which interest was awarded. However, the social security benefits received by the claimants during the period in
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which they were off work were disregarded in the interest calculations because s 17a of the Social Security (Recovery of Benefits) Act 1997 provided that
the amount of any listed benefits paid or likely to be paid was to be disregarded in assessing damages in respect of any accident, injury or disease. The
Court of Session in the Scottish case held that interest on the loss of earnings over the relevant period ought to be calculated without deducting from the
damages the sum received in benefits. The judge in the English case deducted the benefits before calculating interest, but his decision was reversed by
the Court of Appeal. The defendants in the two cases appealed to the House of Lords
________________________________________
a Section 17 is set out at p 554 d, post
________________________________________

Held – On the true construction of s 17 of the 1997 Act, the direction that benefits were to be disregarded in assessing damages also extended to the
calculation of interest on those damages. Thus the amount of any listed benefits paid or likely to be paid during the relevant period had to be disregarded
in the assessment of interest on the damages which were to be assessed without account of those benefits. If Parliament had intended an outcome to the
contrary, it could have directed that, in assessing the amount of interest payable, the amount of the award of damages should be treated as reduced by a
sum equal to the amount of the recoverable benefits. In the absence of such a provision, the appropriate principle was that sums which were treated as
irrelevant in assessing damages should not be treated as relevant when interest on the damages was calculated. Accordingly, the appeals would be
dismissed (see p 547 b to e, p 556 c to e, p 558 b c e, p 561 a to h, p 563 a, and p 565 f, post).
Decision of the Court of Appeal [1999] 2 All ER 334 affirmed.
­ 545

Notes
For interest on damages for personal injuries, see 12 Halsbury’s Laws (4th edn) para 1204.
For the Social Security (Recovery of Benefits) Act 1997, see 40(S) Halsbury’s Statutes (4th edn) 14.

Cases referred to in opinions

Birrell Ltd v City of Edinburgh DC 1982 SC (HL) 75, HL.
Carmichael v Caledonian Rly Co (1870) 8 M (HL) 119, HL.
George v George C Peebles & Son 1998 SLT 685, Ct of Sess.
Greenock Harbour Trustees v Glasgow and South-Western Rly Co 1909 SC (HL) 49, HL.
Hodgson v Trapp [1988] 3 All ER 870, [1989] AC 807, [1988] 3 WLR 1281, HL.
Jefford v Gee [1970] 1 All ER 1202, [1970] 2 QB 130, [1970] 2 WLR 702, CA.
Kolbin & Sons v Kinnear & Co, Kolbin & Sons v United Shipping Co Ltd 1931 SC (HL) 128, HL.
London, Chatham and Dover Rly Co v South Eastern Rly Co [1893] AC 429, HL.
Macrae v Reed and Mallik Ltd 1961 SC 68, Ct of Sess.
Smith v Middleton 1972 SC 30, Ct of Sess.
Spence v Wilson 1998 SC 433, Ct of Sess.
Stirling and Dunfermline Rly Co v Edinburgh and Glasgow Rly Co (1857) 19 D 598, Ct of Sess.
Wilson v National Coal Board 1981 SC (HL) 9, HL.

Appeals

Wisely v John Fulton (Plumbers) Ltd

The defenders, John Fulton (Plumbers) Ltd, appealed against the interlocutor of the First Division of the Inner House of the Court of Session on 28
January 1999 refusing their reclaiming motion against the interlocutor of the Lord Ordinary (Lord Johnston) on 8 January 1999 whereby, in accordance
with a direction of the First Division of the Inner House (Lord Rodger LP, Lord Fuller and Lord Caplan) given on 21 July 1998, he made an award of
interest on damages for personal injuries due to the pursuer, James Wisely, which disregarded any benefits paid to him in determining the damages on
which interest fell to be assessed. The facts are set out in the opinion of Lord Hope of Craighead.

Wadey v Surrey County Council

The defendant, Surrey County Council, appealed from the decision of the Court of Appeal (Simon Brown, Otton and Schiemann LJJ) on 11 December
1998 ([1999] 2 All ER 334, [1999] 1 WLR 1614) allowing the cross-appeal of the plaintiff, John Wadey, from the decision of Judge Simpson on 1 April
1998 in the Wandsworth County Court whereby, in assessing damages for personal injury sustained by the plaintiff during the course of his employment
by the defendant, he deducted social security benefits received by the plaintiff before calculating interest on special damages. The defendant’s appeal
against the judge’s findings on liability was compromised between the parties. The facts are set out in the opinion of Lord Hope of Craighead.

Michael S Jones QC and Andrew Smith (of the Scottish Bar) (instructed by Simpson & Marwick, Glasgow) for the defenders.
James A Peoples QC and Gerald F Hanretty (both of the Scottish Bar) (instructed by Digby Brown, Edinburgh as agents of McDaid Farrell, Glasgow) for
the pursuer.
­ 546
Jeremy Stuart-Smith QC and Edward Bishop (instructed by Vizards Oldham) for the defendant.
John Foy QC and Charles Pugh (instructed by Lawford & Co, Richmond) for the plaintiff.

Their Lordships took time for consideration.

6 April 2000. The following opinions were delivered.

LORD SLYNN OF HADLEY. My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hope of
Craighead, Lord Clyde and Lord Millett. I find the arguments in these two cases very evenly balanced; there is much force in the appellants’ contentions
as Simon Brown LJ also appears to have thought. However, in the end I consider that Lord Rodger LP in Wisely v John Fulton (Plumbers) Ltd 1998 SC
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910 and Otton LJ in Wadey v Surrey CC [1999] 2 All ER 334, [1999] 1 WLR 1614 came to the right conclusion. Accordingly, I agree with my noble and
learned friends that for the reasons they give the appeals in both cases should be dismissed.

LORD WOOLF MR. My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Hope of
Craighead, Lord Clyde and Lord Millett. I agree with them, and for the reasons that they give I too would dismiss both appeals.

LORD HOPE OF CRAIGHEAD. My Lords, these appeals, one from the Inner House of the Court of Session in Scotland and the other from the Court
of Appeal, Civil Division, in England, both raise the same question. It is whether, in an action for damages for personal injuries, social security benefits
received by the injured person that are disregarded in the assessment of special damages must be disregarded when interest is being calculated on those
damages. All parties are agreed that this question should receive the same answer in Scotland and in England, as the Social Security (Recovery of
Benefits) Act 1997 under which it is raised applies uniformly to both countries. The appeals were heard together, and—apart from a few introductory
words—what I shall have to say in this speech applies equally to both of them.
The Scottish case is Wisely v John Fulton (Plumbers) Ltd 1998 SC 910. The pursuer sustained personal injuries as a result of an accident in the
course of his employment with the defenders. He brought an action of damages against them in the Court of Session. The Lord Ordinary (Lord Johnston)
held that he was entitled to damages. The damages for which the defenders were found liable included a sum for past loss of earnings on which interest
fell to be awarded under the Interest on Damages (Scotland) Act 1958 as amended. That sum was calculated by taking the pursuer’s earnings prior the
accident and applying them to the period for which he was off work to the date of the award. He was in receipt of social security benefits during this
period, but the amount of those benefits was disregarded in the calculation. This was because s 17 of the 1997 Act states that in assessing damages in
respect of any accident, injury or disease, the amount of any listed benefits paid or likely to be paid is to be disregarded. The Lord Ordinary was then
faced with a problem about the calculation of interest.
­ 547
The 1997 Act contains no provision dealing with that matter, and there were conflicting decisions on this point in the Outer House. In George v
George C Peebles & Son 1998 SLT 685, Lord Nimmo Smith held that interest was due only on that part of the award which represents the difference
between the sum awarded as damages for past wage loss and the amount of the benefits received during the relevant period. In Spence v Wilson 1998 SC
433, Lord Eassie held that interest should be awarded on the whole of the sum awarded as damages for past wage loss. The Lord Ordinary took the
appropriate course of reporting the case to the Inner House under the procedure which was available to him under r 34.1 of the Rules of the Court of
Session 1994 for an authoritative decision on the matter before making his award. The First Division (Lord Rodger LP, Lord Sutherland and Lord
Caplan) held that interest on the loss of earnings during the relevant period should be calculated without deducting the amount of the benefits. Spence v
Wilson was approved and George v George C Peebles & Son was overruled.
The English case is Wadey v Surrey CC [1999] 2 All ER 334, [1999] 1 WLR 1614. The plaintiff had been awarded a sum of damages in
Wandsworth County Court for the personal injury, loss and damage which he suffered as the result of injuries sustained in the course of his employment
with the defendants as a fire fighter. Included in the award of special damages was a sum for past loss of wages which had been calculated, as the 1997
Act requires, without deducting the benefits which the plaintiff had received during the relevant period. When he assessed the interest which he should
award under s 69 of the County Courts Act 1984 on the special damages the judge deducted the amount of those benefits. The defendants appealed
against the judge’s findings on liability, and the plaintiff cross-appealed against his decision to deduct the benefits in assessing the interest on the special
damages. The defendants’ appeal was later compromised, but the plaintiff proceeded with the cross-appeal. The Court of Appeal, Civil Division (Simon
Brown, Otton and Schiemann LJJ), following Wisely v John Fulton (Plumbers) Ltd 1998 SC 910, allowed the appeal on the ground that the judge erred in
deducting the benefits.

General principles
I think that it is appropriate, before turning to consider the provisions of the statutes, to take note of the general principles with reference to which
interest is ordered to be paid on sums awarded by a court as damages. In Wisely’ s case (1998 SC 910 at 916) Lord Rodger LP said that the 1997 Act was
essentially a practical compromise and that the court was best guided by looking to the terms of the Act itself rather than by trying to apply more general
principles. That observation lies at the heart of the whole issue. As a general rule Parliament must be taken to have legislated against the background of
the general principles of the common law. It may be found on an examination of the statute that Parliament has decided not to follow the common law.
In that situation the common law must give way to the provisions of the statute. But an accurate appreciation of the relevant common law principles is
nevertheless a necessary part of the exercise of construing the statute.
The general principle of the common law is that, apart from contract, a party will only be entitled to interest on money if the principal sum has been
wrongfully withheld and not paid on the day when it ought to have been paid (see Carmichael v Caledonian Rly Co (1870) 8 M (HL) 119 at 131 per Lord
Westbury and Kolbin & Sons v Kinnear & Co, Kolbin & Sons v United Shipping Co Ltd 1931 SC (HL) 128 at 137 per Lord Atkin). It has been recognised
that interest is due where ­ 548 possession of land is taken before the price has been paid for it, and this rule has been applied to the acquisition of land
by the purchasing authority by virtue of a compulsory purchase order made under a private or public act (see Greenock Harbour Trustees v Glasgow and
South-Western Rly Co 1909 SC (HL) 49 and Birrell Ltd v City of Edinburgh DC 1982 SC (HL) 75 at 110–111 per Lord Fraser of Tullybelton). In Stirling
and Dunfermline Rly Co v Edinburgh and Glasgow Rly Co (1857) 19 D 598 at 621 Lord Cowan said:
‘It would be contrary to all equity, to allow the purchaser to possess the subjects with their fruits, without accounting for interest on the price
which he has continued to hold in his hands. The interest is equivalent for the fruits, and drawing the one he must pay the other.’
But a claimant had no general right under the common law to interest for being kept out of his money. This was regarded by many as unsatisfactory (see
London, Chatham and Dover Rly Co v South Eastern Rly Co [1893] AC 429 at 437 per Lord Herschell LC).
This common law principle was applied to awards of damages. The practice both in England and in Scotland was that interest was not due on sums
awarded as damages until the making of the award. As Thomson LJ-C said in Macrae v Reed and Mallik Ltd 1961 SC 68 at 72:
‘It has long been our practice that where, in actions of damages, damages are awarded interest runs only from the date of the final decree. The
reason is that it is then, and only then, that the illiquid claim for damages is quantified and made liquid. Once there is a final decree for a specified
sum that sum is payable at the date of the final decree, and if it is not then paid, it carries interest as payment is wrongly withheld. That is in
consonance with the accepted principle as laid down in (Carmichael v Caledonian Rly Co (1870) 8 M (HL) 119, LR 2 Sc & Div 56) by Lord
Westbury where he said (at p. 131): “Interest can be demanded only in virtue of a contract, express or implied, or by virtue of the principal sum of
money having been wrongfully withheld, and not paid on the day when it ought to have been paid.”’
A statutory power to award interest for periods prior to the date of the award was introduced in England by s 3(1) of the Law Reform (Miscellaneous
Provisions) Act 1934. Under this power the court was enabled to award interest:
‘ … as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of
action arose and the date of the judgment …’
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The current provisions regarding the awarding of interest on debts and damages are set out in s 35A(1) of the Supreme Court Act 1981 as amended by s
15(1) of and Pt I of Sch 1 to the Administration of Justice Act 1982 and in s 69(1) of the County Courts Act 1984 where the amount to bear interest
exceeds £200. Section 69(1) of the 1984 Act, which in all material respects is in the same terms as s 35A(1) of the 1981 Act, provides:
‘Subject to county court rules, in proceedings (whenever instituted) before a county court for the recovery of a debt or damages there shall be
included in any sum for which judgment is given unless the court is satisfied that there are special reasons to the contrary simple interest, at such
rate as the court thinks fit or as may be prescribed, on all or any part of the debt or damages in respect of which judgment is given, or payment is
made before judgment, ­ 549 for all or any part of the period between the date when the cause of action arose and—(a) in the case of any sum
paid before judgment, the date of the payment; and (b) in the case of the sum for which judgment is given, the date of the judgment.’
A similar power was introduced in Scotland by the Interest on Damages (Scotland) Act 1958. As amended by the Interest on Damages (Scotland) Act
1971, s 1 of that Act provides:
‘(1) Where a court pronounces an interlocutor decerning for payment by any person of a sum of money as damages, the interlocutor may
include decree for payment by that person of interest, at such rate or rates as may be specified in the interlocutor, on the whole or any part of that
sum for the whole or any part of the period between the date when the right of action arose and the date of the interlocutor.
(1A) Where a court pronounces an interlocutor decerning for payment of a sum which consists of or includes damages or solatium in respect of
personal injuries sustained by the pursuer or any other person, then (without prejudice to the exercise of the power conferred by subsection (1) of
this section in relation to any part of that sum which does not represent such damages or solatium) the court shall exercise that power so as to
include in that sum interest on those damages and on that solatium or on such part of each as the court considers appropriate, unless the court is
satisfied that there are reasons special to the case why no interest should be given in respect thereof.’
The current practice in each country is to award interest on loss of wages for the past, and for past outlays, to cover the period between the incurring of
these items of loss and the date of the award. The principle which is followed in England was explained in these terms by Lord Denning MR in Jefford v
Gee [1970] 1 All ER 1202 at 1208, [1970] 2 QB 130 at 146:
‘Interest should not be awarded as compensation for the damage done. It should only be awarded to a plaintiff for being kept out of money
which ought to have been paid to him.’ (Lord Denning MR’s emphasis.)
This principle was applied by the judge in Wadey’s case when he awarded interest on past loss of wages. The same principle was applied in each of
the two conflicting decisions in the Outer House which preceded the decision of the Lord Ordinary in Wisely’s case to report the case to the Inner House
for guidance before making his award. I think that it can be assumed from what Lord Nimmo Smith did in George v George C Peebles & Son and which
the judge did in Wadey’s case that there is unlikely to be any difficulty in practice in ascertaining the amount of the benefits received during the relevant
period and calculating the amount of the award for past wages loss which is to carry interest after deducting those benefits. The question is whether the
court is permitted to make that calculation. This makes it necessary for me to turn now to the statutory provisions and in particular to the scheme for the
recovery of benefits which the 1997 Act lays down.

The recovery of benefits— history

The original scheme for the recovery of social security benefits was set out in s 2(1) of the Law Reform (Personal Injuries) Act 1948. It had been
recognised as a general principle by Beveridge that an injured person should not be ­ 550 compensated twice over for the same loss (see Social
Insurance and Allied Services (Cmd 6404) (1942) p 101 (para 260)). He suggested that this principle could be preserved if the claimant repaid the benefits
to the Ministry when he was awarded damages or the benefits which he received were taken into account in the assessment of damages. When the
Monckton Committee came to examine this issue the general principle was recognised, but there was disagreement as to how it was to be applied under
the new scheme (see Final Report of the Departmental Committee on Alternative Remedies (Cmd 6860) (1946) p 18 (para 38)). The majority
recommended that the general principle on which legislation should be framed was that the claimant should not recover more by way of damages and
benefits than he could have recovered from either source alone (see p 18 (para 38)). Two members dissented, on the view that the scheme for national
insurance was very little different from private insurance so the claimant’s benefits should be left out of account altogether in the assessment of damages.
Section 2(1) of the 1948 Act appears to have been arrived at as a compromise between these two views. It provided that there was to be taken into
account in the assessment of damages for any loss of earnings or profits accruing to the injured person from his injuries one half of the benefits which he
had received during the period of five years beginning with the time when the cause of action accrued. But this system did not extend to the full range of
welfare benefits. Only those specified in s 2(1) of the Act as amended from time to time were subject to the statutory rule that one half of the benefits
received was to be offset in the calculation of damages. These were sickness benefit, invalidity benefit, non-contributory invalidity pension, severe
disablement allowance, sickness benefit (formerly injury benefit) and disablement benefit. Attendance allowance and mobility allowance, family credit
(formerly family income supplement), income supplement (formerly supplementary benefit), redundancy payments, reduced earnings allowance, statutory
sick pay, and unemployment benefit were not subject to the statutory rule. In a series of decisions in both England and Scotland it was held that the whole
of sums received in respect of benefits which were not subject to the rule must be deducted. This is in accordance with the general principle that damages
are intended to be purely compensatory, and that what the court must measure is the net consequential loss and expense which has been incurred in
arriving at the measure of the claimant’s damages (see Wilson v National Coal Board 1981 SC (HL) 9 and Hodgson v Trapp [1988] 3 All ER 870 at
875–876, [1989] AC 807 at 822–823 per Lord Bridge of Harwich).
In the application of this scheme in assessing damages only one half of the listed benefits was regarded as compensation for the loss of income or
loss of profits due to the accident. That half was taken into account in the calculation by deducting it from the loss of income or profits to arrive at the net
loss. The other half was disregarded in the same way as if it had been received from charity or under a private insurance policy. Awards of interest
followed the same pattern. The one half of the benefits which was taken into account in the calculation did not bear interest. As it had been deducted
from the principal sum awarded as damages, it reduced by the same amount the net loss on which interest was to be payable. But the disregarded half
bore interest along with the rest of the award. As Lord Sutherland said in Wisely’s case 1998 SC 910 at 918, it was never suggested in Scotland that
interest should not be payable on the whole of the loss of earnings so calculated even though the pursuer had received, during the relevant period, half of
the benefits. In Wadey’s case [1999] 2 All ER 334 at 340, [1999] 1 WLR 1614 at 1620 Simon Brown LJ said that Jefford v Gee [1970] 1 All ER 1202,
[1970] 2 QB 130 ­ 551 made it plain that the plaintiff (whilst, of course, he received no interest on the moiety for which he gave credit against
damages) did not have to give credit in the interest calculation in respect of his windfall receipt of the other moiety of the benefits paid.
The recommendation by Beveridge that the full amount of the benefits received by the injured person or his dependants as the result of an injury
should be deducted in the assessment of damages was adopted when the whole subject of compensation for personal injury was considered by the Pearson
Commission (see Royal Commission on Civil Liability and Compensation for Personal Injury (Cmnd 7054–I) (1978) ch 13). It recommended that the full
amount should be deducted, and this view was accepted in principle by the government (see Social Security Act 1975: Reform of the Industrial Injuries
Scheme (Cmnd 8402) (1981) ch 8). But it was concluded that a workable scheme for the direct recovery of this amount from the injured person or his
dependants would not be practicable in view of its cost and the large number of cases which were settled extra-judicially. It was not until 1989, when the
Social Security Act 1989 was enacted, that a system was introduced for the recovery in full of the benefits received from the compensation paid to the
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injured person under a court order or an agreed settlement.
Under the scheme which was enacted by s 22 of and Sch 4 to the 1989 Act the compensator was required before making a compensation payment to
the injured person under a court award or an out of court settlement to obtain a certificate from the Secretary of State stating how much benefit was to be
deducted. He was then to pay to the Secretary of State the amount shown in the certificate and to furnish to the person who was to be compensated a
certificate of deduction specifying the amount which he had deducted from the compensation and paid to the Secretary of State. Section 22(2) provided
that any right of the intended recipient to receive the compensation payment in question was to be regarded as satisfied to the extent of the amount
certified in the certificate of deduction. The benefits which were to be recovered by the Secretary of State were to comprise the total amount of the
prescribed benefits received in respect of the accident, injury or disease for which the injured party was to be compensated for a period of five years or, if
less, for the period up to the date when the compensation payment was made. Section 22(6) provided:

‘Except as provided by any other enactment, in the assessment of damages in respect of an accident, injury or disease the amount of any
relevant benefits paid or likely to be paid shall be disregarded.’

The 1989 Act made no provision as to how interest was to be calculated on the damages assessed under this rule. But shortly after it came into force this
matter was the subject of an amendment. By s 7 of and para 6 of Sch 1 to the Social Security Act 1990 the following paragraph (para 24) was added to
Sch 4 to the 1989 Act:

‘In assessing the amount of interest payable in respect of an award of damages, the amount of the award shall be treated as reduced by a sum
equal to the amount of the relevant payment (if any) required to be made in connection with the payment of the damages and—(a) in England and
Wales, if both special and general damages are awarded, any such reductions shall be treated as made first against the special damages and then, as
respects any remaining balance, against the general damages; and (b) in Scotland, if damages are awarded both for patrimonial loss and for
solatium, any such ­ 552 reductions shall be treated as made first against the damages for patrimonial loss and then, as respects any remaining
balance, against the damages for solatium.’

The next stage in the history of this legislation was its consolidation in 1992 by the enactment of three new statutes. The provisions relating to the
recovery of benefits from compensation payments were re-enacted in Pt IV of the Social Security Administration Act 1992. Section 82 of that Act
reproduced the provisions of s 22(1) of the 1989 Act. Sections 22(2) and (6) of and para 24 of Sch 4 to the 1989 Act were re-enacted in ss 82(2), 81(5)
and 103 respectively of the 1992 Act.
The scheme introduced by the 1989 Act was thus preserved in all its elements. But in three particular respects it was found to be unsatisfactory.
First, it required the compensator to deduct the gross amount of the benefits from the compensation payment, which was defined in s 81(1) of the 1992
Act as meaning any payment falling to be made to the victim in consequence of the accident, injury or disease in question. The effect of this definition
was to include any damages payable for pain and suffering in the amount against which the compensator was entitled to make the deduction. This fact
was recognised in the provision which was made in s 103 for the calculation of interest, but it attracted criticism because the benefits were not regarded as
compensation for pain and suffering. Secondly, it exempted persons making small payments of compensation, the amount of which was fixed by
regulations at £2,500, from making the deduction (see the Social Security (Recoupment) Regulations 1990, SI 1990/322). The government was advised
that this had led to the making of a disproportionate amount of settlements at or just below the small payments limit. It was said that insurers and
compensators were gaining an advantage at the expense of victims who were settling their claims for less than their true value. Thirdly, the system for
appeals against certificates of deduction was thought to be in need of some reform in the light of experience. These concerns led to the preparation of a
revised scheme for the recovery of benefits which was introduced by the Social Security (Recovery of Benefits) Act 1997. This is the scheme which is
before your Lordships in this appeal.

The scheme of the 1997 Act

The principal features of the scheme introduced by the 1989 Act are reproduced in the 1997 Act. It enables the Secretary of State to recover the
whole amount of any listed benefits paid to a person in consequence of any accident, injury or disease during the relevant period where that person also
receives a compensation payment for that accident, injury or disease from a third party. The compensator is liable to pay to the Secretary of State the
whole amount of the listed benefits received by the claimant for the relevant period. He is then entitled to deduct that amount from the compensation
which he is to make to the injured party. But there are some important differences. Under the new scheme the reduction in respect of recoverable
benefits is restricted to particular heads of the compensation payment, with the result that other heads—in particular damages for pain and suffering—are
insulated from, or ring-fenced against, the deduction. According to a system of calculation which is set out in s 8 and Sch 2, the only heads of
compensation which are affected by it are those for loss of earnings, cost of care and loss of mobility during the relevant period against which are to be set
the amount of any recoverable benefit which is attributed to those heads. There is no small payments limit ­ 553 under the new scheme, and a new
procedure for appeals against certificates of recoverable benefit has been introduced.
The feature of the new scheme which has given rise to the question raised in these two appeals is the absence from the 1997 Act of the provision
regarding the calculation of interest which was introduced by amendment as para 24 of Sch 4 to the 1989 Act and was then re-enacted in s 103 of the
1992 Act. The 1997 Act is concerned almost entirely with the system for the issuing of certificates of recoverable benefits, the liability of the person
making the compensation payment and reviews and appeals against certificates. It contains only three sections directed to the courts. Section 15 contains
a provision about the form which is to be followed when the court makes an order for a compensation payment unless the order is made with the consent
of both parties. Section 16 deals with payments into court but does not extend to Scotland where this procedure does not apply. Section 17, which
contains the only provision relating to the assessment of damages, re-enacts with only a few minor changes s 81(5) of the 1992 Act. It provides:

‘In assessing damages in respect of any accident, injury or disease, the amount of any listed benefits paid or likely to be paid is to be
disregarded.’

The whole of Pt IV of the 1992 Act, including s 103 which dealt with interest, was repealed by s 33(2) of and Sch 4 to the 1997 Act.
In one significant respect the provisions about interest in s 103 of the 1992 Act have been rendered unnecessary by the new scheme. Awards of
general damages and of solatium are no longer exposed to the risk of a reduction to reflect the amount paid under the scheme to the Secretary of State by
the compensator. There is therefore no need for a provision directing the order in which the reduction is to be made as against special and general
damages and as against patrimonial loss and solatium. But s 103 was in two parts. The second part, which contained a special provision about the order
of ranking as between general and special damages and patrimonial loss and solatium, is the part which has been superseded under the new scheme. The
first part, which contained a general provision about assessing the amount of interest payable in respect of an award of damages, would still have been
relevant under the new scheme but it has not been re-enacted. The only guidance which the new scheme contains as to how this matter is to be dealt with
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is that to be found in s 17, which provides that the amount of any listed benefits is to be disregarded in assessing damages.

Discussion
The effect of s 17 is that damages must be assessed in a way which treats the amount which the claimant has received by way of listed benefits in
exactly the same manner as any amounts which he may have received under, for example, a private insurance policy. They are to be disregarded, so the
amounts awarded under the heads described in Sch 2 to the 1997 Act as loss of wages, cost of support and loss of mobility are to be assessed without
making any deduction for the relevant benefits. The normal practice is for amounts which are treated as irrelevant in the assessment of damages to be
disregarded when interest is being awarded on those damages. This is because the purpose of the award of interest is to compensate the claimant for lying
out of the money to which he has been found entitled by the court when it is making the award of damages. Amounts which are to be disregarded are
treated as irrelevant when the amount of damages is being assessed. It seems unlikely that there can be a sound reason in principle for treating sums
received by the claimant from other sources which are ­ 554 irrelevant for the purpose of assessing damages as relevant when interest on those damages
is being calculated.
On the other hand the context in which an award of damages is made for personal injury is one in which everyone now knows that a claimant who
has received listed benefits during the relevant period will suffer a corresponding reduction in the compensation awarded by the court when the payment
is made to him by the compensator. Section 8(3) of the 1997 Act provides that the gross compensation attributable to each head of compensation listed in
Sch 4 is to be reduced by deducting the amount of the recoverable benefit shown against that head in the Schedule which the compensator is liable to pay
to the Secretary of State for the relevant period. It is clear that the compromise which was adopted in 1948 has now been departed from entirely and that
the scheme treats the whole of the listed benefits received during the relevant period as compensatory and deductible. It does not seem to be consistent
with principle that the injured party should be awarded interest on sums awarded to him as damages for which he has already been fully compensated by
the receipt of these benefits. As Lord Nimmo Smith observed in George v George C Peebles & Son 1998 SLT 685 at 688, the purpose of an award of
interest on damages for loss of wages is to compensate the claimant for being deprived of the use of money which he would have received but for the
accident. It did not appear to him to be appropriate to leave out of account the fact that the pursuer in that case had in fact received benefits in place of
the earnings which he would otherwise have received. He did not feel driven by the repeal of s 103 of the 1992 Act to disregard the receipt of benefits in
a manner which he regarded as unacceptable. The inference which he drew from the fact that s 103 had not been replaced by a new provision in the 1997
Act was that Parliament intended that the discretion conferred on the court by s 1(1A) of the Interest on Damages (Scotland) Act 1958 should continue to
be exercised in the light of the whole circumstances of the case including the new scheme for the recovery of benefits.
In their submissions both Mr Jones QC for the appellants in Wisely’s case and Mr Stuart-Smith QC for the appellants in Wadey’s case relied on the
same general principles. They referred to the discretion which has been given to the courts in both Scotland and England by statute as to the awarding of
interest on damages. Mr Jones submitted that the court was entitled in the exercise of its discretion to take the benefits into account when calculating
interest because there was no direction in the 1997 Act that it must not do so. He said that it was clear from the wording of s 1(1A) of the 1958 Act and
from its long title that ‘interest’ within the meaning of that Act was being treated as an amount which was separate from the ‘damages’ on which it was
awarded. He accepted that the practice in Scotland was for the court to include in the sum for which it decerns in respect of damages for personal injuries
interest on those damages (see Smith v Middleton 1972 SC 30 at 39 per Lord President Emslie). But this was a United Kingdom statute, and the
legislation showed that interest and damages had been regarded by Parliament as separate concepts. The same distinction had been recognised by s 103
of the 1992 Act which referred to interest ‘in respect of’ an award of damages. So the direction in s 17 of the 1997 Act should be read as a direction
regarding the assessment of damages only, and not as a restriction on the discretion of the court when it was awarding interest on those damages. Mr
Stuart-Smith referred to the guidance in Jefford v Gee [1970] 1 All ER 1202, [1970] 2 QB 130 on the awarding of interest in personal injury cases and to
the provisions of s 69 of the County Courts Act 1984. The guiding principle was that a claimant should not be compensated by an award of interest for
losing money ­ 555 when he has not suffered loss by being kept out of that money. The discretion available to the court under s 69 of the 1984 Act
enabled effect to be given to that principle. The court was entitled to adopt a Janus-like approach to this matter. It was entitled to look beyond the amount
of its award when assessing interest, as it knew that the sum which the claimant would receive from the compensator would be the net sum after deduction
of the benefits.
At first sight there is much to be said for the appellants’ arguments, and I confess that I have not found it easy to decide what Parliament intended
when it repealed s 103 of the 1992 Act and did not re-enact an equivalent provision about interest as part of the new scheme. But there are a number of
factors which must be weighed in the balance alongside the arguments based on principle on which the appellants rely.
The first is the plain fact that it would have been open to Parliament to have enacted such a provision but that it has not done so. I see no reason to
regard this as an oversight. Although it was no longer relevant to set out an order of ranking as awards of general damages and of solatium, it would still
have been relevant if this was thought appropriate to direct that in assessing the amount of interest payable the amount of the award of damages should be
treated as reduced by a sum equal to the amount of the recoverable benefits. In the absence of a provision to that effect, I would be inclined to read the
direction in s 17 of the 1997 Act that benefits are to be disregarded in assessing damages as extending also to the calculation of interest on those damages.
I would apply the principle which I suggested earlier that sums which are treated as irrelevant in assessing damages should not be treated as relevant
when interest on the damages is being calculated.
The structure of the scheme supports this approach. The Act makes it clear that the system for returning the amount of the benefits received during
the relevant period to the taxpayer is entirely separate from the court process. As Lord Rodger LP pointed out in Wisely’s case 1998 SC 910 at 914, the
deduction of benefits is to be made under s 8 of the Act at the time when the compensator is discharging his liability to the claimant for the amount of the
compensation payment, while the court deals with interest at the earlier stage when it is determining the amount of that liability. The system which ss 10
and 11 provide for the review of and appeal against a certificate of recoverable benefit, which determines the amount to be paid to the Secretary of State
by the compensator and the amount of the deduction which he makes when discharging his liability to the claimant, is also designed to operate only at the
later stage after the court has determined the amount of that liability. The appeal system enables both the person who applied for the certificate and the
claimant to appeal against it on grounds which would be relevant to the calculation of interest if the amount to be deducted from the compensation was to
be taken into account at that stage. But s 11(3) provides that no appeal may be made under that section until the claim giving rise to the compensation
payment has been finally disposed of and the liability of the compensator to pay the Secretary of State under s 6 has been discharged.
Section 14 provides that where, following an appeal, a fresh certificate of recoverable benefits is issued and that in consequence of the review or
appeal it appears that the total amount paid is more than the amount that ought to have been paid regulations may provide for the Secretary of State to pay
the difference to the person who made the payment, or to the person to whom the compensation payment is made, or partly to one and partly to the other.
But no mention is made in this section, or in reg 11 of the Social Security (Recovery of Benefits) Regulations 1997, SI 1997/2205 which provides that
where the total ­ 556 amount paid was more than the amount that ought to have been paid the amount of the compensation payment made under s 8 of
the Act is to be recalculated, of the recalculation of interest to take account of the fact that the amount of the recoverable benefits was overstated in the
original certificate. Nor is there any provision for the recalculation of interest if a fresh certificate is issued which requires an additional amount to be
paid to the Secretary of State by the compensator. This suggests that it was appreciated that complications would arise if interest on the damages had to
be recalculated after the court had made its award of damages, and that these were best avoided by omitting any provision directing the court to disregard
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the amount of the benefits when assessing the amount of interest on the damages. As Lord Rodger LP said in Wisely’s case (at 916), the 1997 Act is
essentially a practical compromise. The purpose of the scheme is to enable the taxpayer to recover the benefits in a manner which is as simple and
practicable as possible.
There are a number of other points to which I would be inclined to attach less importance. At first sight it might be thought that the fact that,
according to the ordinary rules applying to judgment debts, interest is payable on the full amount of the compensation payment awarded by the court
between the date of its award and payment of the reduced amount by the compensator supports the view that interest should be paid on the full amount for
periods prior to the date of the award. This is a consequence of the direction in s 17 that the benefits are to be disregarded in assessing damages. But the
position was the same under the previous scheme as to the period after the date of judgment. The direction in s 103 applied only to the assessment of
interest in respect of the award of damages for periods prior to the date of the award, not to interest due on the full amount for the period after the award
was made and the previously illiquid claim for damages had been converted into a liquid debt. Similarly I do not think that it would be wise to make
assumptions either one way or the other about the nature of the task which the court would face if it were to be required to disregard the benefits when
assessing interest on the damages. The fact that judges sitting at first instance in both England and Scotland were able to obtain the necessary information
and to make the calculation without any apparent difficulty suggests that nothing is to be made of this point on policy grounds. Nor is there any hint in
the opinions of the judges in the Inner House of the Court of Session or the judgments of the Court of Appeal that the decisions which they took were
reached on grounds of practice or policy. It was recognised in both courts that the issue is essentially one of statutory interpretation, as to which the best
guide is the nature and effect of the scheme laid down by the statute.
There was some discussion both in the Inner House of the Court of Session and in the Court of Appeal as to whether, even though s 103 of the 1992
Act had been repealed, it would be open to the court to take the benefits into account under the statutory powers which enable the courts in both Scotland
and England to award interest on damages. Lord Rodger LP in Wisely’s case (at 915), said that the argument that there were ‘reasons special to the case’
within the meaning of s 1(1A) of the 1958 Act not to award interest in respect of this element of wage loss was recognised by the appellants’ counsel to
be implausible as it would apply in so many cases, and Mr Jones did not press this argument before your Lordships. He maintained that the general
discretion available to the court under that section enabled the court to look beyond s 17 of the 1997 Act and take account of the fact that the listed
benefits were to be deducted from the sum paid in settlement of the award of damages. Simon Brown LJ in Wadey’s case [1999] 2 All ER 334 at 341,
[1999] 1 WLR 1614 at 1622 said that he saw some force in the ­ 557 argument that there were ‘special reasons’ within the meaning of s 69 of the 1984
Act but that there were powerful arguments to the contrary. Mr Stuart-Smith accepted that the argument that there were special reasons was a tenuous
one, and he relied mainly on what he described as the second level of discretion which he said was inherent in the words ‘all or any part of the debt or
damages in respect of which judgment is given’. But these differences in language between the Scottish and English statutes do not seem to me to be
significant for present purposes, as I would hold that the point on both sides of the border must receive the same answer. The effect of s 17 of the 1997
Act, in the context of the scheme which the Act lays down, is that the amount of any listed benefits paid or likely to be paid during the relevant period
must be disregarded in the assessment of interest on the damages which are to be assessed without taking account of those benefits.

Conclusion
There seemed to me at one stage to be much to be said for resolving the question which has been raised in these cases by a robust application of the
principle that a claimant is to be awarded interest only for being kept out of his money to the known fact that, if he has been compensated for his loss
during the relevant period by the receipt of listed benefits, the damages awarded to him will be reduced by the deduction of those benefits. But the history
of this legislation shows that it has not been possible to solve all problems in a way which is consistent with this principle, and the scheme which
Parliament has laid down in the 1997 Act for the return of those benefits to the taxpayer does not seem to me to permit this approach. I would dismiss the
appeals.

LORD CLYDE. My Lords, these two appeals from the First Division of the Court of Session in Scotland and from the Court of Appeal in England raise
a problem about the allowance of interest in relation to an award of damages for personal injury. Much of the relevant legislation is common to both
countries and even where there are separate statutory provisions the language is not significantly different. It is agreed by all parties that the same
solution to the problem should apply on both sides of the border. I deal more specifically with the Scottish case, because it was the earlier of the two
decisions and indeed clearly influenced the judges of the Court of Appeal in England who followed and agreed with it. The issue concerns the interest to
be awarded on that part of an award which relates to patrimonial loss, or special damages, as distinct from solatium, or general damages, in a case where
the injured person has received certain state benefits in consequence of the injury for which he is claiming damages.
The general purpose of an award of interest at common law is recognised both in Scotland and England as being to compensate the creditor for the
loss of enjoyment of the sum to which he was entitled. The position at common law in Scotland was expressed by Lord Westbury in Carmichael v
Caledonian Rly Co (1870) 8 M (HL) 119 at 131, LR 2 Sc & Div 56 at 66 in these words:
‘Interest can be demanded only in virtue of a contract, express or implied, or by virtue of the principal sum of money having been wrongfully
withheld, and not paid on the day when it ought to have been paid.’
But in the particular context of awards of damages for personal injury Parliament has intervened in order to enable an award of interest to run from a date
prior to the quantification of the sum of damages. The relevant enactment for Scotland is s 1 of the Interest on Damages (Scotland) Act 1958, as amended
by the Interest ­ 558 on Damages (Scotland) Act 1971, and the relevant provisions for England are in s 35A of the Supreme Court Act 1981, as
amended by s 15(1) and Pt I of Sch 1 to the Administration of Justice Act 1982, and in s 69 of the County Courts Act 1984.
In general sums which an injured person has received consequent upon his injury should be taken into account in assessing the total of his
patrimonial loss. Otherwise he would be overcompensated and the purpose and object of an award of damages would not be achieved. But there are
various exceptions to that general rule, as was recognised in Hodgson v Trapp [1988] 3 All ER 870, [1989] AC 807. The receipt of state benefits by the
injured person is obviously a relevant matter to be considered in this connection, but here Parliament has sought to solve the problem by making specific
provision in that regard. Under s 2(1) of the Law Reform (Personal Injuries) Act 1948, which applied both to Scotland and to England, it was provided
that in the assessing of damages for loss of earnings or profits there was to be taken into account one half of the value of certain specified benefits which
had or probably would accrue to the injured person for a period of five years from the date of the cause of action. That system operated until it was
replaced, except in cases of certain small compensation payments where it continued to apply, by a new scheme introduced by the Social Security Act
1989, as amended by the Social Security Act 1990. The present version of this is now to be found in the Social Security (Recovery of Benefits) Act 1997,
which finally repealed s 2(1) of the 1948 Act. It is with the construction and application of the 1997 Act that the present appeals are concerned.
The new regime was significantly different from the former scheme. Essentially while under the former scheme the wrongdoer or tortfeasor was
relieved from paying the whole of the patrimonial loss, since one half of the benefits was to be set against the sum in the award, under the new scheme the
Secretary of State is able to recover from the person paying the damages, referred to as the ‘compensator’, a sum representing the benefits paid to the
injured person and the compensator is then entitled to offset that sum against the amount which he is bound to pay to the injured person under the court’s
order and is to that extent discharged from satisfying the order. Under the language of the Act a payment made to a person in consequence of an accident,
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injury or disease is a ‘compensation payment’. By virtue of s 1(3) of the 1997 Act voluntary payments as well as payments under a court order are
included. For this purpose of the scheme the Act sets out in Sch 2 various heads of loss which may be found within a compensation payment and a list of
the particular benefits to which each head is to relate. Any of the benefits in the list which have been or are likely to be paid in respect of the accident,
injury or disease, during a period defined in detail in s 3 and referred to as the ‘relevant period’, constitutes a ‘recoverable benefit’. In paying the person
entitled to a compensation payment the compensator is entitled to offset against the heads of loss specified in Sch 2 the recoverable benefits relative to
each of those respective heads. The appellants claim that in awarding interest in an award for damages in respect of any past patrimonial loss the court
should deduct the whole of the amount of the recoverable benefits and award interest only upon the net balance. The respondents claim that interest
should be awarded on the whole amount of the past patrimonial loss, without any deduction in respect of the recoverable benefits.
The problems to which the interplay between the receipt of state benefits and the awarding of interest have given rise are not always readily
reconcilable with principle. On the former system interest would be awarded on the net sum of the past pecuniary loss, that is to say, after deduction of
one half of the benefits. The injured person thus received interest not only on the sum which he had actually ­ 559 been out of pocket, but also, to the
extent of the amount of the other one half of the value of the benefits, on an amount which he had actually received by way of benefit. Furthermore the
calculation of the benefits could be related to a period of five years and if the award by the court was made before the expiry of that period interest was
being charged in respect of sums which the injured person had not yet received. In effect the sum awarded was taken to be the sum of the pursuer’s
pecuniary loss and interest was applied to that sum as if it was the amount of his loss, and as if it was the sum which, to use the common law formula, had
been wrongfully withheld. Under the new scheme it is accepted that some interest is to be paid in respect of the past elements in the court’s award, but no
interest is provided for under the statutory scheme to be paid by the wrongdoer in respect of a delay in payment to the Secretary of State. The question
then arises whether the intention was that this absence of obligation to pay interest to the Secretary of State should inure to the benefit of the wrongdoer,
which might be thought unlikely, or, as would seem more probable, to the benefit of the injured person. The former would be achieved by the wrongdoer
not being obliged to pay any interest in respect of the recoverable benefits and enjoying the use of the money until he paid it to the Secretary of State.
The latter would be achieved by an obligation on the wrongdoer to pay interest to the injured person on the amount of the recoverable benefit. That
points to a solution favourable to the respondents.
What seems to me very evident from the new scheme is that a separation is being made between the court’s function in the assessing and awarding of
damages and the quite distinct mechanism for the recovery of the recoverable benefits from the wrongdoer. The latter process is managed independently
of the court. It operates after the court has made its order. It concerns particularly the time of payment to the pursuer, not the time of the making of any
order or decree by the court. It affects not the terms of the order but the satisfaction of the order by the compensator. It has its own procedures for the
resolution of disputes, which may involve reference to a medical appeal tribunal. Under s 14 of the Act and reg 11 of the Social Security (Recovery of
Benefits) Regulations 1997, SI 1997/2205 if it is found that the amount of the recoverable benefit has been over calculated and too much has been paid to
the Secretary of State, then the balance is to be repaid by the Secretary of State to the compensator, the compensation payment is recalculated and the
increase if any is paid to the person to whom the compensation payment was made. Nothing in that process touches upon the award made by the court. It
is managed outwith the court processes. Significantly no provision is made for the recalculation of any interest upon the court’s award, although if the
appellants were correct and the calculation of interest proceeded only upon a net figure of patrimonial loss the injured party would have been deprived of
some element of interest which should if, the calculation had been correct in the first place, have been paid to him. But it is only to the amount of the
compensation payment that the adjustment is made, and not to the order of the court. The distinction drawn in the Act between the function of the court in
the making of an award and the function of the compensator in the adjustment of the amount to be paid under the award in light of the amount of the
recoverable benefits supports the respondents’ solution.
It seems to me that the answer to the problem raised in these appeals lies essentially in s 17 of the 1997 Act. Its terms seem to me plain and
unambiguous. It formerly appeared as s 22(6) of the 1989 Act, then as s 81(5) of the Social Security Administration Act 1992. In its final form in the
1997 Act it states: ‘In assessing damages in respect of any accident, injury or disease, the amount of any ­ 560 listed benefits paid or likely to be paid is
to be disregarded.’ The listed benefits are the benefits listed in Sch 2. The appellants did not suggest any convincing reason why this particular provision
had been made. It seems to me that it is part of the overall scheme whereby the intention is that the court should have no concern with any adjustments
which may be appropriate to take account of any benefits which the injured person may have received. Only in two other particular respects does the Act
touch upon the function of the court. In s 15 the court is required to specify in its order the amount of any compensation payment which is attributable to
any of the heads of compensation listed in Sch 2. By s 16 provision is made for regulations and rules of court in England relating to cases where a
payment into court is made. In the absence of any provision requiring any modification of the award for the purposes of an award of interest it seems to
me that s 17 requires the court to take the gross amount of the patrimonial loss as representing the sum of that loss. In such a case the ordinary course
would be to award interest on the whole of that sum. That is what I consider is the effect of s 17. There may of course be some other receipts which will
require to be deducted, but none of the listed benefits will be among them.
Counsel for the appellants were at pains to stress that throughout the legislation a distinction is preserved between damages and interest. That may
well be so. But that consideration does not to my mind solve the problem. I do not find it necessary to treat the matter as one of construction of the word
‘damages’. The effect of the section is that in respect of the patrimonial loss the court is to assess the damages as if no benefits had been received. Thus
putting aside any deduction in respect of receipts which might otherwise have to be made, and assuming for the sake of simplicity that the only
patrimonial claim is for loss of earnings, the damages for the past loss are to be assessed as the total amount of the earnings which the injured person
would have received had the accident not occurred. That the injured person may not have actually been out of pocket to that extent is to be disregarded.
It is, as it were, to be assumed that he has received no benefits. But if that is the assumption on which the award of damages for past patrimonial loss is
assessed, then when it comes to considering interest it should follow that it is on that sum of past loss of earnings that the interest should be calculated.
That seems to me to be the necessary consequence of the disregarding of the benefits by the court in the assessing of damages which is required by the
section. The gross loss of earnings will be taken to be the actual amount of the loss so far as the court is concerned, just as under the former scheme the
loss was taken to be the gross loss less one half of the benefits. Just as under the former scheme interest was awarded on what was a somewhat artificial
figure, so now it is awarded on a sum which in effect is to be taken by the court to be the relevant loss. The sum of the loss of earnings is to be taken as
the sum which, as it were, has been wrongfully withheld. The same should hold true of any other losses listed in Sch 2 which the pursuer may claim.
Certainly there is nothing in the 1997 Act to suggest that any other approach to an award of interest is to be adopted and the view which I reach is based
principally upon the effect of s 17.
It would be desirable to preserve the theory on which interest is awarded subject to any assumptions which the legislation requires, and on the
assumption which, as it seems to me, s 17 requires to be made, the respondents’ solution is compatible with the theory. The appellants sought to found
upon the common law principle as providing the guidance to the correct solution, but even on their approach an inconsistency arises. It is not disputed that
interest on the whole award will run from the date of the court’s order so that interest will run from the date of the order until payment on an amount
which includes the sum of the ­ 561 recoverable benefits. It seems to me the less easy to stand on principle and insist on the absence of an allowance of
interest on that same amount for the period before the order. Indeed that the victim is entitled to interest after the award seems to me to fit most neatly
with a scheme whereby it is the victim and neither the wrongdoer nor the Secretary of State who is entitled to interest prior to the award.
While I accept that each of the alternative solutions put forward by the opposing parties to these appeals may be workable, I am impressed by the
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clean and simple approach which has been favoured by the courts below. It frees the court from the necessity of having and giving effect to a certificate
of recoverable benefit, overcomes any problem which might arise about the difficulty of getting a certificate which is final and complete, and avoids any
complication which might follow from a challenge to that certificate. Apart from the minor matters which I have mentioned in ss 15 and 16 the court can
proceed without concern for the receipt of any of the listed benefits in the past or the future. The adjustment of the rights of the parties in relation to the
sum payable under the award consequent upon the receipt of benefits is matter for other procedure outwith the court. The risk of a double recovery by the
pursuer is met, not through the court process, but at the later stage of the making of the compensation payment. The First Division and the Court of
Appeal have both preferred this solution, and in a matter which so closely involves the practice of the courts I consider that if the question was otherwise
finely balanced I would be inclined to respect the view which they have adopted.
The other section which has given rise to difficulty is s 103 of the 1992 Act, which formerly appeared in para 6 of Sch 1 of the 1990 Act as an
amendment to Sch 4 of the 1989 Act. More precisely the difficulty is due to the disappearance of that section in the 1997 Act. The short title to that Act
indicates that it was to re-state with amendments Pt IV of the 1992 Act. The first part of the section provided for the reduction of the amount of the award
by a sum equal to the amount of the relevant payment for the purposes of assessing the amount of interest payable. The latter part of the section provided
for the reduction to be made first against the damages for patrimonial loss and thereafter against the damages for solatium. That latter provision became
unnecessary under the 1997 Act because of the provisions in s 8 and Sch 2 to which I have already referred under which particular benefits are
appropriated to certain heads of loss for the purpose of calculating the net amount of the compensation payment. It is argued that the earlier part of the
section is merely setting the context for the latter part. But both in form and in language the first part can be seen to be of substantial importance in itself.
In its form it is clearly divided into the two parts, joined by the word ‘and’. That by itself points to the twofold purpose which it serves. Beyond that the
language of the first part goes far beyond a mere setting of the context for what follows. It contains the express direction ‘the amount of the award shall
be treated as reduced by a sum equal to the amount of the relevant payment’. That indicates that but for that provision the amount of the award would not
have been reduced, and that interest would have been payable upon the gross sum. The first part is stating what is in effect a substantial precondition for
the operation of the second part. The express provision regarding interest contained in para 24 of Sch 4 to the 1989 Act thus cuts across what would in
my view have been the ordinary consequence of s 22(6) of the 1989 Act, which is now s 17 of the 1997 Act. The disappearance in the 1997 Act of the
former express ­ 562 provision regarding interest enables s 17 to have the natural effect which I have earlier suggested it should have.
I consider that the Court of Session and the Court of Appeal each reached a correct view and I would dismiss both appeals.

LORD MILLETT. My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hope of Craighead and
Lord Clyde. As Lord Hope has demonstrated, the present question cannot be resolved by a meticulous examination of the provisions of the Social
Security (Recovery of Benefits) Act 1997 and their legislative history. This merely yields two rival interpretations, each of which is internally
self-consistent, and which are both equally compelling and equally capable of being derived from the statutory language. The solution must lie in
ascertaining the underlying rationale of the legislation.
My initial thought was that the answer was to be found in the purpose served by s 17 of the 1997 Act and its statutory predecessors in the Social
Security Act 1989 and Social Security Administration Act 1992. These require the court to disregard the amount of any listed social security benefits
paid or likely to have been paid when assessing damages for personal injury. Prior to the 1989 Act s 2 of the Law Reform (Personal Injuries) Act 1948
had directed that only one half of such benefits should be disregarded. The other half was taken into account in reducing the amount of the damages
which was recoverable by the plaintiff. This represented a compromise, illogical on any footing, between the views of the majority and the minority
members of the Monckton Committee in 1946 (see Final Report of the Departmental Committee on Alternative Remedies (Cmd 6860)). The majority
recommended that the amount of the benefits should be taken into account in assessing damages in order to avoid what they saw as double recovery. The
minority considered that benefits were paid for by the plaintiff through his taxes and accordingly should be treated in the same way as private insurance
recoveries and left out of account.
The subject was revisited by the Pearson Commission in 1978 (see Royal Commission on Civil Liability and Compensation for Personal Injury)
(Cmnd 7054-I). It adopted the view of the majority of the Monckton Committee and recommended that the full amount of any benefits received by the
plaintiff should be taken into account in the assessment of damages. This was accepted in principle by the government in 1981. In a series of judicial
decisions it was held that benefits not covered by the 1948 Act must be taken into account in the assessment of damages. This was an application of the
rule, which Lord Bridge of Harwich described in Hodgson v Trapp [1988] 3 All ER 870 at 874, [1989] AC 807 at 819 as ‘fundamental and axiomatic’,
that damages for negligence are intended to be purely compensatory. If in consequence of the injuries sustained the plaintiff has enjoyed receipts to
which he would not otherwise have been entitled, prima facie those receipts are to be set off against his losses.
By the time of the 1989 Act the equation of social security benefits paid for out of general taxation with the receipt either of benevolence or of
private insurance paid for by the plaintiff was discredited. Given the contemporary climate of opinion Parliament might have been expected to require the
whole of the listed benefits which the plaintiff had received to be taken into account in the assessment of damages. Instead the 1989 Act provided that
they were to be disregarded.
­ 563
What appears at first sight to be a paradox is, however, easily explained. The plaintiff does not receive the whole of the damages awarded to him.
Although the benefits are disregarded in assessing the damages, that part of the judgment which represents them is payable to the Secretary of State and
not to the plaintiff. The plaintiff receives only the balance or net sum which on the traditional view represents the true amount of his loss. On this view
the historic link between the amount of the judgment recovered by the plaintiff and the amount of his loss is severed. The plaintiff is awarded a larger
sum than he has truly lost so that the arrangements for reimbursing the Secretary of State out of the damages awarded to him do not leave him
undercompensated. On this analysis, interest to judgment should be awarded on the reduced sum which represents the true amount of his loss and not on
the artificially inflated figure of the judgment.
This view of the matter appeared to be supported by two considerations. First, the statutory disregard was originally enacted, not in a separate
section as a free-standing provision in its own right, but tucked away in an obscure sub-paragraph as a subordinate element of the legislative scheme.
This seemed to indicate that it did not represent a policy decision, which would have been remarkable for its contradiction of contemporary thinking, but
merely a mathematical exercise. The judgment was to be grossed up so that it could be netted down later. Secondly, the provision introduced by
amendment in para 6 of Sch 4 to the 1989 Act, later s 103 of the 1992 Act, expressly directed that the disregarded benefits should be taken into account to
reduce the sum on which interest should be awarded. True, s 103 was not re-enacted in the 1997 Act, but this could be explained on the basis that the
second part of the section was no longer necessary in the changed circumstances, while the first part had always been implicit in the statutory scheme and
did not need to be expressly re-enacted.
This was the position at which I had arrived at the conclusion of argument. But there was room for doubt. Although interest to the date of judgment
was awarded on the net amount after giving credit for the benefits, judgment was given for the gross amount and it was this amount which represented the
judgment debt and carried interest from the date of judgment. I could find no rational basis for allowing interest on a greater sum after judgment than
before it. Something must have gone wrong, and given the later history of the legislation in regard to interest, it seemed more logical to suppose that it
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was in the original enactment of s 103 or its predecessor rather than in the failure to re-enact it. Moreover, an analysis which did not abandon the
traditional approach to damages should be preferred to one which did. Could one be found?
Further reflection has persuaded me that it can. I was asking the wrong question. The proper question is not: why did Parliament enact s 17 or its
predecessors? That does not take the inquiry far enough. It is necessary to ask: why did Parliament enact the scheme which made s 17 necessary? Why,
in other words, did Parliament require the benefits to be disregarded in the assessment of damages only to bring them into account when it comes to
discharging the judgment debt? Why did it not simply direct that the amount of the benefits should be taken into account in reducing the amount for
which judgment is given, and make arrangements for the tortfeasor to pay the amount in question to the Secretary of State? This would be in accordance
with the traditional approach. The judgment would represent the amount which the plaintiff can recover and both would reflect the amount which the
plaintiff has truly lost.
The answer must lie in the fact that the plaintiff has been made accountable to the Secretary of State for the repayment of the benefits he has
received. This is what drives the whole of the statutory scheme. It is what dictates that the ­ 564 amount of the benefits should be deducted from the
damages and made payable to the Secretary of State. Once this is appreciated, then the scheme’s underlying rationale becomes apparent and everything
falls into place. The listed benefits are repayable to the Secretary of State, if not by the plaintiff, then at any rate at his expense. As such they must be
treated like any other repayable receipts. If the plaintiff were personally liable to repay them, they would not reduce the amount of his loss and would be
disregarded in the assessment of his damages. The fact that they are repayable only out of the damages makes no difference. The statutory scheme treats
the listed benefits in the same way as the common law would treat interest-free non-recourse advances to the plaintiff against the ultimate award of
damages. The certification process is merely machinery to enable the Secretary of State to be repaid by the tortfeasor out of the damages he would
otherwise pay to the plaintiff. It has much the same effect as a garnishee order on a judgment debt in favour of a creditor of the plaintiff.
On this analysis the statutory scheme does not depart from the traditional approach of the common law. The listed benefits are disregarded in the
assessment of damages because they are refundable by or at the expense of the plaintiff and accordingly do not diminish his loss. The damages carry
interest before as well as after judgment in the normal way. The link between the amount of the judgment and the amount recoverable under the judgment
is not broken since the plaintiff’s obligation to apply the damages in repayment of benefit is discharged by the tortfeasor. The plaintiff’s apparent double
recovery of interest is due to the fact that the Secretary of State is content to be repaid without interest but this is a matter between the Secretary of State
who paid the benefits and the plaintiff who received them and inures for the benefit of the plaintiff. It does not affect the amount of the tortfeasor’s
liability, though it reduces the amount he would otherwise be liable to pay to the Secretary of State and increases the amount which he is liable to pay to
the plaintiff. The legislative error lay in the enactment of s 103 and its predecessor and not in the failure to re-enact them in the 1997 Act.
For these reasons, as well as those contained in the speeches of my noble and learned friends Lord Hope of Craighead and Lord Clyde, I would
dismiss these appeals.

Appeals dismissed.

Celia Fox Barrister.

[2000] 2 All ER 566

AIG Europe (UK) Ltd and others v The Ethniki

CONFLICT OF LAWS: ADMINISTRATION OF JUSTICE; Courts

COURT OF APPEAL, CIVIL DIVISION

EVANS, THORPE LJJ AND JONATHAN PARKER J
16 JULY, 26 NOVEMBER 1999

Conflict of laws – Jurisdiction – Challenge to jurisdiction – Reinsurance contract – Defendant insurance company domiciled in Greece reinsured by
English reinsurers – Reinsurers issuing proceedings in England seeking declaration that they were discharged from liability under contract – Reinsurers
claiming entitlement to sue in matters relating to contract in courts for place of performance of obligation in question – Whether English courts having
jurisdiction over dispute – Obligation in question – Civil Jurisdiction and Judgments Act 1982, Sch 1, arts 5(1), 17.

A Greek company, H, was insured in respect of earthquake risks. A clause in the policy conferred jurisdiction over the trial of any dispute arising under
the policy on the courts of Athens. The claimant reinsurer, AIG, which carried on business in London, agreed to reinsure the insurers, A, in respect of
34·5% of the risk. The contract stated ‘Conditions: Wording as original’ and contained a claims control clause, which provided that, as a condition
precedent to any liability under the policy, the reassured should (i) notify the reinsurers within 72 hours of knowledge of any loss which might give rise to
a claim under the policy and (ii) furnish the reinsurers with all information regarding such loss to facilitate their control over all negotiations, adjustments
and settlements. In 1995 H made a claim under the primary policy in respect of damage caused to one of its factories, and disputes arose as to the amount
recoverable under the policy. Thereafter, H issued proceedings in the Athens court claiming payment from E, which had succeeded to the rights and
obligations of A. E issued the equivalent of third party proceedings against AIG in the Athens court. In December 1997 AIG commenced proceedings in
England, claiming, inter alia, a declaration that it was discharged from any liability to indemnify E as a result of a breach of the claims control clause, and
seeking damages for breach of an implied term of the reinsurance contract that A, on being notified of a claim under the primary insurance, would take
the necessary steps to ascertain the amount of the loss fairly and carefully. E applied for the writ to be set aside, or alternatively for the proceedings to be
stayed, on the grounds that the court had no jurisdiction by reason of certain provisions of the Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters 1968 (as set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982), namely art 5(1)a, which
provided that in matters relating to a contract, the courts of the place of performance of the obligation had jurisdiction, and art 17b, which provided that
where parties had agreed that the courts of a contracting state were to have jurisdiction over disputes, those courts had exclusive jurisdiction. The judge
held that where a claimant sought a declaration of non-liability without impugning the contract, relying instead upon the defendant’s alleged breach of
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contract, it
________________________________________
a Article 5(1) is set out at p 569 b, post
b Article 17, so far as material, provides: ‘If the parties … have agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which
have arisen or may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction.’
________________________________________
­ 566

was first necessary to identify the obligation in question. In the instant case, the principal obligation in question for the purposes of art 5(1), as identified
by reference to the primary relief sought in the points of claim, was the claims control clause, which fell to be performed in England. Further, he held that
the general words of incorporation contained in the slip policy were insufficient to incorporate an arbitration clause contained in the primary policy into
the reinsurance contract and that the same principle applied to the clause conferring jurisdiction on the Athens court; it followed that art 17 of the
convention did not apply and that the Athens court did not have jurisdiction over the dispute. E appealed, contending that the principal obligation for the
purposes of art 5(1) was the alleged failure of A properly to investigate the claim in Greece, an obligation which fell to be performed in Greece, and that
the terms of the contract ought to be given their literal effect and the jurisdiction clause therefore incorporated.

Held – (1) The correct approach to the identification of the obligation for the purpose of art 5(1) was to ask whether the claim depended upon or was
based substantially on the principal obligation in question. In the instant case, the judge had correctly found that the principal obligation was the claims
control clause, as AIG’s claim was based essentially on A’s failure to inform it of the claim received, which prevented it from despatching a loss adjuster
to Greece, an obligation which required performance in London. The performance of a condition precedent to the liability of the other party could quite
properly be described as fundamental, and its breach as the real ground of complaint. The ground of appeal under art 5(1) would therefore be rejected (see
p 573 e to p 574 d and p 576 f, post); Kleinwort Benson Ltd v Glasgow City Council [1997] 4 All ER 641 followed.
(2) Although the approach of the courts towards the incorporation of arbitration clauses into bills of lading could not give rise to a general rule of
construction, in both bills of lading and reinsurance contracts the parties intended that the subject matter of the original contract remained the same. That
common feature was a good reason for asking whether the parties had intended general words of incorporation to incorporate the particular term from the
other contract. In the instant case the judge had been correct to find that AIG and A had not intended the jurisdiction clause to be incorporated into the
contract because it did nothing to define the risk and its terms were wholly inappropriate to disputes under a reinsurance contract. It followed that the
construction of the contract was governed by English law. Accordingly, the appeal would be dismissed (see p 575 g to p 576 f, post); Aughton Ltd
(formerly Aughton Group Ltd) v MF Kent Services Ltd (1991) 57 BLR 1 considered.
Decision of Colman J [1998] 4 All ER 301 affirmed.

Notes
For jurisdiction of the courts under the Brussels Convention, see 8(1) Halsbury’s Laws (4th edn reissue) paras 618–634, 641, and for cases on the subject,
see 11(2) Digest (2nd reissue) 235–237, 1417–1421.
For the Civil Jurisdiction and Judgments Act 1982, Sch 1, arts 5, 17, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 1136, 1145.
As from 1 December 1991, Sch 1 to the 1982 Act was substituted by the Civil Jurisdiction and Judgments Act 1982 (Amendment) Order 1990, SI
1990/2591, art 12(1), Sch 1.
­ 567

Cases referred to in judgments

ARIG Insurance Co v SASA Ass Riass Spa (10 February 1998, unreported), QBD.
Aughton Ltd (formerly Aughton Group Ltd) v MF Kent Services Ltd (1991) 57 BLR 1, CA.
Boss Group Ltd v Boss France SA [1996] 4 All ER 970, [1997] 1 WLR 351, CA.
Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp Ltd [1981] 1 All ER 289, [1981] AC 909, [1981] 2 WLR 141, HL.
Credit Suisse Financial Products v Société Generale d’Enterprises [1997] CLC 168, CA.
Custom Made Commercial Ltd v Stawa Metallbau GmbH Case C-288/92 [1994] ECR I-2913.
Effer SpA v Kantner Case 38/81 [1982] ECR 825.
Estasis Salotti di Colzani Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH Case 24/76 [1976] ECR 1831.
Ets A de Bloos SPRL v Société en commandite par actions Bouyer Case 14/76 [1976] ECR 1497.
Fisher v Unione Italiana de Riassicurazione SpA [1998] CLC 682.
Kalfelis v Bankhaus Schröder Münchmeyer Hengst Case 189/87 [1988] ECR 5565.
Kleinwort Benson Ltd v Glasgow City Council [1997] 4 All ER 641, [1999] 1 AC 153, [1997] 3 WLR 923, HL.
Leathertex Divisione Sintetici Spa v Bodetex BVBA Case C-420/97 [1999] 2 All ER (Comm) 769.
Maciej Rataj, The, Tatry (cargo owners) v Maciej Rataj (owners) Case C-406/92 [1995] All ER (EC) 229, [1994] ECR I-5439, ECJ.
Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aanemers Vereniging Case 34/82 [1983] ECR 987.
OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep 160.
Shenavai v Kreischer Case 266/85 [1987] ECR 239.
Union Transport Group plc v Continental Lines SA [1992] 1 All ER 161, [1992] 1 WLR 15, HL; affg [1991] 2 Lloyd’s Rep 48, CA.

Appeal
The defendant insurer, Ethniki Hellenic General Insurance Company SA (Ethniki), successor to the rights and obligations of Astir Insurance Company SA
appealed from a decision of Colman J on 18 June 1998 ([1998] 4 All ER 301) dismissing its application under RSC Ord 12, r 8 for the writ served on it by
the claimant reinsurers, AIG Europe (UK) Ltd and seven others, to be set aside or, alternatively, for the proceedings to be stayed on the grounds that the
English courts had no jurisdiction over the dispute by reason of the provisions of the Civil Jurisdiction and Judgments Act 1982, which gave effect to the
Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968, or its inherent jurisdiction, or both. The
facts are set out in the judgment of Evans LJ.

Duncan Matthews (instructed by Constant & Constant) for Ethniki.

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Peter Brunner (instructed by Hextall Erskine) for AIG.

Cur adv vult

­ 568

26 November 1999. The following judgment were delivered.

EVANS LJ.
1. Two issues arise in this appeal, both of them under the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and
Commercial Matters 1968 (as set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982). The first is the familiar question whether proceedings
may be brought in this country against a person not domiciled here, on the ground that art 5(1) applies:

‘A person domiciled in a Contracting State may, in another Contracting State, be sued: (1) in matters relating to a contract, in the courts for the
place of performance of the obligation in question …’

The second issue, only a little less familiar, is whether the parties ‘have agreed that [the courts of a country other than England and Wales] are to
have jurisdiction to settle any dispute’ (art 17).

Parties
2. The appellants, whom I shall call ‘Ethniki’, are an insurance company domiciled in Greece which in 1997 succeeded to the rights and obligations
of another Greek insurance company, Astir Insurance Co SA (Astir).
3. In September 1994 Astir insured factory buildings and machinery owned by a Greek company, Hellenic Weapon Co AE (Hellenic), against,
among other risks, damage caused by earthquakes, for the period of 12 months until September 1995.
4. Astir reinsured 34·5% of that risk with the respondents, whom I shall call ‘AIG’, by a contract of reinsurance evidenced by a slip policy completed
on 28 November 1994.
5. An earthquake damaged one of Hellenic’s factories on 15 June 1995. Hellenic and Astir were unable to agree the amount for which the insurers
were liable, and in September 1997 Hellenic started proceedings in Athens against Astir. In November 1997 Ethniki, now merged with Astir, issued the
equivalent of third party proceedings against AIG.
6. AIG responded by starting this action against Ethniki in London, claiming declarations of non-liability to Ethniki on the ground that Astir/Ethniki
was in breach of two undertakings which were conditions precedent to its liability under the reinsurance contract and of its alleged duties in relation to the
ascertainment of loss.
7. Ethniki applied for the writ to be set aside, alternatively for the proceedings to be stayed, on the grounds that the court has no jurisdiction by
reasons of arts 5(1) and 17 of the Brussels Convention. Colman J held that there were no good grounds for declining jurisdiction or for setting aside
service of the proceedings.
8. The alleged breaches by Ethniki were of express terms which required performance in London: giving notice to AIG within 72 hours of becoming
aware of Hellenic’s claim (claims control clause (A)) and providing AIG with all information about the losses concerned (claims control clause (B)). The
claims control clause reads:

‘Notwithstanding anything herein contained to the contrary, it is a condition precedent to any liability under this policy that: (A) the Reassured
shall, upon any knowledge of loss or losses which may give rise to a claim ­ 569 under this policy, advise the Underwriters thereof by cable
within 72 hours; (B) the Reassured shall furnish the Underwriters with all information available respecting such loss or losses, and the Underwriters
shall have the right to appoint adjusters, assessors and/or surveyors and to control all negotiations, adjustments and settlements in connection with
such loss or losses.’

9. The third alleged breach of the reinsurance contract, for which AIG also claims damages, is of an express and/or implied term, pleaded as follows:

‘8. The effect of the Full Reinsurance Clause was that the plaintiffs were bound to follow the settlements of Astir unless: (i) Astir lacked good
faith; or (ii) Astir failed to take all proper and businesslike steps to have the amount of the loss fairly and carefully ascertained (hereinafter called
“the ascertainment of loss duties”). 9. Further or alternatively it was an implied term of the slip policy that Astir, on being notified of a claim under
the primary contract, would carry out the ascertainment of loss duties.’

10. Extensive particulars of these alleged breaches are set out in the points of claim. In summary, the allegation is that, although Astir appointed its
loss adjuster on the day of the loss, 15 June 1995, it failed to report the loss to AIG until 3 August 1995. AIG then appointed its own adjuster from
London, Mr Larner of Marlow LMS Ltd, but he had already been deprived, the plaintiffs say, of the opportunity to visit the site immediately after the
loss. The gravamen may lie in para 17(iii): ‘… the Plaintiffs were deprived of the opportunity to assume control of the adjustment in the early days
following the loss.’
11. The alleged breach of claims control clause (B) is that Astir failed or refused to provide information to AIG and/or Mr Larner although requested
to do so on numerous occasions between 28 September 1995 and 1 September 1997 (paras 21–22) and persistently failed to provide AIG with timely
information in respect of the loss, including the proceedings brought against Astir in Athens (paras 23–26).
12. Paragraphs 19 and 20 set out the alleged failures in the ‘ascertainment of loss’. They are set out in fourteen numbered sub-paragraphs and are to
the effect that Astir and/or its loss adjuster Mr Soutis failed to carry out an efficient and timely investigation into the loss and failed properly to prepare
Astir’s defence to the claim, particularly as regards the amount recoverable from them.
13. The ascertainment of loss provisions, it is clear, fell for performance in Greece, or at least outside the United Kingdom. The case has been
argued, both before Colman J and before us, on the basis that the terms requiring Astir to give notice and provide information were for performance in
London, where AIG carries on business.

Article 5(1)
14. The relevant principles were set out by Lord Goff in Kleinwort Benson Ltd v Glasgow City Council [1997] 4 All ER 641 at 646–647, [1999] 1
AC 153 at 163–164 in numbered paragraphs, as follows:
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‘(2) The first point which is clearly established in the European jurisprudence is that the basic principle is to be found in art 2. This is the
principle of domicile … But it is clearly recognised that art 5 is in derogation from the basic principle of domicile in art 2 … and that as a result
the provisions of art 5 are to be construed restrictively (see Kalfelis v Bankhaus ­ 570 Schröder Münchmeyer Hengst Case 189/87 [1988] ECR
5565 at 5585 (para 19)). In this connection, it is not to be forgotten that the defendant can always be sued in the courts of his domicile.
(3) Next, in considering the function of the various provisions of art 5, it is to be remembered that these provisions exist “because of the
existence, in certain clearly defined situations, of a particularly close connecting factor between a dispute and the court which may be called upon
to hear it, with a view to the efficacious conduct of the proceedings”: (see Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aanemers
Vereniging Case 34/82 [1983] ECR 987 at 1002 (para 1)). In the case of art 5(1), the relevant court is specified as being the court “for the place of
performance of the obligation in question” which is described in the Jenard Report (OJ 1979 C 59, p 1) as the court of the place of performance of
the obligation on which the claim is based …
(4) It follows that, in order to identify the relevant court, it is necessary first to identify the obligation in question. This was made plain in Ets A
de Bloos SPRL v Société en commandite par actions Bouyer Case 14/76 [1976] ECR 1497 at 1508 (para 11) in which the European Court of Justice
held that the word “obligation” in art 5(1) refers to “the contractual obligation forming the basis of the legal proceedings”. The Court of Justice
subsequently affirmed that “the obligation”—“cannot be interpreted as referring to any obligation whatsoever arising under the contract in question,
but is rather that which corresponds to the contractual right on which the plaintiff’s action is based …” (See Custom Made Commercial Ltd v Stawa
Metallbau GmbH Case C-288/92 [1994] ECR I-2913 at 2957 (para 23).’

15. It is also well established that the same approach to art 5(1) is adopted when the defendant denies the existence of a contract (see Effer SpA v
Kantner Case 38/81 [1982] ECR 825 at 835–835 (para 7), quoted by Lord Goff in the Kleinwort Benson case [1997] 4 All ER 641 at 647, [1999] 1 AC
153 at 165, and cf Boss Group Ltd v Boss France SA [1996] 4 All ER 970, [1997] 1 WLR 351) and when the plaintiff seeks a dissolution of the contract
on the ground of the wrongful conduct of the other party (see Ets A de Bloos SPRL v Société en commandite par actions Bouyer Case 14/76 [1976] ECR
1497 at 1508 (para 14), quoted by Lord Goff in the Kleinwort Benson case [1997] 4 All ER 641 at 647, [1999] 1 AC 153 at 165). In the Ets A de Bloos
case the relevant obligation is the one ‘non-performance of which is relied upon to support such claims’. It has to be capable of being described mutatis
mutandis as ‘the obligation on which the claim is based’ (cf Lord Goff in the Kleinwort Benson case [1997] 4 All ER 641 at 648–649, [1999] 1 AC 153 at
166).
16. Colman J held in Fisher v Unione Italiana de Riassicurazione SpA [1998] CLC 682 and again in the present case that the same test applies when
the plaintiff claims a declaration of non-liability without impugning the existence of the contract. In such a case, it is necessary to identify ‘the obligation
in question’ in a situation where the plaintiff relies upon the alleged breach of contract by the defendant in order to assert his own release from any
obligation to perform the contract further (cf The Maciej Rataj, Tatry (cargo owners) v Maciej Rataj (owners) Case C-406/92 [1995] All ER (EC) 229,
[1994] ECR I-5439 and the Boss Group case). Neither party has challenged the correctness of this part of the judgment, and I would agree with it.
17. It is also established that when more than one contractual obligation is in issue, then it is necessary to identify the principal obligation, for the
purposes of ­ 571 applying art 5(1), upon the principle accessorium sequitur principale (see Shenavai v Kreischer Case 266/85 [1987] ECR 239 at 256
(para 19) and Union Transport Group plc v Continental Lines SA [1992] 1 All ER 161, [1992] 1 WLR 15 in the House of Lords (affirming [1991] 2
Lloyd’s Rep 48 at 51–52 per Lloyd LJ in the Court of Appeal).
18. A further question arises when it is possible to identify two ‘principal’ obligations ‘neither … subordinate to the other and … of equal rank’.
This issue is currently before the Court of Justice of the European Communities in Leathertex Divisione Sintetici SpA v Bodetex BVBA Case C-420/97
[1999] 2 All ER (Comm) 769 upon a reference by the Belgian Court of Cassation, and we were given a copy of the opinion of the Advocate General M
Philippe Léger dated 16 March 1999. We were invited, if we formed the view that this was or might be a correct analysis of the present case, to postpone
our judgment accordingly. In the result, however, this need does not arise.
19. Against this background, AIG asserts that the principal obligation in issue in the present case, and the ‘obligation in question’ for the purposes of
art 5(1), is the alleged breach by Astir/Ethniki of the terms requiring prompt notice and the provision of information, both of which are described as
conditions precedent to its liability under the reinsurance contract and both of which were for performance in London. The judge adopted this view,
noting (at 307) that ‘Omission to comply with the 72 hours’ claims notification obligation allegedly operated as a complete bar to a claim’ and concluding
(at 308):

‘… the claims control clause should be identified as the principal obligation. Breaches of that clause are deployed as the basis for the primary
relief sought in the points of claim—the general negative declaration. The presence of alternative claims for a negative declaration as to the
reinsurers’ duty to follow the settlements of the reassured and for damages for breach of the ascertainment of loss obligation does not justify
treating that obligation as the principal one in preference to the claims control clause.’

20. Ethniki’s submissions were summarised (at 306–307). They were to the effect that ‘the real core of the claim for a negative declaration or for
damages is that the reassured failed adequately to investigate the claim in Greece’ (para (iv)) and that the ‘centre of gravity of the obligations in issue is in
Greece, for it was the conduct of the defendants there which gave rise to all the breaches relied upon’ (para (vi)).
21. Mr Matthews maintained these contentions before us, and he was able to supplement them by submitting that the judge erred in his approach to
the application of art 5(1). The judge stressed that the claims control clause was expressed as a condition precedent to AIG’s liability under the contract
and he had regard to the manner in which the plaintiffs had formulated their claim for relief in the proceedings. His conclusion (quoted above) therefore
identified the principal obligation by reference to that which was ‘deployed as the basis for the primary relief sought in the points of claim’. This was a
wrong approach, Mr Matthews submitted, because the principal obligation should be identified by reference to the substance of the matters in issue, which
in this case is the insurance company’s alleged failure to investigate the loss properly or timeously in Greece. By eliding ‘principal’ into ‘primary’
obligation, and by paying undue attention to the manner in which AIG’s claims were pleaded, the judge was distracted, he submits, from considering the
substance of the matter in this way.
­ 572
22. His submission that the principal obligation may be identified by considering what is the ‘fundamental obligation’ and ‘the real ground of
complaint’ is supported by the earlier House of Lords judgment in the Union Transport case [1992] 1 All ER 161 at 168, [1992] 1 WLR 15 at 22, 23 per
Lord Goff).
23. I would also agree with Mr Matthews that, if the judge did equate ‘principal’ with ‘primary’, meaning first in time, then he was wrong to do so,
but I do not think that he did. His conclusion was that breaches of the claims control clause, which was expressed as a condition precedent, were relied
upon as grounds for the primary, meaning principal relief claimed, namely, the declaration of non-liability.
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24. The judge quoted from his judgment in Fisher’s case where he concluded, after considering the decisions of the Court of Justice in the Ets de
Bloos case and the Custom Made Commercial case, that the obligation in question for the purposes of art 5(1) has three essential characteristics, including
‘(3) the plaintiff has formulated his claim for relief in the proceedings on the grounds of performance or non-performance of that obligation’ (see [1998]
CLC 682 at 687). He added, in the present case (at 305):

‘The process of identification of the obligation in question thus depends crucially on the way in which the plaintiff has formulated his claim for
relief.’

25. I do not believe that the judge intended to suggest that the plaintiff can somehow select what he regards as the obligation in question by wording
his claim document accordingly. That would foreclose the court’s identification of the principal obligation, in case of dispute, and there are ample
references to the objective nature of this inquiry, not least in the Custom Made Commercial case [1994] ECR I-2913 at 2957 (para 23) ‘the contractual
right on which the plaintiff’s action is based’. What the Court of Justice emphasised in that case, and what Colman J has held, is that the national court
which determines the application of art 5(1) must consider the plaintiff’s claim document and identify from it the principal obligation upon which the
claim is based. The plaintiff cannot camouflage the principal obligation by relegating it to a subordinate role by the way he chooses to express his claim.
The court’s decision does not rest in the plaintiff’s hands.
26. The correct inquiry in the present case, therefore, is to ask whether AIG’s claim for a declaration of non-liability depends or is based principally
(or ‘substantially’) on the alleged breaches of the claims control clause or on the accompanying allegations of breaches of the insurance company’s
obligation to investigate the claim fully and timeously in Greece. If the two were or might be of equal importance then the question raised in the
Leathertex case would arise. But in my judgment the judge was clearly correct in the conclusion he reached. My reasons are as follows. (1) AIG’s claim
is based essentially on Astir’s failure to inform it promptly of the claim received in Athens. If notice had been given, then a London adjuster could and
allegedly would have been appointed forthwith, and AIG’s reliance on Astir for information and for investigating and responding to the claim would have
been greatly reduced, probably extinguished altogether. This picture derives from the points of claim, notwithstanding the prominence given to detailed
particulars of alleged breach of the ascertainment of loss provisions, but not from the fact that the alleged breaches of the claims control clause appear
first and are of terms described as condition precedents. (2) Due performance of a term described as a condition precedent to the other party’s liability
under the contract can properly be described as ‘fundamental’, ­ 573 and its breach as the ‘real ground of complaint’, if the tests referred to in the
Union Transport case are applied.
27. I therefore would reject this ground of appeal. This makes it unnecessary to consider the respondents’ notice, which asserts that the obligation in
question in cases such as the present, where the plaintiff claims a declaration of non-liability on grounds of alleged breaches by the defendant, is the
plaintiff’s contractual obligation, which he asserts is no longer binding on him. It seems to me that this cannot be right. The issue between the parties is
whether there has been a breach of contract by the defendant which has released the plaintiff from further performance of its obligations under the
contract. Those obligations themselves are not in dispute, and I do not see how they can be regarded as the ‘obligation in question’ in proceedings
brought by the plaintiff, even though the purpose in bringing the proceedings is to establish a freedom from liability to perform the contract in future.
28. I should refer finally to the question of ‘fragmentation’, in other words, the possibility that the English court should have jurisdiction in respect of
the alleged breaches of the claims control clause but not over those of the ascertainment of loss provisions. The latter are also relied upon as releasing
AIG from liability and to that extent they can properly be described as subordinate to the former. The claim for damages would be the only candidate for
divestment, and like the judge I would reject this course, which in any event Mr Matthews has not suggested to us.

Article 17
29. The issue arising under art 17 is whether the parties to the reinsurance contract agreed that the courts of Athens were to have jurisdiction to settle
disputes; if they did, those courts have exclusive jurisdiction by virtue of art 17.
30. The relevant term of the reinsurance contract is in the slip policy: ‘CONDITIONS: Wording as original.’
31. The underlying insurance policy included the following ‘Condition’:

‘Both contracting parties do hereby agree that they submit to the jurisdiction of the Courts of Athens the trial of any dispute, which shall arise
out from [sic] the present policy and they now expressly waive the right to contest the above jurisdiction of the Courts of Athens for any reason.’

32. Mr Matthews makes the straightforward submission that the terms of the slip policy/reinsurance contract should be given their literal effect. The
jurisdiction clause in the underlying policy was one of the ‘conditions’ expressly incorporated in the former.
33. The judge rejected this submission on the ground that general words of incorporation such as these do not suffice to bring an arbitration clause
from the other contract referred to into the contract in which they appear; and he held that the same principle would be applied when the clause in
question is a clause conferring jurisdiction not on arbitrators but on another court.
34. The judge therefore held (at 311):
‘In my view, it is to be inferred that the function of the incorporating words was confined to ensuring that the substantive or subject matter
terms of the reinsurance matched the substantive or subject matter terms of the primary cover, except where expressly provided to the contrary.’
­ 574
He acknowledged, however, that it remains necessary to construe the particular contract in each case:

‘I do not suggest that to be an inflexible rule of construction. There may be cases where in all the circumstances prevailing between the parties
when they made their contract it would be unrealistic to restrict the scope of incorporation so as to exclude a jurisdiction clause.’

35. He referred to his earlier judgment in OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep 160 both for the ‘normal’ rule in relation to
arbitration clauses and for applying it to jurisdiction clauses also.
36. Mr Matthews does not challenge the judge’s conclusion as to arbitration clauses, but he disputes that the same, or any, rule applies in relation to
jurisdiction clauses. Rightly, he points to significant differences between agreeing that disputes shall be referred to arbitrators, by what has been
described as a ‘self-contained contract collateral or ancillary to’ the substantive contract (see Aughton Ltd v MF Kent Services Ltd (1991) 57 BLR 1 at 31
per Sir John Megaw) and, on the other hand, agreeing as part of a contract that disputes under it shall be referred to the courts of a particular country.
Such a term, he submits, cannot be regarded as a separate contract, like an arbitration agreement, which may be subject to a statutory regime and have its
own proper law, independently of the contract in which it appears.
37. I respectfully adopt and agree with Sir John Megaw’s analysis of the authorities with regard to arbitration clauses and specifically with regard to
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the incorporation of charterparty arbitration clauses into bills of lading. There was a time when the objection to incorporation was expressed on semantic
grounds (the arbitration clause was, or was not, a ‘term condition or exception’, etc) but this was overtaken by the closer analysis of the nature of an
arbitration agreement which appeared from Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp Ltd [1981] 1 All ER 289, [1981]
AC 909. The question is whether the same approach should be adopted towards incorporation of a jurisdiction clause.
38. It is clear in my judgment that the circumstances in which charterparty provisions are stated to be incorporated in a bill of lading are special and
possibly unique, and they cannot give rise to any rule of construction which should apply whenever one contract incorporates the terms of another. The
present case, even if it was typical of reinsurance contracts, has features which are relied upon by both parties and which could not arise in the bill of
lading/charterparty context. Mr Matthews submits that the parties agreeing the reinsurance contract in London must have recognised that disputes under
the insurance contract would arise in Greece and if litigation became necessary it would be most likely to be decided by the courts there. On the other
hand, as the judge noted, the reinsurance contract is probably governed by English law, and the parties to it may be thought unlikely to have intended that
disputes arising under it should be decided in Greece. Neither of these factors arises in the same way in a bill of lading/charterparty case.
39. Nevertheless, there is one feature which the two situations have in common. In both, the parties intend that the subject matter of the two
contracts shall be the same. In the bill of lading, that the terms etc of carriage shall be those already agreed in the charterparty. In a reinsurance contract,
that what may be called the scope of the insurance is identical with that in the underlying policy, particularly when the reinsurance includes a ‘pay as may
be paid’ provision, as here. In my judgment, this is a good and sufficient reason for asking, in both ­ 575 contexts, what is essentially the same
question: did the parties to the contract in which the general words of incorporation appear intend that their contract should include the particular term
from the other contract referred to?
40. In my judgment, the judge was correct to answer this question in the negative as regards the jurisdiction clause in the present case. In the original
insurance, the clause does nothing to define the risk, and if regard is had to its terms, they are wholly inappropriate to disputes arising between insurers
and reinsurers under the reinsurance contract (as distinct from disputes under the original insurance, which could be binding on reinsurers notwithstanding
that they were decided by the Greek courts).
41. Like the judge, I have considered this issue on the basis that the construction of the reinsurance contract is governed by its proper law, English
law. It would perhaps be more correct to interpret and apply art 17 in accordance with Community law, as was done by this court in Credit Suisse
Financial Products v Société Generale d’Enterprises [1997] CLC 168 at 170 (where the parties agreed on this approach) and as was held by Tuckey J in
ARIG Insurance Co v SASA Ass Riass Spa (10 February 1998, unreported). But the result, in my judgment, is the same. The governing European
authority is Estasis Salotti di Colzani Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH Case 24/76 [1976] ECR 1831) which requires ‘clear
and precise demonstration’ in the reinsurance contract that the jurisdiction clause relied on was in fact the subject of a consensus between the parties.
That test is not satisfied here.
42. I therefore would dismiss the appeal on this ground also, but not without acknowledging the help I have received from Mr Matthews’ written and
oral submissions.

THORPE LJ. I agree.

JONATHAN PARKER J. I also agree.

Appeal dismissed.

Kate O’Hanlon Barrister.

[2000] 2 All ER 577

Legal & General Assurance Society Ltd v Pensions Ombudsman and others
R v Pensions Ombudsman and others, ex parte Legal & General Assurance Society Ltd

PENSIONS

CHANCERY DIVISION AND QUEEN’S BENCH DIVISION (CROWN OFFICE LIST)

LIGHTMAN J
18, 19 OCTOBER, 3 NOVEMBER 1999

Pension – Pension scheme – Maladministration of pension scheme – Jurisdiction of Pensions Ombudsman – Whether party having right of appeal to High
Court from determination by Pensions Ombudsman on preliminary issues – Whether ombudsman having jurisdiction to consider fairness of insurance
contract used as scheme’s investment vehicle – Pension Schemes Act 1993, s 151(4).

C Ltd, the principal employer of a pension scheme, made a complaint to the Pensions Ombudsman against L Ltd, the former administrator of the scheme.
The investment contracts offered by L Ltd had been used as the scheme’s investment vehicle, and the complaint focused primarily on the fairness of one
of those contracts. Although the ombudsman agreed to determine certain preliminary issues relating to the complaint, he refused a request by L Ltd to
determine, as a preliminary issue, the question of whether he had jurisdiction to investigate the fairness of the contract’s surrender terms. Subsequently, L
Ltd sought to appeal to the High Court, under s 151(4)a of the Pension Schemes Act 1993, against certain determinations made by the ombudsman on the
preliminary issues. It also challenged those decisions in judicial review proceedings, and in the same proceedings sought an order of prohibition
preventing the ombudsman from investigating that part of the complaint which related to the fairness of the surrender terms. Two questions arose, namely
whether an appeal lay against a determination by the ombudsman of a preliminary issue and whether the ombudsman’s remit extended to investigating the
fairness of the surrender terms.
________________________________________
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a Section 151, so far as material, is set out at p 582 f to p 583 a, post

________________________________________

Held – On the true construction of s 151(4) of the 1993 Act, the provision for an appeal to the High Court from a determination of the Pensions
Ombudsman was limited to appeals from final determinations. Thus the High Court had no jurisdiction to hear appeals from the decision of the
ombudsman on preliminary issues. However, the absence of such a right of appeal did not preclude the availability of judicial review proceedings as a
means of challenging the ombudsman’s decisions in cases where judicial review was available. In the instant case, the challenges to the ombudsman’s
decisions could be the subject matter of judicial review proceedings. Moreover, the ombudsman’s remit was limited to investigating maladministration by
L Ltd in its capacity as manager, and did not entitle him to re-open and consider the merits or fairness of the contract. That was a commercial contract,
and neither the entry into it nor its continuance in force constituted an act of management. Accordingly, the fairness of the terms ­ 577 was outside the
ombudsman’s remit and L Ltd should not be subjected to an investigation on that topic (see p 583 a e to h, p 587 e to h and p 588 a, post).

Notes
For the functions of the Pensions Ombudsman, and for determinations by him, see 44(2) Halsbury’s Laws (4th edn reissue) paras 664, 676.
For the Pension Schemes Act 1993, s 151(4), see 33 Halsbury’s Statutes (4th edn) (1997 reissue) 767.

Cases referred to in judgment

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, CA.
Edge v Pensions Ombudsman [1999] 4 All ER 546, CA.
R v Local Commissioner for Administration for the North and East Area of England, ex p Bradford Metropolitan City Council [1979] 2 All ER 881,
[1979] QB 287, [1979] 2 WLR 1, QBD and CA.

Appeal and application for judicial review

In two related sets of proceedings, Legal & General Assurance Society Ltd (L&G) (i) appealed from decisions made by the first respondent, the Pensions
Ombudsman, on the determination of preliminary issues in the investigation of a complaint made by the second respondent, CCA Stationery Ltd (CCA),
in relation to the administration by L&G of the CCA Stationery Ltd Pension and Assurance Scheme, (ii) challenged those decisions in judicial review
proceedings brought against the ombudsman, and (iii) in the same judicial review proceedings sought permission to apply for an order of prohibition
preventing the ombudsman from investigating that part of the complaint which related to the fairness of the surrender terms of an insurance contract
entered into between L&G and the trustees of the scheme. The Personal Investment Authority Ombudsman Bureau Ltd (PIAOB) was third respondent in
the appeal and second respondent in the judicial review proceedings. The facts are set out in the judgment.

Nigel Inglis-Jones QC and Richard Hitchcock (instructed by Sacker & Partners) for L&G.
Monica Carss-Frisk (instructed by John Yolland) for the ombudsman.
James Strachan (instructed by Philip Roberts) for the PIAOB.
CCA was not represented.

Cur adv vult

3 November 1999. The following judgment was delivered.

LIGHTMAN J.

INTRODUCTION
1. This judgment is given in two sets of proceedings relating to decisions on preliminary issues by the first respondent, the Pensions Ombudsman
(the ombudsman). The decisions are challenged by way of appeal in the first set and by way of judicial review in the second. The proceedings raise the
questions whether an appeal lies against a determination by the ombudsman of a preliminary issue and whether the remit of the ombudsman extends to
investigating the fairness of the provisions of an insurance contract entered into by trustees as the investment vehicle of their pension scheme.
­ 578
2. The ombudsman is a commissioner whose office is established under Pt X of the Pension Schemes Act 1993. The jurisdiction of the ombudsman
is set out in Pt X of the 1993 Act as amended by ss 157–160 of the Pensions Act 1995, and as further provided in rules and regulations laid down from
time to time pursuant to s 149(2), (3) of the 1993 Act. Under s 146 of the 1993 Act, the ombudsman may investigate and determine complaints of alleged
maladministration in connection with any act or omission of the trustees or managers of an occupational pension scheme or personal pension scheme.
3. The second respondent, CCA Stationery Ltd (CCA), is the complainant in a complaint against the appellant, Legal & General Assurance Society
Ltd (L&G), made to the ombudsman on 10 March 1998 (the CCA complaint). The CCA complaint is for practical purposes identical to a complaint (the
Edwards complaint) made to the ombudsman on 15 September 1997 by an employee of CCA Mr Edwards. (I shall refer to the two complaints together as
‘the complaints’ and CCA and Mr Edwards together as ‘the complainants’.) CCA was the principal employer of the CCA Stationery Ltd Pension and
Assurance Scheme (the CCA scheme.) The trustees of the CCA scheme (the trustees) used as its investment vehicle insurance contracts offered by L&G,
a proprietary life office, which was (as well as insurer) the administrator of the CCA scheme at least until 24 February 1992. The first contract between
the trustees and L&G was made in 1971 (the 1971 contract). The 1971 contract was replaced on or about 28 January 1980 by a second contract between
the same parties (the 1980 contract). The 1980 contract in part VII sets out the terms for discontinuance (or surrender) of the 1980 contract:
‘1. Discontinuance of Payment of Premiums. If the [trustees] notify [L&G] of their intention to cease paying premiums hereunder º (the
effective date of such notification º being hereunder referred to as “the date of discontinuance”) then º (2) the [trustees] shall be entitled upon giving
written notice to [L&G] to exercise one of the following options: º (ii) to require that L&G shall immediately reduce the Total Cash Pool by the
whole of the amount thereof and shall pay to the [trustees] either (a) a single cash sum calculated on the basis currently in use by [L&G] for this
purpose or (b) at the option of [L&G] a series of payments made over a period not exceeding 24 months which are in the opinion of [L&G] equal in
value to the said single cash sum; [or] (iii) º’
In late February 1992, the existing shareholders of CCA sold CCA, and the purchasers thereupon caused CCA to take steps to discontinue the 1980
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contract and exercise the option contained in cl 1(ii) of part VII. In a report to CCA dated 13 March 1992 L&G informed CCA that, whilst the notional
value of the pool assets was £3,707,000, it had calculated the single cash sum payable to the trustees at £2,973,000, and thereafter L&G paid this sum to
the trustees. L&G however refused to disclose the ‘basis currently in use by’ L&G and used by L&G for the purpose of calculation of the single cash sum
(the formula) on the ground that it was highly confidential. The combination of the difference between the notional value and the cash sum (which is
capable of being viewed by those uninformed as to the reasons for the difference as a penalty payable on discontinuance) and the refusal on the part of
L&G to disclose the formula has been the occasion for dissatisfaction on the part of CCA and members of the CCA scheme and has given rise to the
complaints.
4. The primary focus of the complaints is upon the fairness of the 1980 contract and in particular the fairness of the surrender terms therein contained
and the failure of L&G to disclose the formula. The complaints each allege:
­ 579
‘(a) a failure on the part of L&G to ensure that [the 1980 contract] provided sufficient funds in the event of a surrender together with a failure to
notify the Employer, for whom they were managing the [CCA scheme], of the potential lack of funds which would be available on surrender; (b) a
failure to provide fair surrender terms (L&G’s “current basis”), together with a failure to inform the Employer, on whose behalf they were acting, of
the basis of the calculation under the surrender terms; (c) a failure to comply with the Pension Schemes Act 1993 as regards members’ statutory
right to a cash equivalent.’
5. On 5 May 1998 L&G served upon the ombudsman and the complainants’ solicitors, Nabarro Nathanson (the solicitors), a notice raising
preliminary issues (the preliminary issues) going to the jurisdiction of the ombudsman to investigate the complaints. Provision for preliminary issues is
made by r 6(4)(b) of the Personal and Occupational Pension Schemes (Pensions Ombudsman) (Procedure) Rules 1995, SI 1995/1053. On 25 July 1998 the
ombudsman issued a provisional determination (the provisional determination) in respect of certain of the preliminary issues. The ombudsman declined to
consider others as preliminary issues. The effect of the provisional determination was that investigation of the Edwards complaint was provisionally
discontinued, but the investigation of the CCA complaint was provisionally continued. On 28 August 1998 L&G made submissions in response to the
provisional determination. On 7 January 1999 the ombudsman promulgated a final determination (the determination) to the same practical effect as the
provisional determination.
6. L&G have commenced two actions in the High Court in respect of the determination, one (by way of appeal) in the Chancery Division and the
other (by way of judicial review proceedings) in the Queen’s Bench Division (Crown Office List). Both actions came before me for trial at the same time.
CCA was not represented and took no part in the proceedings. The ombudsman attended by counsel to assist the court. The proceedings in the Chancery
Division were commenced by a notice of originating motion dated 4 February 1999. In the proceedings L&G appealed against three decisions of the
ombudsman in the determination, contending that in making those decisions the ombudsman erred in law. Those decisions were: (a) that the CCA
complaint was brought within the time limits by which his jurisdiction is bound; (b) that he is not deprived of jurisdiction to investigate in relation to the
CCA complaint by operation of reg 4 of the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996, SI 1996/2475; and
(c) that the fact, if such it be, that L&G was no longer responsible for the management of the CCA scheme at the relevant time does not affect the
ombudsman’s jurisdiction over former managers. There is as yet no authority on the question whether an appeal lies against a determination by the
ombudsman of a preliminary issue. That is the first question I have to decide on the appeal.
7. The proceedings in the Queen’s Bench Division (Crown Office List) were commenced by a notice of application dated 5 March 1999. There are
two parts to this application. The first part is an application for permission to apply for an order of prohibition preventing the ombudsman from
investigating that part of the CCA complaint which relates to the fairness or otherwise of L&G’s surrender terms. L&G had sought to raise as a
preliminary issue the question whether it was within the remit of the ombudsman to investigate that part of the complaint and the ombudsman had
declined to determine it. By an order dated 15 April 1999, I granted permission to apply for such order. The second part is an application ­ 580 for
permission to challenge the three decisions the subject of the appeal in the eventuality that it might be held that there is no jurisdiction in the High Court
to entertain the appeal. By my order dated 15 April 1999 I adjourned this part of the application for permission until the date of the hearing of the appeal.

MATERIAL FACTS
8. The 1980 contract was (as was the 1971 contract) an insurance contract designed as a long term investment and administration vehicle for the
trustees of small to medium sized occupational pension schemes. Under the 1980 contract, the trustees paid premiums to L&G—the contributions
required in order to fund the benefits due under the CCA scheme—and L&G placed those in the with-profits section of its long term fund. While the
1980 contract remained ongoing, the premiums thus invested had guaranteed increments and also discretionary bonuses added to them in such a way as to
provide a smoothed investment growth. The ongoing contract also provided a guarantee: provided that the trustees paid the premiums ascertained by
L&G to be necessary in order to meet the liabilities of the CCA scheme, L&G guaranteed, while the 1980 contract remained ongoing, to pay the benefits
due to scheme members as and when they fell due. This guarantee was fulfilled throughout the life of the 1980 contract. Also throughout the life of the
1980 contract L&G met periodically with CCA and the trustees. Amongst other things the purpose of these meetings was to review the funding position
of the CCA scheme, the performance of the 1980 contract, and the propriety or otherwise of retaining the 1980 contract as the investment vehicle for the
CCA scheme.
9. On 28 August 1991, L&G was informed for the first time that CCA was likely to be sold. In those circumstances the possibility of the CCA
scheme, and therefore the 1980 contract, being discontinued was discussed. Mr Walmsley, who was until the sale of CCA its controlling director as well
as one of the trustees, was anxious that a funding review be carried out swiftly, and L&G understood the reasons for this to be the nearness of the
impending sale and the fact that he wished three senior employees to leave CCA on favourable early retirement terms. On 20 November 1991 L&G
wrote to CCA and emphasised that, were the CCA scheme and the 1980 contract to be terminated, the CCA scheme would be in deficit. On 26 November
1991 L&G wrote to Halliwell Landau, solicitors retained by CCA in respect of the proposed sale, confirming its understanding that the 1980 contract was
to continue after the sale, but stating that, were such not to be the case, discontinuance terms would be applicable. L&G went on to invite Halliwell
Landau to discuss the discontinuance terms if they felt it relevant. In fact neither CCA (prior to the sale) nor their solicitors took that matter any further.
10. The first knowledge L&G had of the sale of CCA was from a letter dated 24 February 1992 from Mr Scholes, the new chairman and chief
executive appointed after the sale of CCA had been completed. This informed L&G that it had been replaced with immediate affect as the administrator
of the CCA scheme by Pearson Jones & Co (Trustees) Ltd, later PJC Pension Services (PJC), and that PJC were authorised to negotiate with L&G the
discontinuance terms under the 1980 contract. On 26 February PJC wrote to L&G stating that it was taking over all administration services with
immediate effect and requested L&G to let them have its discontinuance terms. By its reply to PJC dated 2 March 1992 L&G warned that due to the
generally poor investment conditions as opposed to the declared bonuses under the 1980 contract, and due to the fact that the 1980 contract incorporated a
capital guarantee, the amount ­ 581 available on discontinuance would be substantially lower than the nominal asset value of the contract shown, for
instance, in the recent actuarial valuation. The 1980 contract was discontinued. On 13 March 1992, L&G supplied a discontinuance quotation to PJC and
subsequently paid the sum which L&G calculated as due to the trustees.
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RIGHT OF APPEAL
11. The first issue raised before me was whether it was possible to appeal to the High Court against a determination by the ombudsman of a
preliminary issue. Apparently this question has never arisen before. It is obviously a question of the greatest importance since the determination of a
preliminary issue may affect, or indeed be determinative of, the outcome of a complaint or question. This issue was raised by Ms Monica Carss-Frisk,
counsel for the ombudsman, not in order to prevent the decisions of the ombudsman being reviewed, but to assist the court on the appeal by bringing to its
attention a question which arises relating to the jurisdiction of the court. Far from seeking to take advantage of any technicality, she made it clear that the
ombudsman was anxious to obtain as much guidance as was available from the court on the various questions of law raised in these proceedings and that,
if it were held that an appeal was not available on the issues raised on the appeal by L&G, the ombudsman did not oppose those issues being determined
in the judicial review proceedings. I should acknowledge the quality of the assistance that I received from her measured and incisive submissions in this
case.
12. The availability of an appeal must depend upon the provisions of the 1993 Act and the 1995 rules. Section 146 of the 1993 Act confers
jurisdiction on the ombudsman to investigate certain specified complaints and disputes. Section 149(2) provides that the Secretary of State may make
rules with respect to the procedure that is to be adopted in connection with the making of complaints, the reference of disputes and the investigation of
complaints made and disputes referred. Section 151 provides (so far as material) as follows:

‘Determinations of the Pensions Ombudsman.—(1) Where the Pensions Ombudsman has conducted an investigation under this Part he shall
send a written statement of his determination of the complaint or dispute in question—(a) to the person by whom, or on whose behalf, the complaint
or reference was made, and (b) to any person (if different) responsible for the management of the scheme to which the complaint or reference
relates and any such statement shall contain the reasons for his determination.
(2) Where the Pensions Ombudsman makes a determination under this Part º he may direct [any person responsible for the management of the
scheme to which the complaint or reference relates] to take, or refrain from taking, such steps as he may specify in the statement referred to in
subsection (1) or otherwise in writing.
(3) Subject to subsection (4), the determination by the Pensions Ombudsman of a complaint or dispute, and any direction given by him under
subsection (2), shall be final and binding on—(a) the person by whom, or on whose behalf, the complaint or reference has been made, (b) any
person (if different) responsible for the management of the scheme to which the complaint or reference relates, and (c) any person claiming under a
person falling within paragraph (a) or (b).
(4) An appeal on a point of law shall lie to the High Court º from a determination or direction of the Pensions Ombudsman at the instance of any
person falling within paragraphs (a) to (c) of subsection (3).
­ 582
(5) Any determination or direction of the Pensions Ombudsman shall be enforceable—(a) in England and Wales, in a county court as if it were a
judgment or order of that court, and º’

13. In my judgment, the provision for an appeal in s 151(4) is limited to appeals from final determinations and does not extend to appeals from
interim determinations. The whole subject matter of s 151 is final determinations. Subsection (1) is concerned with determinations of ‘the complaint or
dispute in question’, and that must mean ‘final determinations of the complaint or dispute’. Subsection (2) is concerned with the giving of directions
consequent upon such a final determination. Subsection (3) makes the determinations covered by the section ‘final and binding’ and sub-s (4) makes
them enforceable as if judgments or orders of the county court—again apposite only to final rather than interim determinations. Indeed there is no
reference to interim determinations in the 1993 Act. The only reference to them is in reg 6(4) of the 1995 regulations made pursuant to s 149(2) of the
1993 Act. Regulation 6(4) provides that upon receiving a copy of the details of a complaint or dispute, the respondent may in its reply or in a separate
notice to the ombudsman request a determination of any question as a preliminary issue. Beyond this barest of references to preliminary issues, nothing
further is said even in the 1995 regulations.
14. Whilst it is true that a preliminary issue will or may result in a determination of that issue, such a determination is outside the ambit of s 151(4).
Any conferment of a right of appeal to the High Court from a decision on a preliminary issue requires an amendment of s 151: the statutory power to
make regulations conferred by s 149(2) cannot authorise any such right of appeal and reg 6(4) does not purport to do so. In the circumstances with great
regret I must hold that there is no jurisdiction conferred on the High Court to hear appeals from decisions of the ombudsman on preliminary issues. This is
most unfortunate: occasions can and will occur when appeals from determinations on preliminary issues, as much as on final determinations, are called
for. It may be that appeals should only be allowed on preliminary issues with leave, but the lacuna precluding any appeal in any case is calculated to
occasion serious injustice and inconvenience. The absence of a right of appeal does not preclude the availability of judicial review proceedings as a means
of challenging the ombudsman’s decisions in cases where judicial review is available, but judicial review will not always be available and in any event it
is scarcely sensible to have distinct grounds and channels for review of the ombudsman’s decisions in the case of interim and final determinations.
Fortunately (by common consent) this is a case where the challenges to the decisions of the ombudsman are such that, since they cannot be determined by
way of appeal, they can be the subject matter of judicial review proceedings. Therefore I give permission to L&G to proceed with the judicial review
proceedings raising those challenges. I must now turn to each of the four questions of law raised in the judicial review proceedings.

TIME LIMITS
15. The time limits for investigations by the ombudsman are laid down in reg 5 of the 1996 regulations. This provides:

‘(1) Subject to paragraphs (2) and (3) below, the Pensions Ombudsman shall not investigate a complaint or dispute if the act or omission which
is the subject thereof occurred more than 3 years before the date on which the complaint or dispute was received by him in writing.
­ 583
(2) Where, at the date of its occurrence, the person by or in respect of whom the complaint is made or the dispute is referred was, in the opinion
of the Pensions Ombudsman, unaware of the act or omission referred to in paragraph (1) above, the period of 3 years shall begin on the earliest date
on which that person knew or ought reasonably to have known of its occurrence.
(3) Where, in the opinion of the Pensions Ombudsman, it was reasonable for a complaint not to be made or a dispute not to be referred before
the end of the period allowed under paragraphs (1) and (2) above, the Pensions Ombudsman may investigate and determine that complaint or
dispute if it is received by him in writing within such further period as he considers reasonable.’

16. The ombudsman determined that the CCA complaint had not been submitted before the expiry of three years after the occurrence of the acts or
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omissions complained of (within reg 5(1)) or within three years of the date that CCA became aware of those acts or omissions (within reg 5(2)); but that it
had been brought within such further period as was reasonable (within reg 5(3)). The first two of these propositions is common ground; contention
focuses on the last of these three propositions and on the words in reg 5(3) ‘if it is received by him º within such º period as he considers reasonable’. Mr
Edwards as a member could at any time have made a complaint against L&G as manager. For the first time the 1995 Act on 6 April 1997 conferred on
CCA as employer a statutory right to make a complaint against L&G as manager. CCA did not make a complaint until 10 March 1998. The short
question is whether it was open to the ombudsman to hold as he did that the delay between 6 April 1997 and 10 March 1998 was in all the circumstances
reasonable.
17. I must first set out the relevant chronology. (1) The 1980 contract was discontinued on or about 24 February 1992. (2) L&G provided its
discontinuance quotation on 13 March 1992 and the last tranche of payments to the trustees was made on 31 March 1994. There was a continuing failure
after 13 March 1992 on the part of L&G to disclose the formula. (3) The 1996 regulations were made on 25 September 1996, were laid before Parliament
on 2 October 1996 and came into force on 6 April 1997. It may be assumed accordingly that CCA knew that it would have a right to make a complaint
long before it became exercisable on 6 April 1997. (4) The solicitors on behalf of Mr Edwards made his complaint on 15 September 1997. It was a
complaint made on his own behalf alone, and not on behalf of anyone else, though in it he claimed a payment of the full loss occasioned by the alleged
maladministration to the scheme fund. On 17 September 1997, the ombudsman rejected his complaint as out of time. (5) On 23 September 1997 the
solicitors requested the ombudsman to reconsider his decision. By letter dated 1 October 1997 the ombudsman wrote back setting out reasons why he
would not uphold the complaint. (6) On 31 October 1997 the solicitors wrote to the ombudsman stating that CCA and Mr Edwards were working closely
together in respect of a complaint to the ombudsman, and asking whether the ombudsman envisaged any problems if CCA submitted the same complaint.
(I may add that it is common ground that Mr Edwards was being used as a stalking horse in respect of a complaint by CCA.) By his reply dated 31
October 1997, the ombudsman replied that it was believed that any complaint by CCA would necessarily be rejected as out of time. (7) By letter dated 22
December 1997 the solicitors requested the ombudsman to review ­ 584 both complaints. The ombudsman’s reply dated 10 February 1998 (the letter)
was in the following terms:
‘I have shown Dr Farrand the file and he has decided to accept Mr Edwards’ complaint for investigation º Before I arrange for the complaint to
be forwarded to the manager in the normal way, I would like you to consider further the possibility of a complaint by the company as employer
against the manager, as mooted by yourself. No such complaint has yet been made, but from what you have said it does appear that such a
complaint would be appropriate and Dr Farrand has indicated to me that he accepts that such a complaint would not be time barred.’
The CCA complaint duly followed on 10 March 1998. (8) The ombudsman allowed L&G to make representations on the question whether the CCA
complaint was out of time, but rejected those representations both in the provisional determination and the determination.

(a) Bias
18. The first question raised by L&G is whether the decision of the ombudsman that the CCA complaint was received ‘within such further period as
he considered reasonable’ was tainted by pre-judgment or bias. The letter both invited the CCA’s complaint and pre-judged it as made within time
without any opportunity being afforded to L&G to make representation on the issue. The total impropriety of this action on the part of the ombudsman
was acknowledged by the ombudsman’s counsel before me. L&G argued that, though the ombudsman did subsequently allow L&G to make
representations on this issue, the attitude and mindframe displayed by the ombudsman in the letter coloured his views on this issue at all later stages. The
reasonable concerns on the part of L&G regarding the attitude of the ombudsman occasioned by the letter were undoubtedly aggravated by the refusal of
the ombudsman at any time before this hearing to acknowledge that, in writing the letter in the terms which he did, he did anything wrong. Before me the
ombudsman (somewhat surprisingly) sought to justify this attitude on the ground that the ombudsman could not be expected to ‘fall on his sword’,
demean himself and acknowledge any such error. In my judgment L&G had every ground for feeling a sense of grievance and unease in respect of his
impartiality and open-mindedness and it was incumbent on the ombudsman to seek to reassure L&G on this score. The obvious and proper way to
reassure L&G was to acknowledge his error in pre-judging the issue in the letter. Where a person is entrusted with the role of investigating
maladministration by others, he must surely be ready to acknowledge maladministration on his own part in the course of his investigation, most
particularly when this is necessary to re-establish confidence in him. But whilst in the circumstances I have referred to anxiety on the part of L&G on the
ground of perceived pre-judgment and bias which is fully understandable, since the ombudsman did in fact permit L&G to make representations and gave
consideration to them in his determinations, I do not think that the evidence before me enables me to set aside the decision on that ground. Justice would
better be seen to have been done if the decision on time limits could in the circumstances have been made by someone else, but that was not possible
because the 1993 Act confines all decision-making to the ombudsman.
­ 585

(b) Unreasonableness
The second complaint by L&G is that the ombudsman’s decision on this question of the timing of the CCA complaint was Wednesbury unreasonable
(see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223). The ombudsman explains his decision in the
determination as follows:

‘5.2 The second objection is that CCA did not bring the complaint until some 6 years after the relevant events, and that I did not have evidence
before me as to the reasonableness of the complaint not being brought until then. However CCA were not able to bring a complaint until 6 April
1997, the date when complaints from employers were first brought within my remit. In my provisional determination of these matters I explained
that I considered it reasonable for the complaint not to have been made when it could not have been º
5.4 I remain of the opinion that it was reasonable for the complaint not to be brought during the time that Mr Edwards’ complaint was being
pursued. For much of the time [the solicitors] were attempting to persuade my officials, against their judgment, that Mr Edwards’ complaint should
be investigated. [L&G] imply that a well informed prudent solicitor would have advised his client to complain much earlier than [the solicitors]
actually did. Even if this were so, I do not think that either [the solicitors’] or CCA’s actions can be said to have been unreasonable in the
circumstances.
5.5 For the reasons given above in my opinion, it was reasonable for CCA’s complaint not to have been submitted before the expiry of three
years after they were first aware of the acts or omissions complained of. Also in my opinion the complaint was brought within such further period
as was reasonable.’

19. As I have already said, no issue arises as regards the first sentence of para 5.5: that is common ground. Contention focuses on the second. It is
clear that CCA decided to postpone bringing any complaint until after it knew whether the Edwards’ complaint was accepted: the Edwards’ complaint
was intended as a stalking horse. What the ombudsman never inquired into was why CCA adopted this policy. I find it very difficult to understand how
it can have been found that the adoption by CCA of this policy was reasonable when the reasons for doing so are totally unexplained and unexplored. It
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may be thought that reason required both complaints to proceed in tandem (as CCA ensured was the case once the ombudsman showed his hand on 10
February 1998). The delay by CCA was deliberate and substantial and persisted even during periods when the Edwards’ complaint had been rejected. I
do not think that the CCA complaint was brought within a reasonable further period, but I hesitate to hold that no sensible ombudsman acting with due
appreciation of his responsibilities would have held the period reasonable. Accordingly whilst I consider that the ombudsman’s decision is on the margins
of rationality, with some hesitation I have concluded that I cannot disturb his decision on this ground.

REGULATION 4 OF THE 1996 REGULATIONS

20. The next issue raised by L&G was whether the jurisdiction of the ombudsman was excluded by reg 4 which precludes him from investigating any
complaint or dispute which can be investigated by the Personal Investment Authority Ombudsman Bureau Ltd (the PIAOB). The ombudsman rejected
the argument that he was so precluded referring to and relying on his understanding of the interpretation by the PIAOB of its own rules. The question of
jurisdiction ­ 586 however depends, not upon how PIAOB interpret their rules, but upon the true construction of its rules. This question brings me to
explain the participation of the PIAOB in these proceedings.
21. It is important that, when proceedings raise for determination issues of law which vitally affect some third party (eg the determination of that
party’s statutory powers or duties), the third party should be notified of this fact at as early a date as is possible so that he can decide whether he should
seek permission to intervene and seek leave to make submissions to the court. If this is not done, the court may adjourn proceedings to allow the third
party this opportunity. Unfortunately this course was not taken in this case and PIAOB only learnt of this hearing shortly before it began. None the less
at the commencement of the hearing Mr Strachan on behalf of PIAOB submitted a skeleton argument and applied for permission to be added as a party to
address the court on the construction of its rules. I acceded to this application. The skeleton was of such exceptional clarity and force that on reading it
L&G conceded that PIAOB had no jurisdiction in respect of the CCA complaint and abandoned this ground of appeal. I ordered L&G to pay PIAOB its
costs which I assessed at £1,500 plus value added tax.

FAIRNESS OF SURRENDER TERMS

22. Before I turn to the third issue which is concerned with the question whether L&G’s conduct in respect of the discontinuance and calculation of
the sum payable on discontinuance is an act of management, I think that it is convenient to turn to the related issue raised in the judicial review
proceedings, namely whether the ombudsman has jurisdiction to inquire into the fairness or otherwise of L&G’s surrender terms.
23. The remit of the ombudsman is to investigate maladministration by L&G acting in the capacity of a manager. The concept of
‘maladministration’ is broad and includes bias, inattention, delay, incompetence, ineptitude, perversity, turpitude and arbitrariness: see R v Local
Commissioner for Administration for the North and East Area of England, ex p Bradford Metropolitan City Council [1979] 2 All ER 881 at 898, [1979]
QB 287 at 311–312. It is concerned with the decision-making process rather than the merits of a decision. I agree with Mr Inglis-Jones QC (for L&G)
that the jurisdiction to investigate maladministration does not enable the ombudsman to reopen and consider the merits or fairness of the terms of the 1980
contract, which is a commercial contract between the trustees and L&G. The terms (and in particular the terms for discontinuance and the formula) may
turn out to be advantageous or disadvantageous for the scheme members. But neither the entry into the 1980 contract nor its continuance in force
constitutes an act of management, let alone within the purview of the ombudsman: nor in the ordinary course can the question of the perceived fairness or
unfairness of the exercise by L&G of contractual rights granted by the 1980 contract to L&G for its own benefit fall within the remit of the ombudsman.
The position of the ombudsman on this issue has been equivocal before me as it has in correspondence preceding these proceedings. Thus eg in a letter
dated 1 October 1997 the ombudsman wrote to the solicitors:
‘The question of a surrender penalty applied to an occupational pension scheme is not a matter over which a scheme member has any influence,
it being strictly a contractual matter between the trustees and the insurers. Therefore it is my view that as regards the surrender penalty [Mr
Edwards] as a member of the pension scheme can have no complaint against [L&G] as managers.’
­ 587
The ombudsman concedes that he can afford no relief to CCA if he finds unfairness, that he cannot alter the terms of the 1980 contract or vary the sum
payable thereunder on discontinuance. It is plain that he has no greater power in this regard than the court: see Edge v Pensions Ombudsman [1999] 4
All ER 546. None the less he maintains that he is free to investigate this issue. In my judgment, the fairness of the terms is outside his remit and L&G
ought not to be subjected to an investigation on this topic.

MANAGEMENT
24. I turn back to the third issue on the appeal. The short question raised is whether the process of the calculation of the sum payable on
discontinuance made on 13 March 1992 is capable of constituting maladministration by L&G. In my view the refusal on the part of L&G to disclose the
formula was in breach of the terms of the 1980 contract. The principle must be clear that (in absence of some contractual provision to the contrary) where
a contract provides for a payment to be made calculated in accordance with a formula known to one party alone, that party must disclose the formula to
the other party: one party cannot require the other to accept his calculation made in accordance with a formula without such disclosure and to accept his
figure in blind faith that the calculation is correct. There is no provision in the 1980 contract requiring the trustees to accept the calculation made by L&G
without disclosure of the formula and an opportunity to check the correctness of the calculation. If the calculation of the sum payable under the 1980
contract is an act of management by L&G, then it does seem to me open to the ombudsman to investigate the conduct of L&G as possible
maladministration.
25. It is apparent that the full facts regarding the cesser of management functions by L&G have yet to be explored and it is not possible to say what
stage had been reach on 23 March 1992. I am not prepared to hold that the calculation was not an act of management by L&G and that it is not an area
within the remit of the ombudsman. Indeed there is much to be said for holding that the calculation and payment of the sums due under the 1980 contract
were the concluding acts of management by L&G and that so long as L&G withheld the formula, this was an area which called for the attention of the
ombudsman in order to protect the interests of members and the CCA. I should however mention that (under pressure from me), at a very late stage L&G
agreed to provide the ombudsman and CCA in confidence with the formula and the ombudsman agreed to receive this information in confidence and only
to pass it on to CCA in confidence. This action on the part of L&G should enable any doubts or anxieties about the correctness of the calculation by L&G
(albeit belatedly) to be resolved without delay.

CONCLUSION
26. The parties should prepare a minute of order setting out in the form of declarations the answers which I have given to the issues raised before me.
My decision leaves to the ombudsman limited areas for further investigation. When deciding how far to pursue them, the relevant considerations in his
mind no doubt will include the late provision of the formula, the reasons for previously withholding it and the length of time that has elapsed since the
dates of the events in question.
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Declarations accordingly.

Celia Fox Barrister.

[2000] 2 All ER 589

Walker (Inspector of Taxes) v Centaur Clothes Group Ltd

TAXATION; Income Tax, Corporation Tax

HOUSE OF LORDS
LORD SLYNN OF HADLEY, LORD NOLAN, LORD NICHOLLS OF BIRKENHEAD, LORD HOFFMANN AND LORD CLYDE
2, 3 FEBRUARY, 6 APRIL 2000

Income tax – Corporation tax – Advance corporation tax – Company ceasing to trade and transferring assets to associated company – Purchase price left
outstanding with no provision for payment of interest – Company paying dividend to parent subject to payment of advance corporation tax – Company
claiming to carry back surplus advance corporation tax – Whether company having accounting period when dividend paid – Whether company having
ceased to be within charge to corporation tax – Income and Corporation Taxes Act 1988, ss 12(2), 239(3), 832(1).

C, a company, ceased trading on 6 January 1992 and sold its assets and undertaking to B, another company in the same group. The price was left
outstanding, payable on demand but without interest. C carried on its former business as B’s unpaid agent. On 5 April 1993 C paid a dividend to B
subject to advance corporation tax. On 30 September 1993 C opened a bank account to which interest was credited by the bank in December 1993. On 8
December 1993 C paid a second dividend to B subject to advance corporation tax. C sought to carry back the advance corporation tax paid in respect of
both dividends pursuant to s 239(3)a of the Income and Corporation Taxes Act 1988, which provided, inter alia, that where in ‘any accounting period’ of
a company there was an amount of surplus advance corporation tax the company might claim to have that amount treated as if it were advance corporation
tax paid in respect of distributions made by the company in any of its accounting periods. The Revenue refused C’s claim in respect of the advance
corporation tax relating to the first dividend on the ground that when C paid the first dividend it had no accounting period and therefore could not, under s
239(3), carry back the advance corporation tax paid. The Revenue considered that, by virtue of s 12(3)(c) of the 1988 Act, C’s accounting period ended
when it ceased to trade on 6 January 1992 and, furthermore, that s 12(2)(a)b, which provided, inter alia, that an accounting period of a company began
whenever the company, not then being within the charge to corporation tax, came within it, by acquiring a source of income ‘or otherwise’, did not apply,
as the effect of the cessation of C’s trade and the transfer of its assets and undertaking to B was that C ceased to be within the charge to corporation tax
and was still not within the charge when it became liable to pay corporation tax on the first dividend. C appealed, contending that, since s 832(1)c of the
1988 Act defined a source of income as being ‘within the charge to corporation tax or income tax if that tax is chargeable on the income arising from it, or
would be so chargeable if there were any such income’, and that ‘references to a person, or to income, being within the charge to tax’, were to be
‘similarly construed’, it had not ceased to be within the charge to
________________________________________
a Section 239, so far as material, is set out at p 591 j to p 592 b, post
b Section 12, so far as material, is set out at p 595 d, post
c Section 832, so far as material, is set out at p 592 h, post
________________________________________
­ 589

corporation tax because tax was chargeable on the income arising ‘to’ it or would have been so chargeable if there had been any such income. The
Special Commissioner allowed C’s appeal. The judge allowed an appeal by the Revenue and the Court of Appeal affirmed his decision. C appealed to
the House of Lords.

Held – There was nothing in the language of s 832(1) which required the concept of ‘income’ being within the charge to corporation tax to be restricted to
income derived from a source within that charge nor was there reason to restrict the concept of a person being within that charge to persons having a
source of income within that charge. Section 832(1) defined a source of income as being within the charge to income or corporation tax if the income
from that source was, or would be, liable to income or corporation tax. Similarly, income was within the charge to income or corporation tax if it was
liable to income or corporation tax and a person was within the charge to income or corporation tax if he was liable to pay income or corporation tax. It
followed that a company was within the charge to corporation tax if it was or would be liable to pay corporation tax on a source of income within the
charge or it had income which was chargeable irrespective of source or it had realised chargeable gains or allowable losses or because some other event
had occurred which created a liability to pay the tax. In the instant case, C had ceased to be within the charge to corporation tax when it disposed of its
assets and undertaking. Thereafter it had no source of income within the charge and no chargeable gains within the charge. However, when it made the
first distribution it came within the charge and began a new accounting period by virtue of s 12(2)(a) which, by using the words ‘or otherwise’, plainly
contemplated that a company which was not within the charge and had not acquired a source of income could in some other way come within the charge.
It covered any case in which something happened to create a liability to pay corporation tax. Accordingly, when C became liable to pay advance
corporation tax it was by definition within the charge to tax and therefore had an accounting period. C could therefore carry back the advance corporation
tax paid in respect of the first dividend. C’s appeal would therefore be allowed (see p 591 c to e, p 593 e to h, p 595 a to f and p 596 a b e f, post).
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Notes
For the basis of and periods for assessment of corporation tax, see 22 Halsbury’s Laws (4th edn reissue) para 842.
For the Income and Corporation Taxes Act 1988, ss 12(2), 239(3), 832(1), see 44 Halsbury’s Statutes (4th edn) (1996 reissue) 12, 399 and 1275
respectively.

Case referred to in opinions

Brown (Surveyor of Taxes) v National Provident Institution [1921] 2 AC 222, HL.

Appeal
The taxpayer, Centaur Clothes Group Ltd (Centaur), appealed with leave of the Appeal Committee given on 9 December 1998 from the decision of the
Court of Appeal (Nourse, Peter Gibson LJJ and Sir Patrick Russell) on 25 June 1998 ([1998] STC 814) dismissing its appeal from the decision of Sir John
Vinelott sitting as a judge of the High Court on 22 November 1998 ([1997] STC 72) allowing the Crown’s appeal from a decision of a deputy special
commissioner (Mr Paul W de Voil) released on 1 April 1996 ([1996] STC (SCD) 222). By that decision, the deputy special commissioner allowed an
appeal by Centaur against ­ 590 the rejection of its claim to carry back advance corporation tax pursuant to s 239(3) of the Income and Corporation
Taxes Act 1988. The facts are set out in the opinion of Lord Hoffmann.

David Goldberg QC and Conrad McDonnell (instructed by Patricia Alsop) for Centaur.
Nicholas Warren QC and Michael Furness (instructed by the Solicitor of Inland Revenue) for the Crown.

Their Lordships took time for consideration.

6 April. The following opinions were delivered.

LORD SLYNN OF HADLEY. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord
Hoffmann. For the reasons he gives I would allow the appeal.

LORD NOLAN. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hoffmann. I agree that, for the
reasons he gives, this appeal should be allowed.

LORD NICHOLLS OF BIRKENHEAD. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord
Hoffmann. I agree that, for the reasons he gives, this appeal should be allowed.

LORD HOFFMANN. My Lords, Centaur Clothes Group Ltd (Centaur) is a company in the William Baird group which traded in men’s clothing. On 6
January 1992 it ceased trading and sold its assets and undertaking to another company in the group called Baird Textile Holdings Ltd (Textile). The price
of £4,290,249 was left outstanding, payable on demand but without interest. It also agreed to carry on its former business as unpaid agent for Textile.
These arrangements might have been unusual between parties at arm’s length but made perfectly good sense within the group.
On 5 April 1993 Centaur declared a dividend of £2,087,113 out of accumulated profits. The payment created a liability under s 14 of the Income and
Corporation Taxes Act 1988 to advance corporation tax. So Textile paid £695,704·10 to the Revenue on behalf of Centaur. On 8 December 1993
Centaur declared another dividend which resulted in a further payment of £265,645·16 by way of advance corporation tax.
Advance corporation tax, which was abolished by s 31 of the Finance Act 1998 with effect from 6 April 1999, was corporation tax charged by
reference to the amount of a distribution rather than profits. It was chargeable ‘in advance’ because ordinarily it could afterwards be set off against the
company’s liability to corporation tax charged upon its profits. Section 239(1) of the 1988 Act provided that a company which had paid advance
corporation tax in an accounting period could set off the payment against its assessed liability to corporation tax in that accounting period. This was no
use to Centaur: its accounting period had come to an end on 6 January 1992 when it ceased to trade (see s 12(3)(c) of the 1988 Act) and it had not
subsequently earned any profit. But s 239(3) allowed the benefit of the payment of advance corporation tax to be carried back and set off against the
company’s corporation tax liabilities for earlier years. The relevant words read:
­ 591
‘Where in the case of any accounting period of a company there is an amount of surplus advance corporation tax, the company may, within two
years after the end of that period, claim to have the whole or any part of that amount treated for the purposes of this section … as if it were advance
corporation tax paid in respect of distributions made by the company in any of its accounting periods beginning in the six years preceding that
period … and corporation tax shall, so far as may be required, be repaid accordingly.’
‘Surplus’ advance corporation tax was defined, in relation to any accounting period, as advance corporation tax which could not be set against the
company’s liability to corporation tax because the company had no profits for that period. Centaur therefore made a claim to have the two 1993 payments
of advance corporation tax set off against the corporation tax paid in earlier years, when it had been carrying on business, and asked for the appropriate
refund.
The Revenue refused the claim for the first dividend but accepted the claim for the second. This may seem rather odd. The reason given was that s
239(3) allows surplus advance corporation tax ‘in … any accounting period’ to be carried back. At the time when Centaur paid the first dividend, said the
Revenue, it had no accounting period. Section 12 specifies when, for the purposes of corporation tax, accounting periods begin and end. By s 12(3)(c), as
I have already mentioned, an accounting period ends when a company ceases to trade. So Centaur’s accounting period ended on 6 January 1992. By s
12(2)(b), if the company remains ‘within the charge to corporation tax’, a new accounting period will begin at once. If the company ceases to be within
the charge, a new accounting period will begin (under s 12(2)(a)) only when the company again comes within it ‘whether by the company becoming
resident in the United Kingdom or acquiring a source of income, or otherwise’. But the Revenue contends that the effect of the cessation of trade and the
arrangements for transfer of the assets and undertaking to Textile was that Centaur ceased to be within the charge to corporation tax and was still not
within the charge when it became liable to pay corporation tax on the first dividend. Therefore it had no accounting period and the payment of advance
corporation tax has disappeared into a black hole from which no set-off can ever be extracted.
The reason for the paradox by which a company can be liable to pay corporation tax without being within the charge to that tax is, say the Revenue,
that ‘within the charge to corporation tax’ is not an expression which can be construed by the light of nature. Section 832(1), the definition section, gives
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it a narrow and specialised meaning. The definition reads—
‘… a source of income is within the charge to corporation tax or income tax if that tax is chargeable on the income arising from it, or would be
so chargeable if there were any such income, and references to a person, or to income, being within the charge to tax, shall be similarly construed.’
The Revenue argues that ‘similarly construed’ means that the definition must, so to speak, be read cumulatively. A source of income is within one or
other tax if the income is, or would be, liable to that tax. Income is within the charge to a tax if it is from a source within the charge to that tax and a
person is within the charge to a tax if he has a source of income within the charge to that tax. In the case of Centaur, the arrangements under which it
transferred its assets and undertaking to Textile left it with no sources of income whatever.
­ 592
The outstanding debt carried no interest and the agency contract carried no remuneration. Therefore it was not within the charge to corporation tax.
After payment of the first dividend Centaur seems to have learned about the Revenue’s views on the matter and took the precaution of obtaining
£2,000 from within the group, which on 30 September 1993 it placed in an interest-bearing deposit account at a bank. By the end of the year it had
yielded £8 in interest. This was enough to satisfy the Revenue. The company had acquired a source of income chargeable to corporation tax. A new
accounting period had therefore begun. This allowed Centaur to recover the £265,645·16 advance corporation tax paid on 8 December 1993.
The special commissioner (Mr Paul W de Voil) said that the Revenue’s submission was contrary to common sense:
‘On the Revenue’s argument, Centaur is to be repaid £265,000 because it had received a tiny amount of bank interest at the right time, and
refused repayment on an entirely similar £695,000 because it had not received a tiny amount of bank interest at the right time.’ (See [1996] STC
(SCD) 222 at 226–227.)
On appeal, Sir John Vinelott ([1997] STC 72) agreed that the result was ‘paradoxical’ and ‘arbitrary’ but held that it was inescapable. It was the
natural meaning of the definition, which was not fairly capable of being given a different construction. The problem arose because when advance
corporation tax was introduced by the Finance Act 1972 it was ‘bolted on’ to an existing structure of corporation tax going back to the Finance Act 1965
without regard to some of the difficulties which might arise. He allowed the Revenue’s appeal. The Court of Appeal (Nourse and Peter Gibson LJJ and
Sir Patrick Russell) ([1998] STC 814), in a judgment given by Peter Gibson LJ, affirmed his decision.
My Lords, I can find nothing in the language of the definition which requires the concept of ‘income’ being within the charge to corporation tax to
be restricted to income derived from a source within that charge. Still less is there reason to restrict the concept of a person being within that charge to
persons having a source of income within that charge. The definition of a source of income within the charge to income tax or corporation tax is hardly
technical or sophisticated. It says that a source is within the charge to income tax if the income from that source is, or would be, liable to income tax. And
likewise for corporation tax. How does one give a similar construction to ‘income’ and ‘a person’? I should have thought the answer was not difficult.
Income is within the charge to income tax if it is liable to income tax and within the charge to corporation tax if it is liable to corporation tax. And a
person is within the charge to income tax if he is liable to pay income tax and within the charge to corporation tax if he is liable to pay corporation tax. I
shall in due course consider the implications of this construction, but for the moment it will do.
It is true that by s 9(3), the computation of income for the purposes of corporation tax is to be computed according to income tax principles and
under the same Schedules and Cases. Income tax is traditionally a source-based annual tax, liability depending upon the existence of a source of income
falling under one of the Schedules during the year of assessment (see Brown (Surveyor of Taxes) v National Provident Institution [1921] 2 AC 222). If
the income tax had retained that ancient simplicity, it would be true to say that income could not be within the charge to tax unless there was a source
within the charge and a person could not be within the charge unless he had a source of income within the charge. But that ­ 593 would be because of
the nature of the income tax and not anything in the language of the definition.
It is, however, no longer true to say that liability to income tax depends upon the existence during the year of assessment of a source within the
charge. There are cases (such as post-cessation receipts) when liability depends upon the existence of income defined by reference to a source which does
not exist within the year of assessment. Or liability may depend upon an event, such as a balancing charge on the sale of an asset which has attracted a
capital allowance, or the receipt of a capital sum from a particular kind of transaction, which is deemed to be taxable income received in that year of
assessment or sometimes spread over several years of assessment. In the case of corporation tax, liability is also imposed upon chargeable gains. So
there is no longer any basis for assuming that income, or a person, can only be within the charge to corporation tax in a given year of assessment if the
income is from or the person has a source of income within the charge to that tax.
My Lords, one could give many examples of the strange consequences which would follow from the Revenue’s narrow construction of a ‘person
within the charge to corporation tax’. I shall give one, wholly removed from the present facts. By s 524(1) of the 1988 Act, a United Kingdom resident
company which sells patent rights for a capital sum is chargeable to corporation tax as if that sum were income chargeable under Case VI of Sch D and
spread over six years. By s 526 the company is entitled to an allowance for expenses incurred in connection with the grant or extension of the term of the
patent. By s 528(3)(b), if the allowance cannot be given full effect in an accounting period because there is not enough income or deemed income, the
surplus may be carried forward to subsequent accounting periods as ‘long as the company remains within the charge to corporation tax’.
What, then, is the position of a company which has no business and no assets except a patent on which it has incurred expense and which it sells for a
capital sum? If the deemed income in the first year after the sale is not enough to exhaust the allowance for expenses, can it be carried forward? In the
subsequent years, the company has no assets except the proceeds of sale, which may (as in this case) not be a source of income. Is it ‘within the charge to
corporation tax’? My Lords, in my opinion it plainly is. It has deemed income which is assessable to corporation tax. It would seem to me extraordinary
if it could not set off its expenses against that liability. If one asks why the legislature was particularly concerned with the question of whether a given
source of income was within the charge to income tax or corporation tax, I think that the principal reason will be found in the transitional provisions of the
Finance Act 1965. Corporation tax replaced income tax and capital gains tax over a period from 6 April 1964 to 5 April 1966. In the case of income, the
transition was by reference to sources and depended upon when the source was acquired or ceased and the company’s accounting periods in respect of
income from that source. So a company could have some income still within the charge to income tax and some already within the charge to corporation
tax and it was necessary to distinguish the two. The transition from capital gains tax to corporation tax occurred in the year 1965–66 when the company
(if it had not done so before) came within the charge to corporation tax ‘in respect of any source of income or part of a source’ (see s 82(1) of the 1965
Act).
On the other hand, the concept of being ‘within the charge’ to a tax is also used in contexts in which the source is irrelevant or non-existent. I have
given one ­ 594 example and counsel gave others with which I shall not trouble your Lordships. In such cases, if I may expand upon the simple
construction which I gave earlier, I would say that income is ‘within the charge’ to corporation tax if it is derived from a source within that charge or is
liable to corporation tax under some provision which makes it taxable without the existence of such a source. Likewise, a company is within the charge to
corporation tax if it is or would be liable to pay corporation tax on a source of income within the charge or it has income which is chargeable irrespective
of source or it has realised chargeable gains or allowable losses or because some other event has occurred which creates a liability to pay the tax.
My Lords, if this analysis is correct, then the Revenue are right in saying that Centaur ceased to be within the charge to corporation tax when it
disposed of its assets and undertaking on 6 January 1992. Thereafter it had no source of income within the charge and no income or chargeable gains
within the charge. Nor did any event occur to bring it within the charge until it made the first distribution on 5 April 1993. But then it came within the
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charge and under s 12(2)(a) a new accounting period began. The subsection reads:
‘An accounting period of a company shall begin for purposes of corporation tax whenever—(a) the company, not then being within the charge
to corporation tax, comes within it, whether by the company becoming resident in the United Kingdom or acquiring a source of income, or
otherwise …’
The relevant words are ‘or otherwise’. The subsection plainly contemplates that a company which was not within the charge and has not acquired a
source of income can in some other way come within the charge. In my opinion, this covers any case in which something happens to create a liability to
pay corporation tax. The accounting period may be a very short one if there is nothing else to keep the company within the charge. But it is an
accounting period nevertheless.
Mr Warren QC, who appeared for the Revenue, said that the objection to this construction was that it would make s 12(6) unnecessary. The
subsection provides that:
‘If a chargeable gain or allowable loss accrues to a company at a time not otherwise within an accounting period of the company, an accounting
period of the company shall then begin for the purposes of corporation tax, and the gain or loss shall accrue in that accounting period.’
If an event creating a liability to pay corporation tax brings a company within the charge, then the realisation of a chargeable gain would start a new
accounting period even without s 12(6). So the subsection would be redundant.
My Lords, I seldom think that an argument from redundancy carries great weight, even in a Finance Act. It is not unusual for Parliament to say
expressly what the courts would have inferred anyway. As it happens, there was no provision corresponding to s 12(6) in the original scheme of
corporation tax in the 1965 Act. It was introduced as a second thought by s 27 and para 12(2) of Sch 5 to the Finance Act 1966. And it also provides for
the commencement of an accounting period when the event has not created a chargeable gain but has resulted in an allowable loss. I can see why the
draftsman might have thought that an event which created no liability to corporation tax but could affect liability ­ 595 in respect of other profits or
gains was not something which brought the company within the charge to tax.
My Lords, a conclusion that a company which is liable to pay corporation tax is within the charge to corporation tax seems to me to be in accordance
with the common sense which appealed to the special commissioner. It would be an extraordinary case of the tail wagging the dog if the provisions about
accounting periods, which are mere machinery, could destroy the substantive right to recover the tax. In the Court of Appeal, Peter Gibson LJ (at 821)
noted that counsel for the Revenue had not put forward any ‘discernible legislative purpose’ in denying the recovery of advance corporation tax and said
(at 825) that he reached his conclusion ‘with considerable unease’. That is usually a symptom of something having gone wrong, either with the legislative
process or with the way the arguments have been presented. In this case I think that the arguments have been unnecessarily complicated in two ways.
The first has been by an attempt to read the words ‘similarly construed’ in s 832(1) as requiring a procrustean insertion of the words ‘income’ and
‘person’ into the definition of ‘source of income within the charge’. In my view, all that is required is a construction according to the same simple
principle. The second has been the attempt by counsel for the taxpayer to construe ‘within the charge to corporation tax’ as embracing every company
which could, upon the remotest contingency, become liable to pay the tax. This provoked Mr Warren to construct ever more elaborate examples of
companies which would, on the most fanciful grounds, be ‘within the charge’. In most such cases the question of whether the company was within the
charge would be entirely academic because the question is only relevant when something happens which would affect the company’s liability to tax. But
in my view these speculations are sterile and unnecessary. I think that when Centaur became liable to pay advance corporation tax it was by definition
within the charge to tax and therefore had an accounting period. I would allow the appeal and restore the decision of the special commissioner.

LORD CLYDE. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hoffmann. I agree that, for the
reasons he gives, this appeal should be allowed.

Appeal allowed.

Celia Fox Barrister.

[2000] 2 All ER 597

Surdonja v Ealing London Borough Council

Mohamed v Hammersmith and Fulham London Borough Council

HOUSING: LOCAL GOVERNMENT

COURT OF APPEAL, CIVIL DIVISION

HENRY AND POTTER LJJ
27 OCTOBER, 21 JANUARY 2000

Housing – Homeless person – Duty of housing authority to provide accommodation – Decision by local housing authority to refer applicant to another
authority on grounds of ‘local connection’ – Material date for determining whether applicant having local connection – Relevance of occupation of
interim accommodation for establishment of local connection – Scope of review of local housing authority’s decision to refer applicant to another
authority – Housing Act 1996, ss 198, 199, 202.

Where an eligible applicant for accommodation under Pt VII of the Housing Act 1996 seeks a review, under s 202a of the Act, of a local housing
authority’s decision to refer his application to another authority, the date of the review is the material date for determining whether the applicant has a
‘local connection’ with an area for the purposes of s 198b of the Act. If, however, there is no such review, the material date is the date of the decision.
Moreover, occupation of interim accommodation pending the decision can constitute ‘normal residence’ contributing to a local connection under s
199(1)c of the Act. The weight to be given to the fact of such residence is a matter for the local housing authority in the initial decision, and later for the
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reviewing officer or panel. They will naturally pay attention to the extent to which the applicant has used the period of residence to establish the element
of permanence and commitment to the district in question, ie local connection in a real sense. Furthermore, a review under s 202 must be wide enough in
scope to consider all the up-to-date facts with all others afresh, to see whether such a local connection has been established (see p 604 f, p 605 d to h, p
606 g h and p 607 a to c, post).
________________________________________
a Section 202, so far as material, provides: ‘(1) An applicant has the right to request a review of … (c) any decision of a local housing authority to notify another
authority under section 198(1) (referral of cases) … ’
b Section 198, so far as material, is set out at p 599 g to j, post
c Section 199, so far as material, is set out at p 600 b, post
________________________________________

Notes
For referrals to another local housing authority and for the right to request a review of the decision, see 22 Halsbury’s Laws (4th edn reissue) paras 261,
263.
For the Housing Act 1996, ss 198, 199, 202, see 21 Halsbury’s Statutes (4th edn) (1997 reissue) 906, 907, 910.

Cases referred to in judgments

Eastleigh BC v Betts [1983] 2 All ER 1111, [1983] 2 AC 613, [1983] 3 WLR 397, HL.
R v Hammersmith and Fulham London BC, ex p Avdic (1996) 30 HLR 1, CA; affg (1996) 28 HLR 897.
R v Newham London BC, ex p Smith (1996) 29 HLR 213.
­ 597
R v Southwark London BC, ex p Hughes (1998) 30 HLR 1082.

Appeals

Surdonja v Ealing London Borough Council

Ealing London Borough Council (Ealing) appealed from the decision of Judge Marcus Edwards at Brentford County Court on 22 March 1999 allowing an
appeal by the respondent, Nikola Surdonja, from Ealing’s decision on 8 December 1998 to affirm, on a review under s 202 of the Housing Act 1996, its
decision on 2 November 1998 to refer Mr Surdonja’s application for accommodation under Pt VII of the 1996 Act to Westminster City Council. The
facts are set out in the judgment of Henry LJ.

Mohamed v Hammersmith and Fulham London Borough Council

Abdurahman Mohamed appealed from the decision of Judge Richard Walker at Wandsworth County Court on 17 June 1999 dismissing his appeal from
the decision of the respondent, Hammersmith and Fulham London Borough Council (Hammersmith and Fulham), on 23 September 1998 to affirm, on a
review under s 202 of the Housing Act 1996, its decision on 23 July 1998 to transfer Mr Mohamed’s application for accommodation under Pt VII of the
1996 Act to Ealing London Borough Council. The facts are set out in the judgment of Henry LJ.

Kelvin Rutledge (instructed by Richard Polson) for Ealing.

Jan Luba (instructed by Sutovic & Hartigan) for Mr Surdonja.
Stephen Knafler (instructed by Hammersmith & Fulham Community Law Centre) for Mr Mohamed.
Robert Levy (instructed by Louise Round) for Hammersmith and Fulham.

Cur adv vult

21 January 2000. The following judgments were delivered.

HENRY LJ.
1. We are asked to hear these appeals together, and to treat them as test cases to answer three issues which we are told are unresolved (at Court of
Appeal level) yet frequently arise. All flow from the situation where an eligible applicant (homeless or threatened with homelessness and in priority
need) applies to the receiving local housing authority (LHA) for assistance with his accommodation, and that LHA, instead of providing that assistance
itself, refers the applicant to another LHA (the notified LHA) under s 198 of the Housing Act 1996 (the Act) to provide it. This the receiving LHA may
do when inquiry reveals that the applicant has no ‘local connection’ with the receiving LHA, but has such a connection with the notified LHA to whom
the reference is made. In all cases where I simply refer to a section number, the reference is to the Housing Act 1996.
2. As Turner J said in R v Southwark London BC, ex p Hughes (1998) 30 HLR 1082 at 1089:
‘Housing is about the most basic social requirement of an individual. It is not conceptual; it is factual. The Housing Act is intended to be of
social effect.’
When dealing with the priorities of those of the homeless who are in priority need, the statute by definition deals with those who need support and
stability the most. And, in addition to catering to British nationals, there are, as these two cases show, the problems of refugees, often from bloody civil
conflict in their ­ 598 own lands (here Croatia and Somalia respectively). These appeals therefore concern real problems, real needs, and a shortage of
resources to meets those problems and needs.
3. The three issues are: (i) what is the material date for determining whether the eligible applicant has a ‘local connection’? Is it: (a) the date he
applies as homeless; (b) the date when the authority reaches its decision (under s 193(2)) whether to refer the application to another LHA or to secure that
accommodation is available for the applicant; or (c) the date it reviews its decision? (paras 22–37). (ii) Can occupation by such an applicant of interim
accommodation pending the decision or its review constitute ‘normal residence of his own choice’ for the purposes of s 199(1)(a) of the Act? (paras
37–48). (iii) What is the scope of the s 202 review: (a) must the reviewing officer consider all the facts of the case afresh? (b) may he do so? (c) or might
he limit his role to considering any representations he receives from the applicant, and checking for evident errors in the initial decision? (paras 49–50).
4. In these cases, both applicants presented as homeless, Mr Surdonja to Ealing London Borough Council (Ealing) and Mr Mohamed to
Hammersmith and Fulham London Borough Council (Hammersmith). Those receiving LHAs were under a s 184 duty to inquire as to the applicant’s
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eligibility for assistance, the duty owed to him, and (under s 184(2)) they may inquire whether the applicant has a local connection with the district of
another LHA to which his application may be referred. Section 184(2) uses the ‘may’ in relation to the receiving LHA’s power to inquire into the
possibility of referral, but they are not obliged so to do. They are quite entitled to take on responsibility for the applicant whether or not they would have
established power to refer.
5. In each case the receiving LHA embarked on the inquiry under s 184, found that each household was eligible for accommodation to be provided,
but in each case referred the duty to provide that assistance to another LHA, the notified LHA.
6. We are concerned here with the situation postulated in s 193(1) of the Act:
‘… where the local housing authority are satisfied that [the] applicant is homeless, eligible for assistance and has a priority need, and are not
satisfied that he became homeless intentionally.’
7. In those circumstances, s 193(2) obliges the LHA receiving an application to ‘secure that accommodation is available for occupation by the
applicant’ for a minimum of two years (see s 193(3)) unless the receiving LHA ‘refer the application to another local housing authority’.
8. The powers of referral to another LHA are dealt with in ss 198 to 201 of the Act. Section 198(1) provides that where the receiving LHA would be
subject to the s 193(2) duty to secure that accommodation is available for the applicant but ‘consider that the conditions are met for referral of the case to
another local housing authority’, they may notify that authority. The relevant conditions of referral to another LHA are met if:
‘(a) neither the applicant nor any person who might reasonably be expected to reside with him has a local connection with the district of the
authority to whom his application was made, (b) the applicant or a person who might reasonably be expected to reside with him has a local
connection with the district of that other authority …’ (See s 198(2).)
(Paragraph (c) deals with victims of domestic violence, and does not here apply.)
9. Thus the receiving LHA cannot refer the applicant to another LHA where the applicant (or any person in his household) has a local connection
with the ­ 599 receiving LHA’s area. Nor can it refer where the applicant has no connection with its area nor with any other area. It can only refer
where the applicant has no connection with it but has a local connection with the notified LHA.
10. ‘Local connection’ is defined by s 199 of the Act. Section 199(1) limits the meaning of ‘local connection’ in s 198 to connections caused by any
one or more of four things:
‘(a) because he is, or in the past was, normally resident there, and that residence is or was of his own choice, (b) because he is employed there,
(c) because of family associations, or (d) because of special circumstances.’
Those listed causes of a local connection emphasise matters that go to having a place in the community: choice, employment, the continuity of
support that family associations can give, and all special circumstances which can contribute to such a socially beneficial ‘local connection’.
11. The requirement that to operate as a qualifying cause, normal residence must be ‘of his own choice’ does not exclude all involuntary reasons for
non-qualifying residence. Subsection (3) identifies two disqualifying causes: service in the armed forces, or detention under Act of Parliament (eg
prison). Subsection (5) gives the Secretary of State power to specify ‘other circumstances in which … (b) residence in a district is not to be treated as of a
person’s own choice’ and he has not so specified.
12. In deciding whether the applicant has a local connection with the area being considered, it seems to me that the words of Lord Brightman in
Eastleigh BC v Betts [1983] 2 All ER 1111, [1983] 2 AC 613 are still relevant, despite the fact that the statutory background (and in particular the
‘jumping the queue’ element) is not precisely as it was:
‘But “local connection” means far more than that. It must be built up and established; by a period of residence; or by a period of employment;
or by family associations which have endured in the area; or by other special circumstances which spell out a local connection in real terms.’ (See
[1983] 2 All ER 1111 at 1119, [1983] 2 AC 613 at 627.)
13. In Mr Surdonja’s case, by decision letter of 2 November 1998, Ealing found him to be eligible for assistance, not intentionally homeless, and
with priority need (ie that he was owed a duty by some LHA to arrange temporary accommodation for his household) but referred his application to
Westminster LHA on the grounds that neither he nor his wife had a local connection with Ealing, but he had a local connection with Westminster.
14. In Mr Mohamed’s case, by decision letter of 23 July 1998, Hammersmith and Fulham accepted that he was owed such a duty but referred that
duty to Ealing on the basis that neither he nor his wife, Mrs Farah, had any local connection with Hammersmith, but she had a local connection with
Ealing.
15. Each decision letter informed the applicant of his statutory right to a review. This was introduced for the first time by the 1996 Act.
16. In Mr Surdonja’s case, the letter said:
‘If you disagree with this decision you have the right to request a review, which will be carried out by Senior Officers in the Housing
Department. If you wish to request a review, you must do so within 21 days of receiving this letter. You will be able to make written
representations which the review panel will take into account. You may also send written representations made by other people on your behalf. The
review panel will ­ 600 make its decision based on all the information available to it at the time it meets, including your written submissions. It is
therefore essential that you tell us everything you consider relevant.’
The head of the panel conducting that review wrote on 20 November 1998, implicitly confirming that the panel would take into account all
information received. In the light of those letters, it is somewhat surprising that Ealing’s first ground of appeal against the trial judge’s quashing of that
decision letter was:
‘That the learned judge erred in law … in holding … that the material time for assessing local connection for the purposes of Section 198 was
the date of the review (ie December 1998). The learned judge ought to have directed himself that the starting point for assessing local connection
was the date of the … application for housing assistance (ie August 1998).’
17. In Mr Mohamed’s case, the letter read:
‘If you feel that the Council has acted unreasonably in deciding that your application should be referred, you have the right to request a review
of this decision … within the next 21 days …’
18. In each case, a review was requested within time and in each case up-to-date letters supporting the claim for local connection with the receiving
LHA were sent.
19. The statutory provision giving applicants the right to review a referral to another authority is found in s 202(1)(c), (d) and (e). Section 203
empowers the Secretary of State to make provision by regulation for the procedure to be followed in connection with a review. At the time of the review
in these cases, the Allocation of Housing and Homelessness (Review Procedures and Amendment) Regulations 1996, SI 1996/3122 governed the review.
It provided that the review should be conducted by an officer senior to the one who made the decision (see reg 3), the decision should be notified within
eight weeks (see reg 4), and that the review should be carried out ‘on the basis of the facts known to them at the date of the review’ (see reg 8). This is
also reflected in the official Code of Guidance, 1997 version at 17.11. Regulations 2 to 8 have since been replaced by the Allocation of Housing and
Homelessness (Review Procedures) Regulations 1999, SI 1999/71, which regulations do not contain the passage from reg 8 quoted above.
20. In the event, in each case the review confirmed the decision taken. And in each case, the review decision letter expressly stated that all the
matters raised subsequent to the decision under review had been taken into account: that is to say that the date of final decision was the date of the review.
21. Section 204 of the Act gives an applicant who has requested a review an appeal to the county court on a point of law if dissatisfied with the
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decision on the review, giving the court power to confirm, quash, or vary the decision. That is the scheme of the legislation.
22. The first issue is what is the material date for determining whether the eligible applicant has a ‘local connection’.
23. The three dates suggested are the date of the application (presenting as homeless), the date of the housing and referral decision, and the date of
the decision letter after the review.
24. In the appeals with which we are concerned, the time elapsed between application and the end of the process with the review was 3 months in
one case and five months in the other. Other reported cases suggest that such times are ­ 601 not untypical. The code envisages 30 working days
between the commencement of the inquiry and the decision. The 1996 regulations provide that the review decision will be within eight weeks of the
request for review unless the authority and the appellant agree a longer time.
25. The significance of the date for determination of the local connection is well illustrated by the facts in Mr Surdonja’s case. He had come to this
country as a refugee from Croatia on 14 August 1997. He shared a studio flat in Westminster with his brother for a year while awaiting his wife and three
small children, then all under seven, from Croatia. Over the year in question Mr Surdonja had done little or nothing to integrate himself into that
community. His brother, after five years here, does not speak English. All changed when his wife arrived with their three children. His wife has an
English speaking uncle in Ealing. When she arrived with her children in August 1998 they moved to the uncle’s home. But that could never be a viable
long term solution—four adults and five children in a two bedroom house. So within a couple of days of the wife’s arrival in this country, they presented
as homeless to Ealing. Ealing was to refer the housing duty to Westminster, on the basis that there was no local connection in Ealing, and Mr Surdonja
had a local connection with Westminster. The judge was to quash Ealing’s decision referring the housing duty to Westminster on the basis that there was
an arguable case not addressed by Ealing that by the time of the decision letter (some 3 months later) there was evidence by reason of residence and/or
family association to support local connection with Ealing, which there was not and could not have been at the date of presenting as homeless.
26. The bulk of that time had been spent in interim accommodation provided under s 188 of the Act by Ealing. The nature of the case was that the
local connection was established by residence in Ealing including the time in interim accommodation, together with all the facts connected with it, such as
the support from the English speaking uncle, and the fact that the three traumatised children had, after great initial difficulties, settled into a local
school—their mother having attended with them every day for the first month. Additionally, one parent (the documents are contradictory as to which) is
attending the local tertiary college to learn English. All, it was argued, added up to a local connection.
27. That case for recognition of a local connection arose entirely from events after the application. At the date of application there was no case
whatsoever for a local connection with Ealing. Ealing’s initial decision letter (2 November 1998) makes it clear that they had only considered as
residence in the borough the time the family spent with the uncle, Mr Prosenica, from 23 August (the date of application) to 16 September, when Ealing
provided interim accommodation. So if Ealing are right as to the relevant time to consider local connection, their appeal must succeed; there would be no
arguable case for local connection if the cut-off date were either 23 August or 16 September.
28. There are certain similar features in Mr Mohamed’s case. Mr Mohamed and his wife, Mrs Farah, were displaced by the brutal civil war in
Somalia. In late 1992 they went with their two sons (then five and four) to Kenya. In 1995 Mrs Farah came to the United Kingdom. She lived most of
the time, until her husband’s arrival, in Ealing.
29. Mr Mohamed arrived in England on 31 January 1998. He had lost contact with his wife. He lived in Hammersmith with the blind son of a close
friend, now dead. He was re-united with his wife. Together they applied (on 16 April 1998) to Hammersmith for assistance with their accommodation.
That application was decided by letter dated 23 July 1998, which held that neither ­ 602 spouse had a local connection with Hammersmith, but Mrs
Farah had one with Ealing. Accordingly, the housing duty was accepted and referred to Ealing. The applicants sought a review, which, on 29 September,
confirmed the decision. The applicants then appealed to the county court (under s 204 of the Act) and on 17 June 1999 that appeal was dismissed. The
county court decision is now challenged before us.
30. There are two grounds of challenge common to both appeals. First, in each case the local authority has continued to provide interim
accommodation, initially until the date of original (pre-review, if applicable) decision (see s 188), and has voluntarily continued to provide that
accommodation pending the outcome of this appeal, and in each case it is said that residence within the borough in that accommodation does not count.
Second, the treatment of ‘family associations’ and ‘special circumstances’ when dealing with refugees arise in each case. As to this second point, we say
no more than in our judgment the starting point is the position of the applicant and his household and, in having regard to both ‘family associations’ and
‘special circumstances’, while we do not discourage general rules such as are to be found in the Local Authority Agreement, we note that Parliament left
those broad phrases undefined, and to be judged as a matter of fact and degree in every case. For instance, the actual closeness of the family association
may count for more than the precise degree of consanguinity.
31. The first difficulty that the LHA face is that there is no support for their case in the statute. Where, as here, there is a statutory entitlement to a
review, there may be two decision times—first the initial decision, and then the review. One would expect both tribunals to consider all relevant facts
before them. If either stage of decision taking was to be artificially limited in what facts it could consider, one would expect the statute to make it plain.
Otherwise, after the decision but before review the court would have to shut its eyes to a subsequent event which might either entitle or disentitle the
applicant to the local connection in issue. In fact, as the applicants point out, the statute uses the present tense to describe the issue—see s 184(2), the duty
to inquire ‘whether he has a local connection’.
32. Nor is there conclusive authority to support the LHA’s case. They rely on two cases, both decided before the 1996 Act introduced the statutory
entitlement to a review of the decision.
33. The first case is R v Newham London BC, ex p Smith (1996) 29 HLR 213, a decision of Sir Louis Blom-Cooper QC sitting as a deputy judge of
the High Court. I have little quarrel with the ratio of his decision on the law as it then stood (at 221):
‘In my judgment, a local authority may properly ask itself whether the applicant had a local connection … at the date of the application under
Part III of the Housing Act 1985, so long as it is always prepared to review its decision in that regard, should the delay in its investigations under
section 62 [cf s 184 of the 1996 Act] be prolonged in such a way as to call for a reconsideration of its decision on referral.’
34. The review was clearly an extra-statutory voluntary review. Now that the right to a review is statutory, that right is not dependent on there
having been any delay, and all relevant matters put before the reviewing officer or panel must be considered.
35. Next, there is the Court of Appeal decision in R v Hammersmith and Fulham London BC, ex p Avdic (1996) 30 HLR 1. There a refugee from
Bosnia moved from Dewsbury to London, where she applied as homeless. Hammersmith accepted that she was owed a duty, but referred her back to
Kirklees (which covered the ­ 603 Dewsbury area) in September. Her solicitors then sent in more material which the LHA considered before, in
January, refusing her again. The reconsideration of the case was voluntary. Simon Brown LJ (at 8) said (albeit obiter):
‘To my mind, however, it is far from clear that an appellant’s claim to be housed under Part III of the 1985 Act can be improved in this fashion
merely because the local authority accede to a request to review the matter, as this authority have done after the initial decision was taken.’
He said he found it unnecessary to deal definitively with the point on that occasion. What Simon Brown LJ was in fact questioning was whether the
local authority should have acceded to the request for a review. I do not read him as suggesting that where statute grants the applicant a right of review,
that review is limited to his case as originally put forward. That in my judgment would require express language which is not there. It would also, as I
will develop, not contribute to the purpose of the legislation.
36. The point was considered by Turner J in R v Southwark London BC, ex p Hughes (1998) 30 HLR 1082 (see above). That too was under the 1985
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Act, before there was a statutory right of review. Turner J (at 1089) concluded the passage quoted in para 2 of this judgment:
‘It may be thought therefore that there are compelling reasons why the circumstances of an individual, at the time the inquiry is carried out and
the decision is made, must be the circumstances which the housing authority is required to investigate for the purpose of coming to their decision
whether or not the applicant is homeless …’ (My emphasis.)
37. I agree with that, and it is clearly all the truer after the introduction of the statutory right of review. For the statutory appeal to the county court
to lie, that appeal must be against the review (see s 204(1)). So the review is the final administrative stage, and the statutory appeal to the county court
only lies after the review. Accordingly, I would answer the first issue that the material date for determination whether the eligible applicant or member of
his household has a local connection is the date the LHA reviews its decision.
38. Linked to the first issue is the second issue: can occupation by the applicant of interim accommodation pending decision and review constitute
normal residence ‘of his own choice’.
39. This seems to me to be a question of statutory construction. As set out in para 11 of this judgment, it is clear that s 199(3) gives a restricted
statutory meaning to the phrase ‘of his own choice’, that meaning can only be extended by the Secretary of State, and he has not extended it. Therefore,
even if the applicants did not occupy the interim accommodation out of choice (an existential concept not explored) their occupation would be of their
own choice for the purposes of s 199(3).
40. Once the meaning of ‘choice’ is clarified, there is no problem as to ‘normally resident’. Both families are normally resident in their respective
boroughs—they certainly are not normally resident anywhere else. As Lord Brightman made clear in the Eastleigh case, ‘normal residence’ is but a factor
in the whole of the existence of a local connection. Part of the commitment which could help to turn normal residence into local connection is the
schooling of the Surdonja children.
41. Support for the applicant’s case that interim residence pending final decision counts is to be found in reg 8 of the 1996 regulations, as to which
see ­ 604 para 19. Though those regulations are expressed to be procedural, reg 8 is supported by the statutory Code of Guidance on the Act (1997 edn)
which states:
‘17.11 The authority should then carry out the review on the basis of the facts as known to them at the date of the review, including written
representations.’
Those words would seem conclusive of issue 2. Ealing however contend that this simply reflects the position under the old statutory instrument.
They rely on the 1999 statutory instrument which removes the old reg 8(1)(b) with its general duty to ‘carry out the review on the basis of the facts known
to them at the date of the review’ and replaces it with an entirely different reg 8(1)(b). I am puzzled by that amendment, and in doubt as to what, if
anything, beyond the literal fact that something is replaced by something entirely different and unrelated, to read into it. If a drastic change was
contemplated, I would not expect the guidance to remain unchanged in the form of the 1997 edition. But the original reg 8(1)(b) was in force when
Ealing took their decision. They did not apply it. In my judgment they should have. And, while not suggesting they did, they should not have taken the
1999 draft regulations into account, even if they knew what they were, five weeks before they were signed. The same applies in Mr Mohamed’s case.
42. The question still remains as to what reg 8 in its form as at the date of review means when it says that: ‘… the authority shall … carry out the
review on the basis of the facts known to them at the date of the review.’
43. The code, in para 17.11, expands that to add: ‘… including any written representations. It may in some cases be necessary to make further
enquiries of the applicant.’ Judge Marcus Edwards, in Surdonja, held (judgment, page 8) that the relevant circumstances must be: ‘… the circumstances
of the individual [known to the authority] at the time the decision is made, or as thereafter updated at the time of review.’ Judge Richard Walker, in para
12 of his careful judgment, read these words as including all further facts which, had they been known, might have led to a different conclusion, but
excluding all changes in circumstances subsequent to the original decision. I prefer the judgment of Judge Marcus Edwards on this point. I cannot find
support for the thesis advanced by Judge Richard Walker in the primary legislation, the regulations or the code. It seems to me clear that if, between
decision and review, there was either a change of circumstance which might establish the local connection with the LHA to which the application had
been made (eg that the applicant had obtained permanent employment in the borough) or, conversely one which disqualified him from looking to that
LHA to meet his housing needs (eg ceasing to be entitled to priority need, or losing employment in the borough, or family associations in the borough
moving away) then in either case the reviewing officer should take those changed circumstances into account. It follows that, as a matter of statutory
construction, the reviewing officer must take into account all relevant facts at the date of review.
44. I am not persuaded to the contrary by the case mounted by the LHA that the statute must be construed purposively to reflect the fact that the
mischief aimed at is to relieve the pressure on boroughs which prove to be targets for applicants, and to spread the load more equitably between boroughs.
The argument runs that to count towards a local connection the time spent in residence in a borough only by grace of being a beneficiary of the interim
obligation imposed by s 188 on the LHA to which application is made, is to defeat the redistributive purpose of the legislation. It is also submitted that it
is internally unfair, in that it is not a legal requirement that interim s 188 ­ 605 accommodation be provided within the receiving LHA (see s 208) and it
is also unfair that those accommodated within their desired district should be advantaged by their good fortune. More fundamentally, there is the
‘jumping the queue’ argument that played its part in the Eastleigh case. And linked to this is the third issue, the scope of the review.
45. First, the Act’s purpose. I accept that there was a redistributive ‘spreading the load between LHAs’ purpose to the Act. But that purpose was to
be achieved not by any merit-free reallocation formula, but by rewarding applicants who had a local connection with the borough of their choice, where
they applied. It was to be achieved by providing that the receiving LHA was not entitled to refer the statutory responsibility elsewhere when the applicant
had a local connection with them. That is a statutory purpose which must equally be taken into account. The statute’s redistributive mechanisms are
certainly no more significant when construing the Act than the reward the Act gives to those who have, by satisfaction of the local connection rules,
become an active part of the community. That seems to me to be as important a purpose as a straight redistributive purpose.
46. Second, recognising good (or more significantly, involved) citizenship is a worthy legislative intention, and the incentive to applicants to
establish a local connection with the LHA to which they apply more than compensates, in the balance sheet of public good, for the fact that other
applicants whose s 188 housing is outside the district are not so well placed. In so far as it may seem unfair in that such persons do not have the same
opportunity as those whose interim housing is within the borough, that is not a reason for denying the latter the benefit of a local connection if that is what
they have created by the time of the review.
47. Third, the ‘jumping the queue’ unfairness. At the time of Lord Brightman’s speech in the Eastleigh case, if the qualifying applicant established a
local connection with the LHA to which he had applied, he went to the top of the housing list. One of the innovations of the 1996 Act is that help given
under s 193(3) is temporary (see sub-ss (3) to (7)). So, Mr Knafler and Mr Luba for the applicants are right to submit, that provision of the ‘full’ housing
duty under s 193 results in the provision of temporary accommodation only, in which the homeless person remains until his ‘waiting list application’
eventually succeeds on its merits in accordance with the LHA’s general allocation scheme. So to that extent the element of queue jumping is reduced and
any residual ‘unfairness’ is not sufficient to impose the construction the LHAs propose on the Act.
48. Accordingly, I would answer issue 1: the material date for determining whether a Pt VII applicant has a local connection is at the date of the
review of the decision if reviewed, and otherwise the date of the decision. In answer to issue 2, occupation of interim accommodation under s 188 of the
Act pending the decision can constitute ‘normal residence’ contributing to a local connection under s 199(1). The weight to be given to the fact of that
residence is a matter for the LHA in the initial decision, and the reviewing officer or panel later, who will naturally pay attention to the extent to which
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the applicant has used that period of residence to establish that element of permanence and commitment to the district in question: local connection in a
real sense, as used by Lord Brightman in the Eastleigh case above.
49. I turn to issue 3, the scope of the review and the duty of the reviewing officer. The LHA’s initial decision is an inquisitorial one. It is their duty
to conduct a proper inquiry (albeit they often will have to rely on facts obtained from the applicant). After the applicant has initiated the LHA’s s 184
inquiry by ­ 606 applying under s 183, he has no obligations other than to assist the inquiry as required until the decisions as to housing duty owed and
referral are taken. Then the applicant has a statutory right to request a review under s 202(1)(c), (d) and (e). I have already dealt with the outline
provisions under paras 19 to 21, and with the practical application of the review at paras 40 to 43.
50. ‘Review’ is the appropriate word for the act of submitting for examination and revision an inquisitorial administrative decision affecting the
applicant’s ‘most basic social requirement’ (per Turner J, R v Southwark London BC, ex p Hughes (1998) 30 HLR 1082 at 1089). Given the importance
of the decision, and everything that has been said in this judgment thus far, the reviewing officer must consider all of the facts afresh. The code (1997
revision) still in para 17.11 limits the review to ‘facts as known to [the LHA] at the date of the review’. That is a necessary qualification, given the fact
that the review is ordinarily a review of the file, in that it is a decision on the documents without a hearing. As I have previously said, I am not prepared to
assume that that plain requirement survives in the code by oversight. The scope of the review must be wide enough to consider all the up-to-date facts
with all others afresh, to see whether the local connection has been made out.
That is how I would answer the third issue.
51. Having answered the three issues in a way favourable to the applicants, I turn to the individual appeals.
52. In relation to Mr Surdonja’s application, the fundamental error of law relates to the dates when the question of local connection falls to be
considered: the date of decision and the date of review, if applicable. Had the LHA rightly applied the law, they would have considered at the respective
decision times the whole time over which the Surdonjas had been resident in the LHA district, and would not have ignored the period in interim
accommodation under s 188.
53. At the date of decision (2 November 1998) para 2 dealt with normal residence in the LHA and restricted it to residence with Mr Prosenica, the
wife’s uncle, at 37 Anstey Court—that is to say three week’s residence only, with all the time occupying interim accommodation in the borough under s
188 wrongly excluded. In their request for a review the applicant’s solicitors did not challenge this part of the finding, themselves only mentioning
residence to say: ‘Although our client has not lived at 37 Anstey Court for very long …’ The review decision letter does not mention residence at all, but
both before Judge Marcus Edwards and before us, the LHA argued that the right date for consideration was the date of application, thus ignoring all
residence through s 188 accommodation, as well as all the integration which the family have achieved, with the assistance of the wife’s uncle, since that
date. In my judgment, the judge was right to conclude that the decision letter ‘makes no reference to the Panel having reviewed the possibility of local
connection by reason of normal residence or family associations’ as well as having ignored what was achieved during the time of the s 188
accommodation.
54. The error of law was therefore fundamental, and precluded the LHA from asking themselves the right question. Such an error of law would
normally be fatal to the decision, but by their notice of appeal, the LHA contends that, as the point as finally developed was not spelled out in the
applicant’s solicitors’ letter submitted for consideration at the time of review, the LHA was not bound to consider it. The judge found that:
‘The duty of the local authority is to review the decision which it is requested to review, in this case the decision to refer. Their duty is to apply
the provisions of the Act to the facts before them on the file, together with any ­ 607 further representations and evidence put before them. In my
judgment they are not limited to, and should not limit themselves to, reviewing particular points, to the exclusion of other relevant, or potentially
relevant, points. They must review the facts afresh, as a whole, and apply the Act to them.’
Those facts of course must be facts known to them, hence the judge’s reference to the facts in question being found in the documents. The decision
taken here was fundamentally in error as to the law on the correct application of those facts, and the judge was right in his analysis of the principles
involved and in the order he made. I would dismiss the LHA’s appeal in this case.
55. I turn then to Mr Mohamed’s case. Again, in his case it is clear that both in the decision letter (23 July 1998) and on review (letter of 23
September 1998) the LHA ignored all residence after the grant to the applicant of interim s 188 accommodation in the LHA area—that is to say they too
misdirected themselves in law, and consequently only considered a further five months plus (or nearly eight months in all—see the judgment paras
37–47).
56. Secondly, complaint is made that the judge glossed the statute, and in so doing imposed too stringent a test on the establishment of a ‘local
connection’. On review, the LHA’s reviewing officer said:
‘I have also considered the cumulative effect of all of these various factors, but I am not satisfied that the household’s stated need to live in this
borough is an essential compassionate, social or support need … sufficient to have given rise to a local connection with this authority in real
terms.’
57. The applicant’s case is that this is a misdirection. Proving a local connection is one thing: proving that you have an essential, compassionate
social or support need is quite another. Forensic archaeology suggests that the source of this phrase is its use by the Hammersmith LHA in their 1996
decision letter in the case of R v Hammersmith and Fulham London BC, ex p Avdic (1996) 28 HLR 897 at 901, where it was quoted, without comment, at
first instance and not referred to at all on appeal. In my judgment that is a clear misdirection in law. In so finding, I have gone back to Lord Brightman’s
speech in Eastleigh BC v Betts. I have already made the point that the queue for permanent housing is no longer ‘jumped’ as a result of s 193, and have
already accepted that the local connection should be real and not illusory, and where real, should be rewarded. There is no ‘purposive’ construction case
for requiring that the applicant show an essential compassionate, social or support need to live in the LHA’s district. That is to put the test for a local
connection too high.
58. I look no further than those two fundamental errors of law. The applicant is entitled to have the decision on his application reviewed on a
correct legal basis. His case should be considered on the law as properly applied, and on the facts at the time of that review. I would allow this appeal.

POTTER LJ. I agree.

Ealing’s appeal dismissed. Mr Mohamed’s appeal allowed. Permission to appeal to the House of Lords refused.

Dilys Tausz Barrister.

[2000] 2 All ER 609
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Attorney General v Foley and another

CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

PETER GIBSON, SCHIEMANN LJJ AND WILSON J
10, 11 FEBRUARY, 1 MARCH 2000

Vexatious proceedings – Civil proceedings order – Application by Attorney General – Whether Attorney General required to lead evidence that he had
authorised application for civil proceedings order – Supreme Court Act 1981, s 42.

The Attorney General applied for civil proceedings orders under s 42a of the Supreme Court Act 1981 prohibiting the appellants from instituting civil
proceedings without the leave of the High Court, on the ground that they had previously instituted vexatious proceedings. The evidence before the court
included an affidavit, sworn by a solicitor in the Treasury Solicitor’s office, stating that she had conduct of the matter on behalf of the Attorney General
and that she had been involved with a view to the Attorney General considering whether to make an application for a civil proceedings order. At the
hearing, the appellants contended for the first time that the application was not being made by the Attorney General as required by the 1981 Act, and that
accordingly the court had no jurisdiction to make the orders. That contention was rejected by the court which proceeded to make the orders sought. On
appeal, the appellants contended that the Attorney General could not succeed in an application under s 42 in the absence of evidence that he had
authorised the proceedings.
________________________________________
a Section 42, so far as material, is set out at p 611 a to f, post
________________________________________

Held – There was no requirement for the Attorney General to lead evidence that an application under s 42 of the 1981 Act was being made by him. Like
any other litigant, he was entitled to employ solicitors and counsel to make an application on his behalf and, in the absence of any challenge, solicitors
making such an application were assumed to have authority to do so. If there was to be a challenge to the solicitor’s authority, it had to be taken by way
of an early interlocutory application to stay the proceedings, supported by a witness statement. Moreover, the court would probably consider that a
respondent had acted unreasonably if he mounted such a challenge without first raising the matter with the Treasury Solicitor by letter or if he failed to
include in his witness statement, or attach to it, some evidence which raised doubt as to whether the Attorney General had authorised the application.
However, the absence of a letter from the Treasury Solicitor in answer to an inquiry might constitute such evidence. The Attorney General should respond
to the application in the ordinary way, ie by service of a witness statement by someone who could give admissible evidence that it was the Attorney
General, perhaps acting by the Solicitor General, who had made the application and had authorised the Treasury Solicitor to act. It followed that the onus
was on the party challenging the solicitor’s authority to lead evidence which lent support to that assertion, and in the absence of such evidence there was
no need for the Attorney General to lead evidence in rebuttal. In the instant case, the challenge had been made too late without any evidence in support of
it. Accordingly, the appeal would be dismissed (see p 613 j to p 614 a, p 615 a to g, p 616 b c and p 617 g, post).
­ 609
Dicta of Pill LJ in A-G v Hayward (1995) Times, 20 November and A-G v Williams [1996] COD 368 explained.

Notes
For vexatious litigants, see 37 Halsbury’s Laws (4th edn) para 143.
For the Supreme Court Act 1981, s 42, see 11 Halsbury’s Statutes (4th edn) (2000 reissue) 1083.

Cases referred to in judgment

A-G v Hayward (1995) Times, 20 November, [1995] CA Transcript 1477.
A-G v Williams [1996] COD 368, DC.
Ladd v Marshall [1954] 3 All ER 745, [1954] 1 WLR 1489, CA.
Richmond v Branson & Son [1914] 1 Ch 968.
Russian Commercial and Industrial Bank v Comptoir d’Escompte de Mulhouse [1923] 2 KB 630, CA; rvsd [1925] AC 112, [1924] All ER Rep 381, HL.
Warwick RDC v Miller-Mead [1962] 1 All ER 212, [1962] Ch 441, [1962] 2 WLR 284, CA.
Yorkshire Bank plc v Hall, Hall v Yorkshire Bank plc [1999] 1 All ER 879, [1999] 1 WLR 1713, CA.

Appeal
The appellants, Lewis Frank Foley and Harry Desmond Foley, appealed with permission of the Court of Appeal (Millett and Brooke LJJ) granted on 21
August 1997 from the decision of the Divisional Court (Rose LJ and Hooper J) made on 18 February 1997 granting an application by the respondent, the
Attorney General, for the making of civil proceedings orders against the appellants under s 42 of the Supreme Court Act 1981. The facts are set out in the
judgment of the court.

Timothy Straker QC and Mohammed Hashmot Ullah (instructed by Yogarajah & Co) for Lewis Frank Foley (who appeared in person after withdrawing
instructions from his lawyers during the course of the hearing).
Raymond Croxon QC and Frank Slevin (instructed by Mahmood & Southcombe, Ilford) for Harry Desmond Foley.
Guy Sankey QC (instructed by the Treasury Solicitor) for the Attorney General.

Cur adv vult

1 March 2000. The following judgment of the court was delivered.

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SCHIEMANN LJ (giving the judgment of the court).

1. In what circumstances does the Attorney General need to call evidence to satisfy the court that he has authorised the making of an application for
a civil proceedings order against an allegedly vexatious litigant? What is the nature of the evidence which he must call? These are the questions with
which this appeal is concerned. They are questions of some general interest since there has in recent years been a substantial rise in the number of such
orders which are sought and made. Whereas in the years 1990–1994 15 litigants were declared vexatious, there were 44 in the years 1995–1999.
2. Lewis and Harry Foley appeal by permission of this court (Millett and Brooke LJJ) against the making by the Divisional Court (Rose LJ and
Hooper J) of a civil proceedings order against each of them. The permission was limited to the issue whether proceedings were properly brought in the
name of the Attorney General.
­ 610
3. Civil proceedings orders are made pursuant to s 42 of the Supreme Court Act 1981 which, as amended, reads as follows:

‘Restriction of vexatious legal proceedings.—(1) If, on an application made by the Attorney General under this section, the High Court is
satisfied that any person has habitually and persistently and without any reasonable ground—(a) instituted vexatious civil proceedings, whether in
the High Court or any inferior court, and whether against the same person or against different persons; or (b) made vexatious applications in any
civil proceedings, whether in the High Court or any inferior court, and whether instituted by him or another; or (c) instituted vexatious prosecutions
(whether against the same person or different persons), the court may, after hearing that person or giving him an opportunity of being heard, make a
civil proceedings order, a criminal proceedings order or an all proceedings order.
(1A) In this section—“civil proceedings order” means an order that—(a) no civil proceedings shall without the leave of the High Court be
instituted in any court by the person against whom the order is made; (b) any civil proceedings instituted by him in any court before the making of
the order shall not be continued by him without the leave of the High Court; and (c) no application (other than one for leave under this section) shall
be made by him, in any civil proceedings instituted in any court by any person, without the leave of the High Court …
(2) An order under subsection (1) may provide that it is to cease to have effect at the end of a specified period, but shall otherwise remain in
force indefinitely.
(3) Leave for the institution or continuance of, or for the making of an application in, any civil proceedings by a person who is the subject of an
order for the time being in force under subsection (1) shall not be given unless the High Court is satisfied that the proceedings or application are not
an abuse of the process of the court in question and that there are reasonable grounds for the proceedings or application …
(4) No appeal shall lie from a decision of the High Court refusing leave required by virtue of this section.’

4. In this court, Mr Lewis Foley was represented by Mr Timothy Straker QC and Mr Ullah and Mr Harry Foley by Mr Raymond Croxon QC and Mr
Slevin and the Attorney General by Mr Guy Sankey QC. We also had before us a careful and helpful submission (prepared at the court’s request before
the Foleys had obtained legal aid and counsel) by Mr David Foxton acting as an amicus curiae for which we express our gratitude. Fairly shortly after Mr
Straker had begun his submissions Mr Lewis Foley rose to inform us that he was dispensing with the further services of his legal team. He then addressed
us himself for a while before deciding that he would re-instruct his legal team. This he did and Mr Straker continued with his submissions. However,
shortly before he had concluded them Mr Lewis Foley once more indicated that he did not wish his legal team to continue to represent him. At this point
they departed. We heard nothing from Mr Foley which calls for a reasoned response from this court and which was not contained in either the written or
the oral submissions of Mr Straker which were made with his customary clarity and felicity. Since the hearing we have received letters from each litigant
and from Peter Rubery Hayward and Terence Patrick Ewing who, having themselves been declared vexatious litigants some years ago, claim that they
acted as unqualified legal advisers to the Foleys. We do not think it ­ 611 appropriate to consider the matters referred to in those letters in so far as they
go beyond matters ventilated at the hearing.
5. Before the Divisional Court was a notice of motion signed on behalf of the Treasury Solicitor intimating that the court would be moved by
counsel on behalf of the Attorney General for a civil proceedings order against each of the Foleys. The evidence before the Divisional Court on the
question whether the making of the application had been authorised by the Attorney General (in so far as there was any) was contained in two affidavits
sworn respectively on 16 February 1996 and 10 July 1996 by Ms Martin. In the first she swore that she was a solicitor in the office of the Treasury
Solicitor and that she had conduct of this matter on behalf of the applicant and that she had been involved ‘with a view to consideration being given by
Her Majesty’s Attorney General as to whether an application should be made to this court for a Civil Proceedings Order …’ In the second affidavit,
which was apparently prompted by a request by Mr Lewis Foley that she should also refer to a number of other actions in which he had been involved,
she refers to those other actions and exhibits relevant documents. She goes on to say in para 6:

‘I am instructed that a submission was put to the Solicitor General inviting him to agree to this application being made. A copy went to the
Attorney General who initialled it and the Solicitor General endorsed the submission with his agreement to the making of the application.’

6. The Divisional Court hearing was on 18 February 1997. On that day, or possibly the day before, the Foleys (at that point unrepresented) raised,
apparently for the first time, an assertion that the application for a civil proceedings order had not been and was not being made by the Attorney General.
They submitted that in those circumstances the court had no jurisdiction to make the order. This contention was summarily rejected by the court in the
following words in the judgment of Rose LJ (with which Hooper J agreed), ‘there is a sufficient evidential indication of the appropriate authority for the
bringing of this application’.
7. The submission relied heavily on two passages in judgments of Pill LJ. The first is a dictum in A-G v Hayward (1995) Times, 20 November,
[1995] CA Transcript 1477, a decision of this court (Staughton, Henry and Pill LJJ). In that case the appellant led evidence to the effect that the Attorney
General had said to him that he had not been personally consulted about the case. A person in the legal secretariat to the law officers deposed to the
contrary. The court accepted that there had been consultation with the Attorney General. The leading judgment was delivered by Henry LJ and Pill LJ
agreed with it. He however went on to say:
‘… in any future applications under s 42, care should in my view be taken that appropriate information is provided in the affidavit in support of
the application. An application under s 42 can have serious consequences, and the Attorney General’s involvement required by statute should be
demonstrated plainly in the evidence submitted to the court with the application.’
Neither of the other Lords Justices expressed any view on that matter. It was not necessary for them to do so. The other passage is contained in A-G v
Williams [1996] COD 368 a decision of the Divisional Court (Pill LJ and Newman J). Pill LJ said:
­ 612
‘There is evidence by way of affidavit before the court that a law officer has personally considered the papers in this case and authorised the
making of the application. Bearing in mind the fundamental right under consideration, the right to bring proceedings before the courts, it is, in my
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view, appropriate that personal consideration is given to any proposed application by a law officer and that evidence of such consideration appears
on the material before the court.’
8. When giving permission to appeal in the present case, Millett LJ indicated that he was far from convinced that these dicta correctly represented
the law or that any burden of introducing evidence is placed upon the Attorney General from the outset. However, the court thought it right that the law
should be examined on the appeal.

The effect of a civil proceedings order

9. Once a civil proceedings order has been made and any appeal against the making of that order has been dismissed, its effect is that the vexatious
litigant cannot proceed with any case without the leave of the High Court. This places him at some disadvantage: in particular he is deprived of the right
which other litigants have to test a decision of the High Court by seeking permission to appeal to the Court of Appeal.

Who can make the application for a s 42 order?

10. The 1981 Act authorised only the Attorney General to make the application. The ordinary citizen, no matter how vexed he may have been by a
persistent litigant, cannot make such an application to the court. By s 1 of the Law Officers Act 1944:

‘(1) Any functions authorised … by any enactment … to be discharged by the Attorney General may be discharged by the Solicitor General, if
… (c) the Attorney General authorises the Solicitor General to act in any particular case.’

11. The Law Officers Act 1997 has now replaced those provisions. It provides in s 1:

‘(1) Any function of the Attorney General may be exercised by the Solicitor General.
(2) Anything done by or in relation to the Solicitor General in the exercise of or in connection with a function of the Attorney General has
effect as if done by or in relation to the Attorney General.’

12. However, that Act was not in force at the time that consideration was given to the institution of the present proceedings. The argument in front
of us has proceeded on the basis that the 1997 Act has no direct application.

Is there a burden on the Attorney General to lead evidence that the application is made by him after proper consideration of the relevant material?
13. It was submitted on behalf of the appellants that the Attorney General could not succeed in an application under s 42 in the absence of evidence
of his authorisation of the proceedings. We reject that submission. The Attorney General, like any other litigant, is entitled to employ solicitors and
counsel to make an application on his behalf. In the absence of any challenge, solicitors making such an application are assumed to have authority so to
do from their ­ 613 client. If there is a challenge to the authority of the solicitor it should be made as soon as possible. If it succeeds then there will be
no need to examine the substance of the dispute. This has long been the case.
14. In Russian Commercial and Industrial Bank v Comptoir d’Escompte de Mulhouse [1923] 2 KB 630 at 671–672 Atkin LJ said:

‘I desire to add that even if there were a question of defective authority to sue, in my judgment it was not open to the defendants to raise the
point as a matter of defence. The judgment of Warrington J. in the case of (Richmond v Branson & Son [1914] 1 Ch 968 at 974) appears to me to
state the law in a matter of this kind, where the question is whether the action has been brought with the authority of an existing principal, himself
capable of suing. In that case the learned judge says: “But the real question is the authority of the solicitor. Is that a question which can be raised
as a relevant issue in the action and at the trial? No authority has been cited in support of the affirmative of such a proposition, and, in my opinion,
it is impossible, according to the ordinary practice and procedure of the Court, to justify that proposition. The business of this Court could not be
carried on if one were not entitled to assume the authority of the solicitor unless and until that authority has been disputed and shewn not to exist in
the proper form of proceeding, namely, a substantive application on the part of the parties concerned to stay the proceedings on the ground of want
of authority.”’

15. In Warwick RDC v Miller-Mead [1962] 1 All ER 212 at 215, [1962] Ch 441 at 451, Lord Evershed MR said:
‘… it was unfortunate and (strictly) quite wrong that the point taken by the defendant in the present proceedings—whether it was, in effect, a
mere challenge of the solicitors’ authority to issue the writ in the council’s name or whether it was the real point involved in the present appeal, as it
emerged in this court … was taken by way of “preliminary objection” on the hearing of the motion. In my judgment, if the defendant sought to stay
the present proceedings or have them dismissed as disclosing no cause of action (which is the real point now raised by the defendant), and, equally,
if the defendant sought to challenge the solicitors’ authority to initiate the present action in the council’s name and make the solicitors personally
liable to pay the defendant’s costs, then, in either case, the defendant should have issued an appropriate summons or process in the action for the
purpose.’
Danckwerts LJ added:
‘In this case, it is clear that the course of the proceedings has quite failed to comply with the proper procedure. The council began the
proceedings on July 21, 1961, by a writ claiming that the defendant was causing a statutory nuisance, and on the same day produced a notice of
motion for an interlocutory injunction. It was this notice of motion and nothing else which was before WIDGERY, J., as vacation judge. A
preliminary objection was taken on behalf of the defendant, but it was an objection which went far beyond the question of interlocutory relief. It
was an attack on the existence of the action. If this attack was to be pursued, the defendant ought to have been required to formulate and serve
either a motion or summons for the dismissal of the action. Nothing of the sort occurred, and, in my opinion, the defendant was ­ 614 wholly out
of order and his objection should not have been heard at this stage of the proceedings.’ (See [1962] 1 All ER 212 at 223, [1962] Ch 441 at
463–464.)
16. The contention of lack of authority is in every sense a preliminary—and, if successful, fatal—point; and it should be taken by early,
interlocutory application to stay the proceedings. Accordingly, we expect such an issue to emerge in the following way: (1) in the claim form, and
supporting witness statement or affidavit, as now provided by CPR Sch 1, RSC Ord 94, r 15, the Treasury Solicitor will, merely by his references to the
Attorney General as the applicant and to himself as the solicitor acting in the matter, represent that the attorney makes the application and authorises him
to act on his behalf in the proceedings; (2) there is no need for evidence in support of such representations to be given at that stage; (3) if a respondent
seeks to challenge such representations, he should do so by the early filing of an application notice for a stay, supported by a witness statement; (4) the
court would be likely to consider that a respondent who mounts such a challenge had acted unreasonably in not having raised the matter with the Treasury
Solicitor by letter prior to issue of the application; on receipt of such a letter, the Treasury Solicitor would presumably wish to explain, in the light of what
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has been set out above, the circumstances by reason of which he contends he is authorised to act on behalf of the Attorney General in the proceedings; (5)
the court would also be likely to consider that a respondent had acted unreasonably in filing an application notice to stay without the inclusion in or
attached to his witness statement of some evidence which raises doubt as to whether the Attorney General had made the application. The absence of a
letter—or a satisfactory letter—from the Treasury Solicitor in answer to the inquiry suggested at (4) might constitute such evidence; or there could be
other evidence the nature of which it would be foolish for us here to guess. (6) The Attorney General would respond to the application in the ordinary
way, ie by service of a witness statement. The author would need to be someone who could give admissible evidence that it was the Attorney General
(perhaps acting by the Solicitor General) who had made the application and had authorised the Treasury Solicitor to act. (7) The application to stay
would be listed in the Crown Office.
17. It will be seen that in our judgment it is for him who challenges the fact that the solicitor has authority to commence proceedings to lead
evidence which lends support to that assertion. In the absence of such evidence we see no need for the Attorney General to lead evidence in rebuttal. We
are conscious of submissions to the effect that a constitutional right is at stake. Counsel has not sought to argue that the making of a s 42 order is in itself
invariably a breach of the litigant’s constitutional rights. It should be borne in mind that no order will be made by the court unless it is satisfied as
required by the section. The citizen’s primary safeguard is the court not the Attorney General. The purpose of the involvement of the Attorney General is
to save the citizen from applications by his fellow citizens and indeed to save the court from having to hear such applications. We suspect that the dicta
by Pill LJ cited above were motivated by a consciousness that litigants in this type of litigation tend to take every conceivable point and there may be
merit in meeting points which might be taken before they are in fact taken. They cannot, in our respectful judgment, be taken as authority for the
proposition that a s 42 application purportedly made on the Attorney General’s behalf by the Treasury Solicitor must be held to be unauthorised in the
absence of evidence to the contrary.
­ 615

Once a challenge has been made supported by evidence, what evidence is required from the Attorney General?
18. The answer to this will depend on the nature of the evidence led in support of the challenge.

The present case

19. The challenge was made far too late. It was supported by affidavits sworn on the date of the hearing which originally contained two paragraphs
asserting a belief in each of the Foleys that the application was not made by the Attorney General or authorised by him. Those two paragraphs were, we
understand, expressly disavowed by the Foleys before the Divisional Court and were struck out from the affidavit. No ground for any such belief was
advanced. In those circumstances there was no need for the Attorney General to file any further affidavits and the Divisional Court was entitled to make
the order which it made.
20. In the event, counsel for the Attorney General, by way of making assurance doubly sure, did seek to adduce in evidence before us a third
affidavit, sworn after the Divisional Court hearing, by Mr Jonathan Jones who at the relevant time was employed in the legal secretariat to the law
officers. He confirms that the application was made with the authority of the law officers. He swears that on 29 March 1995 he put a submission dealing
with the cases of the Foleys to both the law officers. He continues:

‘The Attorney General initialled his copy of the submission on 30 March 1995 thereby authorising the Solicitor General to deal with the matter
in accordance with Section 1(1)(c) of the Law Officers Act 1944. The Solicitor General endorsed his agreement to the making of the Section 42
application on his copy of the submission on 29 March 1995.’

21. These dates led to submissions on behalf of the Foleys that since the Solicitor General appears to have considered the matter on the day before
the Attorney General had decided to authorise the Solicitor General to discharge this function it follows that, at the time that the matter was considered by
him, the Solicitor General had no authority to consider it. Such submissions were premised on the fact that, at the time of the consideration by the
Solicitor General and the making of the application, the Law Officers Act 1997 was not in force. Assuming in favour of the appellants that it is the
launching of proceedings rather than the appearance of counsel before the court which is the latest time in relation to which authorisation has to be
considered, we rule on these submissions on the basis that the 1997 Act is of no relevance. Even so, since the originating motion containing the
application was not issued by the court until well after 30 March 1995 these submissions lack any force. It is the making of the application which has to
be authorised. It clearly was. The fact that, before receiving authority from the Attorney General, the Solicitor General had applied his mind to the facts
of the case in the, as it turned out fully justified, expectation that he would obtain specific authority to make an application if he thought fit, does not
mean either that that he did not apply his mind properly to the case or that at the time the application was made it he was not authorised to discharge on
behalf of the Attorney General the function of making an application under s 42 of the Supreme Court Act 1981.
22. No doubt foreseeing that this latest affidavit hardly lent strength to the Foleys’ case, counsel submitted that it should not be admitted on the basis
that the tests in Ladd v Marshall [1954] 3 All ER 745, [1954] 1 WLR 1489 were not ­ 616 satisfied. We looked at it, taking the view that there was
ample reason for the non-production of this evidence before the Divisional Court—no point had clearly been taken on the proper constitution of the action
and the Attorney General’s authority until the date of the hearing in that court and it could not be foreseen that the Foleys would submit that further
evidence as to authority was requisite. As we have held, in fact it was not. On the view we take of the law this affidavit is unnecessary and could be
excluded on that ground. However, the appellants having argued for a different view of the law, we think it right to admit it.
23. We mention finally some common sense points. The appeal is limited to the question whether it has been shown that the Attorney General gave
his consent to the making of an application to have the Foleys declared vexatious. It has not been suggested that counsel appearing for the Attorney
General in the appeal has not been instructed to resist the allowing of the appeal. This leads one to the conclusion that if we had been minded to allow the
appeal on the ground sought all that would have happened would have been a new application by the Attorney General in which an affidavit on the lines
of the Jones affidavit would have been placed before the court and the court would then have had to consider all over again whether or not the conditions
in s 42 had been fulfilled. All this would serve no useful purpose.
24. Mr Lewis Foley and Mr Croxon asked the court to order the Attorney General to produce the submission which had been made to him and
which was referred to in the affidavits sworn on his behalf. Mr Sankey offered to produce it to the court but not to the Foleys. We did not accept that
offer. In general the court will indeed order the production to the other side of any document referred to in an affidavit. Where one is concerned with a
document passing between a litigant and his solicitor, or a document containing advice to a minister circulating within a government department, complex
issues can arise. We saw no need to address them in the context of this case. The court will not make an order unless there is reason to suppose that
compliance with the order will in some way advance the ends of justice. We heard no coherent argument to suggest that this would be the case if we
made the order sought by Mr Foley and Mr Croxon. This was a document referred to in, as we hold, an unnecessary affidavit. We therefore refuse to
make an order for disclosure.
25. We therefore dismiss the appeals.
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Reasons for refusing leave to appeal on other grounds

26. At the hearing before us, permission was sought by Mr Croxon to expand the grounds of appeal beyond the single point upon which permission
had already been given. We refused that application for reasons which follow and raise no points of general interest.
27. Mr Croxon applies for leave to appeal on the grounds set out in paras 9–11 and 17–22 of the notice of appeal by Harry Foley dated 29 August
1997. The notice of appeal is irregular in as much as it incorporates two points for which leave was not given, but it is convenient for the purposes of this
judgment to refer to it and to its numbering.
28. The first point sought to be argued is that Mr Harry Foley was not given by the Divisional Court a fair opportunity to argue some points—

‘in his skeleton argument relating to the lawful appointment of the Law Officers and their existence in law and whether their decisions to apply
for a ­ 617 Civil Proceedings Order against the 2 Appellant might be subsequently challenged in the Divisional Court.’

The second point is that—

‘the Divisional Court erred in law in making the Civil proceedings order against the 2 Appellant for an indefinite period … which was
disproportionate in effect without specifically considering whether the said order was individually merited in the circumstances of the 2 appellant
seriatim from those pertaining to that of the 1 Appellant.’

29. Following delivery of the judgment in the Divisional Court Mr Harry Foley said this: ‘I wish leave to appeal, sir. You have not heard all my
evidence of perjury. You did not give me the time to put my case forward on perjury which is on your desk now.’ The court, however, refused him leave.
30. It is common ground that this court has jurisdiction to expand a grant of permission to appeal but that this power should be sparingly exercised
(see Yorkshire Bank plc v Hall, Hall v Yorkshire Bank plc [1999] 1 All ER 879 at 889–890, [1999] 1 WLR 1713 at 1725).
31. The proposed grounds of appeal relating to the appointment of the law officers were not pursued by Mr Croxon.
32. So far as evidence is concerned, Mr Harry Foley was permitted to adduce an affidavit sworn by him on 18 February 1996—the date of the
hearing before the Divisional Court. It contains much argument and no relevant admissible evidence. The substance of the arguable points covered in the
affidavit are dealt with in the Divisional Court’s judgment. As we understood Mr Croxon he did not wish to adduce more evidence at this stage.
33. So far as submissions before the Divisional Court on the first point are concerned, they cover much the same ground as those taken by his
brother. Mr Harry Foley had submitted a closely typed skeleton argument of which the first 12 pages are substantially concerned with this point. Many
authorities are cited and quoted.
34. We have seen nothing in the papers and heard nothing in the submissions to lead us to suppose that Mr Foley was unreasonably denied any
opportunity to put material before the court whether by way of evidence or submission which might have advanced his case further.
35. In the course of submissions, Mr Croxon has clarified the second main point sought to be argued. The substance of the point is that Mr Harry
Foley wished at the time of the hearing before the Divisional Court and wishes now to argue that any civil proceedings order against him should be
limited in time and not be indefinite. He points out that there is no mechanism for discharging an indefinite civil proceedings order and that to be classed
as a vexatious litigant is something no one would wish to be. He submits that Mr Foley would have liked to persuade the Divisional Court that the facts
of the eight actions in which he was apparently involved did not show such behaviour in him as to warrant the making of an indefinite order. Mr Foley
would have liked to have shown that in at least some of the actions which had been struck out he played a minor or non-existent part. Mr Harry Foley
would like to have put material before the Divisional Court to the effect that Mr Lewis Foley was using his brother’s name without authority.
36. Such arguments are potentially a good reason for either not making an order or for limiting its effect. To take an extreme example, clearly if a
litigant ­ 618 repeatedly starts actions or applications in someone else’s name without his knowledge then it would be unjust to pronounce that other
vexatious. It is not submitted that the present case is such an extreme case but it is submitted that some of the elements of that position may be found in
the present case.
37. However, these submissions face a major obstacle. Neither the evidence nor the written submissions of Mr Harry Foley give any indication that
this type of argument was sought to be advanced before the Divisional Court. In the circumstances, there can be no possible criticism of the Divisional
Court for not addressing it. Even the affidavit sworn by Mr Harry Foley after the judgment of the Divisional Court in support of his application for
permission to appeal gives no hint that any arguments based on his brother’s alleged lack of authority to pursue the various actions would be pursued in
this court.
38. Mr Croxon submitted that, even if the Divisional Court be beyond criticism in that respect, we should permit these points to be raised in order to
do justice to his client who had, like so many litigants in person, been remiss in getting his tackle in order because he did not know what he was doing and
was perhaps too much under the influence of his brother who was also not very clear about what had to be done. We are not persuaded by these
submissions. Such submissions could only succeed if there were significant evidence to support them. Even now there is none.
39. Finally Mr Croxon submitted that the Divisional Court had not applied its mind to the question whether it would be right to make a limited as
opposed to an indefinite order. He submitted that the involvement of his client in the eight actions which were laid at his door by the Divisional Court
could be seen, by a study of the files exhibited to the affidavits sworn on behalf of the Attorney General, to have been less than full-blooded. It is clear
from the transcript of judgment that the Divisional Court twice referred to the need to consider whether or not the order should be made indefinite. This
shows that it did apply its mind to the question. The prospect of a minute examination of the eight case files showing that the making of an indefinite
order was outside the discretion of the Divisional Court is not such that it would be right to give leave for that point to be argued, the more so since this
court has already refused so to do.

Appeal dismissed. Permission to appeal to the House of Lords refused.

Dilys Tausz Barrister.

[2000] 2 All ER 620
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Zoan v Rouamba

CONSUMER; Consumer credit

COURT OF APPEAL, CIVIL DIVISION

HENRY, CHADWICK AND MAY LJJ
23 NOVEMBER 1999, 21 JANUARY 2000

Consumer credit – Agreement – Form and content of agreement – Hire charges – Claimant’s car damaged in accident with defendant’s car – Claimant
entering into agreements for hire of cars while own car repaired – Each agreement entitling claimant to postpone payment of hire charges ‘until a date
on or before 12 months after the date of this Agreement’ – Claimant seeking to recover hire charges as damages – Whether agreements falling within
exemption to statutory regime on regulated agreements – Consumer Credit (Exempt Agreements) Order 1989, art 3(1)(a)(i).

Z claimed damages for the cost of hiring four substitute vehicles while his own vehicle, damaged by R’s negligence, was off the road Each of the
replacement vehicles was hired under a separate standard form contract with the same company. Condition 10.1 of those agreements allowed hire charges
to remain outstanding ‘until a date on or before 12 months after the date of this Agreement’. Under condition 10.3, the hire charges became immediately
due and payable upon the occurrence of the earliest of a number of events, including ‘10.3.1 the first anniversary of this Agreement’. At trial, R’s
insurers contended that three of the hire agreements were unenforceable since they failed to comply with the statutory regime on regulated agreements
established by the Consumer Credit Act 1974. The judge concluded that the agreements came within the exemption from that regime provided by art
3(1)(a)(i)a of the Consumer Credit (Exempt Agreements) Order 1989, namely an agreement for fixed-sum credit requiring payment ‘within a period not
exceeding 12 months beginning with the date of the agreement’. R appealed.
________________________________________
a Article 3, so far as material, is set out at p 626 j, post
________________________________________

Held – On the true construction of art 3(1)(a)(i) of the 1989 order, the expression ‘beginning with the date of the agreement’ included the date of the
agreement itself. Thus a contract of hire providing for a deferral in the payment obligation fell outside the exemption provided by art 3(1)(a)(i) unless it
required repayment within a period of twelve months which included the date of the agreement. In the instant case, when condition 10 of the agreements
was read as a whole, it was beyond argument that the date ‘12 months after the date of this Agreement’ was intended to be the same date as the ‘first
anniversary of this Agreement’ referred to in condition 10.3.1. Such a conclusion was consistent with giving the words ‘12 months after the date of this
Agreement’ a construction which excluded from the twelve month period the day on which the agreement was made. It followed that the agreements
required payment of the hire charges within a period which was one day longer than that prescribed by art 3(1)(a)(i) of the 1989 order. Accordingly, the
agreements were not exempt for the purposes of the 1974 Act, and the appeal would therefore be allowed (see p 627 h, p 628 d e, p 629 b c e f and p 633
j, post).
Hare v Gocher [1962] 2 All ER 763 and Trow v Ind Coope (West Midlands) Ltd [1967] 2 All ER 900 applied.
­ 620
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352 distinguished.

Notes
For exemptions from the statutory regime governing consumer credit agreements, see 9(1) Halsbury’s Laws (4th edn reissue) para 102.
For the Consumer Credit Act 1974, see 11 Halsbury’s Statutes (4th edn) (2000 reissue) 17.
For the Consumer Credit (Exempt Agreements) Order 1989, art 3, see 5 Halsbury’s Statutory Instruments (1999 issue) 289.

Cases referred to in judgment

Dimond v Lovell [1999] 3 All ER 1, [1999] 3 WLR 561, CA.
Giles v Thompson [1993] 3 All ER 321, [1994] 1 AC 142, [1993] 2 WLR 908, CA and HL.
Goldsmith’s Co v West Metropolitan Railway Co [1904] 1 KB 1, [1900–03] All ER Rep 667.
Hare v Gocher [1962] 2 All ER 763, [1962] 2 QB 641, [1962] 3 WLR 339, DC.
Investors Compensation Scheme Ltd v West Bromwich Building Society, Investors Compensation Scheme Ltd v Hopkin & Sons (a firm), Alford v West
Bromwich Building Society, Armitage v West Bromwich Building Society [1998] 1 All ER 98, [1998] 1 WLR 896, HL.
Lympne Investments Ltd, Re [1972] 2 All ER 385, [1972] 1 WLR 523.
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] AC 749, [1997] 2 WLR 945, HL.
Stewart v Chapman [1951] 2 All ER 613, [1951] 2 KB 792, DC.
Trow v Ind Coope (West Midlands) Ltd [1967] 2 All ER 900, [1967] 2 QB 899, [1967] 3 WLR 633, CA.
Young v Higgon (1840) 6 M & W 50, [1835–42] All ER Rep 278, 151 ER 317.

Cases also cited or referred to in skeleton arguments

Carapanayoti & Co Ltd v Comptoir Commercial Andre & Cie SA [1972] 1 Lloyd’s Rep 139, CA.
Dedman v British Building and Engineering Appliances Ltd [1974] 1 All ER 520, [1974] 1 WLR 171, CA.
Dodds v Walker [1981] 2 All ER 609, [1981] 1 WLR 1027, HL.
English v Cliff [1914] 2 Ch 376.
Haigh v Lewis & Co (Westminster) Ltd [1973] 8 ITR 360, NIRC.
McAll v Brooks [1984] RTR 99, CA.
Mills v Dunham [1891] 1 Ch 576, CA.
Sidebottom v Holland [1895] 1 QB 378, [1891–94] All ER Rep 617.

Appeal
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The defendant, Beatrice Rouamba, appealed with permission of Judge Harris QC from his decision at the Northampton County Court on 19 July 1999,
whereby he awarded the claimant, Nigel Zoan, damages for the cost of hiring substitute vehicles while his own vehicle was off the road for repairs to
damage caused by the appellant’s negligence. The facts are set out in the judgment of the court.

Hilary Heilbron QC and Tim Kevan (instructed by Rollingsons) for Mrs Rouamba.
Ian Hunter QC and Frederick Philpott (instructed by Franklins, Northampton) for Mr Zoan.

Cur adv vult

­ 621

21 January 2000. The following judgment of the court was delivered.

CHADWICK LJ.
1. This is the judgment of the court in an appeal, with leave of the trial judge, from that part of the order of Judge Harris QC, made in the
Northampton County Court on 19 July 1999, giving the claimant damages for the cost of hiring substitute vehicles while his own vehicle, damaged by the
defendant’s negligence, was off the road.
2. The facts are simple. Mr Zoan owns and drives a Jeep Grand Cherokee motor car. It was damaged in a road traffic accident by a vehicle driven
by Mrs Rouamba, the defendant. The accident was entirely the defendant’s fault. Happily no one was injured. Mrs Rouamba was insured, and her
insurers conducted her defence. They admitted liability, and paid for the vehicle to be repaired. But they refused to pay for two heads of damage. The
first, the diminution of value of the claimant’s vehicle, because the repairs did not restore it to its pre-accident value, need not concern us beyond noting
that the claimant recovered £1,300 under that head.
3. But additionally, the claimant claimed the cost of hiring equivalent vehicles over the repair period while his vehicle was off the road. He
recovered damages of £25,833·48 under that head of claim. The defendant appellant now appeals as to £10,702·45 of the damages awarded in relation to
hire charges.
4. There were four separate contracts of hire, one for each vehicle. The respondents concede that the judge was right to treat them separately. Each
of those contracts was on the standard form contract of Swift Rent-A-Car Ltd (Swift). One aspect of Swift’s business was the hiring out of replacement
cars to those whose vehicles were off the road as a result of accidents that were not their fault. Swift under their contract extended credit to the hirer, so
that, if he got on with his action, he would not have to pay the hire charges until he got his damages. Swift were notified of this appeal, but have not
applied to be heard.
5. For the purposes of this appeal, there is one defence only: namely that three of the four contracts of hire for the replacement vehicles were
‘improperly executed and unenforceable’ because of the pleaded failure to comply with the statutory requirements of the Consumer Credit Act 1974, and
the regulations made thereunder. The case below focused entirely on whether the three car hire agreements were exempt from that statutory regime on the
ground that condition 10 of those agreements complied with art 3(1)(a)(i) of the Consumer Credit (Exempt Agreements) Order 1989, SI 1989/869. Both
sides made concessions to define the issue for the judge:

‘The plaintiff in fact conceded that, if these agreements were not exempt agreements, then they were indeed unenforceable and, as the law
currently stands, that he could not recover from the defendant as a result of Dimond v Lovell ([1999] 3 All ER 1, [1999] 3 WLR 561). The
defendant in turn agreed that the fourth agreement was indeed exempt since the amount of credit exceeded £15,000.’

6. The judge’s reference to Dimond v Lovell [1999] 3 All ER 1, [1999] 3 WLR 561 requires some explanation. For a long time many claimants
whose vehicles were put off the road by the negligence of others did not claim that head of damage. This benefited negligent drivers and their insurers.
Car hire companies saw this niche in the market, and entered the market to fill it, with apparent commercial success. Motor insurers counter-attacked,
claiming that such agreements were ­ 622 champertous, and therefore unlawful. This claim failed in their Lordships’ House in Giles v Thompson
[1993] 3 All ER 321 at 351–352, [1994] 1 AC 142 at 154–155. We take Lord Mustill’s analysis of the forensic history:
‘The question has arisen in this way. A substantial proportion of motor accidents take place in circumstances where there is little room for
doubt that one party is exclusively to blame: typically, where the car of one driver (hereafter “the motorist”) is stationary, for example at a traffic
light, and where a car driven by another person (the defendant) is carelessly driven into the back of it. There are two types of damages which may
be awarded to the motorist in any resulting litigation. First, there are damages for any personal injury which the motorist may have suffered. These
will usually comprise general damages for pain, suffering and loss of amenity, and special damages for past and future loss of earnings. Secondly,
there are damages related to the loss of or damage to the motorist’s vehicle. These will or may have two elements: a figure representing the
diminution in value of the motorist’s vehicle, and another figure representing the financial loss suffered by the motorist because he or she cannot
use the vehicle whilst it is either being replaced (if written off) or undergoing repairs. In practice these various elements are dealt with in various
ways. The damage to the car itself is settled between insurers, apart from the excess on the motorist’s policy, which he may not trouble to pursue
except as an appendage to a larger claim. The motorist’s claims for personal injuries may be substantial in amount, and will be made the subject of
an action, if the motorist can finance the action either from his own resources, or from some form of insurance, or (if he is of very limited means)
by legal aid. There remains the claim for loss of use of the car. In principle, if such a claim is made it will often be quantified by reference to the
cost of hiring a substitute vehicle, and will be recoverable upon proof that the motorist needed a replacement car whilst his own was off the road. I
say “if such a claim is made” for two reasons. First, because the loss of use is not recoverable under a comprehensive policy, so that there are no
subrogated insurers to stand behind the claim, and in situations where there is no personal injury claim and where the damage to the motorist’s
vehicle is dealt with as between insurers there are few motorists who will have the time, energy and resources to go to law solely to recover the cost
of a substitute vehicle. Secondly, because there are many motorists who lack the inclination or the ready cash to hire a substitute on the chance of
recovering reimbursement from the defendant’s insurers. Thus, there exists in practical terms a gap in the remedies available to the motorist, from
which the errant driver, and hence his insurers, frequently profit. In recent years a number of commercial concerns (hereafter “the car hire
companies”) have identified this gap and have sought to fill it in a manner advantageous alike to motorists and to themselves, by offering to
motorists with apparently solid claims against the other parties to collisions the opportunity to make use of the car hire companies’ cars whilst their
own are off the road. The terms on which this opportunity is given are said to be, in broad outline, as follows. (1) The car hire company makes a
car available to the motorist whilst the damaged car is under repair. (2) The car hire company pursues a claim against the defendant, at its own
expense and employing solicitors of its choice, in the name of the motorist for loss of use of the motorist’s car. (3) The car hire company makes a
charge for the loan ­ 623 of the replacement car, which is reimbursed from that part of the damages recovered by the motorist from the defendant
or his insurers which reflects the loss of use of the motorist’s car. (4) Until this happens the motorist is under no obligation to pay for the use of the
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replacement car. (5) These arrangements are conditional on the co-operation of the motorist in pursuing the claim and any resulting legal
proceedings. (6) The car hire companies aim to confine the scheme to cases where the motorist is very likely to succeed in establishing the
defendant’s liability, without any contributory negligence on the part of the motorist. Transactions on these general lines have been entered into in
large numbers, to the discomfort of the defendants’ insurers, who have been faced with claims of which an element reflects the cost of a
replacement vehicle which would not have been hired but for the existence of the scheme. The insurers have counter-attacked by alleging that the
hiring agreements are champertous and accordingly unlawful, or otherwise contrary to public policy. Whilst no longer contending that actions
which include an element of damages referable to the charges made, or said to be made, by the car hire companies are an abuse of the process of the
court, and should therefore be struck out in their entirety, the insurers say that damages cannot be awarded for the hiring charges, since to do so
would enable the motorist to rely on an unlawful contract.’
7. We know from Dimond’s case that in Giles’s case no point on the Act arose. In Dimond’s case, another head of illegality was raised, successfully
on this occasion. That case involved a different car hire company operating on a different contract. It is presently under appeal to their Lordships’ House.
The appellants assert that the issue in this case (as defined above) was not dealt with in Dimond’s case, and that the question whether a clause providing
payment within a year and a day achieves exemption from the Act is the major defence being litigated in a large number of credit hire cases going through
the court. No application was made to stay this hearing to await result of the appeal in Dimond’s case. Nor was it suggested that we were bound by
Dimond’s case on the point in this appeal. So we proceeded to hear this appeal.
8. It is common ground that, if the relevant hire agreements are properly to be regarded as consumer credit agreements within the meaning of s 8(2)
of the Act, the short question raised by this appeal is whether the words used in condition 10.1 of the agreements are apt to take those agreements out of
the regulatory regime imposed by that Act and the Consumer Credit Regulations 1983 and 1987.
9. The question whether or not a replacement vehicle hire agreement under which the obligation to pay the hire charge was deferred pending
resolution of a claim by (or in the name of) the hirer against a third party was capable of being regarded as a consumer credit agreement for the purposes
of the Act was considered by this court in Dimond’s case. This court held that it was. In particular, it was held: (i) that such an agreement, if made with an
individual hirer, was a personal credit agreement within s 8(1) of the Act; and (ii) that if the amount of the credit provided did not exceed the limit
prescribed under s 8(2)—£15,000 at the time relevant to this appeal—the agreement was a consumer credit agreement. Subject to one point—to which
we are about to refer—the respondent did not seek to re-open that question on this appeal.
10. The amount of the deferred hire charge in Dimond’s case was well within the limit prescribed under s 8(2) of the Act. In the present case,
however, the ­ 624 amount payable under the fourth of the hire agreements exceeded the prescribed limit. It was accepted by the appellant that that
fourth agreement fell outside s 8(2) and was not a consumer credit agreement. But it was also accepted, by the respondent, that—as the judge had
held—the four agreements had to be treated as separate contracts; so that the fact that the amount payable under all four agreements (taken together)
exceeded the prescribed limit did not lead to the conclusion that the first three agreements could not be consumer credit agreements.
11. In this court, however, the respondent sought for the first time to rely on the fact that, although the credit actually provided under each of the first
three agreements was less than £15,000, the agreements themselves imposed no limit. At the time when each agreement was made it was possible that the
amount of the credit to be provided under it would exceed £15,000—as, in the event, happened in the case of the fourth agreement. The respondent
sought, by way of notice under CPR Sch 1, RSC Ord 59, r 6(1)(b), to contend that an agreement which, as made, provided for credit without limit could
not be a consumer credit agreement within s 8(2) of the Act; notwithstanding that, in the events which happened, the credit actually provided under the
agreement did not exceed the limit prescribed by that section.
12. That respondent’s notice (the only copy of which we have seen is unsigned and undated) was never lodged with the court, and did not get into the
core bundle, though we are told it was received by the appellants on 13 October, some time out of time. Accordingly, we were surprised to be confronted
with it at trial when the time estimate for the hearing already seemed tight. We refused to admit it out of time, for reasons which follow.
13. First, the effect of this point would have brought Dimond’s case centre stage, and thus would potentially cause an overrun to another day in a
tight schedule. And the connection with Dimond’s case appears to bring this new point close to, if not caught by, the stay imposed by Sir Richard Scott
V-C on Dimond cases.
14. Second, if this point is right, it has taken a long time to emerge, and so is just the sort of point on which the views of, and filter imposed by, the
judge at first instance would have been particularly valuable.
15. Third, both those points are strengthened by the fact that this new point was put forward as a test case. It is entirely different from and unrelated
to the illegality defence which is already before the court. It is unsatisfactory for a test case not to have the benefit of the decision at first instance,
particularly when the point sought to be put in issue was conceded before the judge.
16. Fourth, if it is a proper point to be tested by a test case, there will be no difficulty (apart from Sir Richard Scott V-C’s stay on all Dimond cases)
preventing such a test case being set up at short notice.
17. We should make it clear that we have not formed any view on the merits of the point itself; or on the question whether, having regard to the
decision in Dimond’s case, it could succeed in this court.
18. The position, therefore, is that this appeal has been argued on the basis that the first three agreements (the relevant agreements) are consumer
credit agreements within s 8(2) of the Act. The issue is whether they are also regulated agreements.
19. A consumer credit agreement is a regulated agreement for the purposes of the Act if it is not an ‘exempt agreement’; that is to say, if it is not an
agreement specified in or under s 16 of the Act—see s 8(3). Section 16(5) gives power to the Secretary of State to provide by order that the Act shall not
regulate consumer ­ 625 credit agreements where the number of payments to be made by the debtor does not exceed the number specified for that
purpose in the order. That power was exercised by the making of the Consumer Credit (Exempt Agreements) Order 1977, SI 1977/326. Article 3(1) of
the 1977 order provided that the Act should not regulate a consumer credit agreement which fell within one of a number of descriptions. Those
descriptions included, at art 3(1)(a)(i), a debtor-creditor- supplier agreement for fixed-sum credit under which the number of payments to be made by the
debtor did not exceed four.
20. Fixed-sum credit is defined by s 10(1) of the Act. It means any facility under a personal credit agreement whereby the debtor is enabled to
receive credit (whether in one amount or by instalments), not being running-account credit within s 10(1)(a). A debtor-creditor-supplier agreement is
defined by s 12 of the Act. The expression includes a restricted use credit agreement falling within s 11(1)(a) of that Act. A restricted use credit
agreement is a regulated consumer credit agreement to finance a transaction between the debtor and the creditor. It was held by this court in Dimond v
Lovell [1999] 3 All ER 1 at 14, [1999] 3 WLR 561 at 574 (para 69)—in the judgment of Sir Richard Scott V-C, with which the other members of the
court (Thorpe and Judge LJJ) agreed—that a replacement vehicle hire agreement in terms which (so far as material in this context) are indistinguishable
from those of the relevant agreements in the present case was an agreement for fixed-sum credit within s 10(1)(b), a restricted use credit agreement within
s 11(1)(a) and a debtor-creditor-supplier agreement under s 12(a) of the Act. On the basis that the relevant agreements are consumer credit agreements for
the purposes of s 8(2) of the Act it is not in dispute that, if not exempt agreements, they would be debtor-creditor-supplier agreements for fixed-sum
credit.
21. The 1977 order was revoked and replaced by the Consumer Credit (Exempt Agreements) Order 1980, SI 1980/52; and the 1980 order was, in
turn, revoked and replaced by the Consumer Credit (Exempt Agreements) (No 2) Order 1985, SI 1985/757; but the relevant provisions in art 3(1)(a)(i)
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remained unchanged until the coming into operation of the 1989 order.
22. The 1989 order was made in the light of an EC Council Directive of 22 December 1986, Council Directive (EEC) 87/102 (OJ 1987 L42 p 48).
The directive, which had as its expressed objective the provision of ‘a certain degree of approximation of the laws, regulations and administrative
provisions of Member States concerning consumer credit’, was to have no application to credit agreements under which the consumer was required to
repay the credit either within a period not exceeding three months or by a maximum number of four payments within a period not exceeding 12
months—see art 2.1(g). No doubt it was with that provision in mind that art 3(1)(a)(i) of the 1989 order was in a more restrictive form than that which
had appeared in the earlier orders. The relevant article in the 1989 order is in these terms:
‘The Act [of 1974] shall not regulate a consumer credit agreement which is an agreement of one of the following descriptions, that is to
say—(a) a debtor-creditor-supplier agreement being either—(i) an agreement for fixed-sum credit under which the total number of payments to be
made by the debtor does not exceed four, and those payments are required to be made within a period not exceeding 12 months beginning with the
date of the agreement; or …’
­ 626
23. Where, under some legislative provision, an act is required to be done within a fixed period of time ‘beginning with’ or ‘from’ a specified day, it
is a question of construction whether the specified day itself is to be included in, or excluded from, that period. Where the period within which the act is
to be done is expressed to be a number of days, months or years from or after a specified day, the courts have held, consistently since Young v Higgon
(1840) 6 M & W 50, [1835–42] All ER Rep 278 that the specified day is excluded from the period; that is to say, that the period commences on the day
after the specified day. Examples of such an ‘exclusive’ construction are found in Goldsmith’s Co v West Metropolitan Railway Co [1904] 1 KB 1 at 2,
[1900–03] All ER Rep 667 at 667 (‘the powers of the company for the compulsory purchase of lands for the purposes of this Act shall cease after the
expiration of three years from the passing of this Act’) and in Re Lympne Investments Ltd [1972] 2 All ER 385 at 387, [1972] 1 WLR 523 at 525 (‘the
company has for three weeks thereafter neglected to pay’). In Stewart v Chapman [1951] 2 All ER 613 at 614, [1951] 2 KB 792 (‘a person … shall not be
convicted unless … within fourteen days of the commission of the offence a summons for the offence was served on him’) Lord Goddard CJ ([1951] 2 All
ER 613 at 616, [1951] 2 KB 792 at 798–799) observed that it was well established that ‘whatever the expression used’ the day from which the period of
time was to be reckoned was to be excluded.
24. Where, however, the period within which the act is to be done is expressed to be a period beginning with a specified day, then it has been held,
with equal consistency over the past forty years or thereabouts, that the legislature (or the relevant rule-making body, as the case may be) has shown a
clear intention that the specified day must be included in the period. Examples of an ‘inclusive’ construction are to be found in Hare v Gocher [1962] 2
All ER 763 at 764, [1962] 2 QB 641 (‘if within [the period of two months beginning with the commencement of this Act] the occupier of an existing site
duly makes an application … for a site licence’) and in Trow v Ind Coope (West Midlands) Ltd [1967] 2 All ER 900 at 911, [1967] 2 QB 899 at 926 (‘a
writ is valid for … twelve months beginning with the date of its issue’). As Salmon LJ ([1967] 2 All ER 900 at 909, [1967] 2 QB 899 at 923) pointed out,
the approach adopted in the Goldsmith’s Co case and Stewart’s case can have no application in a case where the period is expressed to begin on the
specified date. He observed, that:

‘I cannot … accept that, if words are to have any meaning, “beginning with the date of its issue” can be construed to mean the same as
“beginning with the day after the date of its issue’’.’ (See [1967] 2 All ER 900 at 910, [1967] 2 QB 899 at 924.)

25. The judge held that it was ‘obvious’, from the use of the expression ‘beginning with the date of the agreement’ in art 3(1)(a)(i) of the 1989 order,
that the period of 12 months prescribed by that paragraph included the date of the agreement. In our view he was plainly correct to reach that conclusion.
Notwithstanding the submissions advanced on behalf of the respondent, we can see no basis on which this court could refuse to apply the reasoning which
led the majority (Harman and Salmon LJJ) in Trow’s case to hold that there is a real difference between a direction that a period of time is to begin with a
specified date and a direction that a period is to be reckoned from that date.
26. It was submitted that to give an inclusive construction to the expression used in art 3(1)(a)(i) of the 1989 order would be inconsistent with the
obvious purpose of that paragraph; because it would fail to give effect to Council Directive (EEC) 87/102. We find it impossible to accept that
submission.
­ 627
First, it seems to us impossible to say, with any confidence, that art 2.1(g) was intended to exclude from the application of the directive agreements
under which the consumer was required to repay the credit within a period of 12 months commencing on the day after the date of the agreement, but not
to exclude agreements under which the period of 12 months commenced on the date of the agreement itself. There is no reason to think that, in framing
art 2.1(g), the EC Council had in mind the approach to the reckoning of time developed in our domestic courts; nor that that approach would be followed
in the Court of Justice of the European Communities or in the courts of other member states. Secondly, whatever might be the construction of art 2.1(g)
as a matter of EC law, there is nothing in the directive which prevents a member state from giving effect to its obligations thereunder by exempting only
agreements under which the repayment period does not exceed 12 months commencing on the date of the agreement itself; and by not exempting
agreements under which the repayment period is longer by one additional day. The penultimate recital to the directive makes that clear. Thirdly, there
can be no doubt that, in using the words ‘beginning with the date of the agreement’ in art 3(1)(a)(i) of the 1989 order, the Secretary of State did intend to
prescribe, for the avoidance of doubt, the day on which the period of twelve months is to commence; and, in the light of the decision of this court in
Trow’s case, must be taken to have known the effect (or, at the least, the likely effect) which those words would have as a matter of English law.
27. On the basis, therefore, that the relevant agreements will not be taken out of the regulatory regime imposed by the Act and the associated
regulations by art 3(1)(a)(i) of the 1989 order unless repayment of the credit provided by each of those agreements is required, by the terms of the
agreement, to be made within a period of 12 months which includes the date of the agreement, we turn to the provision for deferred repayment which is
contained in condition 10.1. It should be considered in context. Condition 9 contains the primary obligation to pay hire charges. It is in these terms:

‘9. Payment
Save where the Owner has agreed to provide credit pursuant to Condition 10 the Hirer shall pay to the Owner the Hire Charges within 14 days
of the end of the Hire Period.
9.2 …’

28. Condition 10 applies where, as occurred in the present case, the hire company, as ‘Owner’, allowed credit:

‘10 Credit on the Hire Charges

10.1 Where a Claim exists the Owner may at its complete discretion and subject to the provisions of this Condition allow the Hire Charges to
remain outstanding until a date on or before 12 months after the date of this Agreement (the “Credit Period”).
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10.2 The Hirer agrees to pay to the Owner interest on any outstanding Hire Charges at the Interest Rate from the due date for payment of the
Hire Charges provided for in Condition 9.1 until actual payment.
10.3 The Hire Charges together with interest thereon shall become immediately due and payable by the Hirer upon the occurrence of the earliest
of the following events:
10.3.1 the first anniversary of this Agreement …’
­ 628
29. ‘Claim’ is identified as:

‘ö… a claim by the Hirer to recover loss, including the cost of hiring the vehicle hereunder, resulting from damage sustained by the Hirer’s own
vehicle involved in an accident, which claim is against a party other than the Owner or Hirer’s own insurers.’

30. The other events specified under condition 10.3 may or may not occur before the first anniversary of the agreement. When condition 10 is read
as a whole it is, in our view, beyond argument that the date ‘12 months after the date of this Agreement’ referred to in condition 10.1 is intended to be the
same date as ‘the first anniversary of this Agreement’ referred to in condition 10.3.1. That, of course, is consistent with giving to the words ‘12 months
after the date of this Agreement’ a construction which excludes from the twelve month period the day on which the agreement was made. To give to
those words a construction which excludes the day from or after which the period is to be reckoned is, itself, to adopt the approach consistently adopted
by the courts in relation to similar expressions since Young’s case.
31. The problem to which that approach gives rise may be illustrated by reference to the first of the relevant agreements. The agreement is dated 3
March 1997. The first anniversary of 3 March 1997 is 3 March 1998. The last day of the period of 12 months after 3 March 1997 (excluding 3 March
1997 itself from that period) is 3 March 1998. But the last day of the period of 12 months beginning with the date of the agreement—that is to say,
including 3 March 1997 within the period—is 2 March 1998. So the effect of giving to the words ‘12 months after the date of this Agreement’ which are
used in condition 10.1 of the agreement a construction which excludes the date of the agreement itself is that (where the hire company allows credit under
condition 10) the period within which payment of the hire charges is required to be made is one day longer than the period prescribed by art 3(1)(a)(i) of
the 1989 order. The agreement is not within the description set out under art 3(1)(a)(i); it is not an exempt agreement for the purposes of s 8(3) of the Act;
it is a regulated agreement to which the regulatory regime imposed by that Act applies.
32. The judge sought to avoid that consequence by giving to the words ‘12 months after the date of this Agreement’ in condition 10.1 a meaning
which included the date of the agreement itself. He reminded himself of Lord Hoffmann’s summary of the principles by which contractual documents
should be construed, set out in Investors Compensation Scheme Ltd v West Bromwich Building Society, Investors Compensation Scheme Ltd v Hopkin &
Sons (a firm), Alford v West Bromwich Building Society, Armitage v West Bromwich Building Society [1998] 1 All ER 98 at 114, [1998] 1 WLR 896 at
912–913; and, in particular, to the principle (numbered 1 in Lord Hoffmann’s summary) that:

‘Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background
knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.’

33. The judge went on, at pages 7G–8G in the transcript of his judgment:

‘Applying these principles, what would the parties, using the form of words in question in this case, reasonably have been understood to mean
by one of Lord Hoffman’s (sic) “reasonable people” considering the matter. I think ­ 629 that the answer is tolerably clear. He would conclude
that a year from the date of the agreement, not a year from the day after the agreement, was being specified. A year and a day is a curious and
unusual unit of time. Precisely a year, from and including a particular date, is not. In the context of this contract, 12 months after a particular day
would be understood to mean, and I find does mean, the same as 12 months from a day; 12 months including the date of the agreement. All the
more so if the terms of the Consumer Credit Exempt Agreement 1989 (sic) are to be taken as part of ‘all the background knowledge which would
reasonably have been available to the parties in the situation in which they were at the time of the contract’, in Lord Hoffman’s expression.
Certainly they would have been part of the car provider’s background knowledge, and it could have no conceivable reason for providing for a
period which neatly avoided exemption. The plaintiff, even though an experienced and successful businessman, would not, of course, have had the
regulations explicitly in mind, although no doubt they were ‘available’ to him or his advisers had he wanted them. Against this relevant
background, in my view, 12 months from and including the date of the agreement is what the parties in using those words would reasonably have
been understood to mean by the expression, “12 months after the date of this agreement”.’

34. The first difficulty in the judge’s reasoning, as it seems to us, is that, absent reliance on the 1989 order, there is no basis for the conclusion that
the expression ‘12 months after the date of this agreement’—or ‘12 months from the date of this agreement’, which the judge treated (correctly, in our
view) as having the same meaning—would be reasonably understood to mean ‘12 months including the date of this agreement’. The usual meaning of the
words ‘after’ or ‘from’ in the context of reckoning time, as the authorities make clear, is that the day ‘after’ or ‘from’ which a period of time is to be
reckoned is not included within the period. There are good reasons for this. The event which gives rise to the need to determine when a limited period of
time has ended (or will end) may itself happen at any time of the day on which it occurs. It is in order to avoid disputes as to fractions of a day—and to
give to the party who must comply with the limit the maximum period for such compliance—that time is reckoned, in effect, from the last moment of that
day; that is to say, the period begins to run from the first moment of the next day. To treat a period of a year ‘from the date of the agreement’ as
commencing at the first moment after the end of the day on which the agreement is made is not (as the judge appears to suggest) to construe the words as
if they read ‘a year from the day after the agreement’.
35. The second difficulty is that to construe the expression ‘12 months after the date of this agreement’ as meaning ‘12 months including the date of
this agreement’ produces an inconsistency between the time restriction in condition 10.1 and that in condition 10.3.1. ‘The first anniversary of this
Agreement’ is, plainly, one day later than the last day of the period of ‘12 months including the date of the agreement’; the first anniversary of 1 January
2000 is 1 January 2001, not 31 December 2000. The judge’s reasoning does not address this point.
36. The third difficulty is that, as the judge himself recognised, there is no basis for an assumption that the respondent, as ‘Hirer’ under the relevant
agreements, would have had the Act or the 1989 order in mind at the time when he signed those agreements. It is, perhaps, pertinent to recall that, until
the decision of this ­ 630 court in Dimond’s case was handed down on 29 April 1999, the law was widely thought to be as expressed by Professor
Goode in his work Consumer Credit Legislation 1999—to which Sir Richard Scott V-C makes reference at paras 63–66 of his judgment in that appeal.
To attribute to the hirer under a replacement vehicle hire agreement made in 1997 knowledge that the transaction into which he was entering might be
affected by consumer credit legislation and the provisions for exemption in an order made pursuant to an EC directive is, in our view, to give to Lord
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Hoffmann’s expression ‘knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the
contract’ a scope which he could not have intended.
37. We accept, of course, that if the inquiry as to the meaning of the words in condition 10.1 of the relevant agreements has to be approached on the
basis that both parties to those contracts knew (or must be treated as knowing) (i) that, unless exempted, the agreements would be within the regulatory
regime imposed by the consumer credit legislation, (ii) that there were provisions in the 1989 order which could be invoked to confer exemption—see the
observations of Sir Richard Scott V-C, at para 51 of his judgment in Dimond v Lovell [1999] 3 All ER 1 at 11, [1999] 3 WLR 561 at 571—and (iii) that
those provisions were available only where the period for repayment of the credit did not exceed 12 months, then it becomes arguable that both parties
knew that the time restriction in condition 10 of the relevant agreements had been included in order to take advantage of the exemption. Indeed, it might
be said that, given that approach, it was obvious to the hirer that that was the purpose which the hire company hoped to achieve by including the time
restriction in condition 10. On that basis it could have been argued that was the common purpose of both parties; and that that common purpose is not to
be frustrated by their failure to use the language which would have been apt to achieve it. Reliance would, no doubt, have been placed on the fourth of
Lord Hoffmann’s principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 115, [1998] 1 WLR 896 at
913:

‘The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words.
The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the
relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose
between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must,
for whatever reason, have used the wrong words or syntax (see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd ([1997] 3 All ER
352, [1997] AC 749)).’

38. We do not find it necessary to decide whether an argument advanced on that basis would succeed. The foundation for that argument has not been
established. It is, in our view, impossible to attribute to someone in the position of the hirer at the time that the agreements were made the background
knowledge which we have described.
39. We were referred to the decision cited by Lord Hoffmann in support of the fourth of his principles of interpretation— Mannai Investment Co Ltd
v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] AC 749. The question in that appeal was whether a tenant’s notice to determine a lease
which was expressed to take effect on 12 January 1995 was validly served under a provision which ­ 631 entitled the tenant to determine the lease by
not less than six months’ notice ‘to expire on the third anniversary of the term commencement date’ in circumstances in which the term had commenced
on 13 January 1992. The landlord claimed, correctly, that the date specified in the notice (12 January 1995) was one day before the third anniversary of
the term commencement date (13 January 1995). As Lord Goff of Chieveley ([1997] 3 All ER 352 at 355, [1997] AC 749 at 753) observed, the tenant
had made an obvious mistake—in reading the clause in the lease as if it had provided for the notice to be served to expire ‘at the end of the third year of
the term’ rather than ‘on the third anniversary of the term commencement date’— so that it was tempting to assist the tenant ‘when it must have been
obvious to the landlord that the tenant intended to give an effective notice under the clause’. Lord Goff and Lord Jauncey of Tullichettle took the view
that the temptation to assist the tenant had to be resisted. Although, looked at in the context of the provision in the lease, it was plain that the tenant had
made a mistake, the mistake was not obvious from notice itself. The notice could not be construed so as to contradict the words actually used. The
majority (Lord Steyn, Lord Hoffmann and Lord Clyde) took a different view. Lord Steyn ([1997] 3 All ER 352 at 369, [1997] AC 749 at 767) identified
the issue as how a reasonable recipient would have understood the notice, construing the notice in the relevant objective context. He concluded:

‘Crediting a reasonable recipient with knowledge of the terms of the lease and third anniversary date (13 January), I venture to suggest that it is
obvious that a reasonable recipient would have appreciated that the tenant wished to determine the leases on the third anniversary date of the leases
but wrongly described it as 12 January instead of the 13 January. The reasonable recipient would not have been perplexed in any way by the minor
error in the notices. The notices would have achieved their intended purpose.’ (See [1997] 3 All ER 352 at 370, [1997] AC 749 at 768–769.)

40. The intended purpose, in that context, was to inform the landlord that the tenant had decided to determine the lease in accordance with the right
reserved—see Lord Steyn’s observation ([1997] 3 All ER 352 at 369, [1997] AC 749 at 768). Lord Hoffmann, in a passage which foreshadows what he
was to say in the Investors Compensation Scheme case, pointed out that commercial contracts were to be construed in the light of all the background
which could reasonably have been expected to be available to the parties; so that:

‘The fact that the words are capable of a literal application is no obstacle to evidence which demonstrates what a reasonable person with
knowledge of the background would have understood the parties to mean, even if this compels one to say that they used the wrong words. In this
area, we no longer confuse the meaning of words with the question of what meaning the use of the words was intended to convey.’ (See [1997] 3
All ER 352 at 380, [1997] AC 749 at 779.)

41. He could find no answer to the question why the rule for the construction of notices should be different from those for the construction of
commercial contracts. Lord Clyde took a similar view to that of Lord Steyn:

‘No reasonable landlord would in my view be misled by the statement of a date which in the context of a clear intention to invoke cl 7(13) [of
the lease] was inaccurate. The landlord would in my view recognise that in each case ­ 632 the reference to 12 January was to be read as a
reference to 13 January and I would so construe the notices.’ (See [1997] 3 All ER 352 at 383, [1997] AC 749 at 783.)
42. In our view the decision of the majority in the House of Lords in the Mannai Investment case provides no support for the respondent’s
contentions in the present appeal. It must be kept in mind, first, that in the Mannai Investment case there was no doubt that the landlord knew—or that
any reasonable landlord must be taken to have known – what were the terms of the relevant clause in the lease; so that it was obvious not only that a
mistake had been made by the tenant, but also what that mistake was. Secondly, the notice took effect unilaterally. The landlord’s intention was
irrelevant. The only relevant question was what a reasonable person in the position of the landlord would have understood from the notice to be the
intention of the tenant. There was no need to find an expressed consensus between landlord and tenant. By contrast, in the present case, (i) it has not
been established that the hirer knew—or should be taken to know—the significance or the terms of art 3(1)(a)(i) of the 1989 order or what the hire
company was seeking to achieve by the time restriction in condition 10.1 of the agreements; and (ii) it has not been established that, if the hirer did know
or suspect what the hire company was seeking to achieve by that time restriction, the hirer shared the hire company’s intention. The intention of both
parties is relevant to the interpretation of a contractual term. There is a need—which is not present when construing a notice which takes effect
unilaterally—to find an expressed consensus between the parties to the contract.
43. We have sought to explain why we have not been persuaded that it could be appropriate to attribute to the hirer—or to a reasonable person in the
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position of the hirer—knowledge that the purpose of the hire company in relation to the time restriction in condition 10.1 was to obtain exemption under
the 1989 order. It is unnecessary to decide whether, if that knowledge were to be treated as ‘reasonably available’ to a reasonable person in the position
of the hirer, the hirer ought also to be treated as having agreed that condition 10.1 should have the effect which the hire company intended. But it is, we
think, important to keep in mind that, as a general rule, a document will not be given the meaning for which one party, say ‘A’, contends merely because
the other party knew or suspected, at the time, that that was what A was hoping to achieve. There must be some other reason to construe the document in
that way. In the present case, it is by no means clear that, even if the hirer knew what the hire company was hoping to achieve by the time restriction in
condition 10.1, he must be treated as having contracted on the basis that condition 10.1 did not have the meaning which the words used would naturally
convey. In particular, there is no reason to attribute to the hirer an intention that the agreement should be exempt from the protection which the consumer
credit legislation was enacted to provide for his benefit.
44. It follows that we would allow this appeal in relation to the hire charges incurred under the first three agreements.

Appeal allowed. Permission to appeal to the House of Lords refused.

Dilys Tausz Barrister.

[2000] 2 All ER 634

Westminster City Council v Haywood and another (No 2)

PENSIONS

CHANCERY DIVISION
LIGHTMAN J
3, 20 DECEMBER 1999

Pension – Pension scheme – Jurisdiction of Pensions Ombudsman – Complaint to Pensions Ombudsman – Maladministration of pension scheme – Court
of Appeal holding that ombudsman having no jurisdiction to hear complaint – Decision statutorily reversed and complainant making fresh complaint to
ombudsman based on same facts as first complaint – Ombudsman upholding complaint but concluding that maladministration causing no injustice –
Whether ombudsman having jurisdiction to hear complaint – Whether respondent having right of appeal against determination of maladministration not
causing injustice – Pension Schemes Act 1993, s 151 – Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996, reg 5 –
Personal and Occupational Pension Schemes (Miscellaneous Amendments) (No 2) Regulations 1997, reg 9.

In 1993 H, a former employee of the appellant local authority, made a complaint of maladministration to the Pensions Ombudsman concerning the
authority’s severance scheme. The complaint, relating to events in 1991, eventually reached the Court of Appeal, which rejected it on the grounds that H
had not been entitled to long service benefits under the scheme, that therefore he was not a member of the scheme within the meaning of s 146(7) of the
Pension Schemes Act 1993 and that accordingly the complaint fell outside the ombudsman’s jurisdiction. That decision was statutorily reversed by reg 9a
of the Personal and Occupational Pension Schemes (Miscellaneous Amendments) (No 2) Regulations 1997, made under the 1993 Act, which provided
that, for the purposes of s 146(7), ‘a person shall be regarded as a member of a scheme if he is, or had been, entitled to benefits under it’. In 1998, relying
on that provision, H brought a fresh complaint before the ombudsman, based on the same facts as the 1993 complaint. The authority challenged the
ombudsman’s jurisdiction to hear the complaint, contending that reg 9 did not have retrospective effect. Alternatively, it contended that the Court of
Appeal’s decision gave rise to a res judicata precluding a further complaint identical to the 1993 complaint, that in any event the complaint had been made
outside the three-year limitation period prescribed by reg 5(1)b of the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations
1996 and that the ombudsman was not entitled to invoke reg 5(3) which allowed him to investigate and determine a complaint made out of time if, in his
view, it was reasonable to bring the complaint outside the limitation period. Those contentions were rejected by the ombudsman who further held that the
authority had been guilty of maladministration, that that maladministration had not caused H injustice consisting of financial loss, that he had suffered
injustice consisting of distress and inconvenience but that it was inappropriate to make a direction for payment of compensation for that distress
________________________________________
a Regulation 9 is set out at p 641 f, post
b Regulation 5, so far as material, is set out at p 647 f g, post
________________________________________
­ 634

and inconvenience. The authority appealed to the High Court under s 151(4)cof the 1993 Act, challenging the ombudsman’s conclusion that he had
jurisdiction to hear the complaint. The ombudsman contended that there was no right of appeal against a determination of maladministration that had not
occasioned injustice.
________________________________________
c Section 151, so far as material, is set out at p 641 j to 642 b, post
________________________________________

Held – (1) A respondent to a complaint had the right to appeal against a determination by the ombudsman of maladministration, notwithstanding that it
was accompanied by a determination that that maladministration had caused no injustice, or that it had caused injustice but that no consequential direction
should be made. Such a respondent had a substantial and legitimate interest in clearing his name since a finding of maladministration was a serious slur
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on the reputation of the person concerned in management of the scheme and might be highly damaging, particularly if he was a professional manager. It
followed that the authority was entitled to appeal even if the determination had merely decided that there was maladministration which had not
occasioned injustice. In any event, the ombudsman had found maladministration causing injustice, albeit non-pecuniary in character (see p 642 f to j,
post).
(2) On its true construction, reg 9 of the 1997 regulations had retrospective effect in the sense that it allowed a person added to the class of members
to complain of maladministration prior to the date on which it came into force. A conclusion to the contrary could not be justified by anything in the
scheme or language of the 1993 Act and reg 9. Rather, the natural inference was that Parliament had intended, in the absence of a contra-indication in reg
9, that the same jurisdiction to investigate and determine complaints of maladministration should apply in the case of members as defined by that
regulation as in the case of members under the original statutory definition. Moreover, any presumption against retrospectivity had limited weight in view
of the nature of the legislation. The 1993 Act was social legislation, designed to improve the legal protection available to members of schemes. To find
in social legislation of that character a form of retrospective protection against injustice was scarcely something which, on grounds of fairness or
reasonableness, could not be expected of Parliament (see p 643 j to p 645 c, post).
(3) The doctrine of res judicata applied equally to determinations and directions of the ombudsman (and judgments on appeal from him) as to other
judgments and determinations. Thus res judicata should be as much a bar to a complaint before the ombudsman as it would be to the commencement of
legal proceedings to which it was an alternative, namely cases where the maladministration complained of consisted of interference with private law
rights or breaches of private law duties. However, where the first claim was rejected not on the merits but because the court or equivalent body had no
jurisdiction to entertain it, the claimant was not prevented from bringing a new claim, which was for all practical purposes identical to the old, if
retrospective legislation conferred such jurisdiction on the court. In the instant case, the Court of Appeal had not determined the 1993 complaint on the
merits, but rather had rejected it on the ground that the ombudsman had had no jurisdiction to entertain it. Accordingly, that decision did not operate as
res judicata barring H from covering, in the complaint which he was now qualified to make, exactly the ­ 635 same ground as was covered by the 1993
complaint. Moreover, the ombudsman had clearly been correct to hold that reg 5(3) of the 1996 regulations applied and that he was entitled to investigate
and determine the 1998 complaint on that basis. Accordingly, the ombudsman did have jurisdiction to hear the 1998 complaint, and the appeal would
therefore be dismissed (see p 646 d e h j, p 647 c d and p 648 a b, post); Thrasyvoulou v Secretary of State for the Environment, Oliver v Secretary of
State for the Environment [1990] 1 All ER 65 and Hines v Birkbeck College (No 2) [1991] 4 All ER 450 applied.

Notes
For the functions of the Pensions Ombudsman and determinations by him, see 44(2) Halsbury’s Laws (4th edn reissue) paras 664, 676.
For the Pensions Scheme Act 1993, s 151, see 33 Halsbury’s Statutes (4th edn) (1997 reissue) 766.
For the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996, see 18 Halsbury’s Statutory Instruments (1997 issue)
479.

Cases referred to in judgment

Barretto, Re, Wadsted v Barretto [1994] 1 All ER 447, [1994] QB 392, [1994] 2 WLR 149, CA.
Hewitt v Lewis [1986] 1 All ER 927, [1986] 1 WLR 444, CA.
Hines v Birkbeck College (No 2) [1991] 4 All ER 450, [1992] Ch 33, [1991] 3 WLR 557, CA.
L’Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd, The Boucraa [1994] 1 All ER 20, [1994] 1 AC 486, [1994] 2 WLR 39, HL.
Law Debenture Trust Corp plc v Malley (7 May 1999, unreported), Ch D.
Lemm v Mitchell [1912] AC 400, PC.
Marsal v Apong [1998] 1 WLR 674, PC.
Pickstone v Freemans plc [1988] 2 All ER 803, [1989] AC 66, [1988] 3 WLR 265, HL.
Port of Melbourne Authority v Anshun Pty Ltd (1980) 147 CLR 589, Aust HC.
R v Secretary of State for the Environment, ex p Hackney London BC [1984] 1 All ER 956, [1984] 1 WLR 592, CA.
Sunshine Porcelain Potteries Pty Ltd v Nash [1961] 3 All ER 203, [1961] AC 927, [1961] 3 WLR 727, PC.
Thoday v Thoday [1964] 1 All ER 341, [1964] P 181, [1964] 2 WLR 371, CA.
Thrasyvoulou v Secretary of State for the Environment, Oliver v Secretary of State for the Environment [1990] 1 All ER 65, [1990] 2 AC 273, [1990] 2
WLR 1, HL.
Westminster City Council v Haywood (No 1) [1997] 2 All ER 84, [1998] Ch 377, [1997] 3 WLR 641, CA; rvsg [1996] 2 All ER 467, [1998] Ch 377,
[1996] 3 WLR 563.

Appeal
Westminster City Council appealed from a determination of the second respondent, the Pensions Ombudsman, on 6 January 1999 upholding a complaint
made by the first respondent, Jeffrey James Haywood, of maladministration of the council’s severance scheme. The facts are set out in the judgment.

Elizabeth Slade QC and Timothy Pitt-Payne (instructed by Rick Lymer) for the council.
Elisabeth Laing (instructed by John Yolland) for the ombudsman.
Mr Haywood did not appear.

Cur adv vult

­ 636

20 December 1999. The following judgment was delivered.

LIGHTMAN J.

INTRODUCTION
1. This appeal by Westminster City Council (the council) arises from a determination by the second respondent, the Pensions Ombudsman (the
ombudsman), of a complaint dated 15 June 1998 (the 1998 complaint) of maladministration in 1991 by the council made by the first respondent, Mr
Jeffrey Haywood (Mr Haywood), on the ground that the ombudsman ought not to have entertained the 1998 complaint. The ombudsman held that there
had been maladministration by the council; that the maladministration had caused Mr Haywood no pecuniary injustice; and that it had caused him
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non-pecuniary injustice in the form of distress and inconvenience, which had already been fully compensated for. The ombudsman accordingly refused to
make any direction for payment of compensation. Mr Haywood has not appealed against this refusal but the council now seeks to appeal against the
finding of maladministration. The first question raised on this appeal by the ombudsman is whether the council has a statutory right to appeal against that
finding. If the answer to the first question is in the affirmative, the second question arises whether the ombudsman had jurisdiction to investigate the 1998
complaint of mal- administration by the council in 1991 and, if he did have jurisdiction, whether nevertheless he should have refused to entertain it on the
grounds of res judicata or that it was time-barred.

FACTS
2. Mr Haywood was employed in local government for many years. By 1991 he was working for the council as a senior structural engineer in the
property group of the managing director’s department. In late 1991 he was approaching his 50th birthday and was one of a number of employees whom
the council was considering making redundant. He was given estimates of payments to which he would become entitled under the options available to
him under two separate and distinct schemes, namely the council’s superannuation scheme (the super- annuation scheme) and the council’s severance and
compensation scheme (the severance scheme). The estimates differed depending on whether he left on redundancy under the age of 50 or whether he left
at or after the age of 50. In each case he would receive a lump sum and periodic payments under both schemes either immediately or on reaching
pensionable age. He would also receive a statutory redundancy payment. He asked for his redundancy to take effect on his 50th birthday. In January
1992 Mr Haywood was informed that he was to be made redundant. He ceased employment on 12 April 1992 (his 50th birthday). Thereafter he received
(as well as lump sum payments under both schemes and a statutory redundancy payment) an annual pension of £7,376·46 under the superannuation
scheme and (for ten months) an annuity of £3,949·97 under the severance scheme.
3. On 8 February 1993 the council wrote to Mr Haywood and informed him that it had been advised that the severance scheme was unlawful in a
number of respects, and in consequence his gross pension under the severance scheme would be reduced by approximately £158 per month with effect
from February 1993. Mr Haywood’s monthly payments were thereafter reduced by £158 per month as indicated in the letter. This reduction was the
subject of his first complaint to the ­ 637 ombudsman made on 1 March 1993 (the 1993 complaint). He complained of maladministration of the
severance scheme, saying that he would have opted for the under-50 severance arrangement at the time of leaving the council’s employment if the council
had told him (as it should have done) that it would or might be unlawful for the council to make the proposed payments under the severance scheme.
Under the Pension Schemes Act 1993 Mr Haywood was qualified to make a complaint to the ombudsman if, and only if, the severance scheme was an
occupational pension scheme and he was entitled to long service benefits under that scheme. Whilst it has at all times been agreed that these conditions
were satisfied in respect of the superannuation scheme (as to which there was no complaint), issue was joined whether the conditions were satisfied in
respect of the severance scheme. Mr Haywood maintained that both these conditions were satisfied; the council submitted that neither was satisfied. The
jurisdiction of the ombudsman to entertain the 1993 complaint depended on who was right. I shall refer to the proceedings in respect of the 1993
complaint as Haywood (No 1) (see Westminster City Council v Haywood (No 1) [1997] 2 All ER 84, [1998] Ch 377).
4. New regulations made in 1994, namely the Local Government (Compensation for Redundancy) Regulations 1994, SI 1994/3025 partially
alleviated the disappointment of Mr Haywood’s expectations under the severance scheme: Mr Haywood was paid £19,977·70 under these regulations, but
it was not possible lawfully to restore his benefits to their original level. He accordingly continued to maintain his complaint.
5. On 25 July 1995 the ombudsman made his determination of the 1993 complaint (the 1995 determination). He determined that Mr Haywood was
qualified to make the complaint and that accordingly he (the ombudsman) had jurisdiction to determine it; that there had been maladministration; and that
such maladministration had caused both pecuniary and non-pecuniary injustice. He directed that: (a) the council should reinstate Mr Haywood’s monthly
payment to its previous level; (b) the council should repay Mr Haywood with interest the reduction made since February 1993 (though the council could
set off against this sum the lump sum compensation paid to Mr Haywood under the 1994 regulations); and (c) the council should pay Mr Haywood £1,000
as compensation for distress and inconvenience.
6. The council appealed. Robert Walker J upheld the appeal in part (see [1996] 2 All ER 467, [1998] Ch 377). He held that: (a) the superannuation
and severance schemes could be regarded as forming a single scheme under which Mr Haywood was entitled to long service benefits, and that
accordingly the ombudsman had jurisdiction to determine the 1993 complaint; (b) it was not maladministration for the council (as it was legally obliged to
do) to reduce the payments to Mr Haywood in February 1993; (c) the ombudsman was entitled to find that the council’s failure to warn Mr Haywood that
there was a doubt as to the legality of the severance scheme amounted to maladministration; (d) the ombudsman could not properly direct the council to
restore Mr Haywood’s payments to their pre-February 1993 level because the reduction in payments was not caused by the maladministration established,
namely the failure to warn; (e) the right remedy was to put Mr Haywood in the same position as if the council had provided him with correct information,
not to put him in the same position as if the severance scheme was lawful; (f) there was no evidence that Mr Haywood would have been better off if
properly advised, and so he was ­ 638 entitled to no compensation for financial loss; but (g) the ombudsman had been entitled to direct the council to
pay Mr Haywood £1,000 as compensation for distress and inconvenience.
7. The council appealed against the decision of Robert Walker J. The ombudsman cross-appealed. The Court of Appeal allowed the appeal and
dismissed the cross-appeal (see [1997] 2 All ER 84, [1998] Ch 377). The Court of Appeal held that: (a) the two schemes could not be regarded as
forming a single scheme; (b) the severance scheme was an occupational pension scheme; but (c) Mr Haywood was not entitled to long service benefits
under it and that accordingly the ombudsman did not have jurisdiction to determine the 1993 complaint.
The Court of Appeal also held (necessarily obiter) that the ombudsman’s direction that the council pay Mr Haywood £1,000 ought in any event to
have been set aside because the non-financial injustice was fully compensated for in the overpayment to him of £1,580 over the ten months before the
payments to him under the severance scheme had been reduced, an overpayment which he had not been asked to repay.
8. The gap in the jurisdiction of the ombudsman exposed by the decision of the Court of Appeal was filled by the Personal and Occupational Pension
Schemes (Miscellaneous Amendments) (No 2) Regulations 1997, SI 1997/3038 and in particular reg 9 of the 1997 regulations (reg 9). The 1997
regulations were made on 18 December 1997, laid before Parliament on 22 December 1997, and came into force on 12 January 1998. Regulation 9
(which I set out later in this judgment) dispensed with the need for a complainant to be entitled to long service benefits.
9. Relying upon reg 9 as having retrospective effect, on 15 June 1998 Mr Haywood presented a second complaint (the 1998 complaint). The 1998
complaint was practically identical to the 1993 complaint. The council made a number of detailed written representations to the ombudsman in response
to the 1998 complaint. As well as responding to the complaint on its merits, the council argued that the ombudsman should not entertain the 1998
complaint on four grounds; namely that (a) the severance scheme was not an occupational pension scheme; (b) reg 9 did not have retrospective effect and
accordingly the ombudsman could not investigate alleged acts of maladministration which took place in 1991 as required by the 1998 complaint; (c) the
decision of the Court of Appeal in Haywood (No 1) gave rise to a res judicata precluding a further complaint identical to the 1993 complaint; (d) that the
1998 complaint was time-barred.
The council made it clear to the ombudsman and to me that the first of these grounds (involving as it does a challenge to the decision of the Court of
Appeal in Haywood (No 1)) must be reserved for a higher court and I say nothing about it.
10. On 6 January 1999 the ombudsman made his determination of the 1998 complaint (the 1999 determination). He determined that: (a) reg 9 did
have retrospective effect and accordingly he did have jurisdiction to consider the 1998 complaint; (b) the council was guilty of maladministration in
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offering Mr Haywood benefits under the severance scheme at a time when it was aware of concerns about the legality of such payments; (c) Mr Haywood
had not suffered injustice consisting of financial loss as a result of that maladministration; (d) (as I read the 1999 determination) Mr Haywood had
however suffered injustice consisting of distress and inconvenience; and (e) but nevertheless no ­ 639 direction for payment of compensation was
appropriate in respect of the distress and inconvenience on account of his receipt of the overpayment of £1,580.
11. On 29 January 1999 the council appealed against the part of the 1999 determination finding maladministration, on the grounds that the
ombudsman ought not to have entertained the 1998 complaint for the four reasons I have previously stated. The ombudsman in turn submits that I should
not entertain this appeal.

LEGISLATIVE SCHEME
12. It is, I think, helpful before I address in turn each of the four issues raised that I set out the distinctive features of the relevant legislation relating
to the ombudsman. (a) The office was constituted on 1 October 1990 under the provisions of the Social Security Act 1990, now consolidated in the 1993
Act. It is common ground that for all relevant purposes the provisions of the 1990 Act and the unamended 1993 Act are identical. (b) The ombudsman is
the creation of statute brought into existence to fulfil specified statutory functions laid down in the legislation, and for the proper performance of these
functions he is vested with specified statutory powers and discretions and subjected to specified statutory obligations. He is subject to principles of public
law which the court will enforce in the exercise of its appellate and supervisory jurisdictions. (c) The functions of the ombudsman are set out in s 146 of
the 1993 Act. The relevant provision is to the effect that he ‘may’ investigate and determine complaints made by actual or potential beneficiaries of an
occupational or personal pension scheme who allege that they have sustained injustice in consequence of maladministration in connection with any act or
omission of a person responsible for the management of the scheme and may direct remedial action: see s 146(1) of the 1993 Act (as amended). The word
‘may’ connotes that the ombudsman has a discretion (which is to be judicially exercised) whether or not to investigate and determine any particular
complaint duly made to him. It is to be expected that he will exercise his discretion in favour of investigating and determining complaints duly made
unless there is a sufficient reason to the contrary and it will be incumbent on the ombudsman to spell out that reason. (d) The 1993 Act does not confer on
members of a scheme any private law right nor does it impose on the managers of schemes any private law obligations. What the 1993 Act does is confer
on members a public law right to complain to the ombudsman and a legitimate expectation that the ombudsman will therefore perform his public law
duties which may lead him to make a direction righting wrongs done to them. (e) (Leaving aside for a moment the question on whose complaints he may
do so) the ombudsman has at all times been expressly authorised to investigate complaints notwithstanding the fact that they arose, or related to a matter
which arose, before 1 October 1990. (The provision to this effect in the 1990 Act is now re-enacted in s 146(5) of the 1993 Act.) (f) Neither the 1990 Act
nor the 1993 Act contain any limitation period in respect of complaints that can be entertained by the ombudsman, but both contain provisions authorising
the Secretary of State by statutory instrument to regulate procedure. In exercise of this power contained in the 1990 Act the Secretary of State on 1 April
1991 by the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1991, SI 1991/588 laid down time limits. The current
regulation made pursuant to the 1993 Act laying down time limits is reg 5 of the Personal and Occupational Pensions Schemes (Pensions Ombudsman)
Regulations 1996, SI 1996/2475.
­ 640
(g) (i) Section 146(1) of the 1993 Act (as originally enacted) authorised the ombudsman to investigate and determine complaints made by an
‘authorised complainant’. Section 146(7) defines ‘authorised complainant’ as a member of the scheme or a widow or widower or dependant of a deceased
member. Section 146(8) defines ‘member’ in relation to a pension scheme as including a person who is or has been in pensionable service under the
scheme. Section 181(1) provides that ‘pensionable service’ has the meaning given in s 70(2). Section 70(2) provides that ‘pensionable service’ means
service in employment which qualifies the member (on the assumption that it continues for the appropriate period) for long service benefit under the
scheme; and s 70(1) provides that ‘long service benefit’ means the benefits that will be payable under the scheme on the assumption that he remains in
relevant employment and continues to render service which qualifies him for benefit until he attains normal pension age. Section 181(4) of the 1993 Act
empowered the Secretary of State by statutory instrument to make provision as to the persons who are to be regarded as members. (ii) The Pensions Act
1995 in s 157(1) substitutes for the words ‘authorised complainant’ the words ‘actual or potential beneficiary of an occupational or personal pension
scheme’ and in s 157(7) gives the same definition of ‘actual and potential beneficiary’ as had previously been given for ‘authorised complainant’.
Accordingly this amendment is linguistic only and has no material effect. (iii) (As I have already said) the Court of Appeal in Haywood (No 1) held that
the severance scheme was an occupational pension scheme, but that for the purposes of that scheme Mr Haywood was not in pensionable service because
he was not entitled to long service benefit and that accordingly the ombudsman had no jurisdiction to entertain a complaint made by him in respect of the
management of the severance scheme. (iv) In order to supply the lacuna in those protected by the 1993 Act as revealed by the decision of the Court of
Appeal in exercise of the power conferred by s 181(4) of the 1993 Act, the Secretary of State included in the 1997 regulations reg 9 which provides as
follows:
‘Persons entitled to benefits to be regarded as members for the purposes of section 146(7) of the 1993 Act
1A. For the purposes of section 146(7) … (persons who are actual or potential beneficiaries) a person shall be regarded as a member of a
scheme if he is, or has been, entitled to benefits under it.’

Accordingly, Mr Haywood thenceforth became a member and was qualified to make a complaint, and therefore to make the 1998 complaint of
maladministration in 1991 (and accordingly prior to the 1997 regulations) if s 146(5) applied in case of a complaint made by him.

THE COUNCIL’S RIGHT OF APPEAL

Statutory construction
13. Section 151 of the 1993 Act provides as follows:

‘(1) Where the Pension Ombudsman has conducted an investigation under this Part he shall send a written statement of his determination of the
complaint or dispute in question—(a) to [the parties] … and any such statement shall contain the reasons for his determination.
(2) Where the Pensions Ombudsman makes a determination under this Part … he may direct any person responsible for the management of the
­ 641 scheme to which the complaint or reference relates to take, or refrain from taking, such steps as he may specify in the statement referred to
in subsection (1) or otherwise in writing.
(3) Subject to subsection (4), the determination by the Pensions Ombudsman of a complaint or dispute, and any direction given by him under
subsection (2), shall be final and binding on—[the parties] …
(4) An appeal on a point of law shall lie to the High Court … from a determination or direction of the Pensions Ombudsman …
(5) Any determination or direction of the Pensions Ombudsman shall be enforceable—(a) in England and Wales, in a county court as if it were a
judgment or order of that court … ’
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14. This issue raises questions as to the meaning of the words ‘appeal’ and ‘determination’. Implicit in the word ‘appeal’ is the limitation that a party
can only appeal against a determination or direction which is adverse to him, but it is not so implicit that the determination or direction should be wholly
(rather than only partially) adverse. A determination must decide (implicitly if not explicitly) in turn a series of questions, the later only arising if the
earlier is decided in the affirmative. These questions are as follows: (a) whether the ombudsman has jurisdiction to investigate and determine the
complaint (the mirror image of the question whether the complainant is qualified to make the complaint); (b) whether the discretion to investigate and
determine is to be exercised; (c) whether there has been maladministration; (d) whether the maladministration caused injustice to the complainant; and (e)
whether any consequent direction ought to be made. In my view the language of s 151(4) is apposite to allow an appeal against an adverse determination
of any of these questions. (It may be noted that in Haywood (No 1) an appeal by the council succeeded on the ground that the ombudsman had no
jurisdiction to determine it.) I am accordingly quite satisfied that a respondent to a complaint can appeal against a determination of maladministration
notwithstanding that it is accompanied by a determination that it caused no injustice, or that it caused injustice but that no consequential direction should
be made. This is only just, for a finding of maladministration is a serious slur on the reputation of a person concerned in the management of a scheme and
(in particular if he is a professional manager) may be highly damaging. He has accordingly a substantial and legitimate interest in clearing his name. I
am reinforced in this view by the judgment to the same effect of Rimer J in Law Debenture Trust Corp plc v Malley (7 May 1999, unreported). The court
is well able to protect its process and the respondents to appeals from admissible but unmeritorious and insubstantial appeals.
15. Accordingly, even if (as the ombudsman contends) the 1999 determination merely decided that there was maladministration but that it did not
occasion injustice, I hold that the council was entitled to appeal. But I also hold (as I have already said) that on a fair reading of the 1999 determination
the ombudsman did find that there was maladministration causing non-pecuniary injustice for which no compensation should be directed. I should add
that the appeal in this case serves a useful purpose beyond deciding the issues raised on the appeal between the council and Mr Haywood, for there are
some seven other complainants to the ombudsman against the council in like position to that of Mr Haywood. The authoritative determination of the
issues raised on this appeal is calculated ­ 642 to save the time and money involved in ventilating the same issues in those proceedings.

RETROSPECTIVE EFFECT
16. The issue raised is whether the effect of reg 9 is to entitle Mr Haywood to complain of maladministration which took place in 1991 prior to the
date that the 1997 regulations came into force. The guiding principles of construction are authoritatively stated by Lord Reid in Sunshine Porcelain
Potteries Pty Ltd v Nash [1961] 3 All ER 203 at 206, [1961] AC 927 at 938:

‘Generally, there is a strong presumption that a legislature does not intend to impose a new liability in respect of something that has already
happened, because generally it would not be reasonable for a legislature to do that … But this presumption may be overcome not only by express
words in the Act but also by circumstances sufficiently strong to displace it.’

17. The principles have been further elaborated by Lord Mustill in L’Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd, The
Boucraa [1994] 1 All ER 20 at 29–30, [1994] 1 AC 486 at 524:

‘My Lords, it would be impossible now to doubt that the court is required to approach questions of statutory interpretation with a disposition,
and in some cases a very strong disposition, to assume that a statute is not intended to have retrospective effect. Nor indeed would I wish to cast
any doubt on the validity of this approach for it ensures that the courts are constantly on the alert for the kind of unfairness which is found in, for
example, the characterisation as criminal of past conduct which was lawful when it took place, or in alterations to the antecedent natural, civil or
familial status of individuals. Nevertheless, I must own to reservations about the reliability of generalised presumptions and maxims when engaged
in the task of finding out what Parliament intended by a particular form of words, for they too readily confine the court to a perspective which treats
all statutes, and all situations to which they apply, as if they were the same. This is misleading, for the basis of the rule is no more than simple
fairness, which ought to be the basis of every legal rule. True it is that to change the legal character of a person’s acts or omissions after an event
will very often be unfair; and since it is rightly taken for granted that Parliament will rarely wish to act in a way which seems unfair it is sensible to
look very hard at a statute which appears to have this effect, to make sure that this is what Parliament really intended. This is, however, no more
than common sense, the application of which may be impeded rather than helped by recourse to formulae which do not adapt themselves to
individual circumstances, and which tend themselves to become the subject of minute analysis, whereas what ought to be analysed is the statute
itself.’

The question of retrospectivity requires an examination of two inter-related matters, namely the statutory scheme and language and the fairness and
reasonableness in the legislature in the particular case giving a statutory provision retrospective effect. Both these considerations leave me in no doubt
that reg 9 does have retrospective effect in the sense that a complaint by a person added to the class of members is entitled to complain of
maladministration occurring prior to the date the regulation came into force.
­ 643
18. My reasons are as follows. (1) The 1993 Act is social legislation designed to improve the legal protection available to members of schemes in
two ways: (a) it affords a cheap summary and informal alternative to proceedings in the ordinary courts; and (b) it affords recourse whenever injustice has
been caused by maladministration whether or not the maladministration constitutes a civil wrong and accordingly whether or not there is an available
remedy in private law. (2) The 1993 Act does something less than create new private rights or duties, render unlawful what was previously lawful, create
new criminal penalties or override accrued limitation defences, which are classic situations for the strict application of the presumption against a statute
having retrospective effect: see eg Re Barretto, Wadsted v Barretto [1994] 1 All ER 447, [1994] QB 392 and Marsal v Apong [1998] 1 WLR 674. What
it does is provide a form of redress to members of schemes through the medium of the ombudsman against maladministration, a concept which embraces
reprehensible conduct on the part of managers of schemes of two distinct characters, namely that which does and that which does not involve an
interference with a private law right or a breach of a private law duty. (3) The provision of the ombudsman as an alternative medium to the ordinary
courts for redress of maladministration involving an interference with pre-existing private law rights or breaches of pre-existing private law duties could
occasion no concern on grounds of retrospectivity. Any such concern must be limited to the provision of the ombudsman as a medium for the redress of
complaints of maladministration involving no such interference. Such concern may be considered to carry limited weight, since standards have always
been expected of those who manage schemes, and the legislation is merely designed to maintain those standards and afford to the victim the possibility of
recourse to the ombudsman when the conduct of the managers has fallen below those standards. (4) Section 146(5) of the 1993 Act expressly provides
that the ombudsman may investigate and determine any complaint by actual or potential beneficiaries notwithstanding that it arose or relates to a matter
which arose before 1 October 1990, the date on which his office was constituted. This provision makes plain that Parliament saw no objection in principle
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to the legislation having this retrospective effect and placing under scrutiny the management of schemes during periods pre-dating the legislation in
respects when no such scrutiny had been possible; further by s 181(4) the Secretary of State was given power by regulation to fill gaps in the definition
and he did so by reg 9. (5) Nothing in the scheme or language of the 1993 Act and reg 9 justifies any discrimination between the jurisdiction exercisable
by the ombudsman in case of complaints by members as originally defined in the 1990 and 1993 Acts and in case of complaints by members as defined
by regulation made under those Acts. Section 146(5) is equally applicable to both. The natural inference (giving full weight to the language of the 1993
Act) is that the legislature intended (in the absence of a contra-indication in the regulation) the same jurisdiction to investigate and determine complaints
of maladministration to apply in the case of both categories of complainant. There would be no rational basis for differentiating between the complaints
of these different members. The legislation enabled a redefinition to be made by regulation the very day the legislation came into force: it would be
extraordinary if the complaints of members added by regulation should be restricted to subsequent acts of maladministration. It is not as though the
redefinition and inclusion of additional members was the product of some separate legislation; it is the product of regulations made under the 1993 Act
itself: contrast the LOffice ­ 644 Cherifien case. There is no contra-indication in reg 9: indeed, since its statutory purpose is to fill a gap in the
protection afforded, the more natural inference is that all members of the class should likewise be entitled to complain of past maladministration.
19. In short, any presumption against retrospectivity in case of legislation such as the present can be of limited weight. To find in social legislation
of this character a form of retrospective protection against maladministration causing injustice is scarcely something which on grounds of fairness or
reasonableness could not be expected of the legislature. The legislature has expressly provided for such retrospectivity in case of ‘members’ as originally
defined, the scheme and language of the 1993 Act and reg 9 require like treatment of ‘members’ included within the definition by reg 9, and there is no
sufficient reason to adopt any other construction. I should add that I find limited assistance in the explanatory note attached to the 1997 regulations which
is relied on by the ombudsman as indicative of retrospectivity. The note is admissible to identify the mischief which the regulation was attempting to
remedy: Pickstone v Freemans plc [1988] 2 All ER 803 at 818, [1989] AC 66 at 127 per Lord Oliver of Aylmerton. The note states that the provisions of
reg 9 ‘clarify the extent of the jurisdiction of the Pensions Ombudsman’. This is an indication that reg 9 was regarded as declaratory and the presumption
against retrospectivity does not apply to declaratory legislation. The difficulty is that reg 9 was not declaratory: it was intended to change the law as
established by the Court of Appeal in Haywood (No 1) and it is effective to do so. The council argued that a serious and substantial reason for holding
that reg 9 had no retrospective effect lay in the lack of Parliamentary attention given to the 1997 regulations to be inferred from the particular
Parliamentary procedure pursuant to which the 1997 regulations were made and from the fact that the regulations were placed before Parliament shortly
before Christmas. I regard this argument as neither serious nor having any substance whatsoever.

RES JUDICATA
20. The council have submitted that, even if reg 9 has retrospective effect (as I have held), none the less the ombudsman was precluded from
investigating the 1998 complaint by reason of the doctrine of ‘res judicata’, which was brought into play by the judgment of the Court of Appeal in
Haywood (No 1). This submission raises a number of distinct questions.
(a) The first such question is whether a complainant before the ombudsman can be bound by the doctrine of res judicata arising from a previous
determination of the ombudsman and judgments on appeal from that determination. A distinctive feature of proceedings before the ombudsman is the
inquisitorial character of the proceedings and in Thoday v Thoday [1964] 1 All ER 341 at 351–352, [1964] P 181 at 197 Diplock LJ left open whether the
doctrine of res judicata developed by the common law under the adversary system of procedure should be extended to courts which exercised an
inquisitorial function. In my view the form of procedure is not today determinative of application of the doctrine. A modern and authoritative statement
of the doctrine of res judicata is to be found in the speech of Lord Bridge of Harwich in Thrasyvoulou v Secretary of State for the Environment, Oliver v
Secretary of State for the Environment [1990] 1 All ER 65 at 70–71, [1990] 2 AC 273 at 289:
‘The doctrine of res judicata rests on the twin principles which cannot be better expressed than in the terms of the two Latin maxims “interest
­ 645 reipublicae ut sit finis litium” and “nemo debet bis vexuri pro una et eadem causa”. These principles are of such fundamental importance
that they cannot be confined in their application to litigation in the private law field. They certainly have their place in criminal law. In principle
they must apply equally to adjudications in the field of public law. In relation to adjudications subject to a comprehensive self-contained statutory
code, the presumption, in my opinion, must be that, where the statute has created a specific jurisdiction for the determination of any issue which
establishes the existence of a legal right, the principle of res judicata applies to give finality to that determination unless an intention to exclude that
principle can properly be inferred as a matter of construction of the relevant statutory provisions.’
The 1993 Act, as it seems to me, creates a comprehensive statutory code for the investigation and determination of complaints made by qualified
complainants of maladministration causing injustice. Subject only to any appeal, the determination (together with any consequent direction) is made by s
151 of the 1993 Act final and binding on the parties and enforceable as if it were a judgment of the court. As a matter of principle and common sense, the
doctrine of res judicata should apply equally to determinations and directions of the ombudsman (and judgments on appeal from him) as to other
judgments and determinations, and res judicata should as much be a bar to a complaint before the ombudsman as it is a bar to the commencement of legal
proceedings to which (in cases where the acts of maladministration complained of consist of interference with private law rights or breaches of private
law duties) it is an alternative. I should add that, if contrary to my view for any technical reason the doctrine of res judicata were held to have no
application, it would be a proper exercise of his discretion by the ombudsman in the interests of finality not to allow an issue already determined to be
reopened before him: consider R v Secretary of State for the Environment, ex p Hackney London BC [1984] 1 All ER 956 at 964–965, [1984] 1 WLR 592
at 602.
(b) The second question is whether the doctrine of res judicata applied in this case so as to bar investigation and determination by the ombudsman of
the 1998 complaint. The council maintains that the bar is created by the decision of the Court of Appeal in Haywood (No 1). There is a body of authority
on the availability of a plea of res judicata where a claim has been made which failed by reason of the current state of the law, and where later, after the
state of the law has been retrospectively changed, a new claim is made which for all practical purposes is identical to the old. In each case it is of course
essential to consider the precise terms of the retrospective legislation which may direct varying degrees of retrospective operation, but subject to any such
clear statutory provision to the contrary the principles (as it appears to me) are as follows. (i) Where the first claim is rejected on the ground that the
court—a term intended to include any other equivalent body with adjudicative (as opposed to administrative functions)—had no jurisdiction to entertain
the claim, this rejection may operate as res judicata in respect of the issue whether the court at the time of the claim had jurisdiction to entertain the claim,
but it does not operate as res judicata in respect of the merits of the claim. The claimant is accordingly free to renew his claim before another court which
does have jurisdiction or (if the jurisdiction of the first court is expanded) before that same court: see eg Hines v Birkbeck College (No 2) [1991] 4 All ER
450, [1992] Ch 33.
­ 646
(ii) Where the court has jurisdiction to entertain the first claim and decides it on the merits adversely to the claimant by reason of a shortcoming in
the general law as it stands, res judicata precludes the claimant making the same claim on the same facts again later even after a retrospective change in
the law remedying that shortcoming: see Lemm v Mitchell [1912] AC 400 and Port of Melbourne Authority v Anshun Pty Ltd (1980) 147 CLR 589 at 611.
(iii) The dismissal of a claim on the merits occasioned by a shortcoming in the general law will not operate as res judicata precluding the claimant at a
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later date making a claim to the same relief where he has become entitled to that relief on different facts under retrospective legislation: see Hewitt v
Lewis [1986] 1 All ER 927 at 930, [1986] 1 WLR 444 at 447–448.
21. I turn now to apply these principles to the facts of this case. The decision of the Court of Appeal in Haywood (No 1) operated by way of res
judicata to bar any later claim by Mr Haywood that under the provisions of the 1993 Act as enacted he was qualified to make a complaint in respect of the
severance scheme. But reg 9 changed the law and qualified him to make a complaint to the ombudsman in respect of the severance scheme. Since the
decision of the Court of Appeal in Haywood (No 1) rejected the 1993 complaint on the ground that the ombudsman had no jurisdiction to entertain it (and
did not determine the complaint on the merits), it does not operate as res judicata barring Mr Haywood in the complaint which he is now qualified to
make from covering exactly the same ground as was covered by the 1993 complaint.

TIME-BAR
22. The 1996 regulations contain in reg 5 the current time limits for making complaints to the ombudsman. The relevant provisions are as follows:
‘(1) Subject to paragraphs (2) and (3) below, the Pensions Ombudsman shall not investigate a complaint or dispute if the act or omission which
is the subject thereof occurred more than 3 years before the date on which the complaint or dispute was received by him in writing …
(3) Where, in the opinion of the Pensions Ombudsman, it was reasonable for a complaint not to be made or a dispute not to be referred before
the end of the period allowed under paragraphs (1) and (2) above, the Pensions Ombudsman may investigate and determine that complaint or
dispute if it is received by him in writing within such further period as he considers reasonable.’
23. The council submitted that the 1998 complaint was time-barred because the acts complained of occurred more than three years before the date on
which the complaint was received and accordingly triggered reg 5(1); and that reg 5(3) was inapplicable because, though Mr Haywood was not qualified
to make the complaint until after the 1997 regulations came into force, he cannot say that it was reasonable to have made no complaint before the end of
this three-year period commencing in 1991, because he had in fact made a complaint within that period, namely the 1993 complaint. This is an
extraordinary submission, for it amounts to this, that a complainant cannot invoke reg 5(3) if he could previously have made, or has previously made, a
complaint which he was not qualified to make and which accordingly would have been or was invalid; and that a complaint can become time-barred even
before it can lawfully be made. Plainly reg 5(3) is concerned with the position where a complainant qualified to make a ­ 647 complaint has deferred
doing so and whether he has done so for a good and sufficient reason. The ombudsman’s decision that reg 5(3) was applicable and on this basis to
investigate and determine the 1998 complaint was clearly correct: indeed it was the only conclusion which he could rationally have reached. I accordingly
reject this objection to the assumption of jurisdiction by the ombudsman.

CONCLUSION
24. I accordingly hold that the council is entitled to appeal against the 1998 determination, but I also hold that the council’s challenge to the 1998
determination fails and I accordingly dismiss the appeal.

Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 649

Danae Air Transport SA v Air Canada

ADMINISTRATION OF JUSTICE; Arbitration

COURT OF APPEAL, CIVIL DIVISION

KENNEDY, WARD AND TUCKEY LJJ
14, 15, 29 JULY 1999

Arbitration – Award – Remission – Grounds for remission – Arbitrators making mathematical error in award and awarding costs against appellant on
basis of that error – Appellant seeking order that award be remitted to arbitrators – Whether award could be remitted on basis of mathematical error –
Arbitration Act 1950, s 22.

DAT acted as agent for AC until the latter wrongfully terminated its contract. In ensuing arbitration proceedings, AC made an offer to settle in a
Calderbank letter, but that offer was rejected by DAT and the matter proceeded to determination. After making their final award, the arbitrators took
account of the Calderbank offer in determining costs. Despite DAT’s submissions to the contrary, the arbitrators concluded that the sum awarded to DAT
fell short of the offer, and they therefore awarded AC the post-offer costs. DAT contended that the arbitrator’s conclusion was based on a self-evident
mathematical error, but it was unable to launch an appeal because the arbitration agreement had excluded all rights of appeal. DAT therefore applied,
inter alia, to have the award remitted to the arbitrators under s 22a of the Arbitration Act 1950. The judge accepted that the arbitrators had made a
mathematical error, but concluded that such an error fell outside the scope of s 22 since it did not constitute an excess of jurisdiction or a procedural
mishap. Accordingly, the judge dismissed the application, and DAT appealed.
________________________________________
a Section 22, so far as material, is set out at p 654 d, post
________________________________________

Held – Where arbitrators had deliberately made a simple mathematical error, that error could properly be characterised as a procedural mishap, and in
exceptional circumstances the court had power to remit the award if the error had not been admitted. In the instant case, the arbitrators had made such an
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error, and the court therefore had jurisdiction to remit the costs award under s 22 of the 1950 Act. In other words, there had been a deviation from the
route which the reference should have taken because ordinary mathematical principles had not been applied. The parties had been entitled to expect that
the arbitration would be conducted without such a mishap or misunderstanding. Accordingly, the appeal would be allowed and the costs award remitted
to the arbitrators (see p 658 f to p 659 b j to p 660 a, p 661 e f, and p 666 h, post).
King v Thomas McKenna Ltd [1991] 1 All ER 653 applied.
Decision of Longmore J [1999] 1 All ER (Comm) 794 reversed.

Notes
For remission of arbitration awards, see 2 Halsbury’s Laws (4th edn reissue) paras 690–695.
Section 22 of the Arbitration Act 1950 has been repealed by the Arbitration Act 1996, s 197(2), Sch 4.
­ 649

Cases referred to in judgments

Blexen Ltd v G Percy Trentham Ltd [1990] 2 EGLR 9, CA.
King v Thomas McKenna Ltd [1991] 1 All ER 653, [1991] 2 QB 480, [1991] 2 WLR 1234, CA.
Mutual Shipping Corp of New York v Bayshore Shipping Co of Monrovia, The Montan [1985] 1 All ER 520, [1985] 1 WLR 625, CA.
President of India v Jadranska Slobodna Plovidba [1992] 2 Lloyd’s Rep 274.

Cases referred to or cited in skeleton arguments

Charm Marine Inc v Elborne Mitchell [1997] CA Transcript 1363.
Everglade Maritime Inc v Schiffahrtsgesellschaft Detlef von Appen mbH [1993] 3 All ER 748, [1993] QB 780, CA.
Harrison v Thompson [1989] 1 WLR 1325.
Keighley, Maxsted & Co and Durant & Co, Re [1893] QB 405, [1891-4] All ER Rep 1012.
Margulies Bros Ltd v Dafnis Thomaides & Co (UK) Ltd [1958] 1 All ER 777, [1958] 1 WLR 398.
Moran v Lloyds [1983] 2 All ER 200, [1983] QB 542, CA.

Appeal
Danae Air Transport SA appealed with the leave of Longmore J from his decision on 8 February 1999 ([1999] 1 All ER (Comm) 794) dismissing its
application under s 22 of the Arbitration Act 1950 for an order remitting to the arbitrators their final arbitration award dated 26 October 1998 (Bruce
Coles QC and William McKie; George Theophanous dissenting) in arbitration proceedings between Danae and the respondent, Air Canada. The facts are
set out in the judgment of Tuckey LJ.

Stephen Tomlinson QC and Philip Shepherd (instructed by Brown Cooper) for Danae.
Michael Collins QC and Vernon Flynn (instructed by Dibb Lupton Alsop) for Air Canada.

Cur adv vult

29 July 1999. The following judgments were delivered.

TUCKEY LJ (giving the first judgment at the invitation of Kennedy LJ).

Introduction
By a final award published in London on 26 October 1998 the arbitrators ordered the claimants, Danae Air Transport (Danae), to pay the costs of the
award from 15 August 1995 (£519,659) and the respondents’, Air Canada’s, costs from that date (a substantial sum still to be assessed). The arbitrators
made this costs award because they thought that Danae had not beaten a Calderbank offer made by Air Canada on 15 August 1995. Danae contend, and
Longmore J accepted, that in reaching this conclusion the arbitrators made a basic arithmetical error. They had in fact beaten the offer so they should
have been awarded all their costs. However, the arbitration agreement between the parties excluded all rights of appeal. Danae therefore sought to have
the award remitted or set aside under ss 22 and/or 23 of the Arbitration Act 1950. The judge rejected this application but gave leave to appeal saying,
‘My decision results in undoubted injustice to [Danae]’.
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Danae acted as Air Canada’s agent in Greece until April 1989 when, as the arbitrators found, their appointment was wrongly terminated. At the time
of termination Danae held money from the sale of tickets which they were obliged to pay over to Air Canada but they held on to it as partial security for
their claim. In the arbitration which started in early 1995 Air Canada counterclaimed this money held by Danae. Although the principal amount held by
Danae in this way had been agreed by August 1995 there were arguments about the period during and the rate at which Air Canada should receive
interest.
The essence of the Calderbank offer was that Air Canada would forego their counterclaim and pay Danae an additional $Can500,000. Danae
rejected the offer. It is agreed that the effect of the arbitrator’s final award, adjusted so as to reflect interest up to August 1995, was that Danae were
awarded $Can1,904,481 on their claim and Air Canada were awarded $Can1,026,811 on their counterclaim. The arbitrators ordered the counterclaim to
be set off against the claim, so on these figures Air Canada had to pay Danae $Can877,670 and Danae did not have to repay the money which they were
holding. It is self-evident from this summary that Danae did better (by $Can377,670) by going on with the arbitration than they would have done if they
had accepted the Calderbank offer.
And yet the arbitrators by a majority (Bruce Coles QC and William McKie) held otherwise. They made their order for costs on the basis that Danae
had failed to beat the offer by about $Can400,000. The financial consequences of this error from Danae’s point of view, if it cannot be corrected, are
enormous. They will end up paying well in excess of £1m when, if the arbitrators had not made the error, they had good prospects of not having to pay
anything and receiving a substantial additional costs order in their favour.
I shall have to trace the history of how this has come about in a little more detail but that is the position in a nutshell. Air Canada simply say the
judge was right. The courts cannot interfere. They say they are not taking advantage of the arbitrator’s error although they have not given any
convincing reason to justify this assertion. This stance suggests that they know that it would be unacceptable for a large international airline to admit that
they are taking advantage of an obvious error in their favour at the expense of a former agent of lesser means. But that is exactly what they are doing.
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History
Following the publication of the arbitrators’ fourth interim award in September 1997 the parties turned their attention to the question of costs and in
particular to whether Danae had beaten the offer. Each side on their own initiative and not in response to one another produced schedules which analysed
the value of the award in the same way. By coincidence the arbitrators had awarded $Can500,000 to Danae as damages for ‘moral prejudice’. This was
therefore the same amount as Air Canada’s cash offer and the two amounts cancelled one another out. The comparison between the award and the offer
could therefore be made by a straight comparison between the award to Danae on their claim (ignoring the $Can500,000) and the award to Air Canada on
their counterclaim. At this stage the latter only exceeded the former by on Air Canada’s figures about $Can44,000 and on Danae’s about $Can35,000.
These schedules were used at a hearing before the arbitrators on 24 September 1997 at which a number of costs and interest issues were argued. I
need only refer to two of these issues. The first arose out of the terms of the Calderbank offer.
­ 651
It included the payment of all Danae’s costs with the exception of certain costs which had been incurred in the recent past or would be incurred if the
arbitration settled, which the offer proposed should be borne equally. Danae calculated that their share of these costs was $Can57,185. They submitted
that the value of Air Canada’s offer should be reduced by this amount. Of course this relatively small amount was crucial having regard to the difference
between claim and counterclaim.
The second issue arose out of what is described as the ‘Ballotta incident’. Mr Ballotta had been a senior employee of Air Canada until November
1989 who, contrary to his assertion, as the arbitrators subsequently found, had ‘clearly been concerned with the events which gave rise to the arbitration’.
Nevertheless Air Canada appointed Mr Ballotta as their arbitrator and in spite of Danae’s protests resisted all attempts to remove him for two years during
which the progress of the arbitration was considerably delayed. Danae argued that Air Canada should be deprived of interest on their counterclaim for the
period of this delay. The value to Danae of this argument, as subsequent events to which I will come show, was $Can400,000.
Air Canada resisted Danae’s attempts to improve their position on both these issues. They relied on the figures in their schedule which showed that
the amount of the award exceeded the amount of the offer. Their written submissions on this point concluded with the following paragraph:
‘In addition to the amounts awarded in drachma, Danae was awarded Can$500,000 in tort. By coincidence this amount equates precisely to the
additional sum offered to Danae in the sealed offer. It follows that the net amount awarded to Danae by the arbitrators is not only substantially less
than that contained in the sealed offer, but is less even than the amount of the additional Can$500,000 then offered to Danae in addition to the value
of Air Canada’s counter-claim.’
I do not really understand the last sentence of this paragraph but it certainly does not suggest the error which the arbitrators subsequently made.
The hearing was followed by an exchange of correspondence with the arbitrators in which the solicitors for the parties each took a number of confusingly
bad points but again the error which the arbitrators subsequently made was not suggested, or at least clearly suggested.
The arbitrators produced a draft final award in November 1997. This is where the error first appeared. They valued the offer by adding the value
which Air Canada had put on their counterclaim in the Calderbank letter ($Can818,500) to the $Can500,000. But they valued the award by subtracting
their award on the counterclaim from their award on the claim. On the figures they used this showed that Danae had failed to beat the offer by about
$Can800,000. No one had suggested that the calculation should be done in this way. It was palpably wrong because the arbitrators were not comparing
like with like. If the value of the counterclaim was to be added to the amount of the cash offer for the purpose of valuing the offer it should not have been
subtracted for the purpose of valuing the award. On the basis that Danae failed to beat the offer the draft final award had said that they were to pay the
costs of the award and Air Canada’s costs from 15 August 1995. Air Canada were to pay Danae’s costs up to that time.
The arbitrators accepted Danae’s arguments on the first issue to which I have referred so they reduced the value of the offer by $Can57,185. On the
Ballotta ­ 652 incident they said that as they had already dealt with interest on the counterclaim in an earlier award and as no submissions had been
made to them about the incident before they made that award they had no jurisdiction to deal with the matter.
The draft final award, as one would expect, caused great concern in the Danae camp. Their solicitors made increasingly frantic efforts to persuade
the arbitrators of their error. They bombarded them with letters, submitted an accountant’s report and eventually persuaded them to hold a further hearing.
Air Canada’s stance was that having published their award in draft, the arbitrators could not reconsider their decision and that they had not made any
error. Indeed, their solicitors asserted that the arbitrators were ‘plainly and obviously correct’.
But this error was not the only thing which concerned Danae. Contrary to what was said in the draft final award, they had raised the Ballotta
incident in submissions to the arbitrators before they made their earlier award. In a letter of 21 January 1998 Mr Coles accepted this. What is more,
however, he disclosed that in fact at that time the arbitrators had decided to disallow interest on the counterclaim for the entire two-year period. The
award which they had made did not reflect this decision. This was due to ‘an error in typing up the final version’ of the award. Mr Coles suggested
various methods by which the error could be rectified which required the parties’ agreement. No agreement was forthcoming.
The final hearing before Mr Coles took place on 21 May 1998. At this hearing both parties maintained the stance they had adopted in
correspondence since publication of the draft final award.
The final award was published, as I have said, on 26 October 1998. The arbitrators decided they could correct the error in their earlier award to
reflect their decision about the Ballotta incident. This had the effect of reducing Air Canada’s counterclaim by $Can400,000. They decided that had
jurisdiction to do this under the slip rule contained in s 17 of the 1950 Act and under the United Nations Commission on International Trade Law
(UNCITRAL) rules which the arbitration agreement enabled them to apply ‘with flexibility and discretion’.
But the error in the draft final award was repeated although the effect of the correction for the Ballotta incident was that the majority thought that
Danae had failed to beat the offer by about $Can400,000. This is how they reached this result:
Value of offer
Air Canada’s valuation of counterclaim $Can818,500
Cash offer $Can500,000
Less $Can57,185
Total: $Can1,261,315
Value of award (at 15/08/95)
Claim $Can1,904,481
Less counterclaim $Can1,026,811
Total: $Can877,670
Difference: $Can383,645
In fact the arbitrators valued the claim and counterclaim at 31 July 1998 so the difference was greater than these figures show, but this is not significant.
They sought to justify this conclusion for reasons which I find very difficult to follow.
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Mr Collins QC, counsel for Air Canada, submitted (very faintly, it is fair to say) that they were right. They were not, for the reasons I have given.
The final chapter in this story relates to the arbitrators assessment of the costs of the arbitration. In their final award they assess them at a total of
£740,955·52. In a letter of 24 June 1999 the solicitors who acted as secretaries to the arbitration say that the total should in fact have been £845,825·24.
The letter ends by saying that if a further sum for the solicitors’ costs is added, the costs before 15 August 1995 are £303,534,39 and since that date
£542,838·55. No suggestion is made as to how these errors should be corrected.

The law
This arbitration was not governed by the Arbitration Act 1996 although if it had been broadly similar issues would have arisen as arise on this
appeal. The relevant provisions of the Arbitration Act 1950 are:
‘17. Unless a contrary intention is expressed in the arbitration agreement, the arbitrator … shall have power to correct in an award any clerical
mistake or error arising from any accidental slip or omission [Article 36 of the UNCITRAL rules gives arbitrators the power to correct ‘errors in
computation, any clerical or typographical errors, or any errors of similar nature’] …
22.—(1) In all cases of reference to arbitration the High Court … may from time to time remit the matters referred, or any of them, to the
reconsideration of the arbitrator …
23. … (2) Where an arbitrator … has misconducted himself or the proceedings … the High Court may set the award aside …’
The relevant provisions of the Arbitration Act 1979 are:
‘1.—(1) In the Arbitration Act 1950 … section 21 (statement of case for a decision of the High Court) shall cease to have effect and, without
prejudice to the right of appeal conferred by subsection (2) below, the High Court shall not have jurisdiction to set aside or remit an award on an
arbitration agreement on the ground of errors of fact or law on the face of the award.
(2) … an appeal shall lie to the High Court on any question of law arising out of an award made on an arbitration agreement; and on the
determination of such an appeal the High Court may by order—(a) confirm, vary or set aside the award; or (b) remit the award to the
reconsideration of the arbitrator … together with the court’s opinion on the question of law which was the subject of appeal …’
The power to set aside or remit an award for error on the face of the award was a common law remedy although whether it could have been invoked for
errors of fact is doubtful.
The interaction between s 1 of the 1979 Act and s 22 of the 1950 Act where the discretion to remit is expressed in wide terms has been considered in
a number of cases. In this case however both parties accepted the general statement of principle by Lord Donaldson MR in King v Thomas McKenna Ltd
[1991] 1 All ER 653 at 660–661, [1991] 2 QB 480 at 491 where he said:
‘In my judgment the remission jurisdiction extends … to any cases where, notwithstanding that the arbitrators have acted with complete
propriety, due to mishap or misunderstanding some aspects of the dispute which has ­ 654 been the subject of the reference has not been
considered and adjudicated upon as fully or in a manner which the parties were entitled to expect and it would be inequitable to allow any award to
take effect without some further consideration by the arbitrator. In so expressing myself I am not seeking to define or limit the jurisdiction or the
way in which it should be exercised in particular cases, subject to the vital qualification that it is designed to remedy deviations from the route
which the reference should have taken towards its destination (the award) and not to remedy a situation in which, despite having followed an
unimpeachable route, the arbitrators have made errors of fact or law and as a result have reached a destination which was not that which the court
would have reached. This essential qualification is usually underlined by saying that the jurisdiction to remit is to be invoked, if at all, in relation to
procedural mishaps or misunderstandings. This is, however, too narrow a view since the traditional grounds do not necessarily involve procedural
errors. The qualification is however of fundamental importance. Parties to arbitration, like parties to litigation, are entitled to expect that the
arbitration will be conducted without mishap or misunderstanding and that, subject to the wide discretion enjoyed by the arbitrator, the procedure
adopted will be fair and appropriate. What they are not entitled to expect of an arbitrator any more than that of a judge is that he will necessarily
and in all circumstances arrive at the “right” answer as a matter of fact or law. That is why there are rights of appeal in litigation and no doubt
would be in arbitration were it not for the fact that in English law it is left to the parties, if they so wish, to build a system of appeal into their
arbitration agreements and few wish to do so, preferring “finality” to “legality”.’ (Lord Donaldson MR’s emphasis.)
In an earlier case, Mutual Shipping Corp of New York v Bayshore Shipping Co of Monrovia, The Montan [1985] 1 All ER 520 at 525, [1985] 1 WLR 625
at 632, where the arbitrator had mistakenly attributed the evidence of one party to the other and, consequently, made an award in favour of the wrong
party, in remitting the award to the arbitrator Donaldson MR said:
‘Section 22 empowers the court to remit an award to an arbitrator for reconsideration. It provides the ultimate safety net whereby injustice can
be prevented, but it is subject to the consideration that it cannot be used merely to enable the arbitrator to correct errors of judgment, whether of fact
or law, or to have second thoughts, even if they would be better thoughts.’
In that case the arbitrator admitted the mistake but Donaldson MR said:
‘… the arbitrator admits that he made an accidental error, but I should not like it to be thought that such an admission is a prerequisite to the
exercise of the court’s jurisdiction to remit. If the arbitrator says nothing and there is a strong prima facie case that there has been an accidental
error, the award could be remitted to him with a direction to reconsider it and to revise it if, but only if, there was such an error.’ (See [1985] 1 All
ER 520 at 525, [1985] 1 WLR 625 at 632.)
Robert Goff LJ said:
‘Without laying down any hard and fast rule, I think that as a general rule the court should not intervene in cases of simple mistake unless there
is a clear admission by the arbitrator that he has made a mistake. Nowadays, ­ 655 arbitrators should be able to correct any clerical mistakes in
their awards, or any mistakes in their awards arising from accidental errors or omissions, under s 17. The most likely case which may arise in
which the court may be asked to exercise its power to remit an award on grounds of error will be where an arbitrator, having made a mistake, is not
certain whether he has power to correct his award under s 17, as he may not be when one party disputes his power to do so. In such a case, or if the
arbitrator otherwise declines to exercise his power, the aggrieved party may apply to the court for a remission. Such cases apart, I cannot but think
that the court’s power of remission will be very rarely exercised in cases of mistake; but, as I have said, I do not wish to restrict the width of the
power to order remission in the interests of justice.’ (See [1985] 1 All ER 520 at 530, [1985] 1 WLR 625 at 638.)
Sir Roger Ormrod was less restrained. He said:
‘Whichever way of looking at this problem is correct it is clear to my mind that the parties themselves cannot blindfold the court, only the court
itself can do that and in the vast majority of cases it will do so. But in those rare cases where an error occurs, of the kind which we are considering
in this case, the court cannot decline to interfere without gravely prejudicing in the eyes of the lay world the machinery of justice. For my part I do
not think that either conclusion will significantly endanger the finality of arbitration awards. Section 17 is limited to clerical mistakes or accidental
errors. Section 22 is limited by the discretion being subject to the constraints imposed by the overriding importance of preserving finality in all but
the most exceptional situations.’ (See [1985] 1 All ER 520 at 532, [1985] 1 WLR 625 at 641; Sir Roger Ormrod’s emphasis.)
In a number of cases the courts have had to consider the application of these principles to costs awards. In Blexen Ltd v G Percy Trentham Ltd [1990] 2
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EGLR 9 it was contended that in deciding whether the claimants had beaten a sealed offer the arbitrator failed to take account of the fact that the
respondents had succeeded in reducing the claim by amendments made after the offer. In allowing an appeal against an order remitting the award Lloyd
LJ, after referring to s 23 of the 1950 Act, said (at 10):
‘But the question is whether that power exists when the only misconduct alleged is an error of fact or law in a reasoned award. I am quite clear
that it does not. To hold otherwise would defeat one of the main purposes of the 1979 Act. Whatever may have been the position as to costs in the
old days, the only course open today, where an arbitrator states his reasons, is to challenge those reasons by seeking leave to appeal under … the
1979 Act. This the claimants never did.’
In the King case [1991] 1 All ER 653 at 664, [1991] 2 QB 480 at 495, Lord Donaldson MR said:
‘I therefore conclude that there is now no remedy for bona fide error on the part of the arbitrator in the matter of costs where the arbitration is
subject to an exclusion agreement and not all parties consent to an appeal.’
However, the court in that case upheld a decision to remit where an arbitrator had made a costs award in ignorance of a sealed offer because counsel had
not ­ 656 told him clearly that there was one or asked for the issue of costs to be held over. Lord Donaldson MR characterised this as a procedural
mishap.
Finally, in President of India v Jadranska Slobodna Plovidba [1992] 2 Lloyd’s Rep 274 the dissatisfied party to a costs award applied for the award
to be remitted on the ground that there was no basis on which the arbitrators could possibly have exercised their discretion on costs in the way they did.
In dismissing this application Hobhouse J said (at 279):
‘The procedure and remedy under s. 22 may only be invoked where there has been some excess of jurisdiction, some distinct element of
misconduct or procedural mishap, not simply some alleged unjudicial exercise of the discretion. Examples of such distinct misconduct could be
making an award which went outside the rival contentions of the parties or making an award without giving both parties an opportunity to be heard.
The King case was one of procedural mishap. Such complaints can only be raised on a motion under ss. 22 or 23; they cannot be raised by way of
an appeal under s. 1. Sections 22 and 23, therefore, do not become wholly irrelevant; they simply become unavailable where the complaint is a
failure by the arbitrator to apply the principles governing the judicial exercise of his discretion.’
I do not discern from these authorities any special rules relating to the remission of costs awards. If there have been deviations from the route by
which the decision comes to be made, ss 22 and 23 are available to remedy the situation. If the arbitrators have followed an unimpeachable route but
have made errors in the exercise of their discretion then the only remedy, if it has not been excluded, is by way of appeal on a question of law under s 1 of
the 1979 Act.

The judgment
The judge accepted what I have just said about the law. By reference to what Hobhouse J said in the President of India case, he held that there was
no excess of jurisdiction. The arbitrators were invested with the power to award costs. Nor was there a procedural mishap. Nothing happened by
accident and the Ballotta incident did not in the event make any difference to the result. However the draft final award came about, Air Canada
subsequently argued that the arbitrators approach was correct so the final award did not go outside the rival contentions of the parties. He therefore
dismissed the application for remission having granted leave to Danae to rely on s 23 as well as s 22. On his direction the proceedings were served on the
arbitrators together with the judgment to enable them to respond if they wanted to. They have not.

The appeal
Mr Tomlinson QC, counsel for Danae, submits that the judge took too restrictive a view of his powers under s 22, which should have enabled him to
right the injustice which he concluded Danae had suffered. This was not an error of law but a procedural mishap because the arbitrators made a simple
mathematical error. Whilst the parties had to accept the possibility that the arbitrators would make the wrong decision they had not accepted that they
would fail to apply the absolutes of mathematics. Alternatively, the draft final award did produce a conclusion which was outside the rival contentions of
the parties and the Ballotta incident was undoubtedly a procedural mishap. Since the ­ 657 award will have to be amended to correct the recently
discovered errors it should in any event be remitted.
Mr Collins submits that the judge was right for the reasons he gave. There is no escape from the fact that this is a challenge to the arbitrators’
decision as such and not to the route by which it was reached. The arbitrators resolved issues which were before them as to how the offer and the award
should be valued and their decision could only have been challenged on appeal. If the draft final award was outside the rival contentions of the parties
this was beside the point because for the best part of the following year the parties debated the very point which the arbitrators then decided. Whilst the
Ballotta incident was a procedural mishap, it was not one which had any impact on the final award because that award took it into account. If the recently
discovered error requires the award to be remitted, it should only be remitted for that purpose. There is no jurisdiction to remit it for any other purpose.

Conclusions
In the course of his submissions Mr Collins accepted that a simple error of arithmetic by arbitrators can ordinarily be amended under the slip rule (s
17 of the 1950 Act and/or the UNCITRAL rules). Either party raising such an error would not be challenging any conclusion or decision of the arbitrators
as to the primary facts. Mr Collins conceded that in such a case if the arbitrators did not make the correction their failure to do so would be a procedural
mishap.
I think he was right to make this concession. He of course maintained that this was not a simple error of arithmetic. What is more he relies on the
fact that it was not accidental or admitted. It was made after consideration of endless argument and justified, rightly or wrongly, by lengthy written
reasons.
The fact that such an error is not accidental or admitted will not of course alter its character. It remains a simple error even if it is made deliberately
and there is a continuing refusal to correct it. Nor does it matter that one party encouraged the making of the error and the refusal to correct it by arguing
that there was no such error.
To take Mr Tomlinson’s example, if the arbitrators had thought that 2+2=5 and made an award which they refused to correct on this basis, could the
court remit under s 22? I think they could. The court would not be inhibited by the fact that the mistake was not accidental or admitted. Deliberately
making a simple error of this kind could properly be characterised as a procedural mishap and in exceptional circumstances the court has power to remit if
the error is not admitted. (See The Montan.)
So I think the question for our decision is whether the error in this case was a simple error of mathematics and nothing more. I think it was. In order
to compare like with like, what the arbitrators had to do can be expressed as follows:
O(ffer) = $Can442,815 ($Can500,000 – $Can57,185)
A(ward) = $Can877,670 ($Can1,904,481 – $Can1,026,811)

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error. No real process of reasoning is required to make the comparison properly. It is an error of recognition as much as anything else.
It follows that I think that the court does have jurisdiction to remit the costs award under s 22 on the narrow ground of arithmetical error resulting
from procedural mishap. In other words there has been a deviation from the route which the reference should have taken because ordinary principles of
mathematics were not applied. The parties were entitled to expect that the arbitration would be conducted without a mishap or misunderstanding of that
kind.
However, I also think that the case is made out for remission on the wider ground advanced by Mr Tomlinson. The way in which the arbitrators
dealt with the Ballotta incident was undoubtedly a procedural mishap. If it had not happened, by September 1997 instead of a difference of
approximately $Can40,000 between the claim and counterclaim, the difference would have been about $Can360,000 in Danae’s favour. No fine-tuning
arguments would have made any difference. The correct approach adopted by each of the parties independently in their schedules would have shown that
Danae had comfortably beaten the offer and the arbitrators would not have had the opportunity to make the error which they did. As it was, the Ballotta
incident provided the opportunity for the arbitrators to make this error. They first did so, it seems to me, by going outside the rival contentions of the
parties. This was also a procedural mishap. The combined effect of both mishaps carried through into the final award in the sense that if neither of them
had occurred I do not think the majority would have made the error which they did. I do not think it is any answer to say that the final award took
account of the Ballotta incident or that Air Canada adopted the error after it was first made. This is beside the point if, but for the procedural mishaps, the
error would not have occurred.
Finally I think Mr Collins is right about the effect of the recently discovered error. Jurisdiction to remit part of an award cannot justify remission at
large.
Mr Collins submitted that if we allowed this appeal we should not remit the costs award to the arbitrators, but set it aside. This course was justified,
he argued, by the fact that there was no guarantee that if remitted the arbitrators would not repeat their error and because this arbitration has already lasted
too long and cost too much. I certainly agree that this arbitration has lasted too long and cost too much but that is no reason why it should not at least end
with a just result. I am sure that if the award is remitted so that the arbitrators can reconsider their costs award in the light of this judgment and the
judgment of Longmore J, they will produce a just award. Simply setting aside the costs award will not do so.
I should like to end this judgment by saying that Mr Tomlinson invited us to extend the limits of the discretion to remit which have been set in the
cases to which I have referred if that was necessary to do justice in this case. I do not think this is necessary. I think the decision I have reached falls
within the general principles laid down in the King case. Every case of this kind involves an attack on the arbitrators’ decision but the basis for remission
is not that the decision itself is wrong but that there has been a procedural mishap in the way in which it has been reached. Naturally, I am pleased to be
able to reach this conclusion to right an obvious injustice, but I am conscious of the risk that hard facts make bad law. I do not intend to do so and do not
think that I have done so.
For these reasons I would allow this appeal and remit the costs award to the arbitrators for their reconsideration in the light of this judgment. It will
be for ­ 659 them to decide how they wish to do this and of course what costs award they should make.

WARD LJ. I have read in draft the judgments of Tuckey and Kennedy LJJ. I am happy to find any way to agree that the appeal be allowed and the
matter remitted to the arbitrators for their reconsideration.
I express myself thus to make it plain that unless the appeal is allowed, an egregious injustice will have been perpetrated and the integrity of
international arbitration in London, in which we take pride, and in which the High Court has still a correcting role to play, will have been sullied.
The role now played by s 22 of the Arbitration Act 1950 is necessarily severely restricted. Restricted entry must be zealously maintained because:
(i) the achievement of finality through arbitration must not be undermined; (ii) freedom to exclude appeals must be upheld; and (iii) attempts to challenge
awards must be channelled through the narrow gateway of leave to appeal.
That said, the jurisdiction conferred by s 22 is unfettered. See, for example, Blexen Ltd v G Percy Trentham Ltd [1990] 2 EGLR 9 at 12, where
Lloyd LJ said:
‘Where an unfettered discretion has been granted by Parliament it is never desirable to hedge it about with too much guidance, in case the
guidance comes to be regarded as an inflexible rule of law or practice. It can be no such thing.’
And King v Thomas McKenna Ltd [1991] 1 All ER 653 at 659, [1991] 2 QB 480 at 489, where Lord Donaldson MR said:
‘In ascertaining the limits of the court’s jurisdiction, properly so called, I can see no reason why s 22 and the other section should not be
construed as meaning what they say. Certainly so far as s 22 is concerned, there is no element of doubt or ambiguity. The jurisdiction is wholly
unlimited.’
Later in the same case Lord Donaldson MR said:
‘In my judgment the remission jurisdiction extends beyond the four traditional grounds to any cases where, notwithstanding that the arbitrators
have acted with complete propriety, due to mishap or misunderstanding some aspects of the dispute which has been the subject of the reference has
not been considered and adjudicated upon as fully or in a manner which the parties were entitled to expect and it would be inequitable to allow any
award to take effect without some further consideration by the arbitrator. In so expressing myself I am not seeking to define or limit the jurisdiction
or the way in which it should be exercised in particular cases, subject to the vital qualification that it is designed to remedy deviations from the
route which the reference should have taken towards its destination (the award) and not to remedy a situation in which, despite having followed an
unimpeachable route, the arbitrators have made errors of fact or law and as a result have reached a destination which was not that which the court
would have reached. This essential qualification is usually underlined by saying that the jurisdiction to remit is to be invoked, if at all, in relation to
procedural mishaps or misunderstandings. This is, however, too narrow a view since the traditional grounds do not necessarily involve procedural
errors. The qualification is however of fundamental importance. Parties to arbitration, like parties to litigation, are entitled to expect that the
arbitration will be ­ 660 conducted without mishap or misunderstanding and that, subject to the wide discretion enjoyed by the arbitrator, the
procedure adopted will be fair and appropriate. What they are not entitled to expect of an arbitrator any more than of a judge is that he will
necessarily in all circumstances arrive at the “right” answer as a matter of fact or law.’ (See ([1991] 1 All ER 653 at 660–661, [1991] 2 QB 480 at
491; Lord Donaldson MR’s emphasis.)
Provided this residual power is most sparingly exercised only in the truly exceptional case, then it can be described as remaining available so as not ‘to
restrict the width of the power to order remission in the interests of justice’, to quote Robert Goff LJ in Mutual Shipping Corp of New York v Bayshore
Shipping Co of Monrovia, The Montan [1985] 1 All ER 520 at 530, [1985] 1 WLR 625 at 638. The judgment of Sir Roger Ormrod in that case expressed
the same view but in his characteristically robust way.
I would wish to emphasise, however, that vigilance must be exercised, lest a free and easy unstructured resort to doing justice leads to a plethora of
totally hopeless applications. It may be true in a sense that any result is unjust where the arbitrator has made an error of law or fact but such ‘ordinary’
injustice will never entitle the use of s 22. That is because the risk that the arbitrator, or the judge, will err is a known and acceptable risk and the slings
and arrows of such misfortune fall over a very generous ambit. It is, however, not difficult to see when they exceed that boundary. The point at which
injustice becomes unacceptable is when it is rank or ‘gross and obvious’, to borrow Sir Roger’s favourite and famous phrase, repeated in The Montan
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[1985] 1 All ER 520 at 531, [1985] 1 WLR 625 at 639, or, if one wishes the language to be more elegant, when it becomes, in the words of s 68 of the
Arbitration Act 1996, a ‘substantial injustice’.
It is because this palpable error has produced just that kind of injustice that I cheerfully agree to characterise it as a simple arithmetical error, or a
procedural mishap or a deviation from the accepted path, for what happened is each of those things, and I would allow the appeal and remit the matter
accordingly.

KENNEDY LJ. The facts are set out in the judgment of Tuckey LJ, with which I agree. Those facts demonstrate that when the arbitrators turned to
consider the question of costs they made a fundamental and important error. They concluded, wrongly, that the net value of the award to Danae Air
Transport SA (Danae), taking into account the counterclaim, was less than the Calderbank offer made by Air Canada in August 1995, and the arbitrators
then made their award of costs upon the basis of that false conclusion. All of us are capable of making simple errors in relation to figures, but what I find
astonishing is that the error should have been persisted in by the arbitrators after it was pointed out. It is troubling that it should have been adopted by Air
Canada and their legal representatives, and even more troubling that it should be persisted in by them in the light of the judgment of Longmore J. Of
course it is unattractive for those who represent Air Canada to be put in the position of having to argue in this court that a reputable airline is entitled to
hold onto a huge award of costs even though it knows that the award was made as a result of what Mr Tomlinson QC for Danae understandably describes
as a simple arithmetical mistake, but that in reality is the only tenable argument which can be put forward on behalf of Air Canada. The argument that
there is not and never was any mistake is not tenable, and Mr Michael Collins QC sensibly devoted relatively little of what he had to say to ­ 661 that
argument. I say no more about it. All I propose to deal with in the remainder of this judgment is the extent of this court’s jurisdiction to interfere.
When the parties to a dispute decide to refer the dispute to arbitration they have deliberately chosen not to litigate in the courts, and one of the
objects of the Arbitration Acts, and of the authorities decided under those Acts, is to support the system of arbitration by ensuring that those who have
chosen arbitration maintain their choice. A party who is dissatisfied with all or part of an arbitrator’s award cannot then simply opt out and raise the
matter in the courts. But the courts can never be shut out entirely, not least because in the last resort they must enforce the arbitrators’ award, and it is the
extent of the residual jurisdiction which is the central issue in this case. Sections 22 and 23 of the Arbitration Act 1950, so far as material, provide that:
‘22.—(1) In all cases of reference to arbitration the High Court or a judge thereof may from time to time remit the matters referred, or any of
them, to the reconsideration of the arbitrator or umpire …
23. … (2) Where an arbitrator … has misconducted himself or the proceedings, or an arbitration or award has been improperly procured, the
High Court may set the award aside …’
As Lord Donaldson MR said in King v Thomas McKenna Ltd [1991] 1 All ER 653 at 659, [1991] 2 QB 480 at 489:
‘… I see no reason why s 22 and the other sections should not be construed as meaning what they say. Certainly so far as s 22 is concerned,
there is no element of doubt or ambiguity. The jurisdiction is wholly unlimited.’
However, as Lord Donaldson MR also made it clear in that case:
‘I think that a clear distinction has to be made between the nature and scope of the remedy which Parliament has entrusted to the courts under s
22 and the use which the courts are prepared to make of it in the exercise of a judicial discretion and in the light of precedent.’ (See [1991] 1 All
ER 653 at 658, [1991] 2 QB 480 at 488.)
The first controlling factor is the very nature of arbitration proceedings—the matter to which I have already referred, and since the passing of the
Arbitration Act 1979 it has not been possible for a party to an arbitration to seek the assistance of the High Court in respect of an error on the face of the
record. Leave to appeal can be obtained on a point of law, but that avenue can, as in the present case, be blocked by an exclusion agreement, so the
interpretation of ss 22 and 23 has to be approached with those statutory constraints in mind. But, that said, s 22 does have an important role. As
Donaldson MR said in Mutual Shipping Corp of New York v Bayshore Shipping Co of Monrovia, The Montan [1985] 1 All ER 520 at 525, [1985] 1 WLR
625 at 632:
‘Section 22 empowers to court to remit an award to an arbitrator for reconsideration. It provides the ultimate safety net whereby injustice can
be prevented, but it is subject to the consideration that it cannot be used merely to enable the arbitrator to correct errors of judgment, whether on
fact or law, or to have second thoughts, even if they would be better thoughts.’
In The Montan the arbitrator mistakenly attributed the evidence of the expert witnesses to the wrong parties, so that he ordered the charterers to pay
the ­ 662 owners when he should have ordered the owners to pay the charterers. Unlike the arbitrators in the present case he admitted his error, but
counsel for the owners contended, as counsel for Air Canada contends in this case, that it was too late for the error to be corrected. This court disagreed,
and although before us Mr Collins places some reliance on the arbitrator’s admission it is clear that it was not critical. Donaldson MR said:
‘… the arbitrator admits that he made an accidental error, but I should not like it to be thought that such an admission is prerequisite for the
exercise of the court’s jurisdiction to remit. If the arbitrator says nothing and there is a strong prima facie case that there has been an accidental
error, the award could be remitted to him with a direction to reconsider it and to revise it if, but only if, there was such an error.’ (See [1985] 1 All
ER 520 at 525, [1985] 1 WLR 625 at 632.)
Robert Goff LJ was inclined to be somewhat more restrictive, saying ‘as a general rule, the mistake must be admitted by the arbitrator’, but he made it
clear that he had no desire ‘to restrict the width of the power to order remission in the interests of justice’ (see [1985] 1 All ER 520 at 530, [1985] 1 WLR
625 at 638).
In The Montan the arbitrator accidentally made a major error which, as Donaldson MR said, ‘if uncorrected, would lead to the charterers paying the
owners, when it is the owners who should be paying the charterers’. As Mr Tomlinson submits, that is the position in this case. If the error is uncorrected
the party which has succeeded ends up having to pay as if it had lost. Donaldson MR continued:
‘No court could lend the power of the state to the enforcement of such an award, and no court should stand by when it has power to correct such
an accidental error, and I stress the word “accidental”.’ (See [1985] 1 All ER 520 at 525, [1985] 1 WLR 625 at 632.)
Mr Collins submits that the present case is different because the error was not accidental. Danae made submissions and the arbitrators apparently
considered them before making their final award. To that Mr Tomlinson’s response is that where, as here, the error is the result not of any of the
functions which the parties entrusted to the arbitrators—such as evaluation of witnesses, drawing of inferences, and even application of relevant principles
of law—but rather it is the result of the arbitrators’ failure to apply basic mathematical principles which, until the problem arose, everyone would
reasonably have concluded that the arbitrators would both understand and apply, then the error can properly be described as accidental. In any event it
may not always be appropriate to see whether an error can properly be described as accidental. That approach, though useful, is not definitive. As Lord
Donaldson MR made clear in the later King case, it is not easy to define the limits of the court’s powers to intervene. He said:
‘Whilst it may be impossible, or at least undesirable, to seek to determine those limits, save on a case by case basis, I personally find it helpful
to ask myself what in truth the parties accepted when they agreed to arbitrate, although I am far from saying that this is the exclusive touchstone.’
(See [1991] 1 All ER 653 at 660, [1991] 2 QB 480 at 490.)
Mr Tomlinson invites us to consider whether the parties in truth accepted, when they agreed to arbitrate, that the arbitrators would be free to ­ 663
misunderstand or misapply basic mathematical principles, and to answer that question in the negative. In my judgement that is a powerful argument. Mr
Collins’ response is, and can only be, that when the parties agreed to arbitrate they vested in the arbitrators jurisdiction to resolve all issues which might
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arise, fettered only by an obligation to act in good faith, and that once a final award is made that is an end of the matter. If that is right then, as it seems to
me, The Montan was wrongly decided, unless it can be distinguished on the basis that in that case the arbitrator recognised his error, and, as I have
already said, that was a matter which the members of the court considered but which they did not regard as critical. The case was decided after the
implementation of the 1979 Act, so the statute law was the same as the law we have to apply, and when dealing with s 22 of the 1950 Act Sir Roger
Ormrod said:
‘The section gives the court an entirely unfettered discretion but it is accepted that the overriding importance of preserving the finality of awards
imposes severe constraints on its exercise. The section and its predecessors were, presumably, inserted to preserve the powers of the court at
common law or, perhaps more accurately, the practice adopted by the courts before the law was codified. Codification converts a practice into a
discretion and subtly changes its complexion. Just as under the common law the court in its prerogative jurisdiction, interfered with the decisions of
inferior tribunals in strictly limited circumstances, so it interfered with arbitral awards, if the interests of justice demanded and the circumstances
permitted. I find it impossible to imagine that the court, on facts like those before us in this case, would not have intervened under the old practice
and I can see no justification for not intervening now under s 22.’ (See [1985] 1 All ER 520 at 532, [1985] 1 WLR 625 at 640.)
He rejected the argument that the use of s 22 would endanger the finality of arbitral awards, saying that for that reason the section will not be used to
grant relief ‘in all but the most exceptional situations’ (see [1985] 1 All ER 520 at 532, [1985] 1 WLR 625 at 641). Mr Tomlinson submits that in the
present case we have a most exceptional situation, and if relief is refused that will not in reality support arbitration. It will simply, in the words of Sir
Roger Ormrod, prejudice in the eyes of the lay world the machinery of justice.
Perhaps the high water mark of the hands-off approach which Mr Collins invites us to adopt is to be found in Blexen Ltd v G Percy Trentham Ltd
[1990] 2 EGLR 9. In that case the arbitrator’s award was less than the amount of a pre-existing sealed offer, and costs were awarded accordingly. The
claimants then persuaded a judge to remit the award on the basis that the arbitrator had been guilty of technical misconduct within the scope of s 23(2)
because he had disregarded later amendments to the defence which reduced the award, and which if known at the time of the offer might have induced the
claimants to accept it. When granting leave to appeal Bingham LJ doubted whether a reasoned award on costs could be challenged on grounds of
misdirection or legal error otherwise than by leave under the 1979 Act. When giving judgment in this court Lloyd LJ, with whom the other two members
of the court agreed, said at that he was ‘quite clear’ that the power to set aside or remit for misconduct does not survive when ‘the only misconduct
alleged is an error of fact or law in a reasoned award’. He continued:
­ 664
‘To hold otherwise would defeat one of the main purposes of the 1979 Act. Whatever may have been the position as to costs in the old days,
the only course open today, where an arbitrator states his reasons, is to challenge those reasons by seeking leave to appeal on a question of law
under section 1(3) of the 1979 Act. This the claimants never did.’ (See [1990] 2 EGLR 9 at 10.)
In the present case no application could be made under s 1(3) because of the exclusion agreement. Lloyd LJ then went on to find (at 11) ‘no shadow
of misconduct on the part of the arbitrator in the way he dealt with costs, not even misconduct of the most technical kind’. Finally Lloyd LJ said (at 12):
‘Further than that I do not find it necessary or desirable to go. Each case, as is so often said, must be considered in the light of its own particular
facts. Where an unfettered discretion has been granted by Parliament it is never desirable to hedge it about with too much guidance, in case the
guidance comes to be regarded as an inflexible rule of law or practice. It can be no such thing.’
Three points seem to me to be of significance when considering the decision in the Blexen case. First, the complaint had no obvious merit. The arbitrator
did not, as alleged, disregard the amendments altogether, and the weight which he attached to them was plainly within his remit. Secondly, the decision
under appeal was the decision made pursuant to s 23(2). Before us it has been no part of the case for Danae that the arbitrators misconducted themselves,
technically or otherwise. Thirdly, although there is nothing in the report in the Blexen case to show that reference was made to the decision in The
Montan, the final paragraph of the judgment of Lloyd LJ does show that the court was alive to the need not to fetter the statutory discretion.
In the King case an inexperienced advocate appearing for the respondents allowed the arbitrator in his final award to deal with the costs of the
arbitration when, because there was a sealed offer, the issue of costs should have been held over. The result was an inequitable award in respect of costs,
which was remitted to the arbitrator pursuant to s 22(1). The Montan and the Blexen case were both considered, and Lord Donaldson MR, having
reviewed the history of s 22 concluded that the proper approach was as set out earlier in this judgment, namely to recognise that by statute the discretion
is wide, but that there are compelling reasons to restrict the use of the statutory power. He said:
‘In my judgment the remission jurisdiction extends beyond the four traditional grounds to any cases where, notwithstanding that the arbitrators
have acted with complete propriety, due to mishap or misunderstanding some aspects of the dispute which has been the subject of the reference has
not been considered and adjudicated upon as fully or in a manner which the parties were entitled to expect and it would be inequitable to allow any
award to take effect without some further consideration by the arbitrator. In so expressing myself I am not seeking to define or limit the jurisdiction
or the way in which it should be exercised in particular cases, subject to the vital qualification that it is designed to remedy deviations from the
route which the reference should have taken towards its destination (the award) and not to remedy a situation in which, despite having followed an
unimpeachable route, the arbitrators have made errors of fact or law and as a result have reached a destination which was not that which the court
would have ­ 665 reached. This essential qualification is usually underlined by saying that the jurisdiction to remit is to be invoked, if at all, in
relation to procedural mishaps or misunderstandings. This is, however, too narrow a view since the traditional grounds do not necessarily involve
procedural errors. The qualification is however of fundamental importance. Parties to arbitration, like parties to litigation, are entitled to expect
that the arbitration will be conducted without mishap or misunderstanding and that, subject to the wide discretion enjoyed by the arbitrator, the
procedure adopted will be fair and appropriate. What they are not entitled to expect of an arbitrator any more than of a judge is that he will
necessarily and in all circumstances arrive at the “right” answer as a matter of fact or law.’ (See [1991] 1 All ER 653 at 660–661, [1991] 2 QB 480
at 491; Lord Donaldson MR’s emphasis.)
Mr Tomlinson submits that, due to misunderstanding, the costs aspect of the dispute has not been considered and adjudicated upon in a manner
which the parties were entitled to expect, and that it would be inequitable to allow that part of the award to take effect without some further consideration
by the arbitrators. There has been a deviation from the route which the reference should have taken because ordinary principles of mathematics were not
applied. The parties were entitled to expect that the arbitration would be conducted without a mishap or misunderstanding of that kind.
The last of the authorities cited to us to which I need refer is President of India v Jadranska Slobodna Plovidba [1992] 2 Lloyd’s Rep 274. In that
case the charterers were ordered to bear all of their own costs of the arbitration, and to pay about two-thirds of the owners’ costs. The charterers
contended that there was no basis for such a conclusion, and sought an order that the issue of costs be remitted for reconsideration. Hobhouse J said (at
279):
‘The procedure and remedy under s. 22 may only be invoked where there has been some excess of jurisdiction, some distinct element of
misconduct or procedural mishap, not simply some alleged unjudicial exercise of the discretion. Examples of such distinct misconduct could be
making an award which went outside the rival contentions of the parties or making an award without giving both parties an opportunity to be heard.
The King case was one of procedural mishap. Such complaints can only be raised on a motion under ss. 22 or 23; they cannot be raised by way of
an appeal under s. 1. Sections 22 and 23, therefore, do not become wholly irrelevant; they simply become unavailable where the complaint is a
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failure by the arbitrator to apply the principles governing the judicial exercise of his discretion.’
In my judgment, despite the persuasive arguments advanced by Mr Collins, the authorities do not show that the wide jurisdiction granted to the courts by
ss 22 and 23 cannot be used so as to grant relief in a case such as this. For that reason I too would allow the appeal.

Appeal allowed.

Kate O’Hanlon Barrister.

[2000] 2 All ER 667

South Oxfordshire District Council v Secretary of State for the Environment, Transport
and the Regions and another

TOWN AND COUNTRY PLANNING

QUEEN’S BENCH DIVISION, CROWN OFFICE LIST

GEORGE BARTLETT QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
25 NOVEMBER, 20 DECEMBER 1999

Town and country planning – Appeal to Minister against refusal of permission for development – Challenge to decision of inspector – Appeal by local
planning authority against grant of planning permission by inspector – Whether party challenging inspector’s decision in planning permission appeal
precluded from raising argument not advanced at inquiry.

S, a landowner, appealed against a refusal of planning permission by the local planning authority. After a public inquiry, the Secretary of State’s
inspector allowed the appeal and granted planning permission. The authority challenged that decision in High Court proceedings. At the hearing, the
authority sought permission to make amendments to its notice of motion, alleging that the inspector had failed to take into account certain material
considerations. The Secretary of State and S opposed two of the proposed amendments on the grounds that they raised matters that had not formed part of
the authority’s case at the inquiry. In doing so, they relied on a case in which the Divisional Court had refused to allow a party to challenge a decision,
made in an enforcement notice appeal, on a ground that had been expressly withdrawn at the inquiry.

Held – There was no general rule that a party to a planning appeal decision was to be prevented from raising, in a challenge to that decision, an argument
that had not been advanced in representations made on the appeal. If the inspector had omitted a material consideration which could have affected his
decision, the decision might on that account be rendered unlawful, notwithstanding that the matter was not raised in the representations. In an
enforcement notice appeal on the other hand, the withdrawal of, or a failure to raise, a particular ground of appeal rendered that ground immaterial. In
such an appeal the issues were defined through identifying the grounds relied on, and that definition determined what was and was not material as a
matter of law. In an appeal against the refusal of planning permission, by contrast, the issue defined by the appeal was whether planning permission
should be granted and the test of materiality was essentially that of relevance. However, a party’s failure to raise at the inquiry a contention which he
sought to advance in challenging the inspector’s decision was undoubtedly of significance if, having omitted the contention from the grounds set out in
the notice of motion, the party later sought to amend those grounds so as to include it for the first time. In the instant case, the interests of justice did not
warrant permitting the authority to introduce at a late stage of proceedings arguments that the inspector had failed to take into account considerations that
had not been raised at the inquiry. Accordingly, those amendments would not be permitted (see p 677 g j to p 678 d, post).
West Cheshire Caravan Co Ltd v Ellesmere Port BC [1976] EGLR 143 distinguished.
­ 667

Notes
For proceedings challenging the validity of actions of the Secretary of State in respect of planning matters, see 46 Halsbury’s Laws (4th edn reissue) para
25.

Cases referred to in judgment

Snowden v Secretary of State for the Environment [1980] JPL 749, DC.
Stringer v Minister of Housing and Local Government [1971] 1 All ER 65, [1970] 1 WLR 1281.
Wallington v Secretary of State for Wales [1991] 1 PLR 87, CA.
West Cheshire Caravan Co Ltd v Ellesmere Port BC [1976] 1 EGLR 143, DC.

Cases also cited or referred to in skeleton arguments

Ashbridge Investments Ltd v Minister of Housing and Local Government [1965] 3 All ER 371, [1965] 1 WLR 1320, CA.
Associated Provincial Picture House Ltd v Wednesbury Corp [1947] 2 All ER 680, [1947] 1 KB 223, CA.
Bolton Metropolitan DC v Secretary of State for the Environment [1996] 1 All ER 184, [1995] 1 WLR 1176, HL.
Burton v Secretary of State for Transport [1988] 2 EGLR 35, CA.
City of Edinburgh Council v Secretary of State for Scotland [1998] 1 All ER 174, [1997] 1 WLR 1447, HL.
Clarke Homes Ltd v Secretary of State for the Environment (1993) 66 P & CR 263, CA.
Cord v Secretary of State for the Environment [1981] JPL 40, DC.
Croydon London BC v Gladden [1994] 1 PLR 30, CA.
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George Wimpey & Co Ltd v New Forest DC [1979] JPL 314.

R v Secretary of State for Transport, ex p de Rothschild [1989] 1 All ER 933, CA.
Save Britain’s Heritage v Secretary of State for the Environment [1991] 2 All ER 10, [1991] 1 WLR 153, HL.
Secretary of State for the Environment v M J T Securities Ltd (1998) 75 P & CR 188, CA.
South Somerset DC v Secretary of State for the Environment [1993] 2 EGLR 203, CA.
Top Deck Holdings Ltd v Secretary of State for the Environment [1991] JPL 961, CA.

Application
South Oxfordshire District Council applied pursuant to s 288 of the Town and Country Planning Act 1990 for an order quashing a decision by an
inspector appointed by the first respondent, the Secretary of State for the Environment, Transport and the Regions, granting planning permission for a
helicopter landing pad at Lower Bolney Farm, Harpsden, Henley-on-Thames, on an appeal by the second respondent, Urs Ernst Schwarzenbach, against
the council’s refusal to grant such permission. The facts are set out in the judgment.

Joseph Harper QC (instructed by Robin Hooper, Wallingford) for the council.

David Elvin (instructed by the Treasury Solicitor) for the Secretary of State.
David Holgate QC (instructed by Nicholson Graham & Jones) for Mr Schwarzenbach.

Cur adv vult

20 December 1999. The following judgment was delivered.

GEORGE BARTLETT QC. In this case the applicant planning authority apply under s 288 of the Town and Country Planning Act 1990 to have
quashed a decision of an inspector appointed by the first respondent granting planning ­ 668 permission on appeal for a helicopter landing pad at Lower
Bolney Farm, Harpsden, Henley-on-Thames, and discharging conditions in two earlier planning permissions. The inspector held an inquiry on 2–4
December 1998. The second respondent, Mr Schwarzenbach, is the owner of a large house called Thames Side Court which stands in extensive ground
beside the River Thames to the south of Henley. Mr Schwarzenbach also owns fields at Lower Bolney Farm which adjoin Thames Side Court and which
he uses for the training, stabling and grazing of polo ponies under a planning permission granted in 1994. That permission, which permitted the erection
of 49 stables, contained the condition:

‘That notwithstanding the provisions of Art 3 of, and Sch 2, Pt 4, Class B to the Town and Country Planning General Development Order 1988
(as amended), the land shall not be used for the purposes of landing and taking off of helicopters either in association with the recreational
development hereby permitted, or otherwise, except in accordance with any planning permission granted by the Local Planning Authority in respect
thereof. Reason: to safeguard the character of the area and protect local amenities.’

Over the last ten years Mr Schwarzenbach has been landing a helicopter in a number of locations adjacent to Thames Side Court in reliance on the
28-day permitted development rights granted by the Town and Country Planning (General Permitted Development) Order 1995, SI 1995/418 (GPDO),
and its predecessor General Development Orders. In 1995 he applied for planning permission to use the 1994 permission land for the landing/taking off
of helicopters. The council refused permission. Mr Schwarzenbach appealed against the refusal, and a public inquiry was held in February 1997.
In April 1997 the inspector dismissed the appeal. He said that he had ‘no doubt that the level of noise from your client’s helicopter is unacceptable at
the residential locations from which I heard it’; and he concluded that ‘noise and disturbance from the helicopter using the preferred landing site would
materially harm the residential amenities of people who live in the area’ and ‘would materially harm the character of the locality generally contrary to
Development Plan policies.’ He rejected the appellant’s contention that the potential use for helicopter landings of the curtilage of his house (under s
55(2)(d) of the 1990 Act) and of other areas of land under the GPDO constituted a fall-back position that justified the grant of planning permission. His
reasons for rejecting the argument were that the council could always make a direction under art 4 of the GPDO removing the permitted development
rights, even though there was no evidence that they had considered doing so, and that there might be some limitation on the use of the curtilage. Mr
Schwarzenbach applied to the High Court to quash that decision under s 288. His notice of motion raised a number of grounds related to the inspector’s
rejection of the fall-back argument. The decision was quashed by consent on 8 December 1997.
The appeal was considered afresh at the inquiry in December 1998. A substantial number of local residents, the parish council and a local action
group appeared at the inquiry and objected to the proposal. In her decision letter of 4 March 1999 the inspector said that she considered that there were
three main issues:

‘9. … The first is the effect of the proposal on the living conditions of neighbouring residents, with particular reference to noise and
disturbance. The second is the effect on the character and appearance of the surrounding ­ 669 rural area, having regard for the effect on the
landscape and the valley of the River Thames. The third issue is the extent to which the appellant would be able to use his land, and that of his
neighbours, for helicopter landing and take-off, even if this appeal were to fail, and the effects of the level of use which would then ensue.’

Dealing with the first issue, the inspector considered the evidence of noise and the number of helicopter movements. At the inquiry it had been the
appellant’s proposal that the number of movements should be limited to 400 a year on not more than 120 days, with a maximum of six movements in any
one day, the total number of annual movements being consistent with those in the previous ten years. The inspector said that she considered that:

‘21. … The landing and taking off of a helicopter three times a day, for each of 120 days a year principally in the summer months, as is
proposed, could be disturbing and annoying to neighbouring residents.’

She expressed her agreement with the view of an inspector in another inquiry that:

‘22. ... the effect on residential amenity would not be reduced to an acceptable degree either by virtue of the short term duration of each aircraft
noise event nor by their relative infrequency.’

She then said:

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‘25. … I consider that the proposal would conflict with Policy EN1 of the Structure Plan and Policy R4(ii) of the Local Plan. As the noise
would be most intrusive in summer when residents would be outside or would have windows open, I conclude that the proposal would be materially
harmful to the living conditions of neighbouring residents, with particular reference to noise and disturbance.’

On the second issue, differing from the previous inspector, she concluded that the proposal would not be seriously harmful to the character and
appearance of the surrounding rural area, having regard to the effect on the landscape and the valley of the River Thames.
The inspector then went on to consider the fall-back position. She referred to Snowden v Secretary of State for the Environment [1980] JPL 749,
which, she said, confirmed the principle that the decision-maker should consider what the appellant could do without any change in his planning position
if planning permission were refused; and that the decision-maker should be satisfied that there is a real prospect of the fall-back situation being realised.
She then summarised the appellant’s case:

‘33. In this case, you argued that the Appellant possesses rights under s 55(2)(d) of the 1990 Act and Pt 4 Class B of Sch 2 to the GPDO 1995
to land his helicopter on land at Lower Bolney Farm and in the curtilage of his dwellinghouse. In your opinion, s 55(2)(d) would not involve any
control on the number of flights in a year or a day, or on the timing of flights, and though Pt 4 Class B of Sch 2 would limit permitted development
rights to 28 days in a year, controls on the number of flights a day and their timing would not be available. This leads you to the view that the
proposal would ­ 670 offer a greater degree of control over use of the Appellant’s land for taking off and landing a helicopter than the fall-back
position.’

At para 50 the inspector concluded:

‘50. In reaching my conclusion on the third issue, I have given substantial weight to the evidence of use of the fall-back position, and my
inspection of the areas concerned including the demonstration flights. In my opinion, the Appellant would be able to use his land, and that of his
neighbours, for helicopter landing and take-off for more than 84 days a year without control on the numbers and timings of flights, if this appeal
were to fail. I am satisfied that there is every prospect of the fall-back position being adopted in those circumstances. The effects of that level of
use would, in my opinion, be at least as harmful as the proposal before me. Though I found that the helicopter was harmful to the living conditions
of neighbouring residents, I intend to allow this appeal because of my conclusions in respect of the fall-back position, and because of the possibility
of attaching conditions to a grant of permission which would mitigate the effects on local amenity to a sufficient degree.’

The fall-back position identified by the inspector concerned the potential use by Mr Schwarzenbach of particular areas of land as follows: (1) The
curtilage of his dwelling house, in reliance on s 55(2)(d) of the 1990 Act, which provides that the use of land within the curtilage of a dwelling house for
any purpose incidental to the enjoyment of the dwelling house as such does not involve development. (2) Land outside the curtilage of the dwelling house
(and outside the area of the 1994 permission where condition 18 prevented the take-off and landing of helicopters) but under Mr Schwarzenbach’s
control, in reliance on the 28-day permitted development rights contained in Pt 4 Class B of Sch 2 to the GPDO. (3) Land in two neighbouring
ownerships, also in reliance on permitted development rights.
The inspector concluded that 28-day GPDO rights could be exercised in respect of each of three areas of land, thus giving a total of 84 days; so that,
if additionally Mr Schwarzenbach used the curtilage of the house for 36 days, this would give the total of 120 days for which he now sought planning
permission.
Mr Joseph Harper QC, who appears for the applicant council, argues that the inspector erred in reaching her conclusion in respect of each of the three
elements. The grounds of challenge were set out in the notice of motion. In the course of the hearing, Mr Harper sought permission to amend the notice
by adding additional grounds. There was no objection to certain of the proposed additions by Mr David Elvin for the first respondent and Mr David
Holgate QC for the second respondent, and I allowed those. I refused permission for the other amendments because they sought to advance arguments
that could have been raised, but were not raised, at the inquiry. If they had been raised, the second respondent would almost certainly have wished to call
further evidence and/or have advanced arguments to deal with them. I will say what the points were later. It is sufficient for me to say now that I did not
consider the interests of justice required that the council should be allowed to pursue them on this application.
The first element in the fall-back position was the use that Mr Schwarzenbach could make of the curtilage of his house. Mr Harper submitted that it
was for the appellant at the inquiry to demonstrate that the use upon which he relied was ­ 671 ‘incidental to the enjoyment of the dwellinghouse as
such’. The inspector recorded (at para 4 of her decision letter) the contention on behalf of the appellant ‘that the helicopter is used for personal, business
and pleasure purposes by your client, his family and immediate staff’. She considered the arguments advanced at the inquiry in paras 34 to 40 of her
decision letter. She recorded (at para 37) the council’s argument that:

‘... use of the helicopter by other members of the polo team and for business purposes would not be ancillary to the dwellinghouse as such, and
could point to a material change of use of the land as a matter of fact and degree.’

She dealt with this by reference to an appeal decision relied on by the council, and concluded: ‘In this case, I do not consider that the movements of a
helicopter in the curtilage would detract from its residential function and appearance.’ The inspector then went on:

‘38. You also drew my attention to the case of Wallington v Secretary of State for Wales [1991] 1 PLR 87, in which the Court of Appeal held
that s 55(2)(d) exempted from planning control a use incidental to the enjoyment of a dwellinghouse as such, even though such use had involved a
material change of use of the building In addition, the Court found that the incidental test was to be applied to the house in question, not to houses
in general. I note that your client’s very large house and grounds would accommodate a helicopter landing and taking off more easily than most
dwellinghouses.
39. In the current case, I consider that your client uses his helicopter for personal, business and leisure uses in the same way that many people
would use a private car. I accept that use of the stated purposes would be incidental to the use of his dwellinghouse. The Council queried whether
the Appellant or a company under his control owned his dwellinghouse but, whatever the details of the ownership, I have no evidence that the
dwellinghouse is not used as a dwellinghouse. PPG 24, Annex 3, para 18 refers to the increased use of helicopters from the gardens of private
houses and other premises, and accepts that they may often be incidental to or ancillary to the principal use of the land and as such do not generally
require a separate planning permission.
40. Bearing in mind that each planning proposal should be determined on its merits, I have taken account of the ample size of your client’s
dwellinghouse and curtilage and the relatively dispersed settlement pattern of this area. The Council consulted the Civil Aviation Authority (CAA)
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about the safety of using the grounds of the house for landing a helicopter. The CAA did not rule out the use of a twin-engined helicopter on safety
grounds, such as the S76 used by your client. I can see no reason why your client could not land and take-off from the curtilage of his
dwellinghouse without limitation, provided the use is incidental to the use of the dwellinghouse under the permitted development rights conferred
by s 55(2)(d).’

Mr Harper suggests that the inspector’s conclusions in respect of the curtilage land are flawed in two respects. Firstly, it is said that she failed to
apply the test laid down in Wallington v Secretary of State for Wales [1991] 1 PLR 87. Secondly, it is said that she was not entitled on the evidence
before her, to conclude and/or she gave no adequate reasons for concluding, that, were planning permission to ­ 672 be refused, there was a reasonable
probability that the second respondent would use the curtilage on a regular basis for such purpose.
In Wallington’s case, an inspector had held that keeping 44 dogs in a rural dwelling on a plot of 0ÿ1 hectare was not a use incidental to the
enjoyment of the dwelling house as such, and the Court of Appeal held that he had not erred in law in doing so. The meaning of the provision was ‘of and
incidental to the enjoyment of the dwelling house as a dwelling house’ (see per Slade LJ at 92), and the words ‘incidental to’ contemplated that the
dwelling house in question at all material times remained used as a dwelling house, not as anything else, and that the other use in question is no more than
ancillary to that use as a dwelling house. Thus, said Mr Harper, a use can lose its character as an incidental use through excess. He submitted that the
inspector had failed to take account of the extent to which helicopter movements were for business purposes or were associated with the polo use. The
inspector had recorded (at para 15) that the majority of the helicopter movements were made in the polo season between May and July, and she should
have considered whether, therefore, they were associated with that use rather than with the enjoyment of the dwelling house as such. In saying that Mr
Schwarzenbach used his helicopter in the same way that many people would use a private car, the inspector failed, says Mr Harper, to take account of all
the differences between helicopter and car use and whether these might not have planning significance. And in any event, he says, it does not follow that
because some part of the use might be incidental to the enjoyment of the dwelling house as such, it all is. He suggests that the inspector treated all the
helicopter movements as incidental to the enjoyment of the dwelling house as such without any evidence to that effect.
I do not think the inspector’s reasons disclose any error on her part as to the proper approach under s 55(2)(d) of the 1990 Act; nor does it appear that
her conclusion on the helicopter use was one to which on the evidence she could not have come. She correctly asked herself whether the helicopter use
would be incidental to the enjoyment of the dwelling house as such and answered that question taking into account the nature of the house and the
purposes of the helicopter use. I do not think that it was necessary for the inspector, in finding that the appellant used the helicopter in the same way as
many people use a private car, to explore the possible differences there might be between the two. She was clearly accepting that the helicopter was a
personal means of transport to take the appellant (and his family and immediate staff) to and from his dwelling house. There is nothing in the decision
itself to suggest that this was not a conclusion that was open to her on the evidence, and, in answer to Mr Harper’s suggestion that there was no evidence
on which she could have concluded that all the helicopter movements were incidental to the dwelling house use, Mr Holgate referred to the evidence
given to the inquiry by John Llewellyn Phillips (and produced by him in a statement in these proceedings). Mr Phillips’s proof of evidence said this:
‘I am advised that the helicopter is used for family purposes including picking up children from boarding school or college at half-term and end
of term, and to take Mr and Mrs Schwarzenbach to and from London and to Farnborough when they fly to Switzerland. Fine art purchases are also
transported; and Mr Schwarzenbach uses it to go to polo matches. No other helicopter lands at Lower Bolney Farm and passengers are family and
friends.’
­ 673
In his statement in these proceedings Mr Phillips says that he was not cross-examined on that evidence. It cannot be said, in the light of this, in my view,
that the conclusion that the helicopter use was not incidental to the enjoyment of the dwelling house as such was one to which the inspector could not
have come.
Mr Harper’s second contention relates to the inspector’s conclusion on the likelihood of the curtilage being used for helicopter landing. In para 40,
at the end of her consideration of the arguments on s 55(2)(d), she had concluded that there was no reason why Mr Schwarzenbach should not land and
takeoff from his curtilage without limitation. At para 45, having concluded that he could use three other areas for 28 days each a year, she said:

‘This would enable him to land or take-off with his helicopter for 84 days a year, in addition to the use which he could make of the curtilage of
his dwellinghouse. If he used the latter for 36 days a year, that would give him the 120 day use for which planning permission is now sought. I
consider it likely that, if this appeal were dismissed the Appellant would use these alternative landing places, as he has used different sites in the
past.’

Then at para 50 the inspector said:

‘In my opinion, the Appellant would be able to use his land, and that of his neighbours, for helicopter landing and take-off for more than 84
days a year without control on the numbers and timings of flights, if this appeal were to fail. I am satisfied that there is every prospect of the
fall-back position being adopted in those circumstances.’

The case for Mr Schwarzenbach at the inquiry was that over a period of ten years his helicopter had landed and taken off on areas of land beyond his
curtilage. The number of days and the number of movements for which he now sought permission (120 days, 400 movements per annum) were about the
same as had occurred in the past. He evidently wished to continue using his helicopter to this extent. The inspector found that the extensive grounds of
his house would accommodate a helicopter landing and taking off. In these circumstances for her to conclude that, if planning permission was refused,
the curtilage was likely to be used for this purpose for at least 36 days a year was, in my judgment, one to which she could reasonably come. There was
material upon which she was entitled to reach this conclusion, and I do not see that any further explanation was needed as to why she had reached it.
One of the areas of land which the inspector found that Mr Schwarzenbach would be able to use for helicopter landing on 28 days a year was that
part of Lower Bolney Farm lying outside the area to which the 1994 planning permission, and thus the prohibition in condition 18, applied. Her
conclusions in paras 45 and 50 that, if planning permission were refused, Mr Schwarzenbach would be likely to avail himself of his ability to use other
areas of land, applied to this area as well as to the curtilage. Mr Harper seeks to challenge her conclusion in relation to this area of land with the same
argument that he raised on the curtilage land—that there was no evidence on which the inspector could have concluded that it was likely that the land
would be so used. I need say no more than that this argument must fail for the same reason as it had in my judgment to fail in relation to the curtilage of
the dwelling house.
The two other areas of land on which the inspector concluded that Mr Schwarzenbach could take advantage of the 28-day GPDO consent were
­ 674 identified as areas F and G. They were both outside Mr Schwarzenbach’s ownership. The inspector said this about them:

‘44. … The areas marked F and G on your plan are each in separate ownership and I consider that these are different planning units. At the
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Inquiry, letters from the owners of these neighbouring areas of land were provided as evidence that consent had been given for your client to land
his helicopter at both locations. Though the adequacy and currency of this evidence was questioned, there was no firm evidence to set against it
and show that neighbours would refuse permission for the use of their land by the Appellant’s helicopter in the future.’

The inspector then went on, in para 45, which I have already referred to and quoted from, to conclude that they each could be used by Mr Schwarzenbach
for 28 days a year, and that, if planning permission were refused, Mr Schwarzenbach would be likely so to use them.
Mr Harper’s principal ground of challenge in relation to the inspector’s conclusions on areas F and G is to argue that the inspector erred in placing on
the council the onus of proving that the owners of the land would refuse permission and that there was no evidence before her to show that both the
landowners of these two areas would indeed make their land available to Mr Schwarzenbach for helicopter landings on 28 days a year. He places reliance
on the letters referred to by the inspector in her decision letter. The first, dated 29 April 1996 was from Mrs Delia Etherington to Mr Maunsell, Mr
Schwarzenbach’s estate and business manager. It said:

‘Re: Helicopter Landings—Bolney Ferry Boathouse Field

Following our telephone conversation, I write to confirm that I agree to helicopter landings in the above field, provided that: (a) a payment is
made of [ ... ] per landing. (I understand that you will kindly record the number of landings and send me payment accordingly.) (b) There is
initially a trial period till 31st December 1996. (c) The helicopter lands as near as possible to the top gate, (ie the one put in by yourselves across
the Right of Way that goes through Lower Bolney Farm). (d) All access to and from the helicopter is through this top gate and not through our field
gate. (e) We are able to prevent landings on any particular day if we let you know in advance. If you clear a landing space and pathway in the long
grass, please could you keep it to a minimum so that we don’t loose too much hay. Many thanks, and good luck to the Black Bears this year!’

Mr Maunsell replied on 1 May 1996, as follows:

‘Dear Mrs Etherington,

Thank you for your letter of 29 April 1996, the contents of which I have discussed with Mr Schwarzenbach. He agrees with all your conditions,
but would ask, in the event of wishing to prevent landings on a particular day, that you give us a minimum of 24 hours notice. We plan to peg out
an area soon and would like to invite you to come and give the selected site your final stamp of approval before we use it. I will let you know when
this has been done. As regards payment for landings, I confirm that we will record the number of landings, and undertake to send you a cheque in
the appropriate amount monthly in arrears. Thank you again for your positive and helpful approach in this matter.’
­ 675
On 2 February 1997, Mr Maunsell wrote to Mr R E Hopper, the owner of the other area of land, as follows:

‘I wonder if I could ask you to confirm that you are prepared for Mr Schwarzenbach to land his helicopter on the piece of your land
immediately to the north of Lower Bolney Farm. We would of course have to ensure that Carol is informed of any intention to land, so that horses
do not bolt and damage themselves. We should also perhaps re-visit the site to peg out the proposed area, and further discuss any adjustment to
existing fences that might be necessary for safety reasons. Thank you in anticipation of your help in this matter.’

Mr Hopper replied on 11 February 1997:

‘Dear Mr Maunsell
Thank you for your letter of 2nd February. I have no objection to Mr Schwarzenbach landing his helicopter on my land, as I have already
agreed verbally. I also agree that we should re-visit the site as you suggest.’

Mr Holgate asks me to take into account also what is said in Mr Phillips’s statement about evidence that was given to the inquiry on these matters by
Mr Maunsell. Mr Phillips says that at the stage in the inquiry when evidence from local residents was being heard, the chairman of the Harpsden Parish
Council, Mrs V Rubinstein, said that she had spoken to Mrs Etherington and had been told that no agreement was in place for helicopter movements on
area F. Later the inspector allowed Mr Maunsell to be called on behalf of the appellant. Mr Phillips summarises that oral evidence as follows:

‘Mr Maunsell stated that he had telephoned Mrs Etherington following the evidence of Mrs Rubinstein and that Mrs Etherington had felt that
her position had been misunderstood by Mrs Rubinstein. Although Mr Schwarzenbach had not in fact used area F for the last 18 months, Mrs
Etherington stated that if he wanted the helicopter to land tomorrow the permission she had granted in the past would still stand. The Inspector then
gave everyone present at the inquiry an opportunity to cross-examine Mr Maunsell. Mr Hooper expressly declined to cross-examine and stated that
he would rely upon the evidence given by Mr Maunsell. The Inspector asked no questions of Mr Maunsell.’

Mr Harper contends, as I have said, that the inspector, in the passage I have quoted, placed on the council the onus of proving that the owners of the
land would refuse permission. It was for the appellant, if he was to rely on the fall-back argument, to establish the necessary facts. I do not think that Mr
Harper correctly analyses what the inspector was saying. What she was saying, in my judgment, was that there was evidence, in the form of the letters, to
show that Mr Schwarzenbach would be allowed to land his helicopter on areas F and G. That the letters were at the very least some evidence of this is, in
my judgment, indisputable. The inspector then said (no doubt with reference to what Mrs Rubinstein had said of her conversation with Mr Etherington)
that there was no firm evidence to set against this and show that Mr Schwarzenbach would not be allowed to use areas F and G. Thus there was evidence,
from the letters, that he would be allowed to use areas F and G, and no firm evidence to the contrary. That was what the inspector was saying and, in my
judgment, she was entitled on the evidence to say it. I do not think that any error of law is ­ 676 disclosed. Nor do I think, as Mr Harper sought to
contend in a contingent argument, that her reasons for so concluding were inadequate. It was not necessary for her to go further, as Mr Harper suggests,
and say why she placed reliance on the letters.
Mr Harper, as I have said, sought permission to amend his notice of motion by adding additional grounds to enable him to advance all the
contentions that had been included in his skeleton argument. Mr Elvin and Mr Holgate resisted two of the amendments. The first was to add the
contention that the inspector had omitted a material consideration by failing to consider whether use in accordance with the licences of the areas of land
not in his ownership, though in each case amounting to only 28 days each, involved a material change of use to a use which included the permanent
intermittent use of that land for the take-off and landing of helicopters. That would be the case, Mr Harper said, if the land was permanently kept
available for take-off and landings, even though they occurred on not more than 28 days a year.
The second amendment sought to add the contention that the inspector, in granting planning permission, failed to control the fall-back so that it could
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no longer be relied on, in addition to the permission that was granted, whether by Mr Schwarzenbach or otherwise. Restriction on the location had been
imposed by condition 2 in the permission granted in the decision letter, and this, said Mr Harper, was ineffective in relation to areas F and G.
Mr Elvin and Mr Holgate said that these amendments should not be permitted. They raised matters that had not formed part of the council’s case at
the inquiry. Had the argument on permanent intermittent use been raised, it would have been necessary to investigate the facts further to see whether the
land would indeed be kept available on a permanent basis for the helicopter use, and the inspector would have had to make further findings of fact. On
the second matter, the alleged inadequacy of condition 2 to control the fall-back, Mr Elvin and Mr Holgate pointed out that at the inquiry the council had
in fact agreed the terms of the conditions to be imposed if planning permission were granted. If at that stage condition 2 had been claimed to be
inadequate, some alteration could have been advanced to overcome its deficiency. Both counsel relied on West Cheshire Caravan Co Ltd v Ellesmere
Port BC [1976] 1 EGLR 143 in which the Divisional Court had refused to allow a decision to be challenged on a ground that had been expressly
withdrawn at the inquiry, and I was referred briefly to that decision. I accepted the contention of Mr Elvin and Mr Holgate and I refused to permit the
amendments.
I would add, however, that the West Cheshire Caravan Co case does seem to me clearly distinguishable from the facts of the present case. It
concerned an enforcement notice appeal in which the appellant had at the inquiry expressly abandoned ground (b) (the ground that the matters alleged in
the notice do not constitute a breach of planning control). Before the court the appellant sought to argue that the inspector should have addressed the
question whether there had in fact been a breach of planning control, notwithstanding the withdrawal of ground (b). Perhaps unsurprisingly the argument
was rejected.
I do not think that there can be any general rule that a party to a planning appeal decision is to be prevented from raising in a challenge to that
decision an argument that was not advanced in representations made on the appeal. If the inspector has omitted a material consideration which could have
affected his decision the decision may on that account be rendered unlawful, notwithstanding that the matter was not raised in the representations. In an
­ 677 enforcement notice appeal, on the other hand, where an appellant does not raise, or withdraws, a particular ground of appeal (as the appellant in
the West Cheshire Caravan Co case withdrew ground (b)) the effect is to render that ground immaterial. An appeal under what is now s 174 of the 1990
Act defines the issues through an identification of the grounds relied on, and what is and is not as a matter of law material is determined by such
definition of the issues. In an appeal against the refusal of planning permission, by contrast, the issue, defined by the appeal, is whether planning
permission should be granted; and the test of materiality is essentially that of relevance (see Stringer v Minister of Housing and Local Government [1971]
1 All ER 65, [1970] 1 WLR 1281).
The failure of a party to raise at the inquiry a contention which he seeks to advance in a challenge to the decision is, in my view, undoubtedly of
significance if, having omitted the contention from the grounds set out in the notice of motion, he later seeks to amend those grounds so as to include it
for the first time. In the present case it did not seem to me that the interests of justice warranted permission being granted to introduce at a very late stage
of the proceedings arguments that the inspector left out of account considerations which the applicant council had not raised at the inquiry.
Mr Harper sought to advance one further contention which was not foreshadowed in his notice of motion or skeleton argument. This arose from a
question that I asked in the course of argument. As finally formulated the contention was that the inspector should have taken into account the
precariousness of the licences granted (or expected) on areas F and G; that she failed to consider whether a permanent planning permission, good for all
time, could be justified on the basis of a fall-back position which was based on licences that could be terminated by the licensors at any time. This again
was a contention that had not been advanced at the inquiry. Mr Harper submitted that it fell within one of the permitted amendments to his notice of
motion (para 6A(b)). If it did not do so, he said that he did not seek permission to amend his notice of motion further in view of my rejection of his other
amendments.
The contention is not in my view covered by ground 6A(b) which was intended to relate to the curtilage land. It does not, therefore, arise for my
determination. I would, however, observe that, although planning permission unlimited in time was granted, the nature of the use which it permitted was
essentially personal to Mr Schwarzenbach, so that any consideration of the precariousness of his arrangements with the owners of F and G would have
had to be related to the fact that Mr Schwarzenbach’s need for the landing facility would not continue for ever. The contrast between a permanent
planning permission and a precarious fall-back position is thus perhaps not so marked as it may have appeared to be.
None of the grounds of challenge advanced by the applicant council are made out, and the application is refused.

Application refused.

Dilys Tausz Barrister.

[2000] 2 All ER 679

Reichhold Norway ASA and another v Goldman Sachs International

CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

LORD BINGHAM OF CORNHILL CJ, OTTON AND ROBERT WALKER LJJ
28 JUNE 1999

Practice – Stay of proceedings – Exercise of discretion – Plaintiff purchasing shares in company in reliance on report prepared by defendant – Plaintiff
referring claim against seller under sale agreement to foreign arbitration – Plaintiff commencing High Court proceedings for negligent misstatement
against defendant – Whether court correctly exercising discretion to stay proceedings.

A Norwegian company, J, sold the shares in P, one of its subsidiaries, to R. J had engaged the defendant to act as its financial adviser in connection with
the sale. The sale agreement provided that the buyer’s only remedy for any breach of warranty should be damages, and that the buyer should not be
entitled to rescind the contract for any reason. It further contained an express choice of Norwegian law and provision for arbitration in Oslo. After the
sale R gave notice to J of a possible claim under the sale agreement. In March 1998 R commenced proceedings in the High Court against the defendant
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alleging negligent misstatement and claiming damages of $US 40m. The defendant applied for a stay of the proceedings until after the determination of
the arbitration pending between R and J in Norway. R opposed the application on the ground that, as a claimant with a genuine claim against the
defendant within the jurisdiction, it had an absolute right to bring proceedings in England, regardless of any claim it might have against anyone else, and
that accordingly the court had no jurisdiction to interfere; or, alternatively, that, if it did have jurisdiction to interfere in the claimant’s choice it could do
so only in exceptional circumstances which were not present in the instant case. The judge held that he did have jurisdiction to stay the proceedings and
concluded that it was in the interests of justice that he should grant the stay. R appealed, challenging the judge’s exercise of his discretion.

Held – Having regard to the fact that forensic practice was changing and developing towards greater control by the courts over the course of proceedings,
the Court of Appeal would be very slow to interfere with procedural directions of a judge unless those directions were vitiated by error of law or manifest
error. In the instant case, the judge’s decision was not vitiated by any such error, since he had neither left out anything which he should have taken into
account, nor taken account of anything which he should not have, and had given a fair and judicious summary of all the matters properly to be considered.
Accordingly, the appeal would be dismissed (see p 689 c d and p 690 d j to p 691 b, post).
Decision of Moore-Bick J [1999] 1 All ER (Comm) 40 affirmed.

Notes
For stay of court proceedings pending arbitration, see 2 Halsbury’s Laws (4th edn reissue) paras 616–620.
­ 679

Cases referred to in judgment

Abraham v Thompson [1997] 4 All ER 362
Ashmore v Corp of Lloyd’s [1992] 4 All ER 486, [1992] 1 WLR 446, HL.
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] 2 All ER 575, [1964] AC 465, [1963] 3 WLR 101, HL.
Molnlycke AB v Procter & Gamble Ltd [1992] 4 All ER 47, [1992] 1 WLR 1112, CA.
Spiliada Maritime Corp v Cansulex Ltd, The Spiliada [1986] 3 All ER 843, [1987] AC 460, [1986] 3 WLR 972, HL.
Thermawear Ltd v Linton [1995] CA Transcript 1175.

Cases referred to or cited in skeleton arguments

Barrow v Bankside Members Agency Ltd [1995] 2 Lloyds Rep 472.
Canada Steamship Lines Ltd v R [1952] 1 All ER 305, [1952] AC 192, PC.
Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664, [1993] AC 334, HL.
Cox v Bankside Members Agency Ltd [1995] 2 Lloyds Rep 437, CA.
Davies (Joseph Owen) v Eli Lilly & Co [1987] 3 All ER 94, [1987] 1 WLR 1136, CA.
de Dampierre v de Dampierre [1987] 2 All ER 1, [1988] AC 92, HL.
Interest Rate Swap Litigation, Re (1991) Times, 19 December.
Seaconsar Far East Ltd v Bank Markazi Jomhouri Islamic Iran [1994] 1 Lloyds Rep 1, HL.
Shell Chemicals UK Ltd v P & O Roadtanks Ltd [1995] 1 Lloyds Rep 297, CA.
Witter (Thomas) Ltd v TBP Industries Ltd [1996] 2 All ER 573.

Appeal
The plaintiffs, Reichhold Norway ASA and Reichhold Chemicals Inc, appealed from the order of Moore-Bick J ([1999] 1 All ER (Comm) 40) sitting in
the Commercial Court on 25 November 1998 whereby, on the application of the defendants, Goldman Sachs International, he ordered that all further
proceedings in the action should be stayed under the inherent jurisdiction of the court preserved by s 49(3) of the Supreme Court Act 1981 pending the
final determination of the arbitration proceedings commenced by the plaintiffs against Jotun AS in Norway on 17 September 1998. The facts are set out
in the judgment of Lord Bingham of Cornhill CJ.

Christopher Carr QC and John McCaughran (instructed by Charles Russell) for Reichhold.
Gordon Pollock QC and David Foxton (instructed by Freshfields) for Goldman Sachs.

LORD BINGHAM OF CORNHILL CJ. On 25 November 1998 Moore-Bick J sitting in the Commercial Court ordered, on the application of the
defendants in these proceedings, Goldman Sachs International, that all further proceedings in the action should be stayed under the inherent jurisdiction of
the court preserved by s 49(3) of the Supreme Court Act 1981 pending the final determination of the arbitration proceedings commenced by the plaintiffs
in these proceedings, Reichhold Norway ASA (Reichhold) and Reichhold Chemicals Inc, against Jotun AS in Norway on 17 September 1998 (see [1999]
1 All ER (Comm) 40). Reichhold appeal against that order which Goldman Sachs seek to uphold.
Before the judge the issues between the parties were whether on the facts the judge had jurisdiction to stay the proceedings as he did and, if he did,
whether he could properly exercise his discretion so as to make such an order. On appeal the ­ 680 central issue is whether the order which the judge
made was one which he could properly and lawfully make.
The facts are summarised in the judgment and may for present purposes be briefly stated. Towards the end of 1996 Jotun AS wished to explore the
possibility of selling one of its subsidiary companies named Jotun Polymer Holding AS. It engaged Goldman Sachs to act on its behalf to investigate the
commercial possibilities of sale, to arouse interest among potential bidders, to handle the negotiations and to give financial advice. This engagement was
the subject of an agreement made between Jotun AS and Goldman Sachs on 20 December 1996, which contained an indemnity clause in these terms:

‘The Company [Jotun AS] also will indemnify and hold Goldman Sachs harmless against any losses, claims, damages or liabilities to any
person arising out of or in connection with the engagement or any matter referred to in the attached letter or this Annex A, except to the extent that
any such loss, claim, damage or liability results from the gross negligence or bad faith in performing the services that are the subject of the attached
letter or this Annex A of Goldman Sachs or any of its affiliates to which it may delegate any of its functions hereunder.’

Reichhold Chemicals became interested in exploring the possibility of purchase and entered into negotiations. For that purpose, understandably,
Reichhold needed access to detailed information about the business of Polymer, such information being known between the parties as the evaluation
material (so-called no doubt because it assisted Reichhold to evaluate the benefits of the purchase and to value the business).
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There was accordingly a confidentiality agreement entered into between Jotun AS and Reichhold Chemicals which contained a term to this effect. It
was addressed to Reichhold and read:

‘… you understand and accept that neither the Company [Jotun AS], nor any of its respective directors, officers, employees, agents,
representatives and advisors have made or make any representation or warranty expressed or implied as to the accuracy or completeness of the
Evaluation Material. You agree that none of them shall have any liability to you or any of your representatives or advisors resulting from the use of
the Evaluation Material.’

Negotiations and investigations were entered into and a draft sale agreement was exchanged containing a number of warranties concerning the usual
operation of the business, the absence of material adverse change since the date of the last accounts, the absence of any material reduction in the assets or
increase in the liabilities and so on.
On 5 June 1997, as it appears, a report was forwarded by Polymer to its parent, Jotun, indicating a significant decrease in profitability for the year
1997 as compared with 1996. On the following day, 6 June, a memorandum was addressed by Goldman Sachs to Reichhold in the course of which it was
said: ‘Management does not currently foresee any reason to adjust the budget for 1997.’
On 11 July 1997 an agreement was made for the sale of the shares. The agreement is a very lengthy document. It contained warranties to very much
the same effect as in the draft agreement. It provided in cl 5.3 that the buyer’s only remedy for any breach of warranty or of any provision of the
agreement should ­ 681 be damages and that there should be no right to rescission. It contained in cl 5.4.1 an agreement between the seller and the
buyer that the seller should pay to the buyer on demand the amount necessary to put the buyer into the position in which it would have been if the
warranties in the agreement had been true and accurate in all respects.
Clause 6.5 contained a provision that claims should be unenforceable unless pursued within nine months of notification of the relevant claim.
Clause 17 contained a Norwegian law clause and a provision that any difference or disagreement between the parties should be resolved by
arbitration in Oslo.
The agreement was duly completed in September 1997 and the shares were transferred into the name of Reichhold Norway AS, although nothing
turns on any distinction between the two plaintiffs.
On 22 December 1997 Reichhold gave notice to Jotun of a possible claim under the sale agreement. That notification was followed in March by a
letter before action addressed to Goldman Sachs. On 30 March 1998 the writ was issued in these proceedings by the plaintiffs against the defendants. It
is enough to say that the claim made in the writ was a Hedley Byrne claim based on the Goldman Sachs memorandum of 6 June, to which I have already
referred (see Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] 2 All ER 575, [1964] AC 465). The damage claimed by the plaintiffs was some $US
40m.
On 19 May 1998 Goldman Sachs issued this summons seeking a stay of the proceedings. Later, on 17 September 1998, Reichhold began arbitration
proceedings against Jotun under the arbitration clause in the agreement, this action, it would seem, being prompted by the time provision in the sale
agreement. At the end of October the suggestion was made by lawyers acting for Reichhold that the arbitration proceedings should be treated as dormant,
with no steps being taken to complete the establishment of the tribunal and with each party waiving any relevant time limit, but to that invitation lawyers
acting for Jotun gave a non-committal reply.
Evidence was filed relating to the Goldman Sachs summons to stay the proceedings and the matter came in due course before the judge.
The judge gave a summary of the argument addressed by Mr Pollock QC on behalf of Goldman Sachs (see [1999] 1 All ER (Comm) 40 at 46). He
drew attention to the following points. First, since the substance of Reichhold’s complaint was that it had paid too much for Polymer, the natural and
most efficient way of pursuing a remedy was by arbitration against Jotun in Norway under the sale agreement seeking damages. Second, it was suggested
that that was a relatively straightforward claim in legal terms and any difficulty about the quantum of damage would be inevitable wherever the claim was
pursued. Third, it was suggested that the proceedings in the arbitration could be expected to reach a conclusion quickly and relatively cheaply. Fourth, it
was urged that Reichhold could expect to recover in full against Jotun in the arbitration if it had a good claim, and there was no reason to think that Jotun
would be unable to honour any award. By that route it was urged, fifth, that Reichhold could expect to obtain justice in a speedy and efficient manner.
By contrast, sixth, the present action against Goldman Sachs was more complex, more difficult as a matter of law and was inconsistent with the method
contemplated by all parties for resolving disputes of this kind. In those circumstances Mr Pollock argued that the ­ 682 court could and should stay all
further proceedings in the action until the completion of arbitration proceedings in Norway.
In the judge’s assessment Mr Pollock’s argument rested essentially on three propositions: first, that a plaintiff was no longer entitled to exercise
unfettered control over the conduct of proceedings, even when they had been commenced in this country as of right; secondly, that the court should take
an active role in managing proceedings before it in order to ensure that justice was achieved as between the parties, while at the same time safeguarding
the interests of other litigants; and thirdly, that when considering how justice could best be done between the parties, the court should view the matter
objectively in order to assess how that might be achieved at least inconvenience and expense to all involved.
The judge then turned to consider the counter-arguments addressed by Mr McCaughran on behalf of Reichhold. The judge recorded his primary
submission as being that a plaintiff with a genuine claim against a defendant within the jurisdiction (not being a claim liable to be struck out as in any way
abusive) had an absolute right to bring proceedings against the defendant here. That, it was submitted, was so regardless of whether he might have a
claim against anyone else in respect of the same or a similar loss elsewhere. The judge said (at 46):

‘In other words, Mr McCaughran submitted that the claimant is entitled to choose whom to sue and when and the court has no right to interfere
with the exercise of his choice, whatever may be the motive behind it. Alternatively, [Mr McCaughran] submitted that if the court does have
jurisdiction to interfere in the claimant’s choice of defendant and forum, it can do so only in exceptional circumstances …’

which were not present in this case.

On the issue of jurisdiction the judge (at 46–47) expressed himself briefly in these terms:

‘The court’s power to stay proceedings is part of its inherent jurisdiction which is expressly preserved by s 49(3) of the Supreme Court Act
1981. It is exercised under a wide range of circumstances to achieve a wide variety of ends. Subject only to statutory restrictions, the jurisdiction to
stay proceedings is unfettered and depends only on the exercise of the court’s discretion in the interests of justice. I am in no doubt, therefore, that I
do have jurisdiction to stay the present proceedings; the question is whether it would ever be right to do so in a case such as the present, and if so
under what circumstances.’

The judge then turned to consider at some length the matters which he regarded as relevant to the exercise of his discretion. At the outset he
accepted that in principle a plaintiff who had claims against a number of different people was entitled to choose for himself whom to sue and whom not to
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sue. He is entitled, the judge said, to take proceedings against some and not others for whatever reasons seem best to him, and subject only to the need to
control abuse of its process the court is not concerned with the reasons for his choice or the motives that lie behind it. The judge observed that hitherto
this had been well accepted, although he did not wish to rule out the possibility that the orthodox view on this question might change. He went on,
however, to say (at 47):
­ 683
‘… choosing whom to sue is one thing; choosing in what order to pursue proceedings against different defendants may be another, especially
when two related sets of proceedings are being, or could be, pursued concurrently.’

He observed that in such a case the court itself had a greater interest, not only because there might be undesirable consequences if concurrent proceedings
were pursued, but also because the outcome of one set of proceedings may have an important effect on the conduct of the other. As an illustration of the
court’s power to manage and to prioritise the actions proceeding before it, he made reference to the well-known management rules which were laid down
and followed in the Commercial Court in the Lloyd’s litigation. The judge said (at 47):

‘In such circumstances the parties to the individual actions no longer enjoy the unfettered right (if indeed they ever did) to determine how the
proceedings should be conducted; it is recognised that the court is entitled to impose on them procedures which it considers appropriate in the light
of the nature and content of the litigation as a whole.’

He made reference to Ashmore v Corp of Lloyd’s [1992] 4 All ER 486, [1992] 1 WLR 446 and Thermawear Ltd v Linton [1995] CA Transcript 1175. He
added (at 47):

‘However, it may be less easy to justify active management of that kind in a case where proceedings between different parties are taking place
in other forums, for example, in arbitration or proceedings in other jurisdictions. That is one of the questions raised by this application.’

The judge then pointed out that, since the court’s jurisdiction to stay proceedings was discretionary and the circumstances in which an application for a
stay might be made were almost infinitely variable, he found it difficult to accept Mr McCaughran’s submission that it would never be proper for the
court to grant a stay of an action pending the outcome of proceedings. But he did accept that such a step should only be taken if there were very strong
reasons for doing so and the benefits which were likely to result from doing so clearly outweighed any disadvantage to the plaintiff. He said (at 48):

‘Ultimately, however, it must be a matter for the court to consider the circumstances of the case before it and come to its own conclusion. One
factor of importance is likely to be the relationship between the parties to the proceedings both here and abroad.’

The judge then gave what is in my judgment an important and helpful summary of the commercial effect of the relationships between the parties in
this case. He said (at 48):
‘In the present case that relationship arises out of the three agreements to which I have already referred. Whether or not Goldman Sachs as a
third party to the confidentiality letter is entitled to invoke its terms against Reichhold, or whether they are apt to cover the particular facts of this
case are not matters which can be decided on this application. However, I think it is reasonably clear from the confidentiality letter and from the
draft sale agreement that the commercial basis on which Reichhold pursued the negotiations with Jotun was that it should have no recourse against
Jotun or anyone acting on its behalf, including Goldman Sachs, in respect of the ­ 684 accuracy of any of the material disclosed during the
negotiations but instead would obtain under the sale agreement warranties of the accuracy of the accounts and of the development of the business in
the period since the most recent audited accounts. In commercial terms that seems to me to make perfectly good sense because a warranty of that
kind could be expected to provide a straightforward remedy against the seller which should adequately protect the buyer’s position while leaving it
to the seller to make whatever arrangements he thought fit with those acting on his behalf. In the present case the third side of the triangle, that is,
the relationship between Goldman Sachs and Jotun, was covered by the engagement letter under which Jotun agreed to indemnify Goldman Sachs
against any liability to Reichhold. Viewed as a whole, therefore, there was a coherent arrangement under which Reichhold would have its remedy
under the sale agreement for any misleading or inaccurate information, but would be limited to that remedy, and Jotun alone would be liable to
provide that remedy. Any dispute between them was to be decided in arbitration in accordance with the contract.’

The judge then returned to his summary of Mr Pollock’s submissions to the effect that, as Mr Pollock argued, in the circumstances which had arisen,
there was every practical reason for Reichhold to pursue a claim against Jotun under the sale agreement and no sensible reason for its proceeding against
Goldman Sachs in this country. The judge considered there was a lot of force in that argument. He considered that if, in truth, Reichhold’s complaint
was well-founded it would certainly appear to have had a good claim under the warranties in the sale agreement. The claim against Goldman Sachs, on
the other hand, the judge regarded as more complicated for the reasons which he had already indicated.
He considered that Mr Pollock was right in saying that there was likely to be substantial argument about whether Goldman Sachs owed Reichhold a
duty of care at all, let alone as to whether it was negligent. For that reason alone, in the judge’s opinion, the proceedings here would seem to represent a
more difficult route to success for Reichhold than the arbitration in Norway. The judge observed (at 49):
‘In these circumstances it is not easy to see why Reichhold should wish to pursue these proceedings in preference to the arbitration and no
explanation of any kind has been offered. Mr McCaughran simply fell back on the proposition that Reichhold is entitled to take that course if it so
wishes and the court should not interfere.’
The judge considered at some length the interrelationship between the arbitration proceedings and the court proceedings, discussing the possibility, if the
action went ahead, that Goldman Sachs, as defendant, would join Jotun as a third party seeking an indemnity under the terms of its engagement and that
Jotun would then seek to rely on its agreement with Reichhold to restrain the bringing of proceedings against Goldman Sachs. The judge also considered
the possibility that the arbitration might be left in abeyance.
The judge said (at 50):

‘It is important to emphasise that the question which has to be decided on this application is not whether Reichhold should be required to pursue
a ­ 685 claim which it does not wish to pursue at all, but whether it should be required to pursue its pending claim against Jotun before it
proceeds further with this action. If Reichhold had abandoned or compromised its claim against Jotun this application would not have been made
or, if made, would have had no prospect of success. But the fact is that the claim against Jotun is still pending. Reichhold wishes to maintain its
claim against Jotun and will pursue it if necessary. In the absence of any explanation for its desire to pursue this action in preference to the
arbitration, the most recent exchange of correspondence between the parties’ Norwegian lawyers looks like nothing more or less than a tactical
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move on Reichhold’s part. Viewed objectively there is, on the material before me, no advantage to Reichhold in taking that course; on the contrary,
it appears to be the less favourable option. In those circumstances the only prejudice which Reichhold is likely to suffer if this action is stayed is a
delay of about a year. Since delay of that kind can be compensated by an award of interest if Reichhold is ultimately successful, that might be
considered a small price to pay for the prospect of avoiding complex and costly litigation.’
The estimate of a year derived from opinions offered as to the likely course of the arbitration in Norway. Since the judge’s order, we are told, the
arbitration has indeed been progressed and it has not been suggested that that estimate was in any way unreliable.
The judge referred to two further submissions which were made by Mr McCaughran for Reichhold. The first drew attention to the House of Lords’
decision in Spiliada Maritime Corp v Cansulex Ltd, The Spiliada [1986] 3 All ER 843, [1987] AC 460 dealing with forum non conveniens. Mr
McCaughran submitted, by analogy, that in a case such as the present the court should not lightly interfere with the exercise by the plaintiff of its right to
pursue proceedings here, save in the most exceptional circumstances. The judge observed that he recognised the burden on the defendant who sought a
stay on grounds of forum non conveniens, but regarded that situation as somewhat different from that which arose in the case with which he was dealing.
He said (at 51):

‘In the case where a stay is sought on the grounds of forum non conveniens the availability of an alternative forum for the determination of the
dispute means that the court is effectively being asked to decide in which of two competing forums the action shall proceed. In practical terms it is
not a question of when but whether the plaintiff should be allowed to pursue the action here. To that extent the exercise of the court’s discretion to
stay the proceedings involves a greater interference with the plaintiff’s rights than the order sought in this case.’
The judge accepted that there was a very real burden on the defendant in the case before him to satisfy the court that the ends of justice would be
better served by granting a stay, but did not accept that there was any heavier a burden than would arise on an application based on grounds of forum non
conveniens. The judge also referred to a second argument of Mr McCaughran’s based on the Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters 1968 (as set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982) (the Brussels Convention) and the
Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1988 (as set out in Sch 3C to 1982 Act) (the Lugano
Convention) and the priority ­ 686 given to the court first seised. The judge recognised the value of a simple and clear rule of that kind, but pointed out
that the case before him fell outside the conventions and therefore enabled the discretion of the court to be exercised in a way which seemed best on the
particular facts. The judge summarised his conclusion in this way (at 51–52):
‘I come then to weigh up the factors for and against granting a stay in this case. The fact that Reichhold has commenced proceedings here as of
right is in my view an important factor in its favour, but apart from that there is little of a positive nature to be said against granting a stay. The
existence of concurrent proceedings in Norway would ordinarily be a powerful factor in favour of doing so, especially in a case where those
proceedings overlap to such a significant degree and could be expected to reach a conclusion within a relatively short space of time. However, that
factor inevitably loses some of its force in the light of the steps which have been taken to put the arbitration in abeyance. Unless Reichhold changes
its mind (which, in the absence of any agreement, it may) it seems quite possible that the arbitration may remain dormant for some time, but it
remains in being and I do not think one can discount the possibility that Reichhold may change its mind or that it may be necessary at some point
for it to revive the arbitration in order to ensure that the right to pursue it is not lost altogether. If that were to occur one would be faced with all the
undesirable consequences of concurrent proceedings. Moreover, the very fact that Reichhold is maintaining the proceedings against Jotun must I
think be a factor to be taken into account since it shows that Reichhold is minded to pursue those proceedings, if necessary, in the longer term. One
therefore comes back to the broader question of the manner in which the dispute involving all three of these parties is to be resolved. In the
somewhat unusual circumstances of the present case I do not think that the court is obliged to give undue weight to the mere preference of one
party. Considerations of cost and convenience and of the interests of justice generally seem to me to weigh heavily in favour of granting a stay. As
to that, the primary consideration as far as Reichhold is concerned is that it should receive such compensation as it is entitled to for whatever loss it
has suffered as quickly as possible and with the minimum of inconvenience and expense. No other factor has been suggested. In particular it is
worth emphasising that Mr McCaughran did not seek to argue that Reichhold had some legitimate reason, over and above obtaining compensation,
for pursuing Goldman Sachs rather than Jotun. As far as Goldman Sachs and Jotun are concerned, the interests of justice require that they should
have a full and proper opportunity to meet the claims against them, also at a minimum of inconvenience and expense and, in the case of Jotun, in
the agreed forum. If Reichhold wishes to pursue a claim against Jotun at all, then, for the reasons I have given, all these ends are in my judgment
most likely to be achieved if the arbitration takes priority. Of course one cannot be absolutely certain of that because whichever claim is pursued
first there is the possibility that Reichhold will wish to pursue the other if it is not wholly successful in the first, but I have to decide this application
on the basis of the evidence before me making the best assessment I can of the likely outcome. Against all that very little has been put forward by
way of counter-argument. It is very striking that Reichhold ­ 687 has not sought to support its case for allowing these proceedings to continue by
putting forward any reasoned grounds as to the practical advantages of pursuing the action here in advance of the arbitration, nor has it sought to
suggest that it would suffer any prejudice if the action were stayed other than a relatively brief delay which could be adequately compensated by an
award of interest. The risks which attend litigation everywhere are not said to be greater in Norway than England; if anything the difficulties
attaching to the claim against Goldman Sachs here are greater than those which affect the claim against Jotun. In these circumstances I have
reached the conclusion that the right course in this case is to stay these proceedings pending the final determination of the arbitration in Norway.’

In challenging that judgment Mr Christopher Carr QC, for Reichhold, accepts that the court has a very wide discretion to grant a stay. He does not
challenge, as I understand, the existence of a power to make an order such as the judge did. But he submitted with considerable vigour that it was a power
which could never properly be exercised in a case such as this. His argument proceeded by a number of steps. First, he said, this is not a case in which
the plaintiffs’ suit in this country can be stigmatised as abusive, oppressive, or in any way vexatious or brought in bad faith. That is accepted; Mr Pollock
makes no contrary submission. Secondly, Mr Carr submitted that there is no reported case before the present in which a judge has made an order
precisely analogous with the order which the judge made here. That also is accepted. Mr Pollock accepts that the present order represents an advance on
previous precedents. Thirdly, and most importantly, Mr Carr submitted that the judge’s order violated a fundamental principle that a plaintiff making a
bona fide claim, not tainted with abuse, oppression or any vexatious quality, may sue in the English court any defendant over whom the court has
jurisdiction. He submitted that the court has no role to decide whom a plaintiff may or may not sue here or, as he put it, a plaintiff does not have to obtain
a passport from the court to sue a defendant in this country over whom the court has jurisdiction.
In support of these submissions Mr Carr relied, in particular, on two citations from authority. He relied, first, on Abraham v Thompson [1997] 4 All
ER 362 at 374 per Potter LJ:

‘In my view, the starting point in any case where a stay is sought in circumstances which are not provided for by statute or rules of court, should
be the fundamental principle that in this country an individual (who is not under a disability, a bankrupt or a vexatious litigant) is entitled to
untrammelled access to a court of first instance in respect of a bona fide claim based on a properly pleaded cause of action, subject only to the
sanction or consideration that he is in peril of an adverse costs order if he is unsuccessful, in respect of which the opposing party may resort to the
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usual remedies of execution and/or bankruptcy if such order is not complied with. This principle is of course subject to the further proviso that, if
the court is satisfied that the action is not properly constituted or pleaded, or is not brought bona fide in the sense of being vexatious, oppressive or
otherwise an abuse of process then the court may dismiss the action or impose a stay whether under the specific provisions of the rules of court or
the inherent jurisdiction of the court.’
­ 688
Our attention was also drawn to a passage in the judgment of Millett LJ (at 377).
Secondly, Mr Carr drew our attention to Molnlycke AB v Procter & Gamble Ltd [1992] 4 All ER 47 at 58, [1992] 1 WLR 1112 at 1124, where Dillon
LJ, in a judgment with which the other members of the court agreed, said:

‘It is long-established that a plaintiff who has been injured by a number of joint tortfeasors can choose which he will sue. He does not have to
sue all of them. But the defendants have no right whatsoever to dictate which the plaintiff shall sue or to make the choice for him.’

In argument Mr Carr also placed reliance on the current doctrines governing cases on lis alibi pendens and forum non conveniens, both of which, he
submitted, depended on showing disadvantage to the defendant from suit in this jurisdiction.
In resisting Mr Carr’s argument, Mr Pollock took issue not so much with the general thrust of the argument as with the absolute nature in which it
was expressed. Thus Mr Pollock did not assert that a plaintiff had to obtain a passport from the court in order to sue a particular defendant, and he
pointed out that the judge had never lent support to any such statement of principle. But Mr Pollock did assert that forensic practice was changing and
developing and that the movement was very clearly towards greater control by the courts over the course of proceedings. The Court of Appeal should, he
argued, be very slow to interfere with procedural directions of a judge unless those directions were vitiated by error of law or manifest error, neither of
which were demonstrable here. Mr Pollock placed reliance on Ashmore v Corp of Lloyd’s [1992] 4 All ER 486, [1992] 1 WLR 446, and in particular to
strong statements of principle by Lord Roskill and Lord Templeman, both of them emphasising the extent to which it was now accepted that judges
should manage the proceedings before them. Observations to a similar effect in Thermawear Ltd v Linton [1995] CA Transcript 1175 were referred to.
With reference to Abraham’s case, Mr Pollock submitted that the observations of Potter LJ were somewhat wider than could be justified if account
was taken of the various circumstances in which the court would restrain the conduct of proceedings before it. It is, however, plain that that decision was
obviously correct since what the defendant was trying to do was to obtain security for costs against a plaintiff in a manner for which the Rules of the
Supreme Court which govern applications for security make no provision at all. Had a stay been granted pending the provision of security by the third
party in that case, and had security not been provided, the effect would have been to stifle proceedings in this country effectively for ever. That, Mr
Pollock submits, is not the case here.
With reference to the Molnlycke case, Mr Pollock pointed out that the question was whether the plaintiff should be allowed to pursue a German
company in the United Kingdom in addition to American and British companies which it was already suing. It was in that case a once and for all
decision, and the principle as already quoted was that the court would not tell a plaintiff whom he might sue. Mr Pollock, however, suggested that in this
case the court was not seeking to do so. There was no question of precluding Reichhold from suing Goldman Sachs. All that had happened was that the
judge had delayed the action for a period estimated to be about a year.
In seeking to justify the making of the present application and the order made by the judge, Mr Pollock posed a series of examples. Supposing, he
said, ­ 689 Reichhold issued proceedings in England against Jotun and separately against Goldman Sachs; the court could order that the action against
Goldman Sachs should await the outcome of the proceedings against Jotun. Similarly, he said, suppose Reichhold gave notice of arbitration against Jotun
in England pursuant to an English arbitration clause and also sued Goldman Sachs in court proceedings, in that case also, he suggested, the court could
order that the action against Goldman Sachs should await the outcome of the arbitration reference against Jotun. He did not submit that in either of those
cases the court would necessarily make that order, but only that on appropriate facts it properly could. If those propositions were correct, then he posed
the bull question: what difference does it make in principle that the arbitration is in Norway instead of this country? Mr Pollock contrasted the effect of
the judge’s order in this case with an order staying actions on grounds of lis alibi pendens or forum non conveniens. In those cases the stay would in all
probability be permanent and the plaintiff would be driven from the judgment seat. That was not, he argued, the case here. Reichhold’s claim against
Goldman Sachs remains alive and well, but delayed for a year to await the outcome of the arbitration in Norway and in the expectation (on the part of the
judge) that the action might then not be effective at all.
I would for my part accept the submissions made by Mr Pollock, subject to all the qualifications which were inherent in them. Mr Carr went on to
submit that to uphold the judge’s order would open the door to a flood of applications, some successful and some unsuccessful, would involve the court in
trying to adjudicate on matters which were barely justiciable, would introduce a new dimension of uncertainty and would give a charter to evasive and
manipulative defendants. He suggested that the court would run a risk, if it made such orders, of infringing art 6 of the European Convention on Human
Rights (Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969). In reliance on
all these matters he suggested that the court should draw back from taking the first and fatal step.
Mr Pollock did not suggest that this would be the only such application of its kind if the judge’s order were upheld, and he would have had difficulty
making such a submission since another application has already been successfully made. He did, however, suggest that the court was well able to control
its own business, and he accepted that the grant of stays such as this would be a rarity, account always being taken of the legitimate interests of plaintiffs
and the requirement that there should be no prejudice to plaintiffs beyond that which the interests of justice were thought to justify. It is plain that in
exercising this jurisdiction the court would have to be mindful of the effect of art 6.
I for my part recognise fully the risks to which Mr Carr draws attention, but I have no doubt that judges (not least commercial judges) will be alive to
these risks. It will very soon become clear that stays are only granted in cases of this kind in rare and compelling circumstances. Should the upholding of
the judge’s order lead to the making of unmeritorious applications, then I am confident that judges will know how to react.
It remains to consider the judge’s exercise of his discretion here. I have endeavoured to summarise his judgment fully, without quoting all of it
verbatim. It is in my judgment evident that he assessed and evaluated the factors which he was called upon to consider. Although it is suggested in
Reichhold’s skeleton argument that the judge misdirected himself in approaching the various factors ­ 690 which he had to consider, I for my part am
persuaded that he left nothing out of account, took account of nothing of which he should not have taken account, and gave a fair and judicious summary
of all the matters properly to be considered. I find no misdirection of law. This was, therefore, a decision within the discretion of the judge, not vitiated
by misdirection or manifest error. I would dismiss the appeal.

OTTON LJ. I agree.

ROBERT WALKER LJ. I also agree.

Appeal dismissed. Permission to appeal refused.

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Kate O’Hanlon Barrister.

[2000] 2 All ER 692

SC Rolinay Sea Star Srl v Owners and/or demise charterers of the Bumbesti
The Bumbesti

SHIPPING: ADMINISTRATION OF JUSTICE; Courts

QUEEN’S BENCH DIVISION (ADMIRALTY COURT)

AIKENS J
16, 17, 22 JUNE 1999

Admiralty – Jurisdiction – Action in rem – Claim arising out of agreement relating to use or hire of ship – Foreign arbitration award in respect of dispute
under charterparty – Claim in Admiralty Court founded on dispute – Whether court having jurisdiction in rem to hear and determine claim on arbitration
award – Supreme Court Act 1981, s 20(2)(h).

In February 1995 the defendants, a Romanian corporation, chartered the vessel Dacia to the claimants for three years. The charter provided that it was
governed by Romanian law and that disputes between the parties would be resolved by arbitration. Subsequently, disputes did arise, and following two
references to arbitration, two awards were made in Constantza, Romania, awarding the claimants damages for the wrongful early termination of the
charter. Thereafter, two other vessels owned by the defendants were ordered to be detained by way of execution of the awards. In June 1999 the
claimants commenced an action in the English Admiralty Court against the defendants, founded on the second arbitration award, and the following day
the vessel Bumbesti was arrested in Liverpool. The sworn evidence to lead the arrest stated that the arbitration award remained wholly unsatisfied, that
the aid of the court was sought to enforce payment of or security for the same and that security of $US300,000 was sought. The defendants applied to set
aside the proceedings and/or release the vessel from arrest on the grounds: (i) that the court had no jurisdiction in rem in respect of the claim; and (ii) that
the arrest of the Bumbesti was an abuse of the process of the court because the claimants already had adequate security for the claim made in the
detention of the two vessels in Constantza. The claimants contended that the court had jurisdiction in respect of the claim by virtue of s 20(2)(h)a of the
Supreme Court Act 1981, under which the court had jurisdiction to hear and determine ‘any claim arising out of any agreement relating to the carriage of
goods in a ship or to the use or hire of a ship’.
________________________________________
a Section 20(2)(h), so far as material, is set out at p 695 j to p 696 a, post
________________________________________

Held – On the true construction of s 20(2)(h) of the 1981 Act, an action on an arbitration award was not one on an agreement which was ‘in relation to the
use or hire of a ship’. Accordingly, the court had no jurisdiction thereunder to consider the claim, and the action and the claim form would be struck out
and the service of the claim form set aside. It followed that the arrest of the vessel could not be maintained in respect of the claim, and since, on the
evidence, the sale value of the vessels at Constantza was enough to meet the claimants’ claim, so that the detention of the two vessels was adequate
security, the court would release the Bumbesti from arrest, subject to an undertaking being given by the defendants (see p 700 j to p 701 a g, p 702 a b, p
703 f and p 704 d, post).
The Beldis [1935] All ER Rep 760 followed.
­ 692

Notes
For the Admiralty jurisdiction of the High Court, see 1(1) Halsbury’s Laws (4th edn reissue) paras 307–312.
For the Supreme Court Act 1981, s 20, see 1 Halsbury’s Statutes (4th edn) (1998 reissue) 12.

Cases referred to in judgment

Alina, The, Brown v The Alina (1880) 5 Ex D 227, CA.
Antonis P Lemos, The [1985] 1 All ER 695, [1985] AC 711, [1985] 2 WLR 468, HL.
Beldis, The [1936] P 51, [1935] All ER Rep 760, CA.
Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd’s Rep 446.
Bloemen (F J) Pty Ltd v Gold Coast City Council [1972] 3 All ER 357, [1973] AC 115, [1972] 3 WLR 43, PC.
Bremer Oeltransport GmbH v Drewry [1933] 1 KB 753, [1933] All ER Rep 851, CA.
Gascoyne v Edwards (1826) 1 Y & J 19, 148 ER 569.
Gatoil International Inc v Arkwright-Boston Manufacturers Mutual Insurance Co [1985] 1 All ER 129, [1985] AC 255, [1985] 2 WLR 74, HL.
Harbour Assurance Co (UK) Ltd v Kansa General International Assurance Co Ltd [1993] 3 All ER 897, [1993] QB 701, [1993] 3 WLR 42, CA.
Heyman v Darwins Ltd [1942] 1 All ER 337, [1942] AC 356, HL.
Jade, The, The Escherscheim, The mv Erkowit (owners) v The Jade (owners), The mv Erkowit (cargo owners) v The Eschersheim (owners) [1976] 1 All
ER 920, [1976] 1 WLR 430, HL; affg [1976] 1 All ER 441, [1976] 1 WLR 339, CA; affg [1974] 3 All ER 307, [1975] 1 WLR 83.
Rena K, The [1979] 1 All ER 397, [1979] QB 377, [1978] 3 WLR 431.
St Anna, The [1983] 2 All ER 691, [1983] 1 WLR 895.
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Zeus, The (1888) 13 PD 188, DC.

Cases referred to or cited in skeleton arguments

Bazias 3, The [1993] 2 All ER 964, [1993] QB 673, CA.
City of Mecca, The (1879) 5 PD 28.
Despina GK, The [1983] 1 All ER 1, [1983] QB 214.
Hartlepool, The (1950) 84 Ll L Rep 145.
Jalamatsya, The [1987] 2 Lloyds Rep 164.
Moschanthy, The [1971] 1 Lloyds Rep 37.
R v City of London Court Judge [1892] 1 QB 273, CA.
Stella Nova, The [1981] Com LR 200.
Varna, The [1993] 2 Lloyds Rep 253, CA

Application
The defendants, Cia de Navigatie Maritimie Petromin SA, the owners and/or demise charterers of the vessel Bumbesti, applied to set aside proceedings
brought by the claimants, SC Rolinay Sea Star Srl, and/or to release the Bumbesti from arrest in Liverpool. The facts are set out in the judgment.

David Garland (instructed by Ince & Co) for the defendants.

Christopher Smith (instructed by Hill Dickinson, Liverpool) for the claimants.

Cur adv vult

­ 693

22 June 1999. The following judgment was delivered.

AIKENS J.
1. This is an application to set aside these proceedings and/or to release the vessel Bumbesti from arrest. The claim form was issued on 8 June 1999
and the vessel was arrested in Liverpool on 9 June 1999. Initially the application notice sought an order to set aside the arrest. The ground stated was that
the arrest was an abuse of the process of the court because the claimants already had adequate security in respect of the claims made. However Mr
Garland for the defendants/applicants made it clear in opening his application that the defendants had a further ground, which was that the Admiralty
Court had no jurisdiction in rem in respect of the claim made by the claimants. During the hearing I gave leave to amend the application notice to include
this point. Accordingly the application is now put on two bases, which are as follows. (1) That the action in rem and/or the claim form should be set
aside under CPR 3.4(2)(b), on the ground that the court has no jurisdiction in rem in respect of the claim sought to be made by the claimant in these
proceedings. If this ground is successful, then the vessel must be released from arrest, subject to any caveats against release. Ground (2) is that the vessel
should be released from arrest pursuant to the Admiralty Court’s power to do so under para 6.6(1)(b) of the Admiralty Court Practice Direction which
supplements CPR Pt 49, on the basis that the arrest is an abuse of the court process because the claimants already have adequate security for the claim
made.

2. The facts
The defendants are called Cia de Navigatie Maritimie Petromin SA, which is a Romanian corporation. It owned the vessel Dacia. The vessel was
bareboat chartered to the claimants by a charterparty dated 27 February 1995. The charter was for three years and was due to expire on 27 March 1998.
The charter provided (by cl 26) that it was governed by Romanian law. Clause 26 also stipulated that disputes would be ‘solved’ by arbitration which was
to be organised by the ‘Chamber of Commerce, Industry and Navigation of Constantza County, in accordance with the Rules of Arbitrational Procedure’
of that chamber. Clause 55 of the charter provided that disputes between the parties were to be ‘solved in accordance with the laws of the Romanian
State, such laws governing this Charter (see Clause 26)’. It was therefore common ground at the hearing that the proper law of the charter was Romanian
law and that the procedural law of the arbitrations which have taken place was Romanian law.
3. Disputes did arise under the charter. The claimants, as charterers, alleged that the defendants wrongfully terminated the charter early in January
1998. This resulted in two arbitration references. Two awards were made by the Constantza Court of Arbitration. They were called arbitration award no
1 and no 12. Award no 1, dated 3 March 1998, ordered the defendants, as owners of the vessel, to return her to the claimants for the balance of the charter
period, ie 53 days. The claimants were also awarded damages of $US186,532 and further sums in respect of stamp duty and legal fees. The vessel was
not returned for the balance of the charter. In arbitration award no 12, dated 10 November 1998, the tribunal awarded the claimants a further $US238,072
as damages for the wrongful early termination of the charter. It also awarded further sums in respect of stamp duty and costs. The total sum awarded to
the claimants was therefore $US424,604 plus stamp duty and lawyers’ fees.
­ 694
4. The claimants appealed the arbitration awards. The appeal from award no 1 was dismissed by the Constantza Court of Appeal on 30 March 1999
and by the Supreme Court of Justice on 14 April 1999. The appeal from award no 12 was dismissed by the Constantza Court of Appeal in April 1999.
However, leave has been granted to appeal to the Supreme Court and the hearing will take place on 2 December 1999. The defendants have obtained an
order from the Romanian Supreme Court for the general suspension of any enforcement of award no 12 until 13 July 1999.
5. The claimants have attempted to enforce the two awards. On 4 February 1999 the claimants applied to the Constantza court for execution of all
movables and immovables of the defendants in order to meet the sums due on both awards. In respect of award no 1 the claimants have put up two bank
letters of guarantee following the arrest of the Bumbesti in Greece and the Netherlands. Those bank guarantees are, in my judgment, sufficient to meet
any liability that the defendants have on that award. The bank guarantee in Greece is the subject of proceedings there, but I am satisfied that, quite apart
from the vessels in Constantza, the claimants have adequate security for award no 1.
6. On 4 February 1999 the claimants applied to the Constantza court for execution against the defendants in respect of the two awards.
Subsequently, two identical bulk carriers that are owned by the defendants, the Tirgu Lapus and the Tirgu Neamt, were seized in Constantza pursuant to
commands of the Constantza court made on 9 February 1999. The commands required the defendants to pay the sums due under the two awards within
24 hours, or, if they failed to do so, then the vessels, which were identified in the commands, would be ‘prosecuted and auctioned off’. The exact legal
characterisation of the process by which the vessels have been detained is in dispute between the parties. But the present position appears to be that both
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vessels remain detained by order of the Constantza court, despite attempts by the defendants to rescind the orders. Further, an order for the sale, by public
auction, of the two vessels was made by the court at some date in April 1999. The auction was set to take place on 30 April 1999. A buyer was found for
the two vessels at a price of $US660,000 for the pair, but the deposit was not lodged in time. So the sale was cancelled. Subsequently, on 8 June 1999,
the order permitting enforcement against the Tirgu Lapus was cancelled by the Constantza court. However two stamped certificates (one for each vessel),
both dated 15 June 1999 and issued by the Constantza harbour master’s office, state, in English, that the vessels are arrested. That state of affairs is
accepted by both parties.
7. The claim form in this action was issued on 8 June 1999. It states that the claimants bring their action ‘founded on’ the arbitration award dated 10
November 1998 (ie award no 12). On the following day, 9 June 1999, the Bumbesti was arrested in Liverpool. The sworn evidence to lead the arrest
states that the award no 12 remains wholly unsatisfied and that the aid of the court is sought ‘to enforce payment of or security for the same’. The sworn
evidence states that security of $US300,000 is sought.

8. The issues
The principal issues are as follows.
(1) Whether the Admiralty Court has jurisdiction in rem to hear and determine a claim to enforce the arbitration award no 12 made by the Constantza
court. The only basis of the court’s in rem jurisdiction relied on by the claimants is s 20(2)(h) of the Supreme Court Act 1981. By that paragraph the
Admiralty Court has jurisdiction to hear and determine ‘any claim arising out of any ­ 695 agreement relating to the carriage of goods in a ship or to the
use or hire of a ship’. (It is common around that if the claim comes within that paragraph then, pursuant to s 21(4) of the 1981 Act the in rem jurisdiction
of the court could be invoked. No point was taken by the defendants on s 21(4)(a) that this claim did riot ‘arise in connection with a ship’.)
(2) Assuming that the Admiralty Court has jurisdiction, then whether the Bumbesti should be released from arrest because the claimants already have
adequate security for their claim to enforce award no 12 because of the detention of the two vessels in Constantza, so that the arrest of the Bumbesti is an
abuse of the process of the court.

9. Principal issue one: the nature of the claim to enforce the award no 12
The proper law governing the arbitration procedure and the award no 12 was agreed to be Romanian law. However I received no evidence that
Romanian law differs from English law on the nature of an arbitration award and the effect of an award being made. In English law it is clear that if a
claim for damages is referred to arbitration and an arbitration award is made awarding the payment of damages, this creates a new right of action for the
enforcement of the award that replaces the original cause of action. Strictly speaking the doctrine of ‘merger’ does not apply in the way that it does to an
action brought in court and there could be debate on the precise juridical basis for the rule relating to awards: see Mustill and Boyd on Commercial
Arbitration (2nd edn, 1989) p 410. But it has been accepted since at least Gascoyne v Edwards (1826) 1 Y & J 19, 148 ER 569 that a claimant cannot
bring a further claim in personam on the original cause of action (if the original cause of action was for damages) once he has an award. (As noted below,
it is possible to bring an action in rem: see The Rena K [1979] 1 All ER 397, [1979] QB 377).
10. The ‘brief details of claim’ indorsed on the claim form in this case state:

‘The Claimants bring their action founded on the Arbitration Award dated 10 November 1998, made by The Chamber of Commerce, Industry,
Navigation and Agriculture, (CCINA), Constantza, Romania. The said award was in respect of the premature termination of the charterparty dated
March 1995, of the MV “Dacia”, at that time owned by the Defendant.’

It is therefore clear that the claim is one to enforce the award. What is the nature of a claim to enforce an award? It could be a claim for a debt,
being the sum awarded. Alternatively it could be a claim for unliquidated damages, for a breach, by the party due to pay, of an implied obligation to fulfil
the award made. Both solutions have been suggested in the cases. However the preferred analysis by the Court of Appeal in the leading case of Bremer
Oeltransport GmbH v Drewry [1933] 1 KB 753, [1933] All ER Rep 851 was that a claim on an award is a claim for damages for the breach of an implied
term in the submission to arbitration that any award made would be fulfilled (see [1933] 1 KB 753 esp at 764, [1933] All ER Rep 851 esp at 857 per
Slesser LJ with whom Romer LJ agreed). That analysis was adopted by Lord Pearson in giving the advice of the Privy Council in F J Bloemen Pty Ltd v
Gold Coast City Council [1972] 3 All ER 357 at 363, [1973] AC 115 at 126. He emphasised that in the case of an arbitration award a new cause of action
arises once the award is made, but that the award ‘cannot be viewed in isolation from the submission under which it was made’. Therefore a claimant
wishing to enforce an award in English proceedings has to prove not only the award, but also the submission to arbitration which gave the arbitrators
power to ­ 696 make their award and which contained the implied term that the parties would fulfil any award made pursuant to the submission.
11. That gives rise to a further question: which ‘submission’ to arbitration is being referred to here? As Mustill J made clear in Black Clawson
International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd’s Rep 446 at 455, there are two ‘submissions’ which govern the arbitration of
disputes under a substantive contract. First there is the contract to submit future disputes to arbitration; this will often be annexed to the substantive
contract between the parties, in this case the bareboat charterparty. Secondly there is the contract that is created when a particular dispute arises and the
parties refer that dispute to arbitration. The implied term to fulfil the award made must, in my view, be contained in the contract that is created between
the parties when the individual dispute arises and it is referred to arbitration. However, in practice there is bound to be reference to the initial general
submission to refer disputes to arbitration, as that is the basis upon which individual references will be made.
12. On this analysis, in order to succeed on their claim, the claimants must plead and prove the individual submission to the Constantza Court of
Arbitration and the award no 12 that they made on 12 April 1999 pursuant to that submission. But no more than that need be proved. There is no need to
plead and prove the underlying dispute arising under the charterparty.

13. Is the claim to enforce the award within s 20(2)(h) of the Supreme Court Act 1981?
The next question must be: does this claim to enforce the award fall within the terms of s 20(2)(h) of the Supreme Court Act 1981? Mr Smith says
that it does and he relies upon the decision of Sheen J in The St Anna [1983] 2 All ER 691, [1983] 1 WLR 895 in which the judge held that an action to
enforce an award made in respect of a contract for the hire of a ship was within para (h). Mr Garland has submitted that The St Anna was wrongly
decided and that Sheen J should have followed the decision of the Court of Appeal in The Beldis [1936] P 51, [1935] All ER Rep 760, which, he said, was
binding. In view of these submissions, it is necessary to consider briefly the statutory history of para (h) and some of the decisions that have dealt with it.

14. The statutory history of para (h)

The history has been considered by the House of Lords in a number of recent cases: see The Jade, The Escherscheim, The mv Erkowit (owners) v The
Jade (owners), The mv Erkowit (cargo owners) v The Eschersheim (owners) [1976] 1 All ER 920, [1976] 1 WLR 430, Gatoil International Inc v
Arkwright-Boston Manufacturers Mutual Insurance Co [1985] 1 All ER 129, [1985] AC 255 and The Antonis P Lemos [1985] 1 All ER 695, [1985] AC
711. From these cases the history of para (h) is established as follows:
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(1) Paragraph (h) in the 1981 Act reproduced, in the same words, para (h) of s 1(1) of the Administration of Justice Act 1956. That section had been
enacted to give force in England to the International Convention for the Unification of Certain Rules relating to the Arrest of Sea-going Ships (Brussels,
10 May 1952; TS 47 (1960); Cmnd 1128) (the arrest convention). In the arrest convention a number of ‘maritime claims’ in respect of which a ship could
be arrested are set out at art 1 under the terms of the convention. The wording of the convention is exactly reproduced in the Scottish section of the 1956
Act (s 47(2)(d) and (e)). But although two paragraphs have been rolled into one in s 1(1)(h) of the 1956 Act, their effect is not materially different.
­ 697
(2) The wording of the arrest convention list of ‘maritime claims’ was itself based upon the list of the types of claim set out in s 22(1)(a)(xii)(1) of
the Supreme Court of Judicature (Consolidation) Act 1925, for which the Admiralty jurisdiction of the High Court could be invoked. This re-enacted s 5
(1)(a) of the Administration of Justice Act 1920. That was the first Act to confer Admiralty jurisdiction on the High Court to consider this type of claim.
Neither the High Court of Admiralty, nor its successor (from 1875), the Probate Divorce and Admiralty Division of the High Court, had jurisdiction over
claims of the type now covered by para (h).
(3) However, prior to 1920 the county court did have a limited Admiralty jurisdiction for that type of claim. The jurisdiction was conferred by the
County Courts Admiralty Jurisdiction Act 1868, amended by the County Courts Admiralty Jurisdiction Amendment Act 1869. Section 2(1) of the latter
Act provided that county courts appointed to have Admiralty jurisdiction could try and determine ‘any claim arising out of any agreement made in
relation to the use or hire of any ship …’
(4) Therefore the wording in the 1981 Act can trace its ancestry back to the 1869 Act. The differences in the words used are not significant, as
Brandon J observed in The Escherscheim [1974] 3 All ER 307 at 317, [1975] 1 WLR 83 at 93.

15. The early cases on the construction of para (h)

The three House of Lords cases I have referred to have also considered the courts’ construction of the predecessors of para (h) and that paragraph in
the 1981 Act. The courts construed the 1869 Act paragraph restrictively. They were reluctant to give the county court a wider Admiralty jurisdiction
than the High Court, particularly in relation to charterparty disputes, as that would interfere with the common law courts which had always asserted
exclusive jurisdiction in such cases. Thus it was only in The Alina, Brown v The Alina (1880) 5 Ex D 227 that the Court of Appeal held that claims
arising out of charterparties were covered by s 2 (1) of the 1869 Act. But in a significant case after The Alina, The Zeus (1888) 13 PD 188, the Divisional
Court held that a claim arising out of a contract to load a ship with coals was not within s 2 of the 1869 Act. Mr Garland relied on that case and the fact
that it was approved in the House of Lords in both the Gatoil case (see [1985] 1 All ER 129 at 137, [1985] AC 255 at 270 per Lord Keith of Kinkel) and
The Antonis P Lemos (see [1985] 1 All ER 695 at 702, [1985] AC 711 at 730 per Lord Brandon). In those cases the House of Lords held that The Zeus
was authority for a narrow construction of the words ‘relating to’ in s 2 of the 1869 Act and its statutory successor paragraphs.

16. The Beldis [1936] P 51, [1935] All ER Rep 760

The wording of s 2(1) of the 1869 Act was again considered by the Court of Appeal (Merriman P, Scott LJ and Swift J) in The Beldis. A claim had
been referred to arbitration to recover overpaid charter hire in respect of a charter for a ship called the Belfri. An award was made in favour of the
plaintiffs in the subsequent action, Anglo Soviet Shipping Co. They started a county court action in rem against a sister ship of The Belfri, called The
Beldis. The claim was to recover the sum awarded by the tribunal. The defendant owners did not appear and judgment was entered against them in
default. The mortgagees then intervened. The parties put one agreed issue before the county court judge. That was whether an Admiralty action in rem
could be maintained against the Beldis when the original claim arose out of a charterparty for the Belfri. He decided that it could be maintained. When
the matter came before the Court of Appeal ­ 698 Merriman P raised the issue of whether there was jurisdiction in rem to deal with this type of claim at
all. It appears from the report of the argument (see [1936] P 51 at 58) that Mr Owen Bateson for the appellant mortgagees did not take up the jurisdiction
point, although he did refer the court to three cases on the issue, including The Zeus.
17. In a reserved judgment the court held that the claim on the award did not come within s 2(1) of the 1869 Act. Therefore the county court could
not exercise jurisdiction in rem. Merriman P accepted that if the action had been for the claims that were the subject of the reference to the arbitrator, then
they would have fallen within the section, following The Alina (see [1936] P 51 at 61, [1935] All ER Rep 760 at 764). But he held that this was entirely
different from a claim on the award. He pointed out that a plaintiff claiming on an award has only to plead and prove ‘that certain matters in dispute have
been submitted to an arbitrator and that he has made his award in the plaintiff’s favour’. Merriman P emphasised that it was not necessary, indeed
positively wrong, to plead the nature of the original dispute. He concluded that he was not prepared to hold that ‘a claim upon an award held under the
arbitration clause in a charterparty is a claim arising out of any agreement made in relation to the use or hire of a ship‘. He held it was a ‘common law
claim upon the award and nothing else’. Merriman P went on to hold that, if there had been jurisdiction, it was not possible to bring the action in rem
against a sister ship that was unconnected with the cause of action. Both Scott LJ and Swift J agreed with him on the second point of decision.
18. Scott LJ noted that when the 1869 Act was passed, there was a statutory means for enforcing arbitration awards by obtaining from one of the
three common law courts a rule absolute for payment of the sum awarded (see [1936] P 51 at 82–83, [1935] All ER Rep 760 at 774–775). Therefore, he
remarked, it was unlikely that an Admiralty jurisdiction would be created to enforce an arbitration award, unless the statutory wording clearly did so. He
concluded that the wording of s 2(1) clearly did not confer this jurisdiction. He also pointed out that the history of the statutory extension of the
Admiralty Court’s jurisdiction in the 1840 and 1861 Acts was in—

‘precise, plain and carefully guarded terms; and, in the case of those founded on contract, the cause of action was one directly based upon the
maritime contract described in the section.’

In his view, because of this approach, it would be ‘entirely wrong’ to hold that an action on an award arising out of such a maritime contract was included
by the words of’ the 1840 and 1861 Acts which gave the Admiralty Court jurisdiction over certain types of contractual claim, eg in relation to towage and
bills of lading. He concluded that the legislature must have adopted a similar approach to the county court jurisdiction in Admiralty. He therefore
concluded ([1936] P 51 at 83, [1935] All ER Rep 760 at 775):

‘… it would in my judgment be plainly wrong to say that under s. 2, sub-s. 1 of the Act of 1869 a county court has Admiralty jurisdiction to
entertain an action on an award upon a voluntary submission, merely because the arbitration was held pursuant to an arbitration clause in a
charterparty for the reference of disputes arising out of that charterparty’.

19. The decision in The Beldis stood undisturbed until 1983. In The Escherscheim [1974] 3 All ER 307 at 318, [1975] 1 WLR 83 at 94 Brandon J
commented on it, saying that the basis of the decision was that the relevant claim did not arise out of the agreement (ie the charterparty), although the
agreement ­ 699 related to the use or hire of a ship. He commented that the ground of decision in The Beldis ‘does not seem to be consistent with
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Bremer Oeltransport GmbH v Drewry which was apparently not cited’. As already noted, the Court of Appeal in that case had held that an action on an
award was founded on the breach of an implied term in the agreement to submit the differences of which the award was the result. Therefore the court
held that, for the purposes of the existing Ord XI, r 1(e), the claim on an award was one ‘to enforce a contract made within the jurisdiction’. (This was so,
even though the award itself was made in Hamburg.) I am not sure that Brandon J was correct to suggest that in The Beldis the Court of Appeal were
emphasising that it was the first part of the sentence of the section (ie ‘claim arising out of any agreement’) that was not fulfilled. Merriman P refers to
the whole sentence and Scott LJ recognised that the action on the award arose ‘indirectly’ out of the maritime contract (see [1936] P 51 at 63, 83, [1935]
All ER Rep 760 at 765, 774). However it should be noted that Brandon J did not say that The Beldis was decided per incuriam although he clearly had
doubts about it.

20. The St Anna [1983] 2 All ER 691, [1983] 1 WLR 895

The issue of whether an action on an award could be the subject of an Admiralty action in rem arose in this case, in which the plaintiffs sought
judgment in default of defence. The action was on an award made in favour of charterers and against the owners of the St Anna. That vessel had been
arrested and sold by the Admiralty Marshal at the suit of numerous claimants. The plaintiffs had issued a writ in rem against the proceeds of sale of the
vessel. Sheen J heard argument only from the plaintiffs, but both The Beldis and the Bremer Oeltransport case were cited, as were the passages of
Brandon J in The Escherscheim and relevant textbooks. Having referred to both cases, Sheen J concluded: (1) that the Bremer Oeltransport case was
clear authority for the proposition that an action based upon an award is an action for the enforcement of the contract which contains the submission to
arbitration, ie the charterparty; (2) an action to enforce an award necessitates pleading and proving the arbitration submission and the award; (3) a claim to
enforce a charterparty is within the Admiralty jurisdiction of the High Court; and (4) because one ground of decision of The Beldis was inconsistent with
the Bremer Oeltransport case:
‘This leaves me free to decide which authority I should follow. As the decision in [the Bremer Oeltransport case] was not brought to the
attention of the Court of Appeal during argument in The Beldis, and as I find myself convinced by the reason in the latter case, I have no hesitation
in following it.’
21. Mr Smith drew my attention to the fact that The St Anna has been followed in the Hong Kong and Singapore Courts. He also submitted that it
has been referred to in text books without criticism, save for a cautionary note in Dicey and Morris on The Conflicts of Laws (12th edn, 1993) pp 605 and
608. So far as counsel can discern, there is no reported decision either following it or dissenting from it in England. However in the Gatoil case in the
House of Lords, Lord Keith of Kinkel refers, without comment, to the decision of the Court of Appeal in The Beldis but The St Anna was not cited. Nor
was it in The Antonis P Lemos.

22. Conclusion on principal issue 1: Is a claim on an arbitration award within para (h) of s 20(1) of the Supreme Court Act 1981?
I have come to the conclusion that the answer I must give to this question is No. I think that it is not within the paragraph as a matter of construction.
I also ­ 700 consider that I am bound by the decision of the Court of Appeal in The Beldis. My reasons are as follows.
(1) The ‘claim’ in this case is the action on the award. That ‘claim’ clearly ‘arises out of’ the agreement to refer the disputes that had arisen under
the bareboat charterparty. In The Antonis P Lemos the House of Lords held that the phrase ‘arises out of’ in para (h) should be given a broad construction,
so as to mean ‘in connection with’: see [1985] 1 All ER 695 at 703, [1985] AC 711 at 731. Upon the analysis of the Court of Appeal in the Bremer
Oeltransport case a claim on an award ‘arises out of’ or is ‘in connection with’, the agreement to refer the particular dispute to arbitration, or the
agreement to refer future disputes generally to arbitration.
(2) However, that agreement to refer disputes is not, itself, an ‘agreement in relation to the use or hire of a ship’. This is because the arbitration
agreement, whether it is the individual reference or the general agreement to refer, is a contract that is distinct from the principal contract, ie the bareboat
charterparty in this case. The distinction between the contracts is, as Mr Garland submitted, made clear in cases such as Heyman v Darwins Ltd [1942] 1
All ER 337, [1942] AC 356 and Harbour Assurance Co (UK) Ltd v Kansa General International Assurance Co Ltd [1993] 3 All ER 897, [1993] QB 701,
and see s 7 of the Arbitration Act 1996.
(3) In The Antonis P Lemos [1985] 1 All ER 695 at 702–703, [1985] AC 711 at 730 the House of Lords accepted that the authorities on para (h) of
the 1981 Act and its statutory predecessors made it clear that a narrow meaning must be given to the expression ‘in relation to’ in that paragraph. The
agreement to refer to arbitration individual disputes that have arisen out of a charterparty, or the agreement to refer future disputes in general that arise out
of a charterparty, must be agreements that are indirectly ‘in relation to the use or hire of a ship’. But, in my view, they are not agreements that are
sufficiently directly ‘in relation to the use or hire of a ship’. The arbitration agreement is, at least, one step removed from the ‘use or hire’ of a ship. The
breach of contract relied upon to found the present claim has nothing to do with the use or hire of the ship; it concerns the implied term to fulfil any award
made pursuant to the agreement to refer disputes. In my view the breach of the contract relied on when suing on an award does not have the ‘reasonably
direct connection with’ the use or hire of the ship that Lord Keith held in the Gatoil case was necessary to found jurisdiction under this paragraph: see
[1985] 1 All ER 129 at 137, [1985] AC 255 at 271.
(4) Therefore, upon the proper construction of para (h), an action on an award is not one on an agreement which is ‘in relation to the use or hire of a
ship’. This was the conclusion of the Court of Appeal in The Beldis. The current paragraph is the statutory successor to the wording that was considered
in that case. Unless there is some material distinction in the wording, then I believe that I must follow the construction given by the Court of Appeal to
the wording in that case. There is no significant distinction, as Brandon J pointed out in The Escherscheim [1974] 3 All ER 307 at 317, [1975] 1 WLR 83
at 93.
(5) With great respect to Sheen J, I cannot accept his view that the decision in The Beldis was ‘inconsistent with’ the Bremer Oeltransport case. The
latter case was not dealing with the proper construction of this head of Admiralty jurisdiction. And the analysis in both cases of the constituents of an
action on an arbitration award is remarkably similar. Both make it clear that the submission to arbitration must be pleaded and proved as well as the
award itself.
(6) Even assuming that an action on an award is one ‘in connection with’ the underlying submission to refer, there remains the question, critical to
the present issue, of whether that submission is sufficiently directly related to the use or hire ­ 701 of a ship to make the matter fall within para (h).
That point was not at issue in the Bremer Oeltransport case, but it was in The Beldis, which decided the point against the claimants. I am satisfied that the
decision was not ‘per incuriam’ and that I must follow it.
23. Therefore I have concluded that Mr Garland is correct in his submission that the Admiralty Court has no jurisdiction to consider this claim under
para (h) of s 20(1) of the Supreme Court Act 1981. Accordingly, the action and the claim form must be struck out and the service of the claim form must
be set aside. It must also follow that the arrest of the vessel cannot be maintained in respect of this claim.

24. The second principal issue: that the arrest is an abuse of the process of the court as the claimants already have adequate security
This point obviously only arises if I am wrong on the first issue. Both parties accept that the court has the power to release the vessel from arrest
under para 6.6(1) of the Practice Direction forming the Admiralty Court Guide. Mr Smith for the claimants accepted that there should be a release if the
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court is satisfied that the claim to enforce award no 12 is otherwise adequately secured. The only ‘security’ considered was the detention of the two
vessels at Constantza. There was some debate as to how ‘adequate’ the security had to be. Mr Smith contended that the security had to be as good as the
arrest of the Bumbesti both in terms of amount and the ‘quality’ of the protection. But he accepted that the nature of the protection of the security did not
have to equate exactly with an arrest by the English Admiralty Court. Mr Garland ultimately accepted these tests. Therefore there are two issues that I
have to deal with under this heading: (1) is the correct value of the vessels, as detained in Constantza sufficient to discharge the claim; and (2) is the
protection over the vessels that is provided by the Constantza court order adequate?

25. The amount of the claim on award no 12

As already noted, the total claim under award no 12 is for damages of $US238,072, plus stamp duty and lawyers’ fees. The parties agreed that the
latter two figures probably amount to about $US9000, making a total of $US247,072. Under the award there is no entitlement to interest on the principal
sum. Even if I assume that interest can be awarded somehow, then the maximum figure for which the claimants could legitimately seek security is, in my
view, $US300,000.

26. Value of the vessels as detained in Constantza

The evidence on value was conflicting. The Tirgu Neamt is 21 years old, is in class but is laid up. The Tirgu Lapus is nearly 21 years old and has
been out of class since October 1998. A Romanian company has put a ‘market value’ on the Tirgu Neamt of $US750,000. Mr Garland says that should
be accepted and as the vessels are identical, it is the market value of the Tirgu Lapus also. But if the vessels were sold in Constantza, whether pursuant to
a court auction or privately, it would be at a ‘forced sale’ value. The valuation report does not say that the figure of $US750,000 represents the sum that
would be obtained in a ‘forced sale’ of the vessels in their present condition and I am sure that sum would not be realised.
27. Mr Garland next relies on the figure that was offered by a Cypriot company that had agreed to buy the vessels through the Constantza court but
then failed to pay the deposit. The total price for both vessels was agreed at $US660,000. As this sale did not go ahead I am sceptical about the utility of
the ­ 702 sum agreed. I am also sceptical about the ‘offer’ apparently made to the defendants by NG Moundreas Shipping SA on 9 June 1999. The
price ‘offered’ for both vessels was $US470,000. There was no evidence of how this offer came to be made and, given that the vessels were detained in
Constantza at the time, I must doubt whether it was a genuine offer.
28. Lastly there is evidence of the value of the vessels from the well-known ship sale and purchase brokers English White Shipping Ltd. That gives a
valuation of $US600,000 for each of the vessels, assuming them to be ‘in seaworthy condition, capable of proceeding under their own power, in average
condition for their age and in Class’. I have concluded that these conditions are not satisfied in either case. The Tirgu Lapus is out of class and the
Romanian company’s valuation report on Tirgu Neamt states that ‘in order for the vessel to be operated on [sic], high investments are necessary’. That
must mean that Tirgu Neamt is probably neither seaworthy, nor capable of proceeding under her own power nor in average condition for her age, even if
she is still, technically, in Class.
29. English White also gives a scrap valuation of the vessels. The net value would depend on where the vessels were to be delivered, because the
cost of towage to any destination far from Constantza would be high. The two scrap markets suggested by English White are the Indian subcontinent and
Turkey. If the vessels were sold for delivery to the former, the net sale proceeds would probably be only $US40,000; if for delivery to the latter the net
proceeds would be about $US340,000. There is no evidence as to which destination would be more likely.
30. On the evidence I have concluded that it is very unlikely that the two vessels would achieve much more than a scrap value price if sold at
Constantza. But there is evidence of an available scrap market in Turkey. It seems to me inherently more likely that the vessels would be sold for
delivery there rather than further afield. Therefore, although the evidence is not entirely satisfactory, I have concluded that the sale value of the vessels at
Constantza is between $US300,000 and $US340,000, ie enough to meet the claimants’ claim.

31. The nature of the protection of the security given by the Constantza court order
Mr Smith submits that the vessels are not in the custody of the Constantza court in the same way that vessels under arrest in an Admiralty action in
rem are in the custody of the Admiralty Marshal. Therefore the protection given by the Constantza court order is not as good as that of an arrest in
England. There was some evidence of the nature of the detention of the vessels by the Constantza court. The original application for execution was not
specifically an ‘admiralty’ provision, but is a form of execution available against all assets. But the ‘Commandment’ made on 9 February 1999 against
each vessel was issued under arts 914 and 915 of the Romanian Commercial Code and is an admiralty provision. That deals with the seizure and
enforcement of existing judgments against vessels. The Commandment gives the claimant a priority over subsequent claimants in receiving payment out
of the proceeds of sale of the vessel. It is accepted by the Romanian lawyers acting for the defendants that the effect of the suspension (by the Supreme
Court) of the execution of award no 12 does not affect the seizure of the two vessels. Mr Smith also accepted that the effect of the seizure was that the
defendants could not attempt to sell the vessels, except with the approval of the Constantza court.
32. There was controversy as to whether the defendants could lawfully use the vessels for trading whilst remaining seized by the Romanian court. I
asked Mr Garland if his clients would be prepared to give an undertaking not to use the ­ 703 vessels whilst remaining seized by the Constantza court.
The undertaking that the defendants are prepared to give, assuming that the arrest in the English proceedings was set aside, is set out in a fax from Ince &
Co to the court dated 18 June 1999 (although only sent on 21 June), as follows:
‘Not to disturb the enforcement proceedings against the two vessels detained in Constantza pending determination of the appeal to the
Romanian Supreme Court, this undertaking specifically reserving [the defendants’] right to apply to the court on 13 July for the suspension of the
right of sale to continue throughout that period’.
That undertaking would, I think, adequately preserve the rights of the claimants on the two vessels given the existing orders of the Constantza court
over the vessels.

33. Conclusions on principal issue 2

I have concluded that the security obtained by the claimants for the award no 12, in the form of the detention of the two vessels by the Constantza
court, is adequate security for the enforcement of that claim. Accordingly, provided that the defendants confirm that they will give the undertaking set out
in Ince & Co’s fax of 18 June, I propose to release the Bumbesti from arrest in this action. I should, however, note two further points. First, I was
informed by Mr Smith that the claimants would be issuing further proceedings in rem against the Bumbesti and so they had issued a caveat against the
release of the vessel. The proposed proceedings were in the form of a claim, brought in rem, based on the original cause of action under the bareboat
charter. The right to bring this form of action is said to be based on the decision of Brandon J in The Rena K [1979] 1 All ER 397, [1979] QB 377. In
that case Brandon J held that a cause of action in rem does not merge with a judgment made in personam, but remains available so long as the judgment in
personam remains unsatisfied. He also accepted that this principle could apply to arbitration awards: see [1979] 1 All ER 397 at 415–417, [1979] QB 377
at 405–406. I do not know whether the claimants will maintain their caveat in the light of my conclusion on principal issue 2.
34. Secondly I note that the claimants were prepared to undertake to release their security over the two vessels in Constantza if the arrest of the
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Bumbesti were to be maintained. As I have held that it should not be, this undertaking is irrelevant.

Order accordingly.

Rania Constantinides Barrister.

[2000] 2 All ER 705

Holbeck Hall Hotel Ltd and another v Scarborough Borough Council

TORTS; Nuisance: LAND; Other Land

COURT OF APPEAL, CIVIL DIVISION

STUART-SMITH, SCHIEMANN AND TUCKEY LJJ
18–20 JANUARY, 22 FEBRUARY 2000

Land – Support – Natural right of support – Whether servient owner under positive duty to provide support for neighbour’s land.

Nuisance – Natural processes – Change in nature of land itself – Change giving rise to state of affairs constituting hazard to neighbouring properties –
Claimants owning hotel on top of cliff owned by defendant – Cliff prone to land slips because of erosion – Defendant aware of problem but not
investigating hazard to claimants’ land – Land beneath hotel collapsing in land slip caused by defect on both sides of boundary – Whether defendant
owing claimants duty of care to prevent hazard – Scope of duty.

The claimants were the freehold owners and lessees of a hotel which stood on a cliff overlooking the sea. The land between the hotel grounds and the sea
was owned and occupied by the defendant local authority. Due to maritime erosion, the cliff was inherently unstable, and in 1982 a slip occurred on the
authority’s land below the hotel. Outside engineers, called in by the authority, failed to identify the slip surface. However, they recommended various
remedial measures depending on whether the slip surface was deep or shallow, and suggested that it might be prudent to carry out further investigations to
locate the slip plane before remedial measures were designed. After a further slip in 1986, the authority’s chief engineer expressed the fear that the slip
could ultimately affect part of the hotel’s land if left unchecked. In 1993 there was a massive slip, far greater in magnitude than the two previous slips,
consisting of a single, indivisible, rotational movement of land on both sides of the boundary. As a result, the ground under the hotel’s seaward wing
collapsed, and the rest of the hotel had to be demolished for safety reasons. In subsequent proceedings, the authority contended that, in an action based
on loss of support, mere omission on the part of the servient owner was not actionable in the absence of positive action by him in withdrawing support.
That contention was rejected by the judge who further held that the authority had been aware or, in any event, ought to have been aware of the hazard
caused by the potential failure of support to the claimants’ land, that it was therefore under a measured duty of care to the claimants, that it had breached
that duty by failing to investigate the danger to the claimants’ land after the 1986 slip and that, if such investigations had taken place, it would have
discovered that a slip of the type that took place in 1993 was imminent. Accordingly, he gave judgment for the claimants, and the authority appealed.

Held — (1) The owner of the servient tenement was under a duty to take positive steps to provide support for a neighbour’s land. There was no
difference in principle between the danger caused by loss of such support and any other hazard or nuisance on a defendant’s land, such as the
encroachment of some noxious thing, which affected the claimant’s use and enjoyment of land. Encroachment was merely one form of nuisance, and
interference causing ­ 1 physical damage to the neighbour’s land and building as a result of activities on the defendant’s land was another. Thus where
the question was not whether the defendant had created the nuisance but whether he had adopted or continued it, there was no reason why different
principles should apply to one kind of nuisance rather than another. In each case, liability only arose if there was negligence, and the duty to abate the
nuisance arose from the defendant’s knowledge of the hazard that would affect his neighbour (see p 718 a to c, p 719 d to e and p 726 g, post); Leakey v
National Trust for Places of Historic Interest or Natural Beauty [1980] 1 All ER 17 and Bar Gur v Bruton [1993] CA Transcript 981 applied; dictum of
Greene MR in Bond v Norman, Bond v Nottingham Corp [1940] 2 All ER 12 at 18 not followed.
(2) Where a defect on the defendant’s land created a potential hazard to the claimant’s land, the duty to prevent such a hazard arose only if the defect
was patent rather than latent, ie if the defect could be observed. In such a case, it was no answer for the landowner to say that he had not observed it if a
responsible servant had done so, or if, as a reasonable landowner, he or the person to whom he had entrusted the responsibility of looking after the land
should have seen it. However, in the case of a latent defect the landowner or occupier would not be liable merely because he would have discovered that
defect on further investigation. Moreover, where the court was required to determine the scope of a measured duty of care arising in a non-feasance case,
similar considerations arose as in a case where the court had to determine whether it was fair, just and reasonable to impose a duty or the extent of that
duty (see p 720 j to p 721 a, p 724 f and p 726 g, post); Goldman v Hargrave [1966] 2 All ER 989 considered.
(3) In the instant case, the local authority had not foreseen a danger of anything like the magnitude that had occurred in 1993, and it was not just and
reasonable to impose liability for damage which was greater in extent than anything that was foreseen or foreseeable (without further geological
investigation), especially since the defect and danger had existed as much on the claimants’ land as on the authority’s. In those circumstances, the
authority’s duty was limited to an obligation to take care to avoid damage which it ought to have foreseen without further geological investigation. It
might also have been limited by other factors, so that it was not necessarily incumbent on a person in the authority’s position to carry out extensive and
expensive remedial work to prevent damage which it ought to have foreseen. Rather, the scope of its duty might be limited to warning the claimants of
such risk as it was aware of, or ought to have foreseen, and sharing such information as it had acquired relating to it. On either approach, it had not been
established that the authority had been liable for any loss, and accordingly the appeal would be allowed see p 721 e, p 724 f g and p 725 b to d and p 726 f
g, post).

Notes
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For natural rights of support and for the general rule of liability in nuisance, see respectively 14 Halsbury’s Laws (4th edn) paras 168–169 and 34
Halsbury’s Laws (4th edn reissue) para 55.

Cases referred to in judgments

A-G v Tod Heatley [1897] 1 Ch 560, [1895–9] All ER Rep 636, CA.
Bar Gur v Bruton [1993] CA Transcript 981.
Barker v Herbert [1911] 2 KB 633, [1911–13] All ER Rep 509, CA.
Bond v Norman, Bond v Nottingham Corp [1940] 2 All ER 12, [1940] 1 Ch 429, CA. ­ 2 Bradburn v Lindsay [1983] 2 All ER 408.
Caparo Industries plc v Dickman [1990] 1 All ER 568, [1990] 2 AC 605, [1990] 2 WLR 358, HL.
Goldman v Hargrave [1966] 2 All ER 989, [1967] 1 AC 645, [1966] 3 WLR 513, PC.
Greenwell v Low Beechburn Coal Co [1897] 2 QB 165.
Hall v Duke of Norfolk [1900] 2 Ch 493.
Hughes v Lord Advocate [1963] 1 All ER 705, [1963] AC 837, [1963] 2 WLR 779, HL.
Job Edwards Ltd v Birmingham Navigations [1924] 1 KB 341, CA.
Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] 1 All ER 17, [1980] 1 QB 485, [1980] 2 WLR 65, CA.
Macpherson v London Passenger Transport Board (1946) 175 LT 279.
Rich (Marc) & Co AG v Bishop Rock Marine Co Ltd, The Nicholas H [1995] 3 All ER 307, [1996] 1 AC 211, [1995] 3 WLR 277, HL.
Pontardawe RDC v Moore-Gwyn [1929] 1 Ch 656.
Sack v Jones [1925] Ch 235, [1925] All ER Rep 514.
Sedleigh-Denfield v O’Callagan [1940] 3 All ER 349, [1940] AC 880, HL.

Cases also cited or referred to in skeleton arguments

Cambridge Water Co Ltd v Eastern Counties Leather plc [1994] 1 All ER 53, [1994] 2 AC 264, HL.
Donoghue v Stevenson [1932] AC 562, [1932] All ER Rep 1, HL.
French v Auckland City Corp [1974] 1 NZLR 340, NZ SC.
Giles v Walker (1890) 24 QBD 656, [1886–90] All ER Rep 501, DC.
Home Brewery plc v William Davis & Co (Loughborough) Ltd [1987] 1 All ER 637, sub nom Home Brewery Co Ltd v William Davis & Co (Leicester)
Ltd [1987] QB 339.
Hunter v Canary Wharf Ltd, Hunter v London Docklands Development Corp [1997] 2 All ER 426, [1997] AC 655, HL.
Montana Hotels Pty Ltd v Fasson Pty Ltd (1986) 69 ALR 258, PC.
Noble v Harrison [1926] 2 KB 332, [1926] All ER Rep 284, DC.
Page Motors Ltd v Epsom and Ewell BC (1981) 80 LGR 337, CA.
Rylands v Fletcher (1868) LR 3 HL 330, [1861–73] All ER Rep 1.
Smith v Littlewoods Organisation Ltd (Chief Constable, Fife Constabulary, third party) [1987] 1 All ER 710, [1987] AC 241, HL.
Stovin v Wise (Norfolk CC, third party) [1996] 3 All ER 801, [1996] AC 923, HL.

Appeal
The defendant, Scarborough Borough Council (Scarborough), the owner and occupier of land between the grounds of Holbeck Hall Hotel, South Cliff,
Scarborough and the sea, appealed from the decision of Judge Hicks QC in the Queen’s Bench Division of the High Court (Official Referees’ Business)
on 3 April 1998 whereby he held that Scarborough was liable to the claimants, Holbeck Hall Hotel Ltd and English Rose Hotels (Yorkshire) Ltd, who
were respectively the freehold owners and lessees of the hotel, in respect of damage caused to the hotel by a land slip. The facts are set out in the
judgment of Stuart-Smith LJ.

Timothy Stow QC and Paul Darling QC (instructed by Hammond Suddards, Leeds) for Scarborough.
Christopher Symons QC and Paul Reed (instructed by Kennedys) for the claimants.

Cur adv vult

­ 3

22 February 2000. The following judgments were delivered.

STUART-SMITH LJ.

Introduction
1. Holbeck Hall Hotel was a four-star hotel standing about 65 metres above sea level on South Cliff, Scarborough. It looked out over an expanse of
lawn to panoramic views of the North Sea. That was on the morning of 3 June 1993. But three days later, as a result of a massive landslip which took
place in four stages, the lawn had disappeared and the ground had collapsed under the whole of the seaward wing of the hotel. The rest of the hotel was
unsafe and had to be demolished. Because the slip was progressive everyone was evacuated without injury.
2. The freehold owners of the hotel were the first claimants who in 1980 leased the property to the second claimants on a 21-year lease. The judge
drew no distinction between the two claimants in considering the question of liability. I shall do the same and refer to them collectively as ‘the
claimants’. The defendant, ‘Scarborough’, is the local authority; however they are not sued as such, but as owners and occupiers of the land between the
hotel grounds and the sea.
3. The building which later became the hotel was built in 1880 by Charles Alderson Smith, who at that time owned about nine acres of land
extending to the sea. By a conveyance of 1 February 1887 he conveyed on sale the northern part of the ‘undercliff’ forming the eastern slope of his
property to the borough of Scarborough. That conveyance contained no covenant for support. On 2 August 1895 he conveyed to the borough the
remaining, southern, part of the undercliff in consideration of certain ‘conditions, restrictions and obligations’ which included covenants for the
maintenance of the undercliff on which the claimants relied in the action.
4. By his judgment, dated 3 April 1998, Judge Hicks QC held that Scarborough were liable to the claimants for the result of the collapse on the
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grounds that they were in breach of a measured duty of care at common law. It is against that decision that Scarborough appeal. The judge rejected two
other grounds upon which the claimants had based their claims, namely that Scarborough had interfered with their easement of support and failure to
comply with the covenant in the 1895 conveyance. There is no cross-appeal on these grounds.
5. There was a parallel action, tried at the same time, in which Scarborough claimed, in the event of their being held liable to the claimants, relief
against Geotechnical Engineering (Northern) Ltd (GEN) on the basis that GEN had been negligent in carrying out a site investigation and reporting to
Scarborough in 1984 and 1985. The judge held that there was negligence on the part of GEN, but dismissed the claim on the basis that the negligence
was not the cause of Scarborough’s liability to the claimants. There is no appeal from this decision.

Geology and history

6. Scarborough own some 42 acres of the coastline. In the area in question the upper part of the cliff consisted of a blanket of what was variously
described as boulder clay or glacial till, deposited in geologically recent times during and at the end of a period of glaciation. Below that, outcropping at
about 25 metres above sea level, was a layer of mudstones of jurassic origin (and therefore much older), in this locality called the Scalby Formation.
That, in turn, overlay a bed of much ­ 4 harder quartz sandstone known as the Moor Grit, which outcropped at about 12 metres to form a nearly vertical
base to the cliff where not hidden by man-made structures or by fallen debris from above. At sea level that gave way to a limestone, known locally as the
Black Rocks, but nothing turns on its presence or properties.
7. In its natural state this part of the coast is subject to marine erosion, and the slopes of the cliffs are therefore steeper than they would be in the
steady state which would eventually be reached in the absence of such erosion. In that condition of over-steepness they are inherently unstable. While
coastal erosion continues they will retreat in step with it, combining a broadly constant profile overall with continually repeated change in detail from
local slips. When the retreat of the coastline is checked by sea defence works, as it was below Holbeck Hall by 1912 and along the adjoining stretch of
coast to the north by 1893, the inherited instability above and behind those works will for a while continue to produce similar slips, although if the sea
defences hold the process will in time slow down as the slopes behind them become shallower and eventually approach an equilibrium.
8. All these processes, although rapid in the geological timescale and readily foreseeable in broad effect, are very slow and intermittent by human
standards, and the timing of particular episodes is entirely unpredictable. It is not in dispute that what is described in the last sentence of the last
paragraph is still at an early stage of its evolution in the area with which this case is concerned. It is also not in dispute that within limits its progress can
be modified by human intervention, for example by drainage; the maximum slope sustainable in fully drained soil can be up to twice that in the same soil
undrained.
9. There was much evidence from 1893 onwards of slips and collapses along the stretch of coastline which included the stretch between the grounds
of Holbeck Hall and the sea. Many of these were on a much smaller scale than that of 1993 including all of those which impinged on the site of the slip.
But the judge held that there were two, not far away, of comparable magnitude. In this appeal Scarborough accept that there was one, namely that in
1893; they dispute that there was another. But it seems to me that both the defendants’ pleadings (p 99, admission of large scale slope movements; p
207–080A allegation in further and better particulars in the GEN action of large slips in 1737, 1892/1893 and 1915) and the evidence (see particularly p
209–001–002; p 207–004; p 229 Mr Clements; p 207-077, p 227 Mr Chamley) justify the judge’s conclusion that there were two such slips.
10. At p 210 there is a drawing prepared by Scarborough for the purpose of the action which demonstrates the process where, over the period
between 1892 and 1983 slips had taken place in the area; this drawing also demonstrates that Scarborough had dealt with these slips by regrading the
surface and installing drainage in the form of herring bone drains to remove water from the cliff.
11. In 1982 a slip or slips occurred on Scarborough’s land below Holbeck Hall. Scarborough decided that they needed outside assistance in dealing
with it. Mr Clements, the borough’s chief engineer, said this was because of the size of the slip which was larger than that which was repaired by
Scarborough in the normal course and because they needed to ascertain if there was anything special or peculiar about this particular site. There was a
need for a site investigation to enable Scarborough to consider the form of remedial work for this relatively large slip and to prevent further slipping and
to make the slope stable. ­ 5 12. In the summer of 1984 GEN were invited to tender for the work. The invitation to tender identified the purpose of the
investigation as:

‘A report is required to advise on the treatment required to the cliffs to make them stable and prevent further slipping of material onto paths and
promenades below. There is also a problem with groundwater and recommendations are required as to what drainage facilities should be provided
in each case.’

13. GEN’s tender was accepted and they were asked to give their urgent attention to the report and recommendations. GEN reported on 14 May
1985. The judge explained the effect of the GEN report at para 91. For present purposes it is sufficient to summarise that explanation. After describing
the action taken including sinking boreholes, it was said that the slip surface had not been identified although two slip surfaces were postulated, one being
shallow and one deep. GEN advised that stability would be improved by drainage which lowered the ground water levels within the slipped mass. If the
slip surface was shallow, a scheme dealing with the ground water just below it would make a substantial difference; but that degree of drainage would be
substantially less effective if the slip surface was a deeper one. Drainage down to the base of the postulated slip would produce a big improvement. If
any conclusion could be drawn from comparison between the two analyses it would be that the deeper slip was the more likely. In para 5.4 of the report,
under the heading ‘Remedial Measures’, GEN said:

‘Before designing remedial measures it may be prudent to carry out further investigation in the form of trial pits dug within the slip mass to try
and locate the actual slip plane and to obtain samples suitable for effective stress testing to enable a rigorous slope stability analysis to be carried
out.’

14. On 27 November 1986 a further slip occurred at the site of the 1982 slip which effectively doubled the size of the previous one. Scarborough’s
engineer’s report of 1 December 1987 noted that the ‘area has been a problem for a number of years because of cliff movement’. As a result of the second
slip the top of it was about 30–35 metres from the claimants’ boundary.
15. In a letter to a member of the council, dated 29 September 1988, inviting him to a site meeting, Mr Clements wrote:

‘I am most anxious that such a site visit should take place as I am becoming increasingly concerned that if the slip is left unchecked it will
eventually lead to the closure of a part of the Cleveland Way, remove the cliff path that exists between Seacliff Car Park, Holbeck Ravine and
ultimately the gardens to the cliff, and finally could affect the land forming part of the property of the Holbeck Hall Hotel. This slip is not one
which is, in my view, at any time likely to lead to coast protection grant as it does not appear to be prejudicing the stability of the existing sea
defences. It will be necessary, therefore, for any expenditure required to deal with this cliff slip to be met by the Borough Council, and the costs are
likely to be not insignificant. It is my intention to make a bid for the scheme in next year’s capital estimates, but unless Members are aware of the
scale of the problem I suspect it may be one that will tend to be overlooked in favour of other apparently more urgent needs.’ ­ 6 16. The judge
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held that this letter indicated actual knowledge of the hazard to the claimants’ land by the potential failure of support. Mr Stow QC, on behalf of
Scarborough, contends that it does not show an awareness of the catastrophic type of slip which occurred, but merely a likelihood of shallow or
minor slips which, if not remedied might in due course reach the claimants’ boundary.
17. Mr Clements was asked in cross-examination about this letter at p 231:

‘Q. You and he [Councillor Allinson to whom the letter was addressed] were concerned that, if work was not done, it would continue and go
not just to the Cleveland Way but into Holbeck Hall Hotel’s grounds as well? A. Yes, but that was a surmise, I think.’

And later:

‘Q. … You were extremely concerned about this slip, hence your letter to the chairman of the committee? A. I wanted the work done if there
was a possibility of it being done, yes.
Q. It had to be done, did it not, Mr Clements? A. I do not know that it had to be done. I am not sure about that. It had been a progressive
failure for many, many years, and presumably it would have progressed for many, many years to come.
Q. But your council would not be prepared just to allow erosion to take place in this situation where there were important amenities for local
people and property at the top of the slope? A. I do not think that the property, except to the extent that the grounds would be affected, would have
been considered an issue because I do not think anybody at that time felt that the hotel was likely to be at risk…’

In my judgment this evidence is important because it indicates what Mr Clements contemplated and knew and justifies Mr Stow’s submission to which I
have referred in the previous paragraph. The judge does not refer to this evidence; he certainly does not reject it.
18. In a report by the technical director to the council’s leisure and amenities committee recommending the work and expenditure, it was said:

‘The area of the slip is extensive and, if left unattended, will eventually lead to the loss of the Cleveland Way between Seacliff and Holbeck
Ravine, would sever pedestrian communication between these two points and ultimately would be likely to expand into the grounds of the Holbeck
Hall Hotel. The cost of the remedial works is anticipated to be in the order of £280,000.’

19. Remedial works were carried out in 1989. Unfortunately for reasons which were never explained because Mr Davies, Scarborough’s engineer
who designed them, was dead, they were not, as the judge found, of the correct design. Instead of being herring bone drains, as had previously been
adopted by Scarborough in the locality, and as was recommended by GEN, the work consisted of a grading of the slope with removal of some spoil and a
300 mm drainage blanket consisting of granular material on top.
20. I have set out these facts in some detail because in my judgment they justify the conclusion that Scarborough, through their responsible
engineers, knew that if appropriate remedial action was not taken the landslip would be likely to progress and at some indeterminate time in the future
affect the claimants’ land. They do not show that those engineers either foresaw, still less knew, that the ­ 7 hazard was of such a magnitude that it
would be likely to involve a large part of the grounds and the hotel itself. Whether such foresight or knowledge is a necessary precondition for liability is
a matter in dispute.
21. There is a further feature of this case which is unusual. The hazard existed on both sides of the boundary. The judge explained this at para 54:

‘Whether one looks at the cause of the failure or at the remedial work which would have been necessary to avert it both properties are involved.
Even if only the first phase of the 1993 collapse is considered it consisted of a single, indivisible, rotational movement of land on both sides of the
boundary. It is true that in terms of both surface area and volume much the greater part of that land was Scarborough’s, but it was the upper section
which was the Plaintiffs’ and because of the geometry of the slip circle and the physics of the forces in operation the disproportion in the slip
surfaces on each side was less and that of the shearing force creating the slip less still …’

The judge himself did some calculations which broadly appear to have been accepted (see para 52). He said that assuming uniform density the
calculations indicated that:

‘… on a … first phase slip … where it penetrated most deeply into the Plaintiffs’ land something like 46% of the shearing face would be
developed on the Plaintiffs’ side of the boundary … As to preventive measures the scheme jointly advanced by the Plaintiffs’ expert, Mr Chamley,
and GEN’s, Professor Denness, and which I accept as appropriate, would have involved the grading back of the cliff surface to a shallower angle of
slope (some 24°), and that would have entailed the removal of the Plaintiffs’ lawn to a depth of some 25 metres behind the then existing brow of the
cliff.’

As the plan on p 217 illustrates the first phase of the slip extended only a comparatively short distance into the claimants’ land compared with the
subsequent ones.

The judge’s conclusion

22. At para 81 the judge concluded that—

‘Scarborough were aware, and in any event should have been aware, of the hazard to the Plaintiffs constituted by the potential failure of support
of the Plaintiffs’ land by Scarborough.’
He relied on three matters as showing actual awareness. (1) Mr Clements’ letter of 29 September 1988. I have already commented on this in paras 16
and 17. (2) The proviso to the covenant in the 1895 conveyance. I cannot see how this can show actual awareness of the hazard in 1986 or subsequently;
and Mr Symons QC on behalf of the claimants did not seek to support this ground. (3) The entire history of cliff failures and remedial works along the
coastline of which two slips were of comparable magnitude to that of 1993. I accept that this justifies the conclusion stated in para 20 above, but I do not
think that it goes any further than this.
23. On the basis of his finding of Scarborough’s knowledge of the hazard, the judge held that Scarborough were under a measured duty of care to
the claimants. In so doing he rejected the submission made on behalf of Scarborough that in an action based on loss of support, mere omission on the part
of the owner of the servient tenement was not actionable in the absence of positive action by him withdrawing the support. In so doing the judge followed
the line of authority ­ 8 exemplified by the decision of this court in Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] 1
All ER 17, [1980] 1 QB 485 in preference to the earlier authorities such as Sack v Jones [1925] Ch 235, [1925] All ER Rep 514 and the dictum of Greene
MR in Bond v Norman, Bond v Nottingham Corp [1940] 2 All ER 12 at 18, [1940] 1 Ch 429 at 438. This is an important issue of law which has not been
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considered in any reported decision of this court. Mr Stow submits that the judge’s decision on this point was wrong.
24. Having held that Scarborough were under a duty of care, the judge considered in what respects they were in breach of it. He made the following
findings. (a) That Scarborough were not negligent in failing to appreciate from the GEN report (and indeed it arguably may not have been the case) that a
deep seated slip was more likely than a shallow one, but that Scarborough were negligent in designing and carrying out works appropriate only to a
shallow slide (although he later held they were not in fact so appropriate) without excluding the possibility that the 1982 and/or 1986 slip had been deep
seated. That possibility was raised in the GEN report; it had not been investigated, let alone excluded in relation to the 1986 slip and no slip plane was
identified in designing or executing the works. (b) At para 112 he rejected the allegation that Scarborough were negligent in failing to follow GEN’s
recommendations in their report that further investigation should be carried out to identify the slip plane, carry out suitable effective stress testing or
rigorous slope stability analysis, on the basis that such recommendations were not expressed in firm or positive terms. This indeed was one of the bases
of his finding of negligence on the part of GEN; but (c) he said:

‘… the tone of those recommendations has to be gauged in the context of specific suggestions as to drainage which were designed to deal with
the deepest conceivable slip surface and which therefore reduced the importance of locating that surface precisely. If those suggestions are
disregarded the need to locate the slip surface returns and with it the force of the recommendations for further investigations, test and analyses.
Secondly four years had elapsed and the 1986 slip had occurred; further investigation was clearly needed for that reason, especially in the light of
the reservations in section 5.5 of the GEN report referred to in paragraph 97 above. Thirdly the scope of the GEN report was limited, being centred
on the characterisation of the 1982 slip and its treatment in Scarborough’s own interests. Even if that were extended to include the 1986 slip it
would not be adequate to cover the scope of Scarborough’s duty to the Plaintiffs in the light of paragraphs 58 and 81 above. An assessment was
needed of the danger to the Plaintiffs’ land as well as Scarborough’s own. I therefore find that Scarborough were negligent in failing to carry out
further investigations.’

(d) The nature of these further investigations were described by the judge in para 113:

‘Those investigations would have involved the sinking of boreholes, the taking of samples for effective stress tests, the carrying out of such tests
and the use of the resulting data to carry out a slope stability analysis. The area of that investigation might initially have been confined, without
ground for criticism, to the site of the 1986 slip, but I accept the evidence of Mr Chamley and Professor Denness, who were in general altogether
more impressive and ­ 9 credible witnesses than Professor Hanna, that the result would have been to indicate that the most likely failure was one
also involving ground further up the slope, and that that would have led to the extension of the area of investigation. The end result (they say, and I
accept) would have been advice that the most likely failure was a circular slip of the same order of magnitude as that which in the event occurred in
1993 and along a surface at or close to that of the first phase of the event, and that the factor of safety was at or near 1; in other words that the
failure was in geological terms imminent, although that would not have enabled its actual date to be predicted to within months or even a few
years.’

(e) The judge further elucidated the significance of these findings at para 117 where he said:

‘… a scheme confined to the area of the 1982 and 1986 slips gave no latitude for any reduction in the overall steepness of the slope. I accept
the evidence of Mr Chamley and Professor Denness, however, that had the investigations and analyses described in paragraphs 112 and 113 above
been carried out it would have become clear that to ensure long-term stability a more far-reaching scheme was needed, involving a flattening of the
slope and consequentially a cutting back of the brow so as to remove part of the lawn of Holbeck Hall.’

(f) The judge was critical of the design and execution of remedial works carried out by Scarborough and held that it was negligent. At para 114 he said:

‘The design made no attempt to lower the groundwater level, an objective which was rightly central to the GEN report and the importance and
significance of which should have been apparent to Scarborough’s officers. It did aim to provide drainage to the water-bearing horizons within the
slope, but failed to do so because their outlets at the sloping surface had been cut off by the claylike mass of slipped material, which was not all
removed before the drainage blanket was laid.’

It is important to note, however, and I do so at this stage, that this negligence was not causative of the loss. At para 118 the judge said:

‘Had these errors alone been corrected there would still have been only a scheme confined to the area of the 1982 and 1986 slips, which on the
Plaintiffs’ own case would not have been adequate, so causation would have been lacking.’

25. It is apparent, therefore, that in order to ascertain the full extent of the hazard and enable remedial works to be carried out which would protect
the claimants in the long term, a two-stage investigation was necessary as described in para 24(c) and (d) above.

The appellant’s submissions

26. Mr Stow makes the following submissions on behalf of Scarborough. (a) There is no duty to take positive steps to provide support for a
neighbour’s land. Mere omission is not sufficient. The decision in Leakey’s case [1980] 1 All ER 17, [1980] 1 QB 485 is not applicable to the right of
support, but is confined to encroachment or escapes from the defendant’s land onto the plaintiff’s land. Accordingly there is no liability. (b) If the
proposition in (a) is wrong, the judge’s finding that Scarborough knew of the hazard to the claimants’ land is wrong. It is not sufficient that the
defendants knew that some relatively minor damage to ­ 10 the claimants’ land might occur if remedial steps were not taken. They did not know and
could not know without carrying out further extensive and two-stage investigation by experts, the catastrophic nature of the hazard. In the absence of
such knowledge no duty arose. (c) Where, in the authorities to which I shall come, the expression is used that the duty arises if the defendant knew or
ought to have known, the concept ‘ought to have known’ is confined to a situation where the defect giving rise to the hazard is patent and can be observed
by a reasonable landowner, or his responsible servant, exercising reasonable care in the management of his estate. He must have the means of knowledge,
but he is not required to do extensive investigations either by himself or experts. This was not a case where Scarborough ought to have known of the
hazard to the claimants.

The law
27. Does the principle enunciated in Leakey’s case apply to cases of failure of support by the servient tenement to the land of the dominant tenement
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where there has been no withdrawal of support but mere omission? A number of cases at first instance established the rule that while the dominant
tenement had a right of support from the land of the servient tenement, the owner of the servient tenement was only liable if he did something to withdraw
support. There was no positive duty to provide support. (See Sack v Jones [1925] Ch 235, [1925] All ER Rep 514; Macpherson v London Passenger
Transport Board (1946) 175 LT 279.) The principle was stated by Greene MR (with whose judgment Mackinnon and Clauson LJJ agreed) in Bond v
Norman, Bond v Nottingham Corp [1940] 2 All ER 12 at 18, [1940] 1 Ch 429 at 438:

‘The nature of the right of support is not open to dispute. The owner of the servient tenement is under no obligation to repair that part of his
building which provides support for his neighbour. He can let it fall into decay. If it does so, and support is removed, the owner of the dominant
tenement has no cause for complaint. On the other hand, the owner of the dominant tenement is not bound to sit by and watch the gradual
deterioration of the support constituted by his neighbour’s building. He is entitled to enter and take the necessary steps to ensure that the support
continues by effecting repairs and so forth to the part of the building which gives the support. What the owner of the servient tenement is not
entitled to do, however, is by an act of his own to remove the support without providing an equivalent. There is the qualification upon his
ownership of his own building that he is bound to deal with it subject to the rights in it which are vested in his neighbour, and can only deal with it,
subject only to those rights.’

The dictum was obiter; but there is little doubt that it represented the law as it was understood. It is worth noting that if the owner of the servient
tenement withdrew support he was liable irrespective of negligence.
28. To a similar effect were the cases of Greenwell v Low Beechburn Coal Co [1897] 2 QB 165 and Hall v Duke of Norfolk [1900] 2 Ch 493 where
it was held that a landowner was not liable for damage caused to neighbouring land by subsidence occasioned by excavations or other acts of his
predecessor in title, although the damage did not occur until the defendant came into possession.
29. Originally in private nuisance only the person who by himself or his servant or agent created the nuisance on his land which interfered with the
use and enjoyment of his neighbour’s land was liable. The position was different in ­ 11 public nuisances where once the existence of a nuisance on his
land comes to the knowledge of the occupier it is his duty to abate it or endeavour to do so: see Barker v Herbert [1911] 2 KB 633, [1911–13] All ER Rep
509 and the decision of the majority of the Court of Appeal, Bankes LJ and Astbury J, in Job Edwards Ltd v Birmingham Navigations [1924] 1 KB 341.
But in that case Scrutton LJ dissented. The facts of the case are well-known. Trespassers had deposited refuse on the plaintiff’s land which caught fire
and posed a threat to the canal company. By agreement between the parties the canal company entered the plaintiff’s land and extinguished the fire. The
plaintiffs, without prejudice to the legal position, paid half the cost of the work of extinguishing the fire and in the action sued to recover the cost on the
ground that they were not liable to abate the nuisance started by a trespasser. Scrutton LJ considered that there was no justification for the distinction
between public and private nuisance. He approved (at 360) a statement by Professor Salmond in his book Law of Torts (5th edn, 1920) p 260
‘When a nuisance has been created by the act of a trespasser, or otherwise without the act, authority, or permission of the occupier, the occupier
is not responsible for that nuisance unless, with knowledge or means of knowledge of its existence, he suffers it to continue without taking
reasonably prompt and efficient means for its abatement.’

And a little later he said:

‘… the landowner in possession is liable for a nuisance created by a trespasser, which causes damage to others, if he could, after he knows or
ought to have known of it, prevent by reasonable care its spreading …’

30. In Sedleigh-Denfield v O’Callagan [1940] 3 All ER 349, [1940] AC 880 the House of Lords approved Scrutton LJ’s dissenting judgment, and
held that an occupier of land continues a nuisance if with knowledge or presumed knowledge of its existence, he fails to take reasonable means to bring it
to an end when he has ample time to do so; and he adopts it if he makes use of the erection or artificial structure that constitutes the nuisance. In that case
a trespasser had laid a pipe or culvert in a ditch which drained the defendant’s land. He had placed a grid, not at some distance from the pipe, but on top
of it so that in heavy rain it became blocked with leaves and flood water escaped and flooded the plaintiff’s flats on the adjoining land. The defendant’s
responsible servant was aware of the existence and position of his pipe and grid. The defendants were held liable. I shall have to return to this case when
I consider what is meant by ‘ought to have known’ of the danger.
31. In Goldman v Hargrave [1966] 2 All ER 989, [1967] 1 AC 645 the Privy Council extended the principle in Sedleigh-Denfield v O’Callagan to a
hazard caused on the defendant’s land by the operation of nature. In that case a tall redgum tree on the defendant’s land was struck by lightning and set
on fire. The defendant at first took reasonable steps to deal with the problem. He cleared and dampened the area round the tree and then cut it down.
Having done so, however, the defendant took no further steps to prevent the spread of fire, which he could readily have done by dousing it with water.
Instead, he let the fire burn out. The wind got up and set light to the surrounding area from whence it spread to the plaintiff’s land and damaged his
property. The Privy Council held the defendant liable. There was no difference in principle between a nuisance created by a trespasser and one created
by the forces of nature, provided the defendant knew of the hazard. Lord Wilberforce, who delivered the advice of the board, said in relation to the
supposed distinction: ­ 12 ‘The fallacy of this argument is that, as already explained, the basis of the occupier’s liability lies not in the use of his land:
in the absence of “adoption” there is no such use: but in the neglect of action in the face of something which may damage his neighbour. To this, the
suggested distinction is irrelevant.’ (See [1966] 2 All ER 989 at 995, [1967] 1 AC 645 at 661.)

32. In both Sedleigh-Denfield v O’Callagan and Goldman v Hargrave the hazard arose entirely on the defendant’s land; the plaintiff had no
knowledge of it before the damage was done; the defendant was liable for failing to take steps to stop the spread or escape to the plaintiff’s land, steps
which he could reasonably take.
33. In Leakey v National Trust the Court of Appeal held that the law, as laid down in Goldman v Hargrave, correctly stated the law of England. In
that case the plaintiffs’ houses had been built at the foot of a large mound on the defendant’s land. Over the years soil and rubble had fallen from the
defendant’s land onto the plaintiffs’. The falls were due to natural weathering and the nature of the soil. By 1968 the defendants knew that there was a
threat to the plaintiffs’ properties. After a very dry summer and wet autumn a large crack opened in the mound above the plaintiffs’ houses. They drew
the defendant’s attention to the danger to their houses; but the defendant said it had no responsibility. A few weeks later a large quantity of earth and
some stumps fell onto the plaintiffs’ land. In interlocutory proceedings the defendant was ordered to carry out the necessary work to abate the nuisance.
The Court of Appeal upheld the judge’s decision in the trial of the action to the effect that the defendant was liable.
34. Megaw LJ ([1980] 1 All ER 17 at 34–35, [1980] 1 QB 485 at 523), with whose judgment Cumming-Bruce LJ agreed, said:

‘If, as a result of the working of the forces of nature, there is, poised above my land, or above my house, a boulder or a rotten tree, which is
liable to fall at any moment of the day or night, perhaps destroying my house, and perhaps killing or injuring me or members of my family, am I
without remedy? (Of course the standard of care required may be much higher where there is risk to life or limb as contrasted with mere risk to
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property, but can it be said that the duty exists in the one case and not in the other?) Must I, in such a case, if my protests to my neighbour go
unheeded, sit and wait and hope that the worst will not befall? If it is said that I have in such circumstances a remedy of going on my neighbour’s
land to abate the nuisance, that would, or might, be an unsatisfactory remedy. But in any event, if there were such a right of abatement, it would, as
counsel for the plaintiffs rightly contended, be because my neighbour owed me a duty. There is, I think, ample authority that, if I have a right to
abatement, I have also a remedy in damages if the nuisance remains unabated and causes me damage or personal injury. That is what Scrutton LJ
said in the Job Edwards case ([1924] 1 KB 341 at 359) with particular reference to Attorney-General v Tod Heatley ([1897] 1 Ch 560, [1895–9] All
ER Rep 636). It is dealt with also in the speech of Viscount Maugham in the Sedleigh-Denfield case ([1940] 3 All ER 349 at 357–358, [1940] AC
880 at 893–894), and in the speech of Lord Atkin ([1940] 3 All ER 349 at 361–362, [1940] AC 880 at 899–900).’

35. The support cases which I have referred to in para 27 were not cited in Leakey v National Trust. Mr Stow submits that the Court of Appeal, in
that case, cannot have intended to modify the effect of the decisions without even adverting to them. This seems to be the view of the editor of Gale on
Easements (16th edn, 1997) paras 10, 26 and 27. In the alternative Mr Stow argued that the principle in the three cases of Sedleigh-Denfield v
O’Callagan, Goldman v Hargrave ­ 13 and Leakey v National Trust should be confined to cases where there is an escape or encroachment of some
noxious thing from the defendant’s land to that of the claimant. He points to the repeated use of the word ‘encroachment’ in the judgment of Megaw LJ
(see Leakey v National Trust [1980] 1 All ER 17 at 25, [1980] 1 QB 485 at 514). On the other hand it is difficult to see what difference there is in
principle between a danger caused by loss of support on the defendant’s land and any other hazard or nuisance there which effects the claimant’s use and
enjoyment of land. Encroachment is simply one form of nuisance; interference causing physical damage to the neighbour’s land and building as a result
of activities on the defendant’s land is another form of nuisance. There seems no reason why, where the defendant does not create the nuisance, but the
question is whether he had adopted or continued it, different principles should apply to one kind of nuisance rather than another. In each case liability
only arises if there is negligence, the duty to abate the nuisance arises from the defendant’s knowledge of the hazard that will affect his neighbour.
36. There have been two cases since Leakey v National Trust where the courts have applied the principles in that case to a claim for loss of support.
The first is Bradburn v Lindsay [1983] 2 All ER 408. In that case there were two adjoining properties with a party wall. The plaintiffs owned no 55, the
defendant no 53. No 53 became dilapidated and vandalised; there was an outbreak of dry rot which spread to no 55. The local authority made a
demolition order and when the defendants took no action, demolished no 53 but left the party wall largely unsupported. The plaintiffs sued for damage
caused by the dry rot and the loss of support. Judge Blackett-Ord V-C, sitting as a judge of the High Court, gave judgment for the plaintiff. He applied
the decision in Leakey v National Trust. Mr Stow submits that the decision with regard to the dry rot is well within the Leakey v National Trust principle
and causes him no difficulty; it was a case of encroachment or escape. He submitted that the decision on the interference with support can be upheld on
the ground that the destruction of the building, thereby removing the cross walls which afforded support to the party wall, was active interference—it was
misfeasance and not non-feasance. That may be so, but it was not the basis of the decision.
37. The second case is Bar Gur v Bruton [1993] CA Transcript 981, an unreported decision of this court. The case seems to have escaped the
attention of the law reporters. Perhaps because the facts are somewhat complex and the court was divided in the result. However, I accept Mr Symons’
submission that all three members of the court adopted the Leakey v National Trust principle in relation to a claim for loss of support. The facts are as
follows. In 1990 the appellant, P, bought a coach house which had previously been owned or occupied by the other defendants. The coach house was
about 100 years old. After it was built a cottage was constructed; one of the walls of the cottage was a wall of the coach house. Moreover the roof of the
cottage was supported on one side by 2 ft 8 ins of wall which rose up on and above the wall of the coach house. The coach house had got into disrepair.
In 1987 there had been serious ingress of water from the coach house which had entered the cottage. P was not liable for this, though his predecessors
were; P had carried out repairs which prevented further ingress of water. But over the years the ingress of water had loosened and softened the mortar in
the 2 ft 8 ins of wall which supported the cottage roof. The plaintiff, the owner of the cottage, sued P on the grounds that this section of wall no longer
provided support for his roof and was a nuisance. It is clear that P had not caused the state of affairs in the wall; but he knew of it. The county court
judge held P liable on the grounds that the wall was a nuisance and P had ­ 14 continued it. He applied the decision in Leakey v National Trust. Dillon
LJ upheld this decision. But I and Evans LJ allowed P’s appeal. We did so on the basis that although the wall had been affected, it only amounted to a
nuisance ‘if the wall is no longer supporting the roof of the cottage or there is an imminent risk that it will cease to do so’ (see my judgment p 30); and
this was not established on the facts. Dillon LJ thought that it was. In the course of his judgment Dillon LJ (at p 18), after citing the dictum of Greene
MR in Bond v Norman (which I have referred to in para 27) said: ‘The judge rightly recognised that in the light of Leakey’s case that statement needs to
be qualified and is no longer good law.’ There is no further discussion of the matter. It is clear that both Evans LJ and I proceeded on the basis that
Leakey v National Trust applied and had we thought that the wall constituted a nuisance, we would have dismissed the appeal.
38. It may be doubted whether we had full argument on the point since the appellant was in person. But the judgments were reserved and it is clear
from Dillon LJ’s judgment that we must have had in mind the law as stated in Bond v Norman. I cannot accept Mr Stow’s submission that both Evans LJ
and I might have distinguished Leakey v National Trust, but did not do so because we decided the case on the facts. That being so, the decision is binding
upon us; Mr Stow does not submit it was per incuriam, though he reserved the right to argue elsewhere that Leakey v National Trust was wrongly decided,
and it follows that he would make the same reservation with regard to Bar Gur v Bruton. In any event, for reasons which I have given, I do not think
there is any difference in principle between a danger due to lack of support and danger due to escape or encroachment of a noxious thing so far as the
Sedleigh-Denfield v O’Callagan/Leakey v National Trust principle is concerned. I therefore reject Mr Stow’s first submission.

The extent of the defendant’s knowledge

39. In order to give rise to a measured duty of care, the defendant must know or be presumed to know of the defect or condition giving rise to the
hazard and must, as a reasonable man, foresee that the defect or condition will, if not remedied, cause damage to the claimant’s land. In Goldman v
Hargrave, Leakey v National Trust, Bradburn v Lindsay and Bar Gur v Bruton the defendant had actual knowledge of the defect or condition giving rise
to the hazard or alleged hazard. In Sedleigh-Denfield v O’Callagan the defendant’s responsible servant knew. In each case it was reasonably foreseeable
that damage would occur to the plaintiff’s land if nothing was done.
40. What then is meant by presumed knowledge or, as the expression is sometimes used, ‘ought to know’. In Sedleigh-Denfield v O’Callagan
Viscount Maugham said:

‘All that is necessary in such a case is to show that the owner or occupier of the land with such a possible cause of nuisance upon it knows of it
or must be taken to know of it. An absentee owner, or an occupier oblivious of what is happening under his eyes, is in no better position than the
man who looks after his property, including such necessary adjuncts to it, in such a case as we are considering, as its hedges and ditches.’ (See
[1940] 3 All ER 349 at 353, [1940] AC 880 at 887.)

He approved Salmond’s reference ([1940] 3 All ER 349 at 357, [1940] AC 880 at 893), adopted by Scrutton LJ of the occupier ‘with knowledge or the
means of knowledge’. And in his statement of principle ([1940] 3 All ER 349 at 358, [1940] AC 880 at 894) he used the expression ‘knowledge or
presumed knowledge’.
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­ 15
Lord Romer ([1940] 3 All ER 349 at 371, [1940] AC 880 at 913) agreed with this formulation. Lord Atkin considered that the defendants—

‘by their responsible agents had knowledge of the erection of the pipe, of the reasonable expectation that it might be obstructed, of the result of
such obstruction …’ (See [1940] 3 All ER 349 at 359, [1940] AC 880 at 896.)

Lord Wright said:

‘If he is to be liable, a further consideration is necessary—namely, that he had the knowledge, or means of knowledge, that he knew, or should
have known, of the nuisance in time to correct it and obviate its mischievous effects.’ (See [1940] 3 All ER 349 at 364, [1940] AC 880 at 904.)

I do not consider that Lord Wright was intending to extend or widen the scope beyond what the other Lords indicated. Finally Lord Porter said:

‘… the respondents at least acquired knowledge of the existence of the pipe and the position of the grid after it had been erected, even if they
did not acquire that knowledge at the time of its erection in 1934. Their servants knew, and they certainly ought to have known, immediately after
the insertion of the pipe, what the position of affairs was.’ (See [1940] 3 All ER 349 at 373–374, [1940] AC 880 at 917.)

41. In Leakey’s case [1980] 1 All ER 17 at 29, [1980] 1 QB 485 at 518 Megaw LJ said:

‘So long as the defect remains “latent” there is no duty on the occupier, whether the defect has been caused by a trespasser or by nature.
Equally, once the latent becomes patent, a duty will arise, whether the causative agent of the defect is man or nature. But the mere fact that there is
a duty does not necessarily mean that inaction constitutes a breach of the duty.’

In that passage Megaw LJ referred to the defect. He said:

‘… the duty arising from a nuisance which is not brought about by human agency does not arise unless and until the defendant has, or ought to
have had, knowledge of the existence of the defect and the danger thereby created.’ (See [1980] 1 All ER 17 at 33, [1980] 1 QB 485 at 522.)

Here Megaw LJ is referring both to the defect and the danger arising from it. And again when discussing the scope of the duty he posed this question:

‘Was there sufficient time for preventive action to have been taken, by persons acting reasonably in relation to the known risk, between the time
when it became known to, or should have been realised by, the defendant, and the time when the damage occurred?’ (See [1980] 1 All ER 17 at 35,
[1980] 1 QB 485 at 524.)

Here Megaw LJ refers to the risk or the danger.

42. The duty arises when the defect is known and the hazard or danger to the claimants’ land is reasonably foreseeable, that is to say it is a danger
which a reasonable man with knowledge of the defect should have foreseen as likely to eventuate in the reasonably near future. It is the existence of the
defect coupled with the danger that constitutes the nuisance; it is knowledge or presumed knowledge of the nuisance that involves liability for continuing
it when it could reasonably be abated. Mr Stow submits that the defect must be patent and not latent; that is to say that it is a defect which can be
observed; it is no answer for ­ 16 the landowner to say that he did not observe it, if a responsible servant did so; or if as a reasonable landowner he, or
the person to whom he entrusted the responsibility of looking after the land, should have seen it. But if the defect is latent, the landowner or occupier is
not to be held liable simply because, if he had made further investigation, he would have discovered it. I accept Mr Stow’s submission; in my judgment
that is what is meant by the expression ‘knowledge or presumed knowledge’.
43. Mr Stow further submits that although Scarborough knew of a defect in their land, and that they realised that there was a risk of a slip, they did
not know, and could not have known without the two-stage geological investigation, of the defect; in particular, as Mr Clements said in his evidence in
the passage I have cited, that they realised that over many years there might be progressive slips which eventually might affect the plaintiffs’ grounds, but
they did not and could not have realised the serious extent of the slip plane or the fact that it extended so far into the claimants’ land as to affect the hotel.
He submits that while Scarborough did foresee some damage to the claimants’ land, if nothing was done about the existing slip, they could not reasonably
have foreseen the catastrophic danger that materialised. Mr Stow seeks to draw a distinction between a shallow slip, which is what the 1982 and 1986
slips were, and a rotational slide, which is what the 1993 slip was, and the 1893 and the other major slip, to which the judge refers, were. I am not sure
that a differentiation between the nature of the slips is a critical one. But it is in my view clear that Scarborough did not foresee a danger of anything like
the magnitude that eventuated. It was common ground that the GEN report gave no clue of such an eventuality; and it seems clear that they could not
have appreciated the risk without further investigation by experts.
44. The critical question is whether these distinctions affect Scarborough’s liability. In most cases where physical injury either to the person or
property of the claimant is reasonably foreseeable, the defendant will be under a duty of care and will be liable for all damage of the type which was
foreseeable, whether the actual extent of the damage is foreseeable or not. This is so in cases where the defendant’s activity gives rise to the danger,
whether it be the manner of his driving, the operations conducted on his land or in his business, or the treatment he gives as a professional undertaking the
care of his patient. It matters not that he did not foresee the full extent of the injury in fact sustained. So too in cases of economic loss; if there is the
necessary foreseeability of the type of damage sustained and proximity, subject to the need for it to be fair, just and reasonable for a duty to be imposed,
the defendant will be liable for all damage of the type foreseen, even if the full extent was not foreseen or reasonably foreseeable.
45. Mr Symons submits that that principle is applicable here; provided Scarborough knew that there was a defect on their land, ie the existence of a
slip plane and consequent risk of a slip, and provided they either did or ought as reasonable people to have foreseen that it might affect the claimants’ land
more than to a trivial extent, they are liable for the full extent of the damage. Mr Symons relied on the well-known decision of Hughes v Lord Advocate
[1963] 1 All ER 705, [1963] AC 837 in support of his proposition. But there the duty of care existed, damage of the type which occurred, namely injury
by burning, was foreseeable as a result of the defendant’s operations, it was merely that the source of danger acted in an unpredictable way. As Lord
Morris of Borth-y-Gest put it:

‘My Lords, in my view there was a duty owed by the defenders to safeguard the pursuer against the type or kind of occurrence which in fact
happened and which resulted in his injuries, and the defenders are not ­ 17 absolved from liability because they did not envisage “the precise
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concatenation of circumstances which led up to the accident”.’ (See [1963] 1 All ER 705 at 712, [1963] AC 837 at 853.)

In my judgment this does not assist the claimants in this case. It was an application of the ordinary rule which I have referred to in the previous
paragraph; the unpredictable nature of the accident did not make the damage too remote.
46. But the present is a case of non-feasance: Scarborough have done nothing to create the danger which has arisen by the operation of nature. And
it is clear that the scope of the duty is much more restricted. It is defined in the cases of Goldman v Hargrave and Leakey v National Trust as a measured
duty of care. In the former case Lord Wilberforce said:

‘So far it has been possible to consider the existence of a duty, in general terms; but the matter cannot be left there without some definition of
the scope of his duty. How far does it go? What is the standard of the effort required? What is the position as regards expenditure? It is not
enough to say merely that these must be “reasonable” since what is reasonable to one man may be very unreasonable, and indeed ruinous, to
another: the law must take account of the fact that the occupier on whom the duty is cast, has, ex hypothesi, had this hazard thrust on him through
no seeking or fault of his own. His interest, and his resources whether physical or material, may be of a very modest character either in relation to
the magnitude of the hazard, or as compared with those of his threatened neighbour. A rule which required of him in such unsought circumstances
in his neighbour’s interest a physical effort of which he is not capable, or an excessive expenditure of money, would be unenforceable or unjust.
One may say in general terms that the existence of a duty must be based on knowledge of the hazard, ability to foresee the consequences of not
checking or removing it, and the ability to abate it. Moreover in many cases, as, for example in SCRUTTON L.J.’s hypothetical case of stamping
out a fire [see the Job Edwards case [1924] 1 KB 341 at 357], or the present case, where the hazard could have been removed with little effort and
no expenditure, no problem arises; but other cases may not be so simple. In such situations the standard ought to be to require of the occupier what
it is reasonable to expect of him in his individual circumstances. Thus, less must be expected of the infirm than of the able bodied: the owner of a
small property where a hazard arises which threatens a neighbour with substantial interests should not have to do so much as one with larger
interests of his own at stake and greater resources to protect them: if the small owner does what he can and promptly calls on his neighbour to
provide additional resources, he may be held to have done his duty: he should not be liable unless it is clearly proved that he could, and reasonably
in his individual circumstance should, have done more. This approach to a difficult matter is in fact that which the courts in their more recent
decisions have taken. It is in accordance with the actual decision in the Job Edwards case ([1924] 1 KB 341) where to remove the hazard would
have cost the occupier some £1,000—on this basis the decision itself seems obviously right. It is in accordance with Pontardawe Rural Council v.
Moore-Gwyn ([1929] 1 Ch 656) where to maintain the rocks in a state of safety would have cost the occupier some £300 …’ (See [1966] 2 All ER
989 at 995–996, [1967] 1 AC 645 at 663; my emphasis.) ­ 18 47. In the passage which I have emphasised Lord Wilberforce refers expressly only
to the existence of the duty; but the passage occurs in the middle of that part of the judgment dealing with the scope of the duty. It seems to me that
Lord Wilberforce could equally have said ‘existence and scope of the duty’, especially as ability to abate it is related to the subjective
characteristics of the defendant.
48. In Leakey v National Trust [1980] 1 All ER 17 at 35, [1980] 1 QB 485 at 524 Megaw LJ dealt with the scope of the duty:

‘The duty is a duty to do that which is reasonable in all the circumstances, and no more than what, if anything, is reasonable, to prevent or
minimise the known risk of damage or injury to one’s neighbour or to his property. The considerations with which the law is familiar are all to be
taken into account in deciding whether there has been a breach of duty, and, if so, what that breach is, and whether it is causative of the damage in
respect of which the claim is made. Thus, there will fall to be considered the extent of the risk. What, so far as reasonably can be foreseen, are the
chances that anything untoward will happen or that any damage will be caused? What is to be foreseen as to the possible extent of the damage if the
risk becomes a reality? Is it practicable to prevent, or to minimise, the happening of any damage? If it is practicable, how simple or how difficult
are the measures which could be taken, how much and how lengthy work do they involve, and what is the probable cost of such works? Was there
sufficient time for preventive action to have been taken, by persons acting reasonably in relation to the known risk, between the time when it
became known to, or should have been realised by, the defendant, and the time when the damage occurred? Factors such as these, so far as they
apply in a particular case, fall to be weighed in deciding whether the defendant’s duty of care requires, or required, him to do anything, and, if so,
what.’ (My emphasis.)

49. In both these passages concentration tends to be upon the ease and expense of abatement and the ability of the defendant to achieve it. But in the
passage in Megaw LJ’s judgment which I have emphasised, the extent of the foreseen damage is said to be a relevant consideration. Moreover, I do not
think either judge was purporting to give an exhaustive list of relevant considerations. While I agree with Megaw LJ ([1980] 1 All ER 17 at 35, [1980] 1
QB 485 at 524) that it would be a grievous blot on our law if there was no liability on the defendants in those cases, I do not think justice requires that a
defendant should be held liable for damage which, albeit of the same type, was vastly more extensive than that which was foreseen or could have been
foreseen without extensive further geological investigation; and this is particularly so where the defect existed just as much on the claimant’s land as on
their own. In considering the scope of the measured duty of care, the courts are still in relatively uncharted waters. But I can find nothing in the two
cases where it has been considered, namely Goldman v Hargrave and Leakey v National Trust, to prevent the court reaching a just result.
50. It is clear that Shaw LJ ([1980] 1 All ER 17 at 38–39, [1980] 1 QB 485 at 528) had considerable reservations about the extension of the law as
exemplified by Goldman v Hargrave. He said:

‘There are, however, so it seems to me, powerful arguments the other way. Why should a nuisance which has its origin in some natural
phenomenon and which manifests itself without any human intervention cast a liability upon a person who has no other connection with that
nuisance than the title to the land on which it chances to originate? This view is ­ 19 fortified inasmuch as a title to land cannot be discarded or
abandoned. Why should the owner of land in such a case be bound to protect his neighbour’s property and person rather than that the neighbour
should protect his interests against the potential danger? The old common law duty of a landowner on whose land there arose a nuisance from
natural causes only, without any human intervention, was to afford a neighbour whose property or person was threatened by the nuisance a
reasonable opportunity to abate that nuisance. This entailed (1) that the landowner should on becoming aware of the nuisance give reasonable
warning of it to his neighbour, (2) that the landowner should give to the neighbour such access to the land as was reasonably requisite to enable him
to abate the nuisance. The principle was relatively clear in its application and served in broad terms to do justice between the parties concerned.
The development of “the good neighbour” concept has however blurred the definition of rights and liabilities between persons who stand in such a
relationship as may involve them in reciprocal rights and liabilities.’

He also regarded Goldman v Hargrave as the climax of the development of the law in this field ([1980] 1 All ER 17 at 39, [1980] 1 QB 485 at 529) and
evidently must have been unwilling to extend it further. If the scope of the duty is linked to an obligation to take care to avoid damage which is
reasonably foreseeable, then the defendant is only liable to that extent.
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51. The cases of Goldman v Hargrave and Leakey v National Trust were decided before the decision of the House of Lords in Caparo Industries plc
v Dickman [1990] 1 All ER 568, [1990] 2 AC 605, in which the three-stage test for the existence of a duty of care was laid down, namely foreseeability,
proximity and the need for it to be fair, just and reasonable. In Marc Rich & Co AG v Bishop Rock Marine Co Ltd, The Nicholas H [1995] 3 All ER 307
at 326, [1996] 1 AC 211 at 235 it was held that the three-stage Caparo test was appropriate whatever the nature of the damage (per Lord Steyn, approving
a dictum of Saville LJ). The requirement that it must be fair, just and reasonable is a limiting condition where foreseeability and proximity are
established. In my judgment very similar considerations arise whether the court is determining the scope of a measured duty of care or whether it is fair,
just and reasonable to impose a duty or the extent of that duty. And for my part I do not think it is just and reasonable in a case like the present to impose
liability for damage which is greater in extent than anything that was foreseen or foreseeable (without further geological investigation), especially where
the defect and danger existed as much on the claimants’ land as the defendants.
52. The judge did not address the question of the extent of the damage that could reasonably have been foreseen other than in the respects which I
have indicated, namely that Scarborough knew or ought to have known of the hazard that might affect the support for the claimants’ land. He must, I
think, have acceded to the submission that that was sufficient to give rise to the duty of care and potential liability for all the damage that ensued, whether
foreseeable or not, because in considering the scope of the measured duty of care he adverted only to such matters as Scarborough’s ability to do the
remedial works and the question of a contribution from the claimants. Yet it is clear, as it seems to me, that he must have considered that Scarborough did
not and could not have known of the extent of the defect or potential damage, without the two-stage investigation by experts.
53. In these circumstances he held, as I understand it, that Scarborough were liable for all the damage to the claimants land, hotel and business,
subject to a deduction for such contribution as the claimants would have made, if the matter ­ 20 had been discussed and agreed between the parties, to
an effective remedy. Such a scheme, we were told by counsel, would have cost in the order of £500,000 and would have affected a substantial part of the
hotel grounds. The judge has not yet determined what that contribution would have been. In the light of my conclusion that this is not the correct
question or measure of damage, I need make no comment on the task the judge had set himself, save to say, that it is by no means an easy matter to decide
what the parties would have decided if they had known the full extent of the hazard. It is obvious that the claimants had far more at stake than
Scarborough, even though the latter were anxious to preserve the amenity of the cliff walks and gardens if they could, even to the extent of spending
about £120,000 on the abortive 1989 works (and, as the report referred to in para 18 above indicated, possibly up to £280,000).
54. For the reasons I have given I conclude that the scope of Scarborough’s duty was confined to an obligation to take care to avoid damage to the
claimants’ land which they ought to have foreseen without further geological investigation. It may also have been limited by other factors, as the
passages from Goldman v Hargrave and Leakey v National Trust cited in paras 46 and 48 make clear, so that it is not necessarily incumbent on someone
in Scarborough’s position to carry out extensive and expensive remedial work to prevent the damage which they ought to have foreseen; the scope of the
duty may be limited to warning claimants of such risk as they were aware of or ought to have foreseen and sharing such information as they had acquired
relating to it.
55. Taking the first approach the question is, what was the extent of the damage to the claimants’ land which Scarborough ought to have foreseen,
(without any further investigation) if they did not carry out effective remedial work of the type they had previously done and which GEN recommended?
It is not possible to be precise about this. But in my judgment it is not necessary to send the matter back to the trial judge to determine; I doubt whether
any more evidence could be available than that which is before us. The 1986 slip at its nearest point to the claimants’ land was some 35 metres (about
100 metres from the hotel). Progressive slips, if unchecked, might have been expected eventually to extend some way into the hotel grounds, affecting
the rose garden and some part of the lawn. The value of such land would represent the damage to the claimants. In theory this should be subject to a
deduction for a contribution from the claimants towards the cost of any remedial works. But in practice it does not seem to me to be realistic to attribute
any value to this part of Holbeck’s land because in fact, albeit unknown to the parties, this whole section of the grounds was liable to subside because of
the underlying defect.
56. I turn to consider the second approach referred to in para 54. In the course of argument some of the problems that are likely to arise in
considering the measured duty of care were canvassed. In particular, what should be the position if both parties knew of the defect and the potential risk
on their respective land? Mr Symons submitted that each would owe a duty of care to the other and if together they failed to take effective remedial
action, Scarborough would be liable to the claimants for all the damage they sustained and vice versa. I am very far from being persuaded that this is so;
rather it seems to me that each would have consented to the risk as regard themselves and each would have a defence of volenti non fit injuria.
57. It might be thought in a situation like the present, where the defect existed on both parties’ land, where the 1982 and 1986 slips together with the
1989 remedial works were plain for everyone to see, that the claimants were in as good a position to assess the problem as Scarborough, save only that
the latter ­ 21 had skilled engineers on their staff and had longer experience of slips on the cliff than the claimants; though it should be noted that the
claimants had owned the property since 1932. The judge recorded in para 55 that it was not suggested that the claimants knew or ought to have known of
the potential dangers, so that they were not under any duty to Scarborough to prevent collapse of their land onto Scarborough’s. Mr Stow accepts that
that is so, because he says no one knew of the latent defect here which affected both properties and no one foresaw or could reasonably foresee the extent
of the damage. But Mr Stow does not accept that the judge’s finding means that the claimants were wholly ignorant of what was happening only a
comparatively short distance from the boundary and in full view of their rose garden. I think Mr Stow is probably right about this. But I do not think it is
necessary to consider the matter further. The full extent of the defect on both the claimants’ and Scarborough’s land was latent. The extent to which the
defect was patent, namely the 1982 and 1986 slips, was not, without further expert geological investigation, such that either party could reasonably
foresee the full extent of the danger or likely damage.
58. I think it could well be argued that on the facts of this case Scarborough were under a duty to warn the claimants of such risk as they did
appreciate and share with them the information contained in the GEN report. This is on the assumption that the claimants had not realised that there was
any risk to them from continuing unchecked erosion. This could well be within the limited scope of the measured duty of care. But that is not how the
case was pleaded or argued. Moreover, even if a breach of such a duty could be established, there would be formidable problems of causation, since the
claimants would have to establish on balance of probability, that if they had this information they would themselves or in conjunction with Scarborough
have undertaken the further geological investigation necessary to discover the extent of the problem and then either themselves or in conjunction with
Scarborough have undertaken the extremely expensive remedial works which I have referred to in para 53.
59. Finally I would wish to pay tribute to the clear and careful judgment of the learned judge. Reading paras 45 to 47 of his judgment, it appears to
me that he was not altogether at ease with the decision which he felt, as a matter of law, he should reach.
60. For these reasons I would allow this appeal and enter judgment for the defendants.

SCHIEMANN LJ. I agree.

TUCKEY LJ. I also agree.

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Appeal allowed.

Dilys Tausz Barrister.

[2000] 2 All ER 727

Broadmoor Hospital Authority and another v R

CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

LORD WOOLF MR, MORRITT AND WALLER LJJ
29 NOVEMBER, 20 DECEMBER 1999

Injunction – Locus standi – Injunction to support performance of statutory duties by statutory body – Patient in special hospital seeking to publish book
justifying manslaughter for which he had been convicted and referring to other patients – Hospital authority seeking injunction restraining patient from
publishing book to prevent detrimental effect on his health and assaults by other patients – Whether authority having standing to claim injunction.

The defendant, R, was convicted of manslaughter, and was ordered to be detained without limit of time at the special hospital operated by the claimant
authority. He wrote and arranged the publication of a book in which he claimed to have carried out the killing for the highest of motives, and referred to
other patients at the hospital. The authority brought proceedings against R, seeking an injunction restraining him from publishing the book whose
manuscript was held by a publisher as R’s agent. Such an injunction was said to be necessary because of, inter alia, the risk that R would be assaulted by
the patients identified in the book and the detrimental effect on R’s mental health that would result from his discovering that others did not accept his
claim to be ‘innocent’ and blameless. The injunction was granted on an ex parte application, but was discharged at a subsequent inter partes hearing, the
judge holding that the injunction depended upon the assertion of a power that the authority lacked. On the authority’s appeal, R contended, inter alia, that
the authority had no standing to claim the injunction.

Held – Where a public body was given a statutory responsibility which it was required to perform in the public interest, it had standing to apply to the
court for an injunction to prevent interference with the performance of its public responsibilities, provided that there was no implication to the contrary in
the statute. Such an injunction should be granted when it appeared to the court to be just and convenient to do so. In the instant case, the authority had
duties, under the legislation dealing with special hospitals, to treat the patients, maintain the security of the hospital and provide a therapeutic
environment. As a consequence of those duties, it could be said to have certain implicit statutory rights. Moreover, although there was no express power
to seize books outside the hospital, the court could, if appropriate, grant an injunction to restrain an activity outside the hospital if it could be shown that it
was having a sufficiently significant impact on the security of the hospital or the treatment of a patient. It followed (Morritt LJ dissenting) that the court
had jurisdiction to grant an injunction of the type sought in the instant case. However, the injunction would not be granted since (per Lord Woolf MR) it
would be inappropriate to do so in the exercise of the court’s discretion or (per Waller LJ) R’s conduct could not be categorised as interfering with the
authority’s public responsibilities. Accordingly, the appeal would be dismissed (see p 734 a to d g h, p 735 e to p 736 f and p 739 g h and p 740 b to g,
post). ­ 727 Chief Constable of Kent v V [1982] 3 All ER 36 and South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV;
South Carolina Insurance Co v Al Ahlia Insurance Co [1986] 3 All ER 487 considered.

Notes
For locus standi for an injunction, see 1(1) Halsbury’s Laws (4th edn reissue) para 159.

Cases referred to in judgments

A-G v Blake (Johnathan Cape Ltd, third party) [1998] 1 All ER 833, [1998] Ch 439, [1998] 2 WLR 805, CA.
B v Croydon Health Authority [1995] 1 All ER 683, [1995] Fam 133, [1995] 2 WLR 294, CA.
British Airways Board v Laker Airways Ltd [1984] 3 All ER 39, [1985] AC 58, [1984] 3 WLR 413, HL.
Chief Constable of Hampshire v A Ltd [1984] 2 All ER 385, [1985] QB 132, [1984] 2 WLR 954, CA.
Chief Constable of Kent v V [1982] 3 All ER 36, [1983] QB 34, [1982] 3 WLR 462, CA.
Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435, [1977] 3 WLR 300, HL.
McCarthy & Stone (Developments) Ltd v Richmond upon Thames London BC [1991] 4 All ER 897, [1992] 2 AC 48, [1991] 3 WLR 941, HL.
Mercedes-Benz AG v Leiduck [1995] 3 All ER 929, [1996] AC 284, [1995] 3 WLR 718, PC.
Pierson v Secretary of State for the Home Dept [1997] 3 All ER 577, [1998] AC 539, [1997] 3 WLR 492, HL.
Pountney v Griffiths [1975] 2 All ER 881, [1976] AC 314, [1975] 3 WLR 140, HL.
R v Broadmoor Special Hospital Authority, ex p S (1998) Times, 17 February, CA Transcript 143, affg (1997) Times, 5 November.
R v Secretary of State for the Home Dept, ex p Leech [1993] 4 All ER 539, [1994] QB 198, [1993] 3 WLR 1125, CA.
Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina [1977] 3 All ER 803, [1979] AC 210, [1977] 3 WLR 818, HL.
South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV; South Carolina Insurance Co v Al Ahlia Insurance Co [1986] 3 All
ER 487, [1987] AC 24, [1986] 3 WLR 398, HL.
TV3 Network Ltd v Eveready New Zealand Ltd [1993] 3 NZLR 435, NZ CA.

Appeal
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The claimants, Broadmoor Hospital Authority and Dr Jan Willen Vermeulen, the responsible medical officer for the defendant, R, a patient at Broadmoor
special hospital, appealed from the decision of Poole J on 12 October 1998 discharging an ex parte order granted by Colman J on 1 May 1998 and
extended by Penry-Davey J on 18 May 1998 restraining R from publishing or seeking to publish a book entitled ‘Armageddon Ahoy’ or any part of it, and
from posting that book or any part of it to anyone save those identified in s 134(3) of the Mental Health Act 1983. The facts are set out in the judgment of
Lord Woolf MR.

Edward Fitzgerald QC and Mark Warwick (instructed by Reid Minty) for the claimants.
Richard Gordon QC and Paul Bowen (instructed by Gowans, Paignton) for R.

Cur adv vult

­ 728

20 December 1999. The following judgments were delivered.

LORD WOOLF MR.

1. This case raises an issue of general importance. The issue is whether a statutory body is entitled to be granted an injunction in civil proceedings
to support its performance of its statutory duties.
2. The claimants are Broadmoor Hospital Authority (the authority) and Dr Vermeulen. Broadmoor is a special hospital provided by the Secretary of
State for the Department of Health pursuant to s 4 of the National Health Service Act 1977 as amended. Special hospitals are provided for the detention
of persons who in the opinion of the Secretary of State ‘require treatment under conditions of special security on account of their dangerous, violent or
criminal propensities’. The authority is responsible for the management and the provision of treatment at Broadmoor. Dr Vermeulen is the responsible
medical officer (RMO) who has responsibility for treating the defendant.
3. The defendant is a patient suffering from paranoid schizophrenia. He is detained at Broadmoor as a result of his conviction for manslaughter of
an occupational therapist in September 1991. At the time of his offence, the defendant was undergoing treatment for his mental illness. At the time of his
offence, apparently, he had intended to kill a psychiatrist.
4. By May 1998, the defendant had written a book entitled ‘Armageddon Ahoy’. The defendant at his own expense had made arrangements for the
book to be printed and published. On realising this, the authority issued proceedings. Subsequently, Dr Vermeulen was added as a party. The authority’s
legal advisers communicated with the Attorney General’s office as to whether the Attorney General would be prepared to bring proceedings in his
capacity as guardian of the public interest. The Attorney General was not prepared to do so.
5. In the amended statement of claim the claimants seek an injunction that that the defendant be restrained: (a) from publishing or seeking to publish
the book entitled ‘Armageddon Ahoy’ or any parts thereof; (b) from posting to anyone save those persons identified in s 134(3) of the Mental Health Act
1983 the book entitled ‘Armageddon Ahoy’ or any part of the said book.
6. The claimants also by an amendment pursuant to leave granted by this court at a directions hearing on 29 April 1999 seek declarations that: (a)
the first and/or second plaintiffs entitled to instruct the defendant not to keep in his possession and/or not to publish or seek to publish the book; (b) it
would be unlawful for the defendant to publish the book in its present form; (c) the first and second (plaintiffs) are entitled to seize the book or any parts
thereof.
7. The claim for the declarations are not in issue on this appeal. Mr Richard Gordon QC, who appears on behalf of the defendant, accepted in
argument that the jurisdiction of the court to grant the declarations which are now claimed may be wider than the jurisdiction to grant the injunctions.
8. On 1 May 1998 Colman J made an ex parte order granting the injunctions. The defendant’s agent delivered up the copies of the book. That order
in relation to the first injunction was then continued by Penry-Davey J on 18 May 1998. On 12 October 1998 after hearing argument on behalf of the
parties, Poole J discharged the orders made by Colman J and Penry-Davey J. Poole J also ordered that so much of para 7 in the statement of claim as
alleges (either expressly or by implication) that the plaintiff has power—(a) to prevent the defendant keeping in his possession, custody or power any
copies of the book that are neither: (i) within the confines of Broadmoor, or (ii) in the course of transmission by post ­ 729 and/or (b) to prevent the
defendant from publishing the book be amended or struck out as disclosing no reasonable cause of action.
9. Poole J also ordered that ‘all copies of the book delivered by the defendant (whether personally or by his agent) from outside Broadmoor Hospital
and received by the plaintiff’ as a result of Colman J’s injunction should be delivered up to the defendants’ solicitors within seven days. Pending the
hearing of this appeal, the order of Poole J has been stayed.

The statement of claim

10. As the judge struck out part of the statement of claim its terms are relevant. The statement of claim recites the fact that Broadmoor at the
relevant times only admitted patients ‘who would present a grave danger to the public’ and that ss 3 and 37 of the 1983 Act provide for the involuntary
admission of patients and their detention in hospital for medical treatment. It also sets out that s 63 confers an express power on the RMO to provide
medical treatment without the patient’s consent.
11. The statement of claim alleges that the hospital had the power and (by amendment) the right to control and discipline patients in Broadmoor
including the defendant and to take all necessary steps to secure a safe and therapeutic environment for patients detained at Broadmoor. By amendment it
also alleges that Dr Vermeulen, as the defendant’s RMO, had the right and power to instruct the defendant to surrender or hand over any offensive or
potentially harmful book in his possession that would damage or interfere with his effective treatment. It is also alleged that Dr Vermeulen had the power
and the right to instruct the defendant not to publish a book or to court publicity in a way that would damage his treatment. Reliance is also placed on s
134 of the 1983 Act which gives the authority to withhold from the post office a postal package addressed ‘to any person by a patient detained’ if in the
opinion of the managers of the hospital they consider the package is likely to cause distress to the person to whom it is addressed or to any other person
(not being a person on the staff of the hospital) or cause danger to any person or staff.
12. An allegation is also made that by necessary implication Broadmoor has a general duty to ensure that patients do not transmit to the outside
world materials or documents that are likely to cause distress to the person to whom they are addressed or to cause danger to any person. Reliance is also
placed on a duty which those working in Broadmoor have to patients to preserve the confidentiality of details concerning the patients mental condition,
their history, their treatment and their progress in Broadmoor. It is also alleged that the defendant owes a similar duty to his fellow detainees.
13. Paragraph 7 (now para 9.1) of the statement of claim, referred to in Poole J’s judgment, in its amended form states that not only have the
claimants the power to do the matters referred to in the judge’s order, but they now have the duty and/or right to do those things and the claimants are
entitled to instruct the defendant to deliver up the book or material which relates to the book.
14. The amended statement of claim also refers to the publication by the defendant of an earlier book about his life and the fact that the publication
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caused a deterioration in the defendant’s mental state and distress to the family of the occupational therapist who the defendant killed. The likely effect of
the publication of the book particularly if this attracted the attention of the media is amplified in the witness statements and affidavits prepared by Dr
Vermuelen. ­ 730 Dr Vermuelen’s evidence
15. In his evidence Dr Vermuelen refers to the contents of the book which the court has had the opportunity to read. As he explains, the book
describes how the defendant killed his victim and sets out his justification for doing so. That description includes the fact that the defendant states that he
had ‘behaved without malice and with the highest motives’ and that he knew he was moral. A feature of the book is that the defendant explains that he
wanted publicity for himself and that the crime was committed to ‘make me newsworthy’. The book describes how he enquired of the police whether his
killing had been reported. He ‘wanted to know whether the media had yet picked upon my case’. Dr Vermuelen states that the defendant had no prior
knowledge or encounter with his victim and in his, the doctor’s opinion, the publication of the book would cause distress to the victim’s family.
16. Dr Vermuelen also points out that the book contains references to 13 other Broadmoor patients. And that if any of those patients had the
opportunity to read the book they would recognise themselves from its contents. The book sets out details of his fellow patients history and offences
including in at least one case what the doctor had written about that patient. Some of the details are said to be intimate or embarrassing and there are
references to two suicide attempts on the part of fellow patients. He says that if the contents of the book were to come to the patients’ attention they
would be deeply disturbed. There is also a suggestion made that the patients could attack the defendant as a result of the publication.

The judgment
17. The argument which was advanced before Poole J was more restrictive than the argument which has been advanced before this court. In
addition the statement of claim had not then been amended. However, in regard to that argument and on the pleadings in their then state, Poole J
concluded that the injunction had to be discharged because it depended upon the assertion of a power that the authority did not possess and was
inconsistent with the structure of the 1983 Act.
18. Mr Gordon’s principle argument in support of Poole J’s decision is that the court had no power to grant the injunctions. However he also
submits that, in any event, they should not have been granted as a matter of discretion. The arguments raised on the appeal can therefore be conveniently
divided under two heads. First of all, the jurisdiction or the power of the court to grant the injunctions (the jurisdiction issue) and secondly, assuming the
court has the power to grant the injunction, whether it was appropriate to grant the injunction on the facts of this case (the discretion issue).

The jurisdiction issue

19. Mr Gordon divides his submissions as to why the court lacks jurisdiction to grant the injunctions under a number of heads. They can however be
conveniently regarded as addressing the lack of standing of the claimants and the absence of any involvement of a right of the claimants. The
considerations which they raise overlap so I will deal with them together.
20. Usually, and probably invariably, if a person is entitled to be granted an injunction he will have the necessary standing to claim an injunction.
Thus a party to a contract who is entitled to rely on a contract has sufficient standing to bring an action based on his rights under the contract, to seek an
injunction. The situation is the same in tort. It is also true in relation to equitable rights. If you have an equitable right an injunction is available in
support of that equitable ­ 731 right. Thus in Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina [1977] 3 All ER 803 at 824, [1979] AC 210
at 256, Lord Diplock pronounced his well-known dicta that an injunction is available ‘in protection or assertion of some legal or equitable right which [the
High Court] has jurisdiction to enforce by final judgment’. That valuable dicta has, however, to be applied with a degree of caution. It is far from being
an exhaustive statement of the extent of the court’s powers to grant an injunction or as a guide as to who is entitled to bring proceedings to claim an
injunction. The correct position is succinctly summarised in Spry Equitable Remedies (5th edn, 1997) at p 323 in the following terms:

‘The powers of courts with equitable jurisdiction to grant injunctions are, subject to any relevant statutory restrictions, unlimited. Injunctions
are granted only when to do so accords with equitable principles, but this restriction involves, not a defect of powers, but an adoption of doctrines
and practices that change in their application from time to time. Unfortunately there have sometimes been made observations by judges that tend to
confuse questions of jurisdiction or of powers with questions of discretions or of practice. The preferable analysis involves a recognition of the
great width of equitable powers, an historical appraisal of the categories of injunctions that have been established and an acceptance that pursuant to
general equitable principles injunctions may issue in new categories when this course appears appropriate.’

21. I recognise that the editor of Spry in the passage from which I have quoted, cites in a footnote two statements, one of Lord Goff of Chieveley in
South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV; South Carolina Insurance Co v Al Ahlia Insurance Co [1986] 3 All
ER 487 at 499, [1987] AC 24 at p 44–45 and the other of Lord Nicholls of Birkenhead in Mercedes-Benz AG v Leiduck [1995] 3 All ER 929 at 946,
[1996] AC 284 at 308 which are contained in minority speeches in the House of Lords on this subject. However, Lord Brandon of Oakbrook in the South
Carolina case in giving the opinion with which Lord Bridge of Harwich and Lord Brightman agreed identified a further category of situation from that
identified by Lord Diplock namely ‘where one party to an action has behaved or threatens to behave in a manner which is unconscionable’ ([1986] 3 All
ER 487 at 496, [1987] AC 24 at 40) and in addition referred to two exceptional situations which also do not fall within Lord Diplock’s classification,
namely the grant of an injunction to restrain proceedings in a foreign court and the grounds for the grant of a Mareva or freezing injunction.
22. Lord Goff’s reluctance in the South Carolina case ‘to accept the proposition that the power of the court to grant injunctions is restricted to
certain exclusive categories’ ([1986] 3 All ER 487 at 499, [1987] AC 24 at 44) and Lord Nicholls’ statement in the Mercedes-Benz case that there are
‘highly persuasive voices that the jurisdiction to grant an injunction, should not be rigidly confined to exclusive categories by judicial decision’ ([1995] 3
All ER 929 at 946, [1996] AC 284 at 308) have been echoed in New Zealand by Cooke P (as he then was) in TV3 Network Ltd v Eveready New Zealand
Ltd [1993] 3 NZLR 435 at 438 when he stated ‘the remedy of injunction should be available whenever required by justice’. This is an approach which I
would respectfully endorse.
23. Lord Diplock in The Siskina and Lord Brandon in the South Carolina case were not, for example, dealing with applications for judicial review.
This approach was not exhaustive. From 1977, an injunction has been available as an alternative remedy to the prerogative writs on an application for
judicial review and on an application for judicial review there is a different test to establish ­ 732 standing, namely that of ‘sufficient interest in the
matter to which the application relates’. (RSC Ord 53, r 3(7) and s 31 of the Supreme Court Act 1981.) This test does not depend on rights. ‘Sufficient
interest’ has been approached by the courts in a generous manner so that almost invariably if an applicant can establish a case which deserves to succeed,
standing will not constitute a bar to the grant of a remedy. This is a sensible and an appropriate approach since the purpose of rules as to standing are to
protect the courts from being troubled by litigants who have no interest in the litigation and are mere busy bodies. They are not designed to prevent
litigants who have a meritorious claim from pursing that claim.
24. The broad approach on an application for judicial review is in accord with the approach of Lord Goff and Lord Nicholls but it must be
recognised that it does not yet reflect the position in ordinary private law proceedings in the courts. In particular without the assistance of the Attorney
General, Mr Gordon is right to submit that in general a member of the public is unable to bring private law proceedings and obtain an injunction to uphold
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public rights or to enforce public duties or to enforce the criminal law. (See Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435.)
He submits here we are in the area, if any right is involved, of public law rights. Again, however, it must be recognised that the general rule states how
the jurisdiction of the court will be exercised in practice rather than defining that jurisdiction which is statutorily codified by s 37 of the 1981 Act. There
can therefore be situations where in private law proceedings there are situations where the courts will recognise the ability of an individual to obtain
injunctive relief even though the courts will be intervening to protect a public duty. Thus, in Chief Constable of Kent v V [1982] 3 All ER 36, [1983] QB
34 this court recognised the standing of the chief constable to obtain an injunction to prevent the dissipation of assets which the police had a public law
duty to preserve pending the resolution of a criminal trial. Differing reasons were given by the members of the court for this conclusion and the approach
of Lord Denning MR has been doubted in subsequent cases including Chief Constable of Hampshire v A Ltd [1984] 2 All ER 385, [1985] QB 132. None
the less, the correctness of the result in that case has not been doubted. The justification for the decision in my view is the fact that the chief constable has
a special responsibility for the enforcement of the criminal law.
25. In Chief Constable of Kent v V, the chief constable was not in a position to rely on any statute. A statute can expressly authorise a public body
to bring proceedings for an injunction to support the criminal law. This is the position under the Local Government Act 1972 (s 222). In relation to many
statutory functions the power to bring proceedings can be implicit. The statutes only rarely provide expressly that a particular public body may institute
proceedings in protection of specific public interests. It is usually a matter of implication. If a public body is given responsibility for performing public
functions in a particular area of activity, then usually it will be implicit that it is entitled to bring proceedings seeking the assistance of the courts in
protecting its special interests in the performance of those functions. The position is analogous to that which exists where a member of the public suffers
special damage in consequence of a public wrong. Mr Gordon submits this wider jurisdiction is confined to the grant of a declaration and it is correct that
most of the examples where a statutory body has been granted relief are cases where what was being sought was a declaration. However, once it is
recognised, that the public body has standing, then I can see no reason why the remedy available to the public body should be confined to a declaration
and not extend also to an injunction. Of course, the court may be ­ 733 more prepared to grant a declaration than an injunction as a matter of discretion
but the decision will then not turn on a lack of standing or an absence of jurisdiction. I would therefore summarise the position by stating that if a public
body is given a statutory responsibility which it is required to perform in the public interest, then, in the absence of an implication to the contrary in the
statute, it has standing to apply to the court for an injunction to prevent interference with its performance of its public responsibilities and the courts
should grant such an application when ‘it appears to the court to be just and convenient to do so’.
26. In his submissions Mr Gordon not only challenges the existence of any such approach as I have identified but also submitted that what was
involved here was not the authority’s rights or duties but powers. I do not accept Mr Gordon’s approach. The legislation which deals with the running of
the special hospitals and the treatment of patients detained there makes it clear that the authority has duties. It has duties to treat the patients; it has duties
to maintain the security of the hospital and it has a duty to provide a therapeutic environment. As a consequence of its duties it can be said to have certain
implicit statutory rights. It has for example the right to search patients or for that matter visitors. Mr Gordon would describe this not as a right but a
power. It can appropriately be so described but once the authority has in its discretion determined that it should exercise the power, it becomes under a
duty to exercise the power and has the right to do so. The power, the duty and the right are public law and not private law rights but in my judgment this
does not affect the ability of the authority to seek an injunction or the jurisdiction of the court to grant an injunction. (See R v Broadmoor Special
Hospital Authority, ex p S (1998) Times, 5 February, R v Broadmoor Special Hospital Authority, ex p S (1997) Times, 15 October and Pountney v
Griffiths [1975] 2 All ER 881 at 888, [1976] AC 314 at 335).
27. Mr Gordon accepts that the authority has responsibilities on these lines but he would submit that in addition to being only powers they are
confined to what happens within the confines of the hospital and does not extend outside the perimeters of the hospital in the absence of express statutory
authority. Furthermore he submits that as the authority is well able to rely on its general powers such as its powers to search the inmates, no intervention
by the courts by way of injunction is required.
28. It is important to note that the grant of the injunction need not be to enforce the statutory power directly. So here there is no express power to
seize books outside the hospital. However, if it can be shown an activity is taking place outside the hospital the court may, if appropriate, grant an
injunction to restrain that activity if it is an activity which can be shown to be having a sufficiently significant impact on the security of the hospital or the
treatment of a patient. There would need to be circumstances warranting the interference with a third party. Here this creates no difficulty because the
third party, the printer, is only involved as the patient’s agent. If however there were to be someone who was not a patient who was indulging in conduct,
for example writing letters to patients which was interfering with security or treatment in the hospital there would be jurisdiction to grant an injunction.
29. Mr Gordon also submits that s 134 of the 1983 Act is inconsistent with the court being able to grant an injunction. Section 134 confers on the
authority a specific power to seize postal packets to prevent the dissemination of material by detained patients that is likely to cause distress to the person
to whom it is addressed or to any person or to cause danger to any person. Mr Fitzgerald QC relies on this power and submits that the court could where
appropriate uphold ­ 734 this power by the grant of an injunction. Mr Gordon disputes this and contends that to grant an injunction on this basis would
bypass the prisoner’s express statutory right to a review of the exercise of this power under s 121 of the 1983 Act. The power contained in s 134 of the
1983 Act is partly explained by the fact that in the absence of this power, to interfere with a postal package can be an offence under s 56 of the Post
Office Act 1953. Furthermore, while it is correct that the grant of an injunction could bypass the statutory right of review, this point has reduced
significance because the court before granting an injunction would be required to be satisfied that the intrusion into the patient’s interest which the
injunction would involve was justified. Again I regard the existence of the power under s 134 as being relevant to discretion and not jurisdiction.
30. There are submissions of Mr Gordon which I would accept. First I would accept that the authority cannot bring proceedings to protect any
patients’ right to privacy or confidence. To protect other patients, the authority have to rely on the interference which the conduct of which complaint is
made would have on the performance of their duties. In particular, the duty of the authority to maintain security, order and a therapeutic environment
within the hospital. The position is the same with regard to the family of the defendant’s victim. Naturally, the court would wish to protect them from
being caused further distress. But regrettably I do not consider that the courts here can help in proceedings brought by the authority. The powers and
responsibility of the authority do not extend to providing the protection the family would like unless the conduct complained of affects the authority’s
responsibilities within the hospital.
31. As far as jurisdiction is concerned therefore, I regard the court as being able on the application of the authority to grant an injunction if the grant
of that injunction is justified in order to enable the authority to perform its statutory responsibilities. It must however be recognised that primarily these
responsibilities relate to what happens within the hospital. Conduct outside the hospital can affect what happens within the hospital and if this is so
jurisdiction exists in the court to provide protection by injunction.

Discretion
32. I therefore turn to whether it is right for either of the injunctions which were claimed to be granted. Poole J on the more restricted argument
before him, came to the conclusion that the injunction should not be granted because they depended upon the assertion of power which the plaintiff did
not possess and because of the structure of the 1983 Act. As to the structure of the 1983 Act and the powers of the plaintiff, I take a different view from
the judge in so far as what happens outside the hospital affects what happens within. I do however consider that his decision was right as a matter of
discretion. My reasons are as follows. (1) To grant an injunction against a patient who is detained, without limitation of time, which is the defendant’s
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position, is an exercise of jurisdiction which will rarely be appropriate. Mr Gordon is right that generally the authority’s own internal powers will be
sufficient and will not require the backing of the court. In addition there are problems where there is no practical step which the courts can take to enforce
the injunction because the patient is already compulsorily detained. This underlines the unsuitability of granting an injunction. (2) No doubt the object of
obtaining an injunction was to bind the printers and publishers as the defendant’s agent. The injunction would have been capable of being enforced
against them and as a matter of principle I would not regard this as an impermissible objective if otherwise the authority’s powers would be ­ 735
adversely affected. The fact that the printers and publishers are independent third parties means however that caution should be exercised before an
injunction is granted with the intention that it should only in practice bite on a third party. Furthermore, the court would need to be satisfied it is required
for example to maintain security or to treat the patient. (3) It follows that the fact that the injunction is designed to operate outside the confines of
Broadmoor is not in principle a reason why an injunction should not be granted. If for example an individual was causing interference with the discipline
of a special hospital by writing letters to the patients then notwithstanding the ability of the authority to censor correspondence, in the appropriate
situation an injunction against the individual could be granted to reduce the risk of discipline being undermined and treatment interfered with. However
there would need to be a substantial risk of the authority’s powers being prejudiced and I am not satisfied there is such a risk here. (4) The concern of the
authority here is less with the publication of the book than the publicity in the media which could occur as a result of the book being published. Mr
Gordon properly draws attention to the importance which the common law and art 10 of the European Convention of Human Rights (Convention for the
Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmnd 8969)) attaches to freedom of speech. The
freedom is not unqualified but this remains an important consideration. (5) Injunctions should not be granted if they are unlikely to be effective. I have
grave reservations as to whether it could be possible to prevent publication in the media now that the book has been printed and has been in limited
circulation. The grant of the injunction which the plaintiff’s seek would be likely to have to be followed up by further actions in the court. An illustration
of what can happen has already been provided by the application which the authority made to restrain publication of these proceedings. I understand the
desire of the authority to protect the defendant and his fellow patients, but I am far from satisfied that this can be in fact achieved by the grant of the
injunctions which are sought.
33. On balance I have therefore come to the conclusion that the injunctive relief which is sought is not a remedy which should be granted.
34. Although therefore I would dismiss the appeal, I would emphasise that it is my earnest hope that the media will feel it appropriate to exercise
self-restraint in relation to the publicity they give to these proceedings and to the book. Although the court is not in a position to protect the family of the
defendant’s victim, I would hope that this is a matter to which the media will give appropriate weight. I would also hope that the media will fully take
into account the fact that if they do give extensive coverage to the defendant’s book, they will be fulfilling the purpose for which the defendant committed
his horrendous crime.
35. We have not had an opportunity of hearing an argument as to what consequential orders are appropriate in the light of our decision on this
appeal and while I would dismiss the appeal I would be prepared to hear submissions as to consequential relief.

MORRITT LJ.
36. The circumstances in which this appeal arises have been fully described by Lord Woolf MR. I gratefully adopt his account of them. The
question is whether the court has jurisdiction to grant to the Broadmoor Hospital Authority (Broadmoor) an injunction requiring the defendant (R) to
deliver up to them the manuscript of the book he has written so as to prevent its publication. It is ­ 736 common ground that the manuscript was not,
when such an injunction was originally granted by Colman J on 1 May 1998, physically within the confines of Broadmoor. It was held by a publisher but
as agent for R. It is also common ground that R is not incapable, by reason of any mental disorder or otherwise, of managing and administering his own
property and affairs. Accordingly the Court of Protection has no jurisdiction over him or his property, s 94(2) Mental Health Act 1983.
37. The factual justification for preventing publication advanced in the evidence is fourfold, namely (1) the distress to the relatives of R’s victim, (2)
the serious risk to R of violent assault by those of his fellow patients he has identified in the book, (3) the detrimental effect on the mental health of R of
discovering, following publication, that his claim to be ‘innocent’ and blameless is not accepted by others, described in the affidavit of the responsible
medical officer as ‘certainly not conducive to his treatment’ and (4) the disturbance to and interference with the treatment of the other patients, details of
whose offence, disorders or treatment are disclosed in the book.
38. It is not suggested that any of these concerns is not real. In particular I share the first. It is therefore with the greatest regret that I conclude that
it cannot be any justification for the implication or exercise of the requisite power as it would have nothing to do with the performance of the functions or
duties of Broadmoor. The second and fourth factors could not justify the width of the injunction sought because there are only about 13 pages out of 150
in which material relevant to other patients in Broadmoor is contained. Thus the claim must be tested by reference to the powers and duties of Broadmoor
relating to the treatment of R.
39. Of the three grounds originally advanced in justification of the injunction the only one now pursued is an implied statutory right or power to
require a patient undergoing treatment not to publish a book written by him and, if required, to deliver up to Broadmoor the manuscript and any copies of
it under the patient’s control even if situate outside Broadmoor. The implication is said to arise from the duties and functions of Broadmoor as a special
hospital provided by the Secretary of State for Health pursuant to s 4 of the National Health Service Act 1977 for persons subject to detention under the
1983 Act who require treatment under conditions of special security on account of their dangerous, violent or criminal propensities. It is the function of
Broadmoor to provide such treatment and a safe therapeutic environment within which to do so. (See R v Broadmoor Special Hospital Authority, ex p S
(1998) Times, 17 February.)
40. In the performance of those functions Broadmoor has both express and implied powers. The express powers include a power, s 63 of the 1983
Act, to carry out most forms of treatment under the direction of the responsible medical officer but without the consent of the patient and a power, s 134
of the 1983 Act, to intercept incoming or outgoing mail. But, as Auld LJ observed in Ex p S, the relevant legislation leaves unspoken many of the
necessary incidents of control flowing from a power of detention for treatment. Those powers are to be found by implication. But, as this court held in
that case, the test for the implication of such powers is that of necessity. (See Ex p S per Auld and per Judge LJJ).
41. The injunction sought would interfere with the exercise by R of his civic right of free speech and his proprietary right as the owner of the
copyright in the book. As such the test for the implication of the necessary power is the stringent one to which Steyn LJ referred in R v Secretary of State
for the Home Dept, ex p Leech [1993] 4 All ER 539 at 550, [1994] QB 198 at 212, namely whether ‘there is a self-evident and pressing need’ for the
power in question (see Ex p S, per Auld LJ). ­ 737 42. The necessity relied on by Broadmoor is the corollary of their power and duty to detain a patient
for treatment. Treatment is widely defined in s 145 of the 1983 Act as interpreted by this court in B v Croydon Health Authority [1995] 1 All ER 683,
[1995] Fam 133. I can well understand that in certain cases publication may frustrate or undermine particular treatment being administered to a patient.
But, in that event, the necessity would not be confined to publications by the patient alone but would extend to publications by third parties. In opening
this appeal Mr Fitzgerald QC for Broadmoor limited the implication for which he contended to a power exercisable in respect of the patient only. But in
his reply he recognised that if the requisite necessity existed with regard to publications by the patient the power must extend also to publications by third
parties. In my view that concession was right. Thus the real issue is whether a right or power for a special hospital to control publications liable to
frustrate or undermine the treatment of one of its patients can be implied from the duties and functions imposed on it by statute.
43. The answer to the issue so formulated is, in my view, clear. A power of such constitutional significance is not to be implied. If Parliament is to
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grant such a power, and in my view it must be a matter for Parliament and not the discretion of the court, then it must do so in terms which admit of no
doubt as to its intention. (See Pierson v Secretary of State for the Home Dept [1997] 3 All ER 577 at 592, [1998] AC 539 at 575–576.)
44. Even if the implication sought is limited to a power exercisable in respect of publications of the works of the patient I do not consider that it can
be made. It may well be desirable to have such a power, if only to back up that conferred by s 134 of the 1983 Act, but that is not sufficient. (See
McCarthy & Stone (Developments) Ltd v Richmond upon Thames London BC [1991] 4 All ER 897 at 902 and 903, [1992] 2 AC 48 at 70 and 71.) I am
not satisfied that there is any necessity for it whether expressed as a self-evident or pressing need or otherwise.
45. Section 134 entitles Broadmoor, subject to exceptions concerning MPs and similar persons, to intercept incoming and outgoing mail to or from a
patient. But the conditions for the exercise of the power are strict. Outgoing mail from the patient may be stopped if it is likely to cause distress to any
person, not being on the staff of the hospital, or danger to any person. Incoming mail addressed to the patient may be stopped if it is necessary to do so in
the interests of the safety of the patient or for the protection of other persons. But the decisions of the managers of the special hospital in this respect are
subject to review by the Mental Health Act Commission pursuant to s 121(7) of the 1983 Act.
46. The power Broadmoor contends should be implied would not be subject to the express safeguards built into s 134. It was suggested that the
discretion of the court whether to grant an injunction and if so on what terms, could be used to provide equivalent safeguards. In my view that would not
be sufficient. The court could only provide such safeguards in those cases where it was necessary to resort to the court. In many cases it would not be.
47. It was also suggested that the implication of the power would be inconsistent with the express provisions of ss 134–138 and the assumptions
underlying s 134 of the 1983 Act. Sections 134–138 are all concerned with the control of the patient or his communications with persons outside
Broadmoor. It is suggested that these provisions provide a code not susceptible of any further implication. Section 134(9) provides that the exercise of
the power contained in that section is not to constitute an offence under s 56 of the Post Office Act 1953. The suggestion is that if Broadmoor has the
implied power contended for then its exercise could not have given rise to any offence under any of the relevant ­ 738 sections, including s 56 of the
1953 Act anyway. There is some force in each of these points but if the requisite necessity for the implication were made out then, in my view, it would
override these considerations.
48. For all these reasons, which are essentially the same as those given by Poole J for discharging the injunctions, I would dismiss this appeal.
49. Counsel for R also submitted that if there were any such power as Broadmoor contended for then it could not be enforced by injunction against
R at the suit of Broadmoor. It was submitted that there was no private law cause of action within which an injunction could be granted consistent with the
decisions of the House of Lords in British Airways Board v Laker Airways Ltd [1984] 3 All ER 39, [1985] AC 58 and South Carolina Insurance Co v
Assurantie Maatschappij ‘de Zeven Provincien’ NV; South Carolina Insurance Co v Al Ahlia Insurance Co [1986] 3 All ER 487, [1987] AC 24. If there
was the power contended for then, it was submitted, it existed in public law and was not enforceable by Broadmoor consistently with the decision of the
House of Lords in Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435 and of this court in A-G v Blake (Johnathan Cape Ltd,
third party) [1998] 1 All ER 833 at 847–849, [1998] Ch 439 at 459–461. The decision of this court in Chief Constable of Kent v V [1982] 3 All ER 36,
[1983] QB 34 was described as dependent on the unique position of a chief constable and devoid of any ratio decidendi capable of application in this case.
50. Had I reached a different conclusion on whether the requisite power could be implied I would, in agreement with Lord Woolf MR on this point,
have concluded that it could be enforced by Broadmoor. I would have rested my conclusion on the simple ground that if Parliament is to be treated as
having conferred the power then it must also have intended that Broadmoor might enforce it. In my view the power would be in the nature of a statutory
right conferred on a particular person or class of person to be exercised as occasion required in the performance of their statutory functions. Powers have
commonly been conferred on statutory undertakings, such as railway or canal companies, entitling them to go on the land of another for some purpose. So
far as I am aware it has never been suggested, let alone decided, that such undertakings may not enforce such a right by injunction if necessary. By parity
of reasoning if Broadmoor has the right to require R to deliver up the manuscript of his book and all copies of it in his possession or control or to prevent
publication of it and needs an injunction to enforce it I can see no reason for denying the requisite jurisdiction to grant it.
51. For these reasons I agree with Lord Woolf MR that this appeal should be dismissed.

WALLER LJ.
52. I gratefully adopt the circumstances in which this appeal has arisen as described in the judgment of Lord Woolf MR. I have also read the
judgment of Morritt LJ. I also agree that this appeal should be dismissed, but as there is not full agreement between Morritt LJ and Lord Woolf MR on
the jurisdiction to grant an injunction, I ought to express my own views on that aspect shortly.
53. First, let me say in agreement with both my lords, that the distress that may be caused to the victim’s family is a matter of great regret and one
hopes that the publishers of the book will think again in any event. But if the authority were entitled to obtain an injunction to restrain publication simply
on the basis of the distress to the family of the victims, then, since I see no distinction between the position of a victim of a patient in Broadmoor from the
position of a prisoner, or for that matter an ex-prisoner from any prison, it would follow that every prison ­ 739 could bring an action to assist victims.
Their statutory powers do not on any view extend so far.
54. Second, let me also say that as regards breaches of the confidence of other inmates, I agree with Lord Woolf MR that it is not within the
authority’s statutory power to protect those. To protect those confidences, proceedings would have to be by or on behalf of those patients.
55. On the important question of the authority’s powers and the circumstances in which it can seek the aid of the court, I respectfully agree with
Lord Woolf MR and would adopt his ultimate formulation which is in these terms.

‘If a public body is given a statutory responsibility which it is required to perform in the public interest, then, in the absence of an implication to
the contrary in the statute, it has standing to apply to the court for an injunction to prevent interference with its performance of its public
responsibilities and the court should grant such an application when “it appears to the court to be just and convenient to do so”.’

56. It seems to me that if someone interferes with the carrying out by a statutory authority of its statutory duty, there should be no reason in principle
why the court should not come to the assistance of the statutory authority, and, if the circumstances make it ‘just and convenient’, grant an injunction.
Thus, for example, if a third party were to set out to frustrate the authority in its treatment of a patient, I can see no reason why the court should not grant
an injunction to prevent that conduct. If a third party attempted to interfere with the discipline at Broadmoor, I would see no reason why the court should
not assist the authority by injunction if necessary. The example of someone sending in letters designed to hinder the treatment of a patient, or to
encourage breaches of discipline, seem to me to be situations where the court might well interfere.
57. Where I think that I differ from Lord Woolf MR and perhaps come nearer to Morritt LJ relates to the facts of the instant case. It seems to me
impossible to categorise the activity of ‘R’ as interfering with the performance of the authority’s public responsibilities. His conduct cannot be said to
have been designed to frustrate his treatment or the treatment of others. Thus it would be my view that the injunction cannot fairly be said to being sought
to prevent interference with the performance of the authority’s public responsibilities, and I would refuse to grant an injunction on that ground alone.
58. If, contrary to what I have said, the only question to consider is whether in the court’s discretion an injunction should be granted, having regard
to the powers that the authority do have to prevent patients within the hospital seeing material, I would, in addition to the points that Lord Woolf MR
makes on discretion, have refused the injunction.
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Appeal dismissed. Permission to appeal to the House of Lords refused.

Kate O’Hanlon Barrister.

[2000] 2 All ER 741

Midland Bank plc v Madden

EMPLOYMENT; Unfair Dismissal

EMPLOYMENT APPEAL TRIBUNAL

LINDSAY J, MR P M SMITH AND PROFESSOR P D WICKENS OBE
17 JANUARY, 7 MARCH 2000

Unfair dismissal – Determination whether dismissal fair or unfair – Dismissal for misconduct – Tests for determining whether employer showing
substantial reason for dismissal and whether dismissal fair response – Employment Rights Act 1996, s 98.

Following an internal investigation and disciplinary hearing, the appellant bank dismissed M for gross misconduct, namely alleged involvement in the
misappropriation of customers’ debit cards. In subsequent proceedings for unfair dismissal brought by M, the employment tribunal concluded that the
investigators had closed their minds to any possibility other than M’s guilt, that the person conducting the disciplinary hearing had accepted the
investigation report uncritically, that accordingly the bank had not carried out a sufficient investigation and that M’s dismissal was therefore unfair. On
the bank’s appeal to the Employment Appeal Tribunal (EAT), issues arose concerning the tests to be applied in misconduct cases to determine whether
the employer had shown a substantial reason for the dismissal for the purposes of s 98(1)a and (2) of the Employment Rights Act 1996 and, if so, whether
dismissal was a fair or unfair response to that reason for the purposes of s 98(4). In particular, the EAT was required to consider whether it was
permissible in such cases for the employment tribunal to substitute its view for that of the employer.
________________________________________
a Section 98, so far as material, provides: ‘(1) In determining … whether the dismissal of an employee is fair or unfair, it is for the employer to show—(a) the reason (or,
if more than one, the principal reason) for the dismissal, and (b) that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as
to justify the dismissal of an employee holding the position which the employee held.
________________________________________

Held – Where an employer dismissed an employee on the ground of misconduct, an employment tribunal was free to substitute its views for that of the
employer in determining each part of the test applicable under s 98(1) and (2) of the 1996 Act, namely whether, at the time, the employer had genuinely
believed that the employee was guilty of misconduct, whether the employer had had reasonable grounds in his mind to sustain such a belief and whether
he had carried out as much investigation into the matter as was reasonable in the circumstance at the stage when he formed that belief on those grounds.
Moreover, although, once that test had been satisfied, a tribunal was not free to substitute its own views for those of the employer as to the reason shown,
it was free to do so in determining, for the purposes of s 98(4), the reasonableness of dismissal as a response to that reason. In determining that question,
the ‘band of reasonable responses’ test remained binding on tribunals and was determinative, but that test should not ­ 741 become one of perversity.
Moreover, in applying that test, the tribunal should always remind itself of the terms of the question posed by s 98(4), namely whether the employer had
acted unreasonably in treating the shown reason as a sufficient reason for dismissing the employee. In the instant case, there was no basis for interfering
with the tribunal’s view that the bank’s investigation had been inadequate. In those circumstances, the bank had not shown a substantial reason for the
dismissal for the purposes of s 98(1) and (2), and accordingly the appeal would be dismissed (see p 750 a to f, p 751 e f, p 752 c d, p 754 f, p 756 a to h, p
757 h and p 758 b c, post).
British Home Stores Ltd v Burchell [1980] ICR 303, Gilham v Kent CC (No 2) [1985] ICR 233 and Haddon v Van den Bergh Foods Ltd [1999] IRLR
672 considered.

Notes
For unfair dismissal in the context of alleged misconduct, see 16 Halsbury’s Laws (4th edn reissue) para 335.
For the Employment Rights Act 1996, s 98, see 16 Halsbury’s Statutes (4th edn) (1997 reissue) 654.

Cases referred to in judgment

Baxter v Limb Group of Companies [1994] IRLR 572, CA.
British Home Stores Ltd v Burchell [1980] ICR 303, EAT.
British Leyland UK Ltd v Swift [1981] IRLR 91, CA.
Gilham v Kent CC (No 2) [1985] ICR 233, CA.
Grootcon (UK) Ltd v Keld [1984] IRLR 302, EAT.
Haddon v Van den Bergh Foods Ltd [1999] IRLR 672, EAT.
Iceland Frozen Foods Ltd v Jones [1983] ICR 17, EAT.
Neale v Hereford and Worcester CC [1986] ICR 471, CA.
Rolls-Royce Ltd v Walpole [1980] IRLR 343, EAT.
Smith v Siddall & Hilton (Springs) Ltd [1997] CA Transcript 738.
Stewart v Cleveland Guest (Engineering) Ltd [1996] ICR 535, EAT.
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Vickers Ltd v Smith [1977] IRLR 11, EAT.

Watling (N C) & Co Ltd v Richardson [1978] ICR 1049, EAT.
Weddel (W) & Co Ltd v Tepper [1980] ICR 286, CA.
Wilson v Ethicon Ltd [2000] IRLR 4, EAT.

Appeal
The defendant, Midland Bank plc, appealed with permission of the Employment Appeal Tribunal given on 27 November 1998 from the decision of an
employment tribunal sitting at London (North) on 17 July 1998 allowing a claim for unfair dismissal brought against the bank by a former employee, Mr J
Madden. The facts are set out in the judgment of the appeal tribunal.

Peter McMaster (instructed by Addleshaw Booth & Co, Leeds) for the bank.
Edward Fitzpatrick (instructed by Procaccini Farrell & Co) for Mr Madden.

Cur adv vult

7 March 2000. The following judgment of the appeal tribunal was delivered.

LINDSAY J.
1. This is the appeal of Midland Bank plc in the matter of Madden v Midland Bank plc. Mr Madden, a lending officer who had worked for the bank
from 1986, ­ 742 was dismissed by the bank on 24 October 1997 because the bank, after an internal investigation and a disciplinary hearing, concluded
that there had been gross misconduct on his part, namely that he had been involved in the misappropriation of three debit cards of customers of the bank,
which cards were subsequently fraudulently used, resulting in a loss to the bank of £2,878ÿ73.
2. On 23 January 1998 Mr Madden lodged his IT1 alleging unfair dismissal. There was a one day hearing before the employment tribunal at
London (North) under the chairmanship of Mr N S Rabin on 16 June 1998. The extended reasons of the tribunal were sent to the parties on 17 July 1998.
The unanimous decision of the tribunal was that Mr Madden had been unfairly dismissed and that he was entitled to a basic award of £1,470 and a
compensatory award of £11,300.
3. The bank’s notice of appeal was dated 25 August 1998. The appeal came before the president of the Employment Appeal Tribunal (EAT),
Morison J, on 27 November 1998. The appeal was permitted to go forward to a full hearing on three points which Mr McMaster, for the bank, neatly
summarises as follows: firstly, that the tribunal substituted its own view for that of the employer; secondly, that, in relation to the investigatory process
that preceded Mr Madden’s dismissal, the tribunal applied too high a standard (a test of proof beyond reasonable doubt) and, thirdly, that the tribunal had
not correctly approached the question of whether the bank had carried out a reasonable investigation.

A. Background
4. The tribunal found that Mr Madden (who appears before us by Mr Fitzpatrick) had been first employed by the bank as a school leaver and that,
over a period of 11 years, he had risen from being a trainee bank clerk to chief cashier, foreign clerk and, eventually, lending clerk. He had an
unblemished record in his years at the bank. He was regarded, so held the tribunal, as a capable and trusted employee. He worked at the Palmers Green
branch of the bank but continued to work one Saturday in four at the Enfield town branch.
5. In their para 4 the tribunal sets out the underlying facts in a manner that cannot be improved on and is not challenged. They say:

‘In June and July 1997 three debit cards were despatched to the Enfield and Palmers Green branches of the Bank to be collected by customers.
For various reasons those cards were not collected by the customers but were fraudulently misappropriated, almost certainly by a bank employee. In
addition, at various dates in July enquiries were made about the status of those three customers’ accounts (which were domiciled at Enfield,
Finsbury Park and Croydon respectively) through the Bank’s internal Nixdorf Computer System. Those enquiries could be accessed by any bank
employee without the need to log in a personal identification but there was no apparent good reason for the enquiries. However the enquiries did
coincide with the fraudulent use of those cards at various retail stores in North London. A Mr Porter first discovered that his cards had been misused
on the 14th July. He notified the Bank and at the Bank’s request he reported the matter to the police. On the 15th July the Bank became aware of a
misuse of the cards of another customer, a Mr Wood, and the Bank wrote to him, on the 15th July, advising him that transactions may have been
debited to his account without his authority. As it happened, Mr Wood was abroad and took no action for the time being. The third customer, a Mr
Clark, spoke to the Bank on the ­ 743 18th July and from the information which they gave him, he realised that his card, too, had been used
without his authority. A total of £2,878ÿ73 had been charged to the three accounts and the Bank eventually reimbursed that amount to its
customers.’

6. The cards had been used at toy and baby-wear shops as well as in other types of shops and supermarkets. The tribunal go on to describe how the
police, having had the matters reported to them, contacted the bank’s police liaison officer, a Mr Barnet, and that Mr Barnet made some inquiries and
informed the police of his conclusions. The tribunal continues:

‘Unfortunately there is no evidence of what Mr Barnet told the police but based on his recommendations the police called at Mr Madden’s home
unannounced at 7.30 am on the 1st September, searched his house and arrested him.’

Mr Madden was interviewed by the police. The tribunal held that a tape had been made of the interview but that by the time Mr Madden had applied to
the police to use it in these proceedings it had already been destroyed. The search, it seems threw up no significant facts; there is no suggestion that
anything that had been bought with the cards was found. Mr Madden was released without being charged then or later. He was called to the bank’s
offices and was interviewed and was told that there had been a misappropriation of three debit cards on the given dates, that inquiries had been made
through the Nixdorf system on certain dates and that, as he was told, on each of these occasions he and he alone had been present at the relevant branch of
the bank. Mr Madden denied any knowledge of the allegations but he was suspended on full pay pending the bank’s further investigations. The bank’s
area manager, Mr Fielder, instructed the bank’s internal investigation branch to carry out an enquiry and make a report.
7. That investigation was conducted by Mr C J Murphy, an investigating officer with Midland Security. He drew up a report dated 7 October 1997
which was signed by him and Mr Overington, deputy head of Midland Security. Mr Fielder, on seeing the report, concluded that there should be a
disciplinary hearing and that took place on 24 October 1997. As we have mentioned, it was convened to consider: ‘A breach of staff regulations … in
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that you have allegedly had involvement in the misappropriation of the three debit cards which were subsequently used fraudulently, resulting in a loss to
the Bank of £2,878ÿ73.’ Mr Fielder had already sent Mr Madden a copy of the investigation report of 7 October and had reminded Mr Madden that the
potential sanctions available included summary dismissal.
8. At the disciplinary hearing Mr Fielder went through the investigation report in detail and invited Mr Madden to comment. Mr Madden said that
he had been ‘set up’, possibly by other employees, although he was unable to indicate anyone whom he suspected of having a grudge against him. As the
tribunal found:

‘Evidence was given that Mr Madden’s financial circumstances were satisfactory. He was married with no children. His wife had a good job at
another bank and he appeared to have no money worries. His bank account did not indicate any sudden increase in wealth. A significant factor was
that while all other employees of the two relevant branches of the bank were interviewed by Mr Murphy or one of his colleagues, the interviews
were only of a routine nature and Mr Fielder could not say that any investigation ­ 744 was made as to the financial or personal affairs of any
other employee. We conclude that no such enquiry was made.’

Mr Fielder eventually reached a conclusion as follows, as the tribunal finds:

‘Having considered all the facts, particularly the contents of the investigation report and your comments, I consider that I have reasonable belief
that you have been involved in the misappropriation of these cards which were subsequently used fraudulently. As a consequence trust has
irretrievably broken down between us. And therefore there is no alternative but to summary (sic) dismiss you from the employment of the bank
with immediate effect. This will be without pay in lieu of notice.’

9. Mr Madden was advised of his right to appeal and exercised that right. At the disciplinary hearing he had been represented by Ms Brenda Kelly
of his union, BIFU, but she was unable to represent him at the appeal hearing. Mr Madden, it seems, fell out with the union official who was to replace
her and, as the tribunal describe it, ‘in view of the things said to him by the Union Official, Mr Madden refused to proceed with the appeal which was
rejected in his absence’.
10. The tribunal directed itself by reference to the well-known case of British Home Stores Ltd v Burchell [1980] ICR 303. We shall return in more
detail below to the three-part test which Burchell’s case suggests to be appropriate in contested misconduct cases. The tribunal, having set out the
Burchell test continued:

‘If the Tribunal is satisfied that the Respondents met the above standards and that the dismissal was a fair sanction then regardless of the
Tribunal’s own views as to the Applicant’s guilt, the dismissal ought to be found fair.’

11. After setting out further submissions the tribunal continued:

‘Having looked [at] all the evidence before us the Tribunal does not consider that a sufficient investigation was carried out by the Bank in all the
circumstances.’

It accordingly held the dismissal to be unfair and quantified the basic and compensatory awards as we have mentioned. There is no appeal as to the
quantification. We now turn to the argument.

B. Haddon
12. A great deal of the argument in this case has been directed to the recent case of Haddon v Van den Bergh Foods Ltd [1999] IRLR 672, a decision
of the EAT under Morison J, President. In the ordinary way we would not comment at length on another case at this level but, whilst we shall not attempt
to collect all comments upon the case, Haddon’s case has been described as ‘controversial’ and as lighting ‘a bonfire of case law’ (see [2000] IRLR 1).
‘It breaks the taboo’ (see [1999] IRLR 669). It has been said to push unfair dismissal cases into the area of palm tree justice (see [1999] 33 Employment
Lawyer 13). It has been described as challenging established guiding principles (see [1999] 34 Employment Lawyer 7). We have been informed by the
Court of Appeal’s listing office that an application for permission to appeal Haddon’s case has been filed. If that permission is refused, that could be,
perhaps, argued, as we shall show, to have been an endorsement only of the decision on its facts. If permission is granted then, given the pressure on the
Court of Appeal, it could be some time before the substantive ­ 745 appeal is ruled on. In those circumstances and with the case being so often
described as controversial in employment law circles, rather than leaving tribunals devoid of any indication of how the case may be regarded ahead of the
decision of the Court of Appeal, we have thought it best to set out our views at some length. Only when we have done that will we return to the particular
case before us, a task with respect to which both sides have argued that a correct understanding of Haddon’s case is necessary. We must look at the case
with some care.
13. To take the facts of Haddon’s case from the EAT decision, the applicant, it seems, had a job of a kind such that it was recognised as
inappropriate for those engaged upon it to have taken alcohol. We say that because it was regarded as relevant to the case that his employer at the
material time had a draft policy that ‘no alcohol would be provided at functions when employees are returning to work’. On the day in question Mr
Haddon was scheduled to work a 2 pm to 10 pm shift but was also required the very same evening to assemble for drinks at 5.15 pm and thereafter to
attend a supper reception until, it was thought, 7.30 pm or so, a reception which was to be provided by the employer to celebrate Mr Haddon’s 15 years of
blameless service. He was told by the employer’s business centre manager a week before the reception that he could leave work early to change clothing
and to collect his spouse but that he would be required to return to work after the ceremony. It does not appear whether the business centre manager had
appreciated that Mr Haddon would be provided with alcohol nor what the manager’s views were or would have been had he understood that the reception
might go beyond 7.30 pm. Mr Haddon later spoke to the shifts operations controller who said it was not normal for people to return to duty because
alcohol was provided before and during the meal. That observation, too, underlines that the nature of Mr Haddon’s job was such that it was not
appropriate to work after taking alcohol. The shifts operations controller told Mr Haddon to take up with the business centre manager the question of
whether he had to return to work after the reception but Mr Haddon failed to do so. Mr Haddon went to the reception. The employer gave him a buffet
supper and free drink. By the time the reception was over only 1 hours of the shift was left. It must therefore have by then been 8.30 pm or so, later than
had earlier been forecast. There is no mention of any finding that Mr Haddon had delayed; it looks as if the event had simply lasted longer than had been
forecast. Mr Haddon did not return to work for the balance of the shift and was dismissed for disobedience.
14. The employment tribunal in Haddon’s case, in their para 16, began: ‘We next had to consider whether the instruction to return was reasonable.’
They held that they could not say that it was unreasonable. However, the reason shown for the dismissal cannot have been merely the giving of a
reasonable instruction but rather, surely, that a reasonable instruction had been given but had been disobeyed. Disobedience supposes, in this context, that
the instruction had still persisted as a reasonable instruction some seven days after it had been given. Mr Haddon had maintained that he had not taken
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seriously the request to return after the ceremony. A crucial question was thus whether Mr Haddon could reasonably take it that the instruction to return
to work no longer persisted as a reasonable instruction in the circumstances as they were, some seven days after it had been given. The new circumstances
were these; although the company (as surely must have been taken to be the case) was aware both that he had earlier been told to work the balance of that
evening shift and that his job was such that it was inappropriate that he should work after taking alcohol, it had ­ 746 none the less plied Mr Haddon
with drink and had engaged him in a ceremony over a period of hours longer than had at first been thought probable. In such new circumstances, was it
not the case that the instruction given seven days before could have been taken to have been either revoked altogether or to have ceased to be a reasonable
one? That question, so far as one can tell, was never addressed by the employment tribunal in Haddon’s case and it is thus hardly surprising that the EAT
allowed the appeal. The case may thus not have required a detailed survey of existing authority. However, that is seldom inappropriate and often salutary
and so, in Haddon’s case, the EAT then set about it.
15. Haddon v Van den Bergh Foods Ltd [1999] IRLR 672 at 676 (para 27) of the EAT’s decision, having observed that the statute is clear and
unambiguous, respectfully suggests that tribunals should now ‘return to the task in hand, which is to apply the section without embellishment, and without
using mantras so favoured by the lawyers in this field’. That seems uncontroversial enough and so we, too, thus first look at the unadorned terms of the
Employment Rights Act 1996.

C. The statute
16. Section 94(1) confirms upon many employees a right not to be unfairly dismissed. If such an employee wishes to assert a breach of that right, he
can complain under s 111(1) to an employment tribunal. The question then becomes whether the grounds of the complaint are well founded—s 112(1);
that section is the gateway to various forms of relief which are available if and only if the employment tribunal finds that the grounds of the complaint are
well founded. The statute plainly requires a decision of the employment tribunal to that effect, (as opposed to one of the employer or of the employee).
One thus reverts to s 98 of the 1996 Act, which is under the headings ‘Fairness’ and ‘General’, with an expectation that there one will find a formulation
which the employment tribunal is to apply to the determination by it of whether the grounds of complaint are well founded.
17. Thus it proves. Broadly, s 98 is concerned with two things; the reason (or principal reason) ‘shown’ for the dismissal and the fairness or
unfairness of such dismissal as a response to that shown reason. The two things are separate although it is often unnecessary closely to examine each.
There are cases where, so long as the alleged reason is adequately shown, it is inescapable but that the dismissal was a reasonable response to it.
Conversely there are cases where no reason is adequately shown or a wrong reason is alleged with the result that the dismissal can only have been unfair.
Thus, for example, in Baxter v Limb Group of Companies [1994] IRLR 572 at 578 (paras 35, 40) the majority view in the Court of Appeal was that whilst
it was not disputed that the decision to dismiss was fair, the reason given for the decision was held to be wrong and the cross appeal, asserting that the
employment tribunal’s view was so demonstrably wrong that there was no point in directing a rehearing, was allowed. In a misconduct case such as the
one before us the difference between the two things—the reason and the response to it—may be said to be loosely reminiscent, so far as concerns the
employment tribunal, of the difference between an appeal against conviction and one against sentence and such separateness is best kept in mind.
18. The first thing that s 98 requires to be done is for there to be established what is the reason (or, if there is more than one, the principal reason) for
the dismissal as ‘shown’ by the employer. In many cases there is no dispute as to the reason and the onus on the employer to ‘show’ it is a hurdle he can
easily clear.
­ 747
In other cases the reason will be disputed especially, perhaps, in alleged misconduct cases where the matter complained of would, if found, involve
dishonesty or where the nature of the misconduct depends on a debatable assessment such as that a worker was too drunk safely to operate his machine.
19. Suppose, for example, a case where an employee is accused of stealing spare parts worth £25 from a bin at the works. What is required by the
word ‘shown’ is not defined in the 1996 Act; it has been left for the courts to ascertain its meaning. It would be too much to require the employer to
show, in the case which we are supposing, that the employee accused had in fact stolen the parts. Even in a criminal trial a conviction would require only
that, on the evidence adduced at the trial, the jury could properly feel sure that the person charged had stolen the parts. Total certainty would be too high
a standard to require of an employer (see W Weddel & Co Ltd v Tepper [1980] ICR 286 at 300). On the other hand, it would plainly be inadequate for it
to suffice for the reasonableness to be ‘shown’ that it should merely have been stated or pleaded or to have been given as the reason under s 92. That
could lead to the dismissal not being judged by reference to a true reason for it but by reference to some untrue but stated reason. Equally, suppose it
were to suffice merely that the employer truly believed the reason he had stated—that the employee had stolen the parts. That could lead to a situation in
which an honest but totally mistaken and unreasonable employer who honestly believed in a reason which no reasonable person could have adopted
would none the less have his actions adjudged by reference to his subjective but entirely unreasonable belief. Given that Parliament did not define what
was required by the word ‘shown’ it cannot have been wrong for the court to suppose that nothing such had been intended by the legislature and it was
thus open to the courts to require, of the ‘showing’ of the reason, some reference to a more objective standard. Accordingly, the familiar Burchell test, to
which we shall return in more detail later, has long since required of the reason, in order for it to be shown within the meaning of the statute, that it should
satisfy not merely a subjective test, in the sense of being honestly believed in by the employer, but that there is also an objective test, to which we shall
return. In consequence, there are cases, such as Grootcon (UK) Ltd v Keld [1984] IRLR 302, a case in the EAT under Lord MacDonald, where it was
held that ‘capability’ on medical grounds was not established as the relevant reason because the employer had had no medical evidence before him. An
alternative reason in that case, that a customer of the employer had required the employee’s dismissal, was also rejected as there was insufficient evidence
to justify a reasonable conclusion to such effect.
20. Thus the word ‘shown’, in reference to the reason or principal reason for the dismissal, thus leads, at any rate in a disputed misconduct case, to a
complex question (as to which the burden is on the employer) which embraces that the reason must have been disclosed or made apparent to the
employee, that it must later have been made clear to the employment tribunal, that it should have been honestly believed by the employer to be the reason
or the principal reason for the dismissal (at any rate by the time the employer acted upon the reason) and, at latest by the time the employer finally formed
the belief and acted upon it, that by then the employer should also have had available to him what, objectively regarded, can be seen by the tribunal to
have been reasonable grounds for that belief. All that might rightly be regarded as a heavy freight to be borne by the simple word ‘shown’ but such a
requirement is not, in our view, in any pejorative sense a gloss upon or a departure from the statute but rather is a reasonable judicial working out of what
meaning the undefined word must have been ­ 748 intended by the legislature to have had in its context. We make no further comments on s 98(1) to
(3).
21. When s 98(4) is come to there emerge what at first sight are two apparently separate questions raised with respect to what, if any, reason or
principal reason has been adequately ‘shown’ within the meaning of the earlier subsections. The two questions are: (i) did the employer act reasonably or
unreasonably in treating that reason as a sufficient reason for dismissing the employee and (ii) was the dismissal fair or unfair having regard to that reason
so shown?
22. Separate provisions are then made in relation to the two apparently separate questions. Thus the former question is to be answered by reference
to ‘the circumstances (including the size and administrative resources of the employer’s undertaking)’. As to the second, it is to be determined ‘in
accordance with equity and the substantial merits of the case’. However, this apparent separateness is completely undone by the requirement that the
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answer to the second question is to ‘depend on’ the answer to the first. The 1996 Act does not in terms say ‘depend and depend only on’ but, were one to
be able to arrive at decisions on the two questions which pointed in different directions, it would be difficult to see how the answer to the latter could then
be said to have depended upon the answer to the former. If, for example, the answer to the former was that the employer had thus acted reasonably, could
it be said that an answer to the latter, that the decision was unfair, had ‘depended’ upon the former? In practice, therefore, the two apparently separate
questions are required, or at least tend, to merge. But, in relation to all this, it is clear that what is required to be considered under s 98(4), in both parts of
the conjoined question, is the reason shown within the meaning of s 98(1). To the extent that s 98(4) examines reason and response—alleged cause and
alleged effect—then in disputed misconduct cases, it is only the principal or only reason which has been adequately ‘shown’ within s 98(1), as we have
explained that requirement, that is to be looked at and tested as the reason for the dismissal.
23. Having thus sought to explore the provisions of the statute, as Haddon’s case has exhorted us to do, we next look to Haddon’s case’s more
controversial components.

D. The tribunal must not substitute its own decision?

24. The first controversial area found in Haddon v Van den Bergh Foods Ltd [1999] IRLR 672 at 676 (para 25) is where the EAT speaks of ‘the
mantra’ that ‘the tribunal must not substitute their own decision for that of the employer’. Haddon’s case does not purport to outlaw all use of that
observation although it must be said that if it is recited only as a meaningless incantation it can only be undesirable. The observation is, in our view, of
particular use in two differing areas.
25. The first is in relation to the determination, pursuant to the test in British Home Stores Ltd v Burchell [1980] ICR 303, of the nature of, the belief
in and the objectively judged adequacy of the principal or only reason alleged by the employer to have been ‘shown’ within s 98(1) and (2) of the 1996
Act. Burchell’s case, looking at the showing of such a reason in a misconduct case says (at 304):

‘What the tribunal have to decide every time is, broadly expressed, whether the employer who discharged the employee on the ground of the
misconduct in question (usually, though not necessarily, dishonest conduct) entertained a reasonable suspicion amounting to a belief in the guilt of
the employee of that misconduct at that time. That is really stating shortly and ­ 749 compendiously what is in fact more than one element. First
of all, there must be established by the employer the fact of that belief; that the employer did believe it. Secondly, that the employer had in his mind
reasonable grounds upon which to sustain that belief. And thirdly, we think, that the employer, at the stage at which he formed that belief on those
grounds, at any rate at the final stage at which he formed that belief on those grounds, had carried out as much investigation into the matter as was
reasonable in all the circumstances …’

26. That test was described in W Weddel & Co Ltd v Tepper [1980] ICR 286 at 302 by Cumming-Bruce LJ as most useful guidance. Stephenson LJ
(at 296) found ‘great assistance’ in it and it has been employed countless times since. It does not require the tribunal unquestioningly to accept the
employer’s alleged reason; on the contrary each of the three parts of the test requires an evaluation of the relevant evidence by the tribunal and in each
case that is an evaluation which can, on proper evidence, conclude contrary to the employer’s assertions. In that sense a tribunal addressing s 98(1) and
(2), is thus free to substitute its own views for those of the employer. When Arnold J in Burchell’s case continued, immediately after the citation above
‘It is the employer who manages to discharge the onus of demonstrating those three matters, we think, who must not be examined further’ all that he had
been thus far addressing was the nature, belief in and objectively judged adequacy of the grounds for the reason alleged to be shown for the dismissal. It
was, so to speak, a s 98(1) and (2) question that was then being addressed. The topic upon which an employer, having satisfied Burchell, is not to be
examined further is thus what was his reason for the dismissal and is not whether the employer acted reasonably in treating that reason as a sufficient
reason for the dismissal; that latter is a s 98(4) question which the part of Burchell’s case cited above does not deal with. To suppose that the EAT under
Arnold J had regarded the passing of that three-part test as equivalent to satisfying s 98(4) as well as s 98(1) and (2) would require one to assume that he
and the members sitting with him had entirely overlooked the reference, in the Trade Union and Labour Relations Act 1974 Sch 1, para 6(8), to ‘equity
and the substantial merits of the case’ and to the fact, as then was the case, that the onus, in the then equivalent of s 98(4) of the 1996 Act, was on the
employer. We suppose nothing of the kind.
27. The reason why an employer who, as to his alleged reason for dismissal, has survived the Burchell test, is not to be questioned further is that to
do so, in relation to that reason would be likely to lead to an employment tribunal ruling, not, as is required by the 1996 Act, on whether the shown reason
represented a sufficient reason for the dismissal but on whether such a different reason as might have emerged from the further questioning was a
sufficient reason. Nothing in Haddon’s case precludes the ability of an employment tribunal to remind itself, in such cases, that it is not part of its job to
assess what it would have thought was the reason for the dismissal once the reason alleged has survived the three-part Burchell test as the sole or principal
reason shown for the purposes of s 98(1) and (2). If, to flesh out that notion in less abstract terms, an employer’s given reason for the complainant’s
dismissal is his belief, at the time of the dismissal and on the evidence by then adduced, that the complainant had stolen parts worth £25 from a bin at the
works, then, if that belief survives the Burchell test, it matters not that the employment tribunal members themselves would not, on that evidence, have
believed that the complainant had so stolen the parts or would have thought ­ 750 they were worth only £2 or were worth £100. It has always been, and
continues to be, appropriate for an employment tribunal to remind itself that in relation to a reason so shown it is not to substitute its own view for that of
the employer and, as we have said, we do not take Haddon’s case to say otherwise.
28. The other case where such a reminder can be appropriate is the common case in which things appear very different, by the time they are
addressed at the employment tribunal, to their appearance at earlier investigation and disciplinary stages. By that later tribunal stage further inquiries may
have been made and fresh resources applied to the questions arising and fresh advisers and advocates will often have addressed the questions arising in
connection with the dismissal. Events post-dismissal are likely to be spoken to in the evidence at the tribunal. There may be other factors which a
tribunal, dealing with a matter months after the dismissal, may, but for the reminder in question, inadvertently take into account. For example, that the
police, after studying the facts, have elected not to prosecute or that there have later emerged reasons to believe that the misconduct in question was by
someone other than the complainant. Other examples would be where a witness whose evidence was regarded as crucial at the disciplinary stage later
declines to give, and has not been required to give, evidence to the tribunal or where a witness, uncompellable at the disciplinary stage, is compelled to
give evidence to the tribunal. In all such cases the observation that the tribunal is not to substitute its own view of the reason which has passed the
Burchell test for that of the employer can be salutary.
29. However, this is far from saying that the observation that the tribunal must not substitute its views for those of the employer is in any way
appropriate when the tribunal turns to s 98(4) and thus turns to look not at the nature of the reason shown but rather to the reasonableness of the
employer’s response to it. The view of an employer, however honestly believed in, that he acted reasonably in treating the shown reason as a sufficient
reason for dismissing the employee is not determinative of the questions arising under s 98(4) and does not in any way preclude a holding by the
employment tribunal either that the employer acted unreasonably in treating that shown reason as a sufficient reason for the dismissal or the dependent
issue of whether the dismissal was unfair. We do not understand any authority to say otherwise in relation to the questions arising under s 98(4) and it is
in our view impossible to quarrel with Haddon’s conclusion, that, so far as concerns that subsection and the employment tribunal: ‘Providing they apply
the test of reasonableness, it is their duty both to determine their own judgment and to substitute where appropriate.’ (See [1999] IRLR 672 at 676 (para
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25).)
30. Equally we can agree with the judgment in the EAT in Wilson v Ethicon Ltd [2000] IRLR 4 at 5 (para 6) where, in relation to s 98(4), Lord
Johnston, approving Haddon’s case, says:

‘What, in our opinion, the tribunal in question has to do is to stand back from the decision of the employer and assess in the knowledge of what
was known to him at the time, whether or not the dismissal was in the circumstances reasonable.’

The EAT was there examining a case in which the tribunal below had looked into the reason shown by the employer—the s 98(1) and (2) question—and,
in particular, the third limb of the Burchell test—but had failed ‘properly to address the whole question of reasonableness, as opposed to reasonable
investigation’. In other words, the employment tribunal in Wilson’s case had never turned to s 98(4). ­ 751 31. Although s 98(1) and (2) and the
concern as to the shown reason for the dismissal is logically separable from s 98(4) rather as is the propriety of a criminal conviction separable from the
appropriateness of the sentence or as are cause and effect, we would have to concede they often fail to be separated. It is desirable that they should be
kept separate but it can, in disputed misconduct cases, often be of no significance to the practical outcome of a case by an employment tribunal if they are
not. An objective consideration of reasonableness by the tribunal plays a part, as we have shown, in the second and third stages of the Burchell test for the
purposes of considering the shown reason under s 98(1) and (2) as well as in the later s 98(4) questions. It will, for example, often be of no importance to
the outcome to know whether the employer failed at the s 98(1) and (2) stage for want, in the tribunal’s judgment, of, say, reasonableness in the grounds
for the employer’s belief in the alleged misconduct or failed for want, again in the tribunal’s judgment, of the reasonableness of dismissal as a response to
that reason at the s 98(4) stage. That the outcome may not be affected by running the two together no doubt explains the frequent failure to separate, so to
speak, cause and effect, conviction and sentence. However, in disputed misconduct cases, so long as a tribunal is careful not to enquire further into the
alleged reason shown once, as to that reason, the Burchell test has been satisfied, so far from disapproving of an objective consideration of reasonableness
in the course of which a tribunal may substitute its views for those of the employer, we would wish such consideration to have occurred not once but
twice over, at the two stages, preferably kept separate, which we have described.

E. The band of reasonable responses

32. The next area of controversy in Haddon v Van den Bergh Foods Ltd [1999] IRLR 672 at 676 (para 26) grows out of the comment that: ‘The
mantra “the band or range of reasonable responses” is not helpful because it has led tribunals into applying what amounts to a perversity test …’ As to
that we make three initial observations. Firstly, no ‘mantra’, as such, can be helpful. Nothing further need be said as to that. But, secondly, in the light
of the doctrine of precedent, it is not, in our view, within the province of the EAT, but only of some higher court, to outlaw reference to the band. Indeed,
when, Haddon’s case says (at 676 (para 32)) ‘To dismiss this man in these circumstances is clearly contrary to the actions of a reasonable employer’ it
could be that the band test was even there being used as a guide. However, thirdly, it is plainly right to caution against the phrase leading to too stringent
a test. We will develop these second and third points.
33. As to the use of the phrase, without our spending time on the archaeology of the law, it can be seen even from the cases cited in Haddon’s case
itself that reference to ‘a range of responses’ or to ‘a range of reasonable responses’ goes back at least as far as to the decision of the EAT under May J in
Rolls-Royce Ltd v Walpole [1980] IRLR 343. Even earlier, in 1978, the EAT’s judgment delivered by Phillips J in N C Watling & Co Ltd v Richardson
[1978] ICR 1049 at 1056 had said: ‘It has to be recognised that there are circumstances where more than one course of action may be reasonable.’
34. The notion was used again in 1981 in the Court of Appeal in British Leyland UK Ltd v Swift [1981] IRLR 91 at 93 (para 11) where, Lord
Denning MR said:
‘The correct test is: Was it reasonable for the employers to dismiss him? If no reasonable employer would have dismissed him, then the
dismissal was unfair. But if a reasonable employer might reasonably have dismissed him, ­ 752 then the dismissal was fair. It must be
remembered that in all these cases there is a band of reasonableness, within which one employer might reasonably take one view: another quite
reasonably take a different view. One would quite reasonably dismiss the man. The other would quite reasonably keep him on. Both views may be
quite reasonable. If it was quite reasonable to dismiss him, then the dismissal must be upheld as fair: even though some other employers may not
have dismissed him.’

Ackner LJ (at 93 (para 16)) spoke in the same case, of there being, generally speaking, a number of options which an employer can reasonably take.
There was, therefore, at least a majority in favour of a reference to a band of reasonable responses. Griffiths LJ agreed with the reasoning of both Lord
Denning MR and of Ackner LJ; he said nothing by way of disapproval of reference to such a band. Then, in 1983, there was further endorsement of the
band in Iceland Frozen Foods Ltd v Jones [1983] ICR 17 at 24–25 when, in the course of an analysis frequently since adopted, the EAT under
Browne-Wilkinson J said:

‘... (4) in many, though not all, cases there is a band of reasonable responses to the employee’s conduct within which one employer might
reasonably take one view, another quite reasonably take another; (5) the function of the industrial tribunal, as an industrial jury, is to determine
whether in the particular circumstances of each case the decision to dismiss the employee fell within the band of reasonable responses which a
reasonable employer might have adopted. If the dismissal falls within the band the dismissal is fair: if the dismissal falls outside the band it is
unfair.’

35. In Haddon v Van den Bergh Foods Ltd [1999] IRLR 672 at 676 (para 27) the conclusion reached, as a comment upon such an approach, was: ‘In
our view the approach taken in Gilham (Gilham v Kent CC (No 2) [1985] ICR 233) is to be followed.’ We accept that Gilham’s case is to be followed but
there is nothing, in our view, in Gilham’s case, express or implied, which disapproves of reference, in an appropriate case, to a band of reasonable
responses. In Gilham’s case Griffiths LJ (at 243) held that: ‘… a tribunal in applying the section must not ask themselves what they would have done, but
must ask themselves how a reasonable employer would have acted.’ If the answer to that question is, as in some cases it can be, that a reasonable
employer in the predicated circumstances and looking, as the section requires, to the circumstances (including the size and administrative resources of his
undertaking) could, as a reasonable response to the ‘shown’ reason, have responded in any one of a number of ways, one of which was the dismissal of
the employee, there is nothing in Griffiths LJ’s judgment which suggests that such a dismissal would not have had to be held to be fair. Equally, when, in
the same case, Dillon LJ (at 244) described the appropriate question for the employment tribunal as ‘In all the circumstances, did the employer act
reasonably or unreasonably in treating the reason in the particular case as a sufficient reason for dismissing the employee’ that dictum does nothing to
disapprove of reference to a band of reasonable responses. Indeed, as, by the time of Gilham’s case in 1985, the reference to a band or range of
reasonable responses was at least five years old, was in frequent use and had already been specifically mentioned in the Court of Appeal, one might
reasonably expect that the Court of Appeal in Gilham’s case, if meaning to disapprove of its use, would have said so in terms, which was not the case.
­ 753 36. Further, in Neale v Hereford and Worcester CC [1986] ICR 471 at 481, in which Gilham’s case was referred to, the reference by employment
tribunals to a band of reasonable responses as Browne-Wilkinson J had expressed it in Iceland Frozen Foods Ltd v Jones (including the last sentence in
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our citation from it) was expressly approved by May LJ. Ralph Gibson LJ (at 484) agreed with May LJ’s reasoning and his conclusion. Stocker LJ (at
488), commenting that the employment tribunal below had there directed itself in terms virtually identical to those used by Browne-Wilkinson J in
Iceland Frozen Foods Ltd v Jones, plainly did so by way of approval of those terms. Both he and May LJ referred to Gilham’s case but not in terms of
there being any conflict between it and Iceland Frozen Foods Ltd v Jones or British Leyland UK Ltd v Swift or between it and their judgments in Neale’s
case itself. We have to accept that Iceland Frozen Foods Ltd v Jones was approved at Court of Appeal level and, with it, the dictum that if a dismissal
falls within the band it is fair, if outside the band, it is unfair. The reason, we would suggest, why the Court of Appeal in Neale’s case did not address the
influence of Gilham’s case upon Iceland Frozen Foods Ltd v Jones (as is noted in Haddon’s case to be the case) was that there was not seen to be any
conflict between them.
37. No case in the Court of Appeal later than Neale’s case was cited in Haddon’s case or has been cited to us. After the hearing before us had
ended, the argument and judgment in Smith v Siddall & Hilton (Springs) Ltd [1997] CA Transcript 738 have both come to our notice. That was an
application for leave to appeal. Although little weight is ordinarily to be attached to decisions of such a kind it is to be noted that the argument in support
of leave being granted advanced by Mr Langstaff QC included that the range of reasonable responses test was arguably wrong in law. Waite LJ, with
whom Potter LJ agreed, held that the cases came nowhere near establishing a conflict of judicial authority such as would cause difficulties to employment
tribunals applying the section, nor was such as to require clarification in the Court of Appeal. Waite LJ described the ‘reasonable responses formula’ as
‘hallowed by daily use in tribunals down the years’.
38. Given this history we think it is not open to any court short of the Court of Appeal to deny reference to ‘the band of reasonable responses’, not
only as a guide but, as it is expressed to be, as a determinative test.
39. That is not to say, though, that its use is free from risk. As already cited, as early as in N C Watling & Co Ltd v Richardson [1978] ICR 1049 at
1056 it was seen that, although there was logical force in the raising of such a question as ‘has the employer acted in a way in which no reasonable
employer would have acted?’, such a question ‘so stated, without understanding the background … can, particularly to laymen, seem to suggest an
inordinately high standard’. For our part, we find it difficult to distinguish in logic between that question and the question ‘has the employer responded in
a way outside the band of reasonable responses which a reasonable employer might have adopted?’ The Watling case was there commenting on an
argument that the majority view in Vickers Ltd v Smith [1977] IRLR 11 had led to the proposition that no employee could succeed unless the employment
tribunal in question was satisfied that no reasonable management could have arrived at the decision at which the management had in fact arrived. In
Vickers Ltd v Smith the judgment delivered by Cumming-Bruce J (as he then was) included (at 12 (para 2)), as the majority view that:

‘The first way in which we hold that the decision was unsatisfactory is that in our view the [employment] Tribunal have fallen into error … in
failing to appreciate that not only was it necessary to arrive at the conclusion that the ­ 754 decision of the management [the selection of the
applicant for redundancy] was wrong, but that it was necessary to go a stage further … and to ask themselves the question whether it was so wrong,
that no sensible or reasonable management could have arrived at the decision at which the management arrived …’
The Watling case commented that Vickers Ltd v Smith, properly understood, did not justify the submissions often made in reliance upon it. In Iceland
Frozen Foods Ltd v Jones [1983] ICR 17 the EAT again cautioned against transmuting the band of reasonable responses into a perversity argument.
Browne-Wilkinson J said (at 25):
‘Although the statement of principle in [Vickers Ltd v Smith] is entirely accurate in law, for the reasons given in [Watling] we think industrial
tribunals would do well not to direct themselves by reference to it. The statement in [Vickers Ltd v Smith] is capable of being misunderstood so as to
require such a high degree of unreasonableness to be shown that nothing short of a perverse decision to dismiss can be held to be unfair within the
section. That is how the industrial tribunal in the present case seems to have read [Vickers Ltd v Smith]. That is not the law.’
The EAT then continued in Iceland Frozen Foods Ltd v Jones that: ‘The question in each case is whether the [employment] tribunal considers the
employer’s conduct to fall within the band of reasonable responses …’
40. There is no reason to suppose that the approval given to Iceland Frozen Foods Ltd v Jones by the Court of Appeal in Neale’s case stopped short
of approval of the warning against perversity. As it seems to us, there is a logical difficulty here. Unfortunately, neither the Watling case nor Iceland
Frozen Foods Ltd v Jones explains what is the mistake which is involved in seeing the band test as leading to a perversity argument. Nor does either
explain how it could be that Vickers Ltd v Smith could be other than wrong in law if the test which it described is wrong. There could, of course, be a
quibble as to the meaning of perversity; how far does ‘No reasonable management could have arrived at this decision’ differ from, for example, a familiar
description of perversity—‘That decision offends reason’? (See also the collection of definitions of perversity in Stewart v Cleveland Guest
(Engineering) Ltd [1996] ICR 535 at 542–543.) For our part, we see it as inevitably to follow, if ‘the band of reasonable responses’ test is, without further
consideration and on its own, to be regarded as determinative, that the test would be likely to become one of perversity or something remarkably close to
it.
41. Thus precedent may be argued simultaneously to suggest that tribunals should refer to the band test as determinative and yet that tribunals
should decline to accept what is, in our view, its logical consequence, at all events if it is taken to be the only test. However, we remind ourselves that the
seminal authority describing the band as determinative—Iceland Frozen Foods Ltd v Jones—plainly did not intend that it should lead to a position in
which nothing short of a perverse decision could be held to be unfair. We must notice, too, the Watling case’s cautioning against too high a standard and
Gilham’s case requirement that the tribunal should ask in every case whether the employer acted reasonably or unreasonably in treating the reason in the
particular case as a sufficient reason for dismissing the employee. Whatever the position in logic, one has to accept that this is not algebra and that words
can have been intended to have an effect short of that which the strictest reading of them could lead to.
­ 755
Here the precedents plainly show that the band test has always been intended not to lead to one of perversity. We are not free, as we see it, to
discard the band but until the Court of Appeal deals with the problem the least violence to precedent will be caused, and the circle most nearly squared, if
the band continues to be used as a test but not as, of itself, invariably determinative. The unintended consequence of the test becoming one of perversity
will be avoided if, whenever the logic of an argument which an employment tribunal receives as to the band of reasonable responses comes close to
amounting to an assertion that no reasonable management could have held the dismissal to have been a fair or unfair response to the reason shown, and
that that, of itself, suffices to make the dismissal fair or unfair, the tribunal pauses to remind itself of the statute.
42. Under the 1996 Act the ultimate test is not whether the decision to dismiss was within or without the band or was or was not perverse (in the
sense that no reasonable management could have arrived at it) but is the statutory one of whether, upon the broad approach enjoined by s 98(4)(b) of the
1996 Act and in the circumstances referred to in s 98(4)(a), the employer had acted unreasonably in treating the shown reason as a sufficient reason for
dismissing the employee.

F. A summary as to misconduct cases

43. It will have been seen that in our view, Haddon’s case, represents no ‘bonfire of case law’. To summarise our response to criticism of it in
relation to disputed misconduct cases. (1) A tribunal is, as Haddon’s case suggests, free to substitute its own views for those of the employer in coming to
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a view on each of the three parts of the Burchell test—see para 26 above. (2) A tribunal is not free to substitute its views for those of the employer as to
the reason shown by the employer for the dismissal once that reason has survived the Burchell test—para 27 above. Haddon’s case does not suggest
otherwise. (3) It can be prudent for a tribunal to remind itself not to substitute its own views for those of the employer as a guard against its judging the
situation by reference to a state of things unknown to the employer at the relevant dismissal stage—para 28 above. Again, Haddon’s case does not
suggest otherwise. (4) A tribunal is, as Haddon’s case suggests, free to substitute its own views for those of the employer as to the reasonableness of
dismissal as a response to the reason shown for it—paras 29 to 31 above. (5) No court short of the Court of Appeal can discard the band of reasonable
responses test as a determinative test—paras 33 to 38 above—but Haddon’s case is right, as have been earlier cases—paras 39 to 40 above—to point to
the danger of the band test leading to one of perversity. (6) Given that within the authorities which lead to the band test binding us is the clear
requirement, whether strictly logical or not, that it should not become one of perversity, the least violence to existing precedent is caused if the test,
although a determinative one, should, until the Court of Appeal rules on the problem, always be accompanied by a reminder, as Haddon’s case suggests,
of the terms of the questions which s 98(4) poses—paras 41 and 42 above.

G. The tribunals decision

44. We return to Mr Madden’s case. There are criticisms by the tribunal of the bank’s investigation and disciplinary process in this case which we
would not, for our part, have raised and to which Mr McMaster draws our attention. Thus the tribunal complained that there had been no investigation as
to the personal and financial affairs of members of staff other than Mr Madden. However, it is never easy for an employer to make such inquiries without
their being regarded as offensive and prying and, in any event, it may be doubted whether such inquiries ­ 756 could have been even close to
conclusive. The thief could be expected to have taken steps to have covered his or her tracks. It is important that tribunals should recognise the
difficulties which, even in substantial companies, surround disciplinary investigations and they should be careful not to set too high a standard for the
implementation of the third limb of the Burchell test, the carrying out of as much investigation as was reasonable in all the circumstances.
45. Nor was the failure of the bank to enquire into the nature of the goods bought with the stolen cards of any real significance, given that a thief of
a card is likely, or at least able, to sell it on to a third party; the fact that the goods purchased were not of a kind either found at Mr Madden’s house or
such as he might have been expected to buy thus had little probative value.
46. The tribunal heard oral evidence from Mr Fielder, the area manager who had received Mr Murphy’s investigation report and who also chaired
the disciplinary hearing. We do not have notes of Mr Fielder’s evidence. The tribunal was not satisfied that Mr Fielder took account of the fact that a
man in Mr Madden’s financial and career position would surely not have jeopardised all that ‘for such a relatively paltry theft’. The point is in part
illogical because if Mr Madden had been the thief and had sold the cards to a third party then whether the purchases were paltry or not would not, at first
sight, have been a matter within his control. Moreover, the tribunal’s view that it had been apparent to Mr Fielder that Mr Madden ‘could not have been
operating alone since the misconduct with which he was charged was that he had been involved in the misappropriation’ (my emphasis) is, in our view, a
startling non sequitur. It is thus easy enough to pick holes in the detail of the tribunal’s criticism of the bank’s investigation but, despite that, there are
clear findings by the tribunal which heard the evidence that the whole tenor of Mr Murphy’s investigation was to point to Mr Madden as the likely culprit,
that Mr Fielder had been content to accept the investigation report uncritically, that the investigators had closed their minds to any possibility other than
that of Mr Madden’s guilt and that Mr Fielder had accepted the investigators’ conclusion too readily. We have no material enabling us to hold that those
conclusions represent any error of law.
47. In internal disciplinary investigations and hearings it is a very familiar and often inevitable feature that one does not have anything approaching
the separation between persons and functions that is expected of the investigating detectives, prosecuting counsel, the judge and the jury in a criminal
case. But that makes it all the more important a requirement that those in the processes should at least approach their tasks with an open mind. To require
that is not, in our view, to require too high a standard nor an impracticable one.
48. If, as we must, we accept the tribunal’s conclusion, after hearing the evidence, that the investigators had closed their minds to any possibility
other than Mr Madden’s guilt and that Mr Fielder had accepted their conclusion too readily then we see nothing powerful enough to displace the
tribunal’s view that a sufficient investigation was not carried out. The third limb of the Burchell test, as to which the tribunal had correctly directed itself,
was thus not satisfied. The tribunal’s view that the investigation was inadequate represented, of course, a substitution of its view for the (presumed) view
of the bank that there had been a fully reasonable investigation. However, for the reasons given in our discussion of Haddon’s case, we take the view
that, on each of the limbs of the Burchell test, a tribunal, when the evidence in a misconduct case so entitles it, may come to a conclusion different to that
of the employer. We thus see no error of law in the substitution complained of. ­ 757 49. Nor can it be said that the tribunal’s own language indicates
that it set too high a standard for the reasonableness of the investigatory or disciplinary stages. The tribunal said: ‘In our view the facts of the case should
have produced more than reasonable doubt in Mr Fielder’s mind and it was not reasonable for him to come to the conclusion which he did.’ In context
that did not show that the tribunal set the test of reasonableness, on the facts of this case, too high but, rather, that, the test, in the tribunal’s view, was
very obviously not satisfied.

H. Conclusion
50. By reason of the Burchell test being failed, there was no substantial reason shown for the dismissal within the intendment of s 98(1) and (2).
The tribunal’s conclusion that the dismissal was accordingly unfair involves, in our view, no error of law. We have now dealt, we believe, with all the
principal points raised by the bank. We must dismiss the appeal.

Appeal dismissed.

Ian Murphie Barrister.

[2000] 2 All ER 759

Director General of Fair Trading v First National Bank plc

CONSUMER; Consumer credit

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COURT OF APPEAL, CIVIL DIVISION

PETER GIBSON, WALLER AND BUXTON LJJ
20 JANUARY, 3 FEBRUARY 2000

Consumer credit – Agreement – Form and content of agreement – Standard form agreement – Unfair terms – Good faith – Bank including clause making
interest payable on outstanding moneys after discharge of payments under court order – Whether clause core term of agreement – Whether provisions of
clause unfair – Unfair Terms in Consumer Contracts Regulations 1994, regs 3(2), 4.

Contract – Unfair terms – Clause making interest payable on outstanding moneys after discharge of payments under court order – Whether provisions of
clause unfair – Unfair Terms in Consumer Contract Regulations 1994, regs 3(2), 4.

A bank, licensed by the Director General of Fair Trading under the Consumer Credit Act 1974 to carry on consumer credit business, lent money under a
standard form agreement. Condition 8 of the agreement provided that on default of an instalment, the bank would be entitled to demand repayment of the
outstanding balance together with accrued interest. Where default occurred, additional interest on the amount that became payable would be charged at
the contractual rate until payment, after and before any judgment. The Director General alleged that the provision in condition 8 for additional interest
was unfair within the meaning of the Unfair Terms in Consumer Contracts Regulations 1994, which implemented Council Directive (EEC) 93/13. The
Director General applied for an injunction against the bank, but that application was dismissed. On the Director General’s appeal, the bank contended that
the relevant term was a ‘core term’ of the agreement and so, by virtue of reg 3(2)a of the 1994 regulations, did not fall to be assessed as to its fairness, and
that, in any event, the term was not unfair within the meaning of reg 4b.
________________________________________
a Regulation 3(2) is set out at p 764 b, post
b Regulation 4 is set out at p 764 d to f, post
________________________________________

Held – The appeal would be allowed for the following reasons—

(1) The test for whether a term fell to be assessed for fairness under the 1994 regulations was not whether it was a ‘core term’ but whether it fell
within one or both of paras (a) and (b) of reg 3(2). Neither paragraph was apt to cover the relevant term, which did not define the main subject matter of
the contract and which could not realistically be said to concern the adequacy of remuneration, relating as it did to a case where a borrower was in default
and then merely providing for the continuation of the contractual rate of interest after judgment. If the bank’s submission was correct, almost any
provision containing any part of the bargain would be capable of falling within reg 3(2), and there was nothing in the directive that required such a wide
interpretation (see p 768 e to g, post).
(2) The element of ‘good faith’ within reg 4 sought to promote fair and open dealing, and to prevent unfair surprise and the absence of real choice. A
term to ­ 759 which the consumer’s attention was not specifically drawn but which might operate to his disadvantage and in a way which the consumer
might reasonably not expect could offend the requirement of good faith. In the instant case, the relevant term caused unfair surprise and as such did not
satisfy the test of good faith (see p 769 d e and p 770 e to g, post).
Decision of Evans-Lombe J [2000] 1 All ER 240 reversed.

Notes
For unfair terms in consumer contracts, see 9(1) Halsbury’s Laws (4th edn reissue) paras 790–796.
As from 1 October 1999, the Unfair Terms in Consumer Contracts Regulations 1994, SI 1994/3159, were revoked and replaced by the Unfair Terms
in Consumer Contracts Regulations 1999, SI 1999/2083.

Cases referred to in judgment

Bank of Scotland v Davis 1982 SLT 20, Ct of Sess.
Ealing London BC v EI Isaac [1980] 2 All ER 548, [1980] 1 WLR 932, CA.
Economic Life Assurance Society v Usborne [1902] AC 147, HL.
Forward Trust Ltd v Whymark [1989] 3 All ER 915, [1990] 2 QB 670, [1989] 3 WLR 1229, CA.
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348, [1989] QB 433, [1988] 2 WLR 615, CA.
Sneyd, Re, ex p Fewings (1883) 25 Ch D 338.
Southern and District Finance plc v Barnes [1996] 1 FCR 679, CA.

Appeal
The Director General of Fair Trading appealed with permission of Evans-Lombe J from his decision ([2000] 1 All ER 240, [2000] 1 WLR 98) on 30 July
1999 whereby he refused to grant an injunction against First National Bank plc pursuant to reg 8(2) of the Unfair Terms in Consumer Contracts
Regulations 1994. The facts are set out in the judgment of the court.

Ross Cranston QC, S-G, Jonathan Crow and John McCaughran (instructed by the Treasury Solicitor) for the Director General.
Lord Goodhart QC and Frederick Philpott (instructed by Davis & Co, Harrow) for the bank.

Cur adv vult

3 February 2000. The following judgment of the court was delivered.

PETER GIBSON LJ.

1. The Director General of Fair Trading appeals with the leave of Evans-Lombe J from the judge’s order of 30 July 1999 ([2000] 1 All ER 240,
[2000] 1 WLR 98) refusing the Director General the injunction which he had sought against First National Bank plc (the bank) pursuant to reg 8(2) of the
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Unfair Terms in Consumer Contracts Regulations 1994, SI 1994/3159. The Director General alleged that a contractual term included in the standard
conditions of business on which the bank provides credit to consumers was unfair within the meaning of the regulations. The case is of some general
interest. It is the first case to have come to the High Court and the Court of Appeal on the regulations. It is the first ­ 760 time that the Director
General has come to court to seek an injunction preventing the use of a term said to be unfair.
2. The bank is licensed by the Director General under the Consumer Credit Act 1974 to carry on consumer credit business. By 1995 the bank, which
that year became a subsidiary of Abbey National plc, was the largest independent provider of consumer finance and the largest provider of home loan
improvement finance in the UK. It lends money to borrowers under credit agreements regulated under the 1974 Act. Its standard form of agreement
contains a ‘Customer Declaration’ in which the customer declares that the conditions set out on the back of the form have been carefully read and that the
customer is satisfied with the terms and conditions. He is told that it is a regulated credit agreement and that he should sign it only if he wants to be
legally bound by its terms. It provides for monthly repayments and in para D of a schedule on the front of the form the rate of interest per month is
specified. But the customer is advised that the rate is variable in the event of change in the bank’s base lending rate and he is directed to condition 4
which sets out the details of how the interest is calculated and how changes in the rate affect the monthly instalments. Condition 8 is in this form:

‘Time is of the essence for making all repayments to [the bank] as they fall due. If any repayment instalment is unpaid for more than 7 days
after it became due, [the bank] may serve a notice on the Customer requiring payment before a specified date not less than 7 days later. If the
repayment instalment is not paid in full by that date, [the bank] will be entitled to demand payment of the balance on the Customer’s account and
interest then outstanding together with all reasonable legal and other costs charges and expenses claimed or incurred by [the bank] in trying to
obtain the repayment of the unpaid instalment of such balance and interest. Interest on the amount which becomes payable shall be charged in
accordance with Condition 4, at the rate stated in Paragraph D overleaf (subject to variation) until payment after as well as before any judgement
(such obligation to be independent of and not to merge with the judgement).’

It is the last sentence of that condition (the relevant term) to which objection is taken by the Director General.
3. The customer is told, by a section headed ‘IMPORTANT—YOU SHOULD READ THIS CAREFULLY … YOUR RIGHTS’, that the 1974 Act
covers the agreement and gives the consumer a number of rights, some of which are specified. Attention is not specifically drawn to the relevant term.
4. The effect of an agreement incorporating the relevant term is that where the bank obtains judgment against a borrower, interest is payable by the
borrower at the contractual rate on the outstanding principal plus accrued interest unpaid at the date of judgment until the judgment is discharged by
payment. Such an agreement is known as a simple rate agreement, in contrast to an agreement where the default provisions accelerate payment of the
whole of the unpaid instalments including interest, the latter agreement being known as a flat rate agreement. By ss 94 and 95 of the 1974 Act flat rate
agreements are subject to a statutory rebate on any settlement.
5. There are certain other provisions of the 1974 Act to which we should refer. By s 93 interest under a regulated agreement is not to be increased on
default. By s 129 the court (and by s 141 the county court is the court in which ­ 761 proceedings to enforce a regulated agreement must be brought) is
empowered to make time orders defined in s 129(2) as follows:

‘A time order shall provide for one or both of the following, as the court considers just—(a) the payment by the debtor or hirer or any surety of
any sum owed under a regulated agreement or a security by such instalments, payable at such times, as the court, having regard to the means of the
debtor or hirer and any surety, considers reasonable; (b) the remedying by the debtor or hirer of any breach of a regulated agreement (other than
non-payment of money) within such period as the court may specify.’

Among other powers given to the court is one to include in its order such provision as it considers just for amending any agreement or security in
consequence of a term of the order (s 136).
6. If the court finds a credit bargain extortionate, and it may so find if, for example, the bargain grossly contravenes ordinary principles of fair
dealing, the court may reopen the credit agreement to do justice between the parties (s 137). In the present case the Director General does not suggest that
the bank’s agreements fall foul of s 137.
7. We must also refer to the County Courts Act 1984. By s 71(1) where a judgment is given or an order made by a county court under which a sum
of money of any amount is payable, the court may order the money to be paid in one sum or by such instalments payable at such times as the court may
fix. The 1984 Act contains no power, consequent on an order under s 71(1) for payment by instalments, which corresponds to s 136 of the 1974 Act.
Section 74 of the 1984 Act confers on the Lord Chancellor power with the concurrence of the Treasury by order to make provision for payment of interest
on sums payable under county court judgments. The Lord Chancellor has made the County Courts (Interest on Judgment Debts) Order 1991, SI
1991/1184, thereby causing interest to become payable on county court judgments for the first time. By reg 2(1) every county court judgment debt of a
sum of money not less than £5,000 is to carry interest at the rate for the time being specified under s 17 Judgments Act 1838. But by reg 2(3) interest is
not to be payable under the order where the judgment is given in proceedings to recover money due under a regulated agreement. Further, by reg 3 (so far
as relevant) where under the terms of the relevant judgment payment of a judgment debt is to be made by instalments, interest is not to accrue under the
order on the amount of any instalment until it falls due. The due payment of the instalments will therefore avoid interest becoming payable under the
order. The exemption from interest is not limited to flat rate agreements, even though the exemption may have been prompted by a suggestion by Lord
Donaldson of Lymington MR in Forward Trust v Whymark [1989] 3 All ER 915 at 921, [1990] 2 QB 670 at 681 in which reference is made only to such
agreements.
8. The regulations were made in implementation of Council Directive (EEC) 93/13 (OJ 1993 L95 p 29) (on unfair terms in consumer contracts). The
recitals to the directive are extravagant in number. They make clear that a primary purpose of the directive was to harmonise the rules in consumer
contracts relating to unfair terms in the member states, there being many disparities and marked divergences between the laws of member states. The
tenth recital states that ‘more effective protection of the consumer can be achieved by adopting uniform rules of law in the matter of unfair terms’. The
16th recital is in this form: ­ 762 ‘Whereas the assessment, according to the general criteria chosen, of the unfair character of terms, in particular in sale
or supply activities of a public nature providing collective services which take account of solidarity among users, must be supplemented by means of
making an overall evaluation of the different interests involved; whereas this constitutes the requirement of good faith; whereas, in making an assessment
of good faith, particular regard shall be had to the strength of the bargaining positions of the parties, whether the consumer had an inducement to agree to
the term and whether the goods and services were sold or supplied to the special order of the consumer; whereas the requirement of good faith may be
satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account …’

9. By art 1.1 the purpose of the directive is expressed to be to approximate the laws, regulations and administrative provisions of the member states
relating to unfair terms in contracts concluded between a seller or supplier and a consumer. ‘Unfair terms’ are defined in art 2(a) as the contractual terms
defined in art 3, which provides (so far as is material):
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‘1. A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it
causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.
2. A term shall always be regarded as not individually negotiated where it has been drafted in advance and the consumer has therefore not been
able to influence the substance of the term, particularly in the context of a pre-formulated standard contract …’

10. Para 3 of art 3 introduces an annexe which contains an indicative and non-exhaustive list of the terms which may be regarded as unfair. We need
only mention para 1(e):

‘Terms which have the object or effect of … requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in
compensation …’

11. Article 4 is in these terms:

‘1. Without prejudice to Article 7, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services
for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of
the contract and to all the other terms of the contract or of another contract on which it is dependent.
2. Assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy
of the price and remuneration, on the one hand, as against the services or goods supplies [sic] in exchange, on the other, in so far as these terms are
in plain intelligible language.’

12. Article 7 requires member states to ensure that in the interests of consumers and competitors adequate and effective means exist to prevent the
continued use of unfair terms and that such means should include provision whereby those with a legitimate interest might take action before the courts.
­ 763 13. The regulations implemented the directive with effect from 1 July 1995. They include the following provisions (so far as material):

‘Terms to which these Regulations apply

3.—(1) Subject to the provisions of Schedule 1, these Regulations apply to any term in a contract concluded between a seller or supplier and a
consumer where the said term has not been individually negotiated.
(2) In so far as it is in plain, intelligible language, no assessment shall be made of the fairness of any term which—(a) defines the main subject
matter of the contract, or (b) concerns the adequacy of the price or remuneration, as against the goods or services sold or supplied.
(3) For the purposes of these Regulations, a term shall always be regarded as not having been individually negotiated where it has been drafted
in advance and the consumer has not been able to influence the substance of the term …
Unfair Terms
4.—(1) In these Regulations, subject to paragraphs (2) and (3) below, “unfair term” means any term which contrary to the requirement of good
faith causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
(2) An assessment of the unfair nature of a term shall be made taking into account the nature of the goods or services for which the contract was
concluded and referring, as at the time of the conclusion of the contract, to all circumstances attending the conclusion of the contract and to all the
other terms of the contract or of another contract on which it is dependent.
(3) In determining whether a term satisfies the requirement of good faith, regard shall be had in particular to the matters specified in Schedule 2
to these Regulations.
(4) Schedule 3 to these Regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair.
Consequence of inclusion of unfair terms in contracts
5.—(1) An unfair term in a contract concluded with a consumer by a seller or supplier shall not be binding on the consumer.
(2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term …
Prevention of Continued Use of Unfair Terms
8.—(1) It shall be the duty of the Director to consider any complaint made to him that any contract term drawn up for general use is unfair,
unless the complaint appears to the Director to be frivolous or vexatious.
(2) If having considered a complaint about any contract term pursuant to paragraph (1) above the Director considers that the contract term is
unfair he may, if he considers it appropriate to do so, bring proceedings for an injunction (in which proceedings he may also apply for an
interlocutory injunction) against any person appearing to him to be using or recommending use of such a term in contracts concluded with
consumers.
(3) The Director may, if he considers it appropriate to do so, have regard to any undertakings given to him by or on behalf of any person as to
the continued use of such a term in contracts concluded with consumers.
(4) The Director shall give reasons for his decision to apply or not to apply, as the case may be, for an injunction in relation to any complaint
which these Regulations require him to consider. ­ 764 (5) The court on an application by the Director may grant an injunction on such terms as it
thinks fit.
(6) An injunction may relate not only to use of a particular contract term drawn up for general use but to any similar term, or a term having like
effect, used or recommended for use by any party to the proceedings …
SCHEDULE 2
ASSESSMENT OF GOOD FAITH
In making an assessment of good faith, regard shall be had in particular to—(a) the strength of the bargaining positions of the parties; (b)
whether the consumer had an inducement to agree to the term; (c) whether the goods or services were sold or supplied to the special order of the
consumer, and (d) the extent to which the seller or supplier has dealt fairly and equitably with the consumer.’

14. Schedule 3 follows the annexe to the directive and includes para 1(e) of the annexe. The court to which the Director General can apply for an
injunction is by reg 2(1) the High Court.
15. The regulations have now been replaced by the Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/2083 from 1 October 1999, but
the new regulations do not govern the present dispute.
16. It is not in dispute that the regulations apply to the bank’s consumer credit agreements containing the relevant term and that such agreements are
not individually negotiated for the purpose of reg 3(1). It is trite law in England that once a judgment is obtained under a loan agreement for a principal
sum and judgment is entered, the contract merges in the judgment and the principal becomes owed under the judgment and not under the contract. If
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under the contract interest on any principal sum is due, absent special provisions the contract is considered ancillary to the covenant to pay the principal,
with the result that if judgment is obtained for the principal, the covenant to pay interest merges in the judgment. Parties to a contract may agree that a
covenant to pay interest will not merge in any judgment for the principal sum due, and in that event interest may be charged under the contract on the
principal sum due even after judgment for that sum. This is so notwithstanding that judgment interest prescribed by statute is at a lower rate (see
Economic Life Assurance Society v Usborne [1902] AC 147 applying Re Sneyd, ex p Fewings (1883) 25 Ch D 338). (For the sake of completeness we
should record that Lord Goodhart QC for the bank reserved the right to challenge these decisions if this case goes further.) Merger does not apply where
there is an independent covenant to pay interest (see Ealing London BC v EI Isaac [1980] 2 All ER 548 at 551, [1980] 1 WLR 932 at 937). Thus on the
face of the bank’s regulated agreements, the effect of the relevant term is to prevent the independent obligation to pay interest merging in the judgment,
the provision for interest at the contractual rate continuing to apply after judgment.
17. It is clear from the decision of this court in Southern and District Finance plc v Barnes [1996] 1 FCR 679 that where a creditor calls in a loan
(such as by bringing a possession action in a case where the loan is secured on property), the outstanding balance of the loan is a sum owed and the court
has power to make a time order in respect of future instalments as well as accrued arrears, but when such an order is made the court can under s 136 of the
1974 Act amend the regulated agreement by reducing the rate of interest payable under it, if necessary, to nil. But in practice in the vast majority of cases
in which a regulated agreement is being enforced and an instalment order is made, there is no real hearing by the court, the lender and the borrower
usually agreeing on an ­ 765 instalment order and the court making the consent order without more consideration. This occurs even though in some
county court claim forms of the bank, which were included in the evidence, attention is drawn by the bank to the fact that the agreement provides for
interest to be payable before and after judgment and it is stated that the right to proceed for subsequent interest is reserved. There was no evidence before
us as to whether this is now the invariable practice of the bank, nor in any event was the debtor’s attention drawn by the bank to the powers of the court
under ss 129 and 136.
18. The Director General has received complaints from members of the public about the bank’s standard terms. Although many other lenders
incorporate in their agreements terms similar to the relevant term, we are told that the Director General has not received complaints about those terms
from consumers. For present purposes it is those complaints relating to the impact of the relevant term when judgment has been obtained against
borrowers and an order for payment by instalments has been made which raise the relevant issue. Borrowers complained of unfairness in that they found
themselves liable to the bank for amounts beyond those provided for in the judgments against them. They in particular complained that when an order for
payment by instalments is made, sometimes after offers for repayment by instalments in accordance with what the borrowers could afford have been
accepted by the bank, compliance with that order might nevertheless leave the borrowers in debt. The accrual of interest at the contractual rate might
mean that the amount of what is owed to the bank substantially increases, even if the debtor duly pays the instalments fixed by the court. Borrowers were
not always aware of the effect of the relevant term when they entered the agreements and the attention of the court, when the bank obtained judgment and
the court was considering a time order, was not necessarily drawn to the relevant term. That interest at the contractual rate should continue to be payable
after judgment is the more striking given that no statutory interest is payable on a county court judgment to recover money due under a regulated
agreement or on a judgment debt made payable by instalments when the instalments are duly paid.
19. There was an exchange of views in correspondence between the Office of Fair Trading and the bank. The Director General considered that the
relevant term had the potential to put consumers in a significantly worse position than they would be under the legislative regime of the 1974 Act, the
1984 Act and the 1991 order and that it was unfair within the meaning of the regulations. He also regarded the requirement of the relevant term that
interest be paid upon interest as falling within para 1(e) of Sch 3 to the regulations as requiring a consumer to pay a disproportionately high sum in
compensation. On 8 March 1999 the Director General commenced proceedings against the bank by originating summons, seeking injunctions restraining
the bank from including in any agreement with a consumer any contractual term or provision having the object or effect of (i) making interest payable on
the amount of any judgment obtained by the bank for sums owing under a regulated agreement or (ii) making interest payable upon interest, and enforcing
any such term already included in any existing agreement. The Director General did not pursue the ‘interest upon interest’ point. The generality of the
injunctions sought is to be noted: they are not confined to the particular circumstances giving rise to the complaints made to the Director General.
20. On the hearing of the originating summons the judge considered two issues. One was whether in the light of reg 3(2) of the regulations the
relevant ­ 766 term fell to be assessed for fairness at all. The bank argued that it did not, as the provision for the payment of interest consequent on
default was a core term falling within reg 3(2). The judge rejected that submission because he did not think that the average borrower seeking a home
improvement loan from the bank would consider default provisions as one of the important terms of the agreement which he would have under
consideration in deciding whether or not to accept an offer of an advance. The other issue was whether the relevant term was unfair. The judge’s
approach was to consider apart from statute or authority whether a potential borrower would have thought the relevant term unfair if its effects were
drawn to his attention. The judge said that the borrower would not have considered the term unfair. The judge then considered the requirement of good
faith, which, he said, took two forms: substantive unfairness and procedural unfairness. He accepted that if the relevant term deprived a borrower of an
advantage which he might reasonably expect to receive or which by statute or as a result of public policy he was entitled to receive, there would be
substantive unfairness. The judge found that the only substantive advantage of which the borrower was deprived was the exemption from having to pay
interest on a judgment obtained against him on his default under the agreement. But he held that there was no statutory or other prohibition against the
bank’s use of the relevant term. On procedural unfairness, the judge accepted that it would be better practice for the bank to draw the relevant term to the
attention of borrowers before entering the agreement. But he held that there was no procedural unfairness. He pointed out that the Director General had
not sought a mandatory injunction to compel the bank to draw the relevant term to the attention of borrowers. The judge concluded that the Director
General failed to discharge the onus on him of proving that the relevant term was unfair or operated unfairly. He accordingly refused the relief sought by
the Director General.
21. The same two issues arise before this court.
22. The first issue, whether by reason of reg 3(2) the fairness of the relevant term does not fall to be assessed, is raised by way of a respondent’s
notice by the bank. Lord Goodhart QC argues that the ‘core terms’ of a consumer credit agreement, or any other contract for a loan bearing interest,
extend beyond the mere rate of interest. He says that the period over which interest is payable (whether payable before or after judgment) and the sum on
which it is payable are also core terms falling within para (a) or (b) of reg 3(2) or both, being terms which define the main subject matter of the contract
and/or the price or remuneration for the loan. He contends that such status cannot be changed simply because the creditor has entered judgment, because
after any judgment the creditor is as much out of his money (till he is paid) as before and the character of the quid pro quo for being out of his money, the
interest, is exactly the same. He draws our attention to the position in Scotland as established by the decision of the Court of Session in Bank of Scotland
v Davis 1982 SLT 20. In that case an appeal was allowed from the order of the sheriff in an undefended action for repayment of a loan, the sheriff having
ordered payment of interest from the date of judgment at a rate lower than the contractual rate until payment. The court saw no reason why the
contractual rate should not apply after judgment. Lord Goodhart argues that in Scotland the contractual rate of interest is a core term and so the fairness
of it cannot be assessed. He submits that the regulations should be read, if possible, in a way which avoids an anomaly between the position in England
and that in Scotland and that the obvious way to do this is to ­ 767 treat the relevant term as conferring a single unbroken right to interest at the
contractual rate and so as a core term.
23. Lord Goodhart sought leave to adduce further evidence of the position in three other jurisdictions, Ireland, France and Germany. This was not
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opposed by the Solicitor General appearing for the Director General and we allowed it. It appears that the position in France is the same as in Scotland.
In Ireland and Germany there is a statutory right to interest at a prescribed rate. Lord Goodhart argued that an aim of the directive was to harmonise the
position in member states of the European Union and he suggested that harmonisation towards the Scottish and French position by recognising a provision
for post-judgment interest as a core term was desirable. We do not know what the laws of other member states provide. On the material before us we
find it impossible to say that the directive encourages harmonisation to accord with the Scottish and French model rather than the English or some other
model.
24. The Solicitor General submits that the relevant term is not a core term for two reasons. First, he says that condition 8 consists of default
provisions dealing with the situation where there is a breach of contract; it is not there that one finds defined the main subject matter of the contract nor
does it concern the adequacy of the price or remuneration. Terms concerned with the adequacy of the price or remuneration are, he says, those which
define the parties’ rights and obligations in the due performance of the contract. Second, he says that the condition defines the circumstances in which
interest is and continues to be payable; it is not a provision stipulating the rate at which interest is payable. No point is taken on the requirement of plain
and intelligible language.
25. We agree with the Solicitor General. The test in respect of the relevant term is not whether it can be called a ‘core term’ but whether it falls
within one or both of paras (a) and (b) of reg 3(2). Neither paragraph is in our opinion apt to cover the relevant term, which certainly does not define the
main subject matter of the contract and which cannot, in our view, realistically be said to concern the adequacy of the remuneration, relating as it does
only to a case where the borrower is in default and then merely providing for the continuation of the contractual rate after judgment. As the Solicitor
General pointed out, if the bank was right almost any provision containing any part of the bargain would be capable of falling within the reach of reg 3(2).
There is nothing in the directive to require so wide an interpretation. We would therefore uphold the decision of the judge on the first issue.
26. We turn to the second issue: is the relevant term unfair? Three elements in the test in the regulations of unfairness of a contractual term may be
noted, viz: (1) an absence of good faith; (2) a significant imbalance in the parties’ rights and obligations under the contract; and (3) detriment to the
consumer.
27. ’Good faith’ has a special meaning in the regulations, having its conceptual roots in civil law systems. The German Standard Contract Terms Act
1976, providing for the avoidance of a term which is unreasonably disadvantageous to a party ‘contrary to the requirements of good faith’ (see Markesinis
The German Law of Obligations (1997) vol 1, p 908), appears to have had a significant influence on the directive (see Chitty on Contracts (28th edn,
1999) para 15-034). Bingham LJ said in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] 1 All ER 348 at 352, [1989] QB 433 at
439:

‘In many civil law systems, and perhaps in most legal systems outside the common law world, the law of obligations recognises and enforces an
­ 768 overriding principle that in making and carrying out contracts parties should act in good faith. This does not simply mean that they should
not deceive each other, a principle which any legal system must recognise; its effect is perhaps most aptly conveyed by such metaphorical
colloquialisms as “playing fair”, “coming clean” or “putting one’s cards face upwards on the table”. It is in essence a principle of fair and open
dealing.’

28. Professor Beale, in his chapter ‘Legislative Control of Fairness: The Directive on Unfair Terms in Consumer Contracts’ in Beatson and
Friedmann Good Faith and Fault in Contract Law (1995) p 245 said:

‘I suspect that good faith has a double operation. First, it has a procedural aspect. It will require the supplier to consider the consumer’s
interests. However, a clause which might be unfair if it came as a surprise may be upheld if the business took steps to bring it to the consumer’s
attention and to explain it. Secondly, it has a substantive content: some clauses may cause such an imbalance that they should always be treated as
… unfair.’

29. As is aptly said in Anson’s Law of Contract (27th edn, 1998) p 293, the ‘good faith’ element seeks to promote fair and open dealing, and to
prevent unfair surprise and the absence of real choice. A term to which the consumer’s attention is not specifically drawn but which may operate in a way
which the consumer might reasonably not expect and to his disadvantage may offend the requirement of good faith. Terms must be reasonably
transparent and should not operate to defeat the reasonable expectations of the consumer. The consumer in choosing whether to enter into a contract
should be put in a position where he can make an informed choice.
30. The element of significant imbalance would appear to overlap substantially with that of the absence of good faith. A term which gives a
significant advantage to the seller or supplier without a countervailing benefit to the consumer (such as a price reduction) might fail to satisfy this part of
the test of an unfair term.
31. Finally the element of detriment to the consumer must be present for the term to be found to be unfair.
32. The Solicitor General submits that the relevant term is unfair. His complaint is that it operates unfairly in the particular circumstances that (1)
judgment is obtained against a borrower under a regulated agreement, (2) an order is made to pay the debt by instalments, whether under s 71 of the 1984
Act or a time order under s 129 of the 1974 Act, but (3) no order under s 136 of the 1974 Act is considered or made to amend the agreement, with the
result that interest continues to accrue notwithstanding the due payment of the instalments ordered.
33. Lord Goodhart submitted that the judge was right for the reasons which he gave. But as we understood him, Lord Goodhart accepted that the
relevant term could cause hardship. He expressly accepted that it was ‘plainly desirable’ that every debtor should have his attention drawn to the
availability of time orders and orders under s 136. But he argued that that should be done in a way other than by putting the burden on the bank to amend
the agreement. Thus he said that it could be done by amending the court forms so that when a creditor sues on the default of the borrower attention is
drawn to that point. Alternatively, he said, it could be done by amending the Consumer Credit (Enforcement, Default and Termination Notices)
Regulations 1983, SI 1983/1561, so that the default notice draws attention ­ 769 to the point. No doubt the adoption of either of these methods could
improve the position. But they do not ensure that the point to which objection is taken and which originates with the relevant term will be met, and we do
not see that these palliatives prevent the contractual term from being unfair, if the relevant term can be so categorised.
34. We are not persuaded that the judge was correct in his approach. The test of unfairness is not to be judged by personal concepts of inherent
fairness apart from the requirements of the directive and regulations, and we are far from convinced that a borrower would think it fair that when he is
taken to court and an order for payment by instalments has been tailored to meet what he could afford and he complied with that order, he should then be
told that he has to pay further sums by way of interest. The borrower’s attention is not specifically drawn to the point by the bank at or before the
conclusion of the contract nor at any later time prior to the making of the order nor in the order itself and the evidence shows that it comes as a
disagreeable surprise to the borrower to find that due compliance with the order for payment by instalments, so far from eliminating the debt to the bank,
may leave him owing substantial further sums to the bank. It is not enough to say, as the judge did, that if the provisions of ss 129 and 136 of the 1974
Act are correctly used by the courts the inclusion of the relevant term need not operate to impose on a borrower post-judgment interest when it would not
be appropriate or just to do so. That does not prevent the relevant term operating unfairly in the majority of cases where instalment orders are made
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without the consideration by the courts of those provisions.
35. In our judgment the relevant term is unfair within the meaning of the regulations to the extent that it enables the bank to obtain judgment against
a debtor under a regulated agreement and an instalment order under s 71 of the 1984 Act without the court considering whether to make a time order, or,
if it does and makes a time order, whether also to make an order under s 136 to reduce the contractual interest rate. The bank, with its strong bargaining
position as against the relatively weak position of the consumer, has not adequately considered the consumer’s interests in this respect. In our view the
relevant term in that respect does create unfair surprise and so does not satisfy the test of good faith, it does cause a significant imbalance in the rights and
obligations of the parties by allowing the bank to obtain interest after judgment in circumstances when it would not obtain interest under the 1984 Act and
the 1991 order and no specific benefit to compensate the borrower is provided, and it operates to the detriment of that consumer who has to pay the
interest. We would therefore allow the appeal.
36. The question which then arises is as to the form of the appropriate relief. The effect of holding the relevant term to be unfair, although only in a
limited respect, would appear to be that by reg 5(1) it is not binding on the consumer. But the contract continues to bind the parties if it is capable of
continuing in existence without the unfair term (reg 5(2)); plainly the contract is so capable. An injunction against the use of the relevant term in
contracts concluded with consumers is at first blush the appropriate form of relief by reason of reg 8(2). But Lord Goodhart complained that the
injunction sought by the Director General went too wide, going beyond what was needed to meet the Director General’s objection. In this context it is
pertinent to refer to para 6 of the notice of appeal:

‘The Learned Judge ought to have held that clause 8 was unfair insofar as it was not limited by a proviso to the effect that the Defendant would
not ­ 770 seek to rely on it after judgment (i) in any case where the Court made an order for payment of the judgment debt by instalments, or (ii)
alternatively, in any such case unless a Judge has specifically considered whether to exercise the Court’s powers under sections 129 and 136 of the
Consumer Credit Act 1974.’

The Director General thereby appeared to recognise that the unfairness could be cured if an amendment were made to condition 8.
37. We have heard no argument on the wording of any such amendment, but if the bank were prepared to draft a suitable amendment to meet the
Director General’s objection and gave an undertaking to incorporate such amendment in its standard terms, we would be minded to accept such
undertaking, and the wider, or any, injunction would be unnecessary. It goes without saying that it would be desirable for the terms of any such
amendment to be agreed between the parties.
38. In the circumstances we would hear further argument on the form of relief after counsel and solicitors have had the opportunity to consider the
judgment with their clients. To this end we would authorise counsel and solicitors to show the judgment to their clients, once the judgment has been
released, but the judgment will remain confidential to counsel, solicitors and their clients until formally handed down in open court.

Appeal allowed. Permission to appeal to the House of Lords refused.

Kate O’Hanlon Barrister.

[2000] 2 All ER 772

Ashurst v Pollard and another

CONFLICT OF LAWS: BANKRUPTCY

CHANCERY DIVISION
JACOB J
18 JANUARY, 3 FEBRUARY 2000

Conflict of laws – Jurisdiction – Title to foreign immovables – Bankrupt owning land in Portugal – English court ordering sale of Portuguese land and
giving trustee in bankruptcy conduct of sale – Order requiring bankrupt to do all things necessary to procure sale – Whether proceedings bankruptcy
proceedings for purposes of jurisdiction convention – Whether proceedings falling within exclusive jurisdiction of Portuguese courts as proceedings
concerning rights in rem in immovable property – Civil Jurisdiction and Judgments Act 1982, Sch 1, arts 1, 16.

The appellants, a husband and wife, jointly owned a property in Portugal. After the husband was made bankrupt, his trustee in bankruptcy sought an
order for the sale of the property with vacant possession. The application was granted by the district judge whose order gave the trustee conduct of the
sale, and required the appellants to concur with the trustee in the sale and to do all things that might be necessary to procure the sale of the property with
vacant possession. The bankrupt and his wife appealed, contending that the proceedings had as their object rights in rem in immovable property within
the meaning of art 16(1)a of the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (as set out
in Sch 1 to the Civil Jurisdiction and Judgments Act 1982), and that accordingly the proceedings fell within the exclusive jurisdiction of the Portuguese
courts. The issue further arose as to whether the proceedings were bankruptcy proceedings within the meaning of art 1b of the convention, and thus fell
outside the convention’s scope.
________________________________________
a Article 16(1) is set out at p 776 b c, post
b Article 1, so far as material, is set out at p 776 a, post
________________________________________

Held – (1) Where a trustee in bankruptcy sought an order for sale of the bankrupt’s property, those proceedings were not bankruptcy proceedings for the
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purposes of art 1 of the convention. Rather, they were proceedings consequential upon the bankruptcy, not proceedings about whether the debtor should
be made bankrupt. Accordingly, the proceedings in the instant case were subject to the convention (see p 776 c to g, post); Gourdain v Nadler Case
133/78 [1979] ECR 733 and Re Hayward (deceased) [1997] 1 All ER 32 applied.
(2) Under art 16(1) of the convention, orders relating to land which had effect against the whole world could be made only by the courts of the lex
situs. In the instant case the order purported to be effective against the world, and was accordingly precluded by art 16(1). However, that provision did
not prevent the court from enforcing an English trust over land held abroad. An action to enforce such a trust was an action in personam, not an action in
rem. English law regarded the Portuguese landholding as vested in the trustee, and the bankrupt was holding it for the trustee to the extent that the latter’s
title had not been perfected. Accordingly, the bankrupt could be compelled to complete the trustee’s title or to do any other act in relation to the land at
the trustee’s direction. Any such order, provided that it was in personam, was one that could ­ 772 be made by the English court, which had
jurisdiction over a bankrupt domiciled in England. It followed that the provision of the order requiring the bankrupt and his wife to do all things
necessary to procure the sale of the property with vacant possession was correct in principle since it was in personam. However, it might have been more
happily expressed as an order directing them to sell the property at a price reasonably obtainable. Alternatively, and perhaps better, the bankrupt could be
required to convey the property to the trustee, again by an order in personam, thereby enabling the trustee to effect his own sale in Portugal under
Portuguese law (see p 776 h to p 777 a e to g, post); Webb v Webb Case C-294/92 [1994] 3 All ER 911 applied.

Notes
For the scope of the Brussels Convention and jurisdiction under the convention in respect of immovable property, see 8(1) Halsbury’s Laws (4th edn
reissue) paras 626–627.
For the Civil Jurisdiction and Judgments Act 1982, Sch 1, arts 1, 16, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 1166, 1175.

Cases referred to in judgment

Gourdain v Nadler Case 133/78 [1979] ECR 733.
Hayward (deceased), Re [1997] 1 All ER 32, [1997] Ch 45, [1996] 3 WLR 674.
Reichert v Dresdner Bank AG Case C-115/88 [1990] ECR I-27.
Singh v Official Receiver [1997] BPIR 530.
Webb v Webb Case C-294/92 [1994] 3 All ER 911, [1994] QB 696, [1994] 3 WLR 801, [1994] ECR I-1717, ECJ.

Appeal
David Charles Pollard and Mary Louisa Pollard appealed from the order of District Judge Ley made at the Brighton County Court on 4 October 1999 on
an application by Christopher R Ashurst, Mr Pollard’s trustee in bankruptcy, that a property in Portugal owned by the Pollards be sold with vacant
possession, that the conduct of the sale be given to the trustee, that the Pollards concur with the trustee in such sale and do all things necessary to procure
the sale of the property with vacant possession and that they give vacant possession forthwith. The facts are set out in the judgment.

Sebastian Prentis (instructed by Harkavys) for the Pollards.

Ranna Sheikh (instructed by Lita Gale) for the trustee.

Cur adv vult

3 February 2000. The following judgment was delivered.

JACOB J.

Introduction
1. A man is made bankrupt under our law. What remedies, if any, can our courts give to his trustee in bankruptcy in respect of land in another EU
country owned by the bankrupt? That is the principal, short but important, question raised on this appeal.
2. The appeal is by Mr and Mrs Pollard from a decision of District Judge Ley. Mr Pollard is bankrupt. Mrs Pollard is not. The Pollards jointly own
a property ­ 773 in the Algarve. On the application of Mr Pollard’s trustee in bankruptcy the district judge ordered that:

‘1. The property known as Vivenda Carla Louisa as the same is registered at the Land Registry of Loule under the Title Number 02 437/271187
(Quarteria) be sold with vacant possession forthwith and the conduct of such sale be given to the Applicant.
2. The First and Second Respondents and each of them do concur with the Applicant in such sale and do all things as may be necessary to
procure the sale of the Property with vacant possession.
3. Vacant possession of the said Property be given by the First and Second Respondents to the Applicant forthwith.’

3. Nothing turns on the joint ownership. The question of principle is the same as if the property were wholly owned by the bankrupt. The only
difference is consequential—if the court here can make an order for sale or some equivalent then only his proportionate share will go into his estate.

English law vests the property in the trustee

4. No one disputes that if the land had been in England or Wales then the district judge could have made the order. Upon bankruptcy s 306(1) of the
Insolvency Act 1986 bites. It provides:

‘[Time of vesting] The bankrupt’s estate shall vest in the trustee immediately on his appointment taking effect or, in the case of the official
receiver, on his becoming trustee.’

And s 306(2) would then operate automatically to vest the property in the trustee by providing:

‘[Mode of vesting] Where any property which is, or is to be, comprised in the bankrupt’s estate vests in the trustee (whether under this section
or under any other provision of this Part), it shall so vest without any conveyance, assignment or transfer.’
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5. Of course even though s 306(2) operates as an automatic vesting, land registered in the name of the bankrupt would remain so registered until
steps were taken to alter the register. Similarly the title deeds of unregistered land would still indicate the bankrupt as owner unless and until steps were
taken to cause a formal vesting in the trustee, which might be necessary or useful for some purposes.
6. The 1986 Act tries to deal with foreign property in the same way. Section 436 defines ‘property’ as including:

‘… money, goods, things in action, land and every description of property wherever situated and also obligations and every description of
interest, whether present or future or vested or contingent, arising out of, or incidental to, property …’

7. The language could hardly be clearer. Moreover Sir Richard Scott V-C rejected any suggestion that the 1986 Act was confined to municipal effect
in Singh v Official Receiver [1997] BPIR 530 at 531. He said:

‘[Mr Singh] has submitted that the municipal law of this country is limited to, as he put it, the municipality, and thus the official receiver is not
entitled ­ 774 to any information about his interests or property abroad. He has invited me to rule on that issue. I will do so. The proposition is
wrong. Under s 283 of the Insolvency Act a bankrupt’s estate for the purposes of the Act is defined as including all property belonging to or vested
in the bankrupt at the commencement of the bankruptcy. “Property” is defined in s 436 of the Act as including money, goods, things in action, land
and every description of property wherever situated. It is plain, therefore, that the bankrupt’s estate for the purpose of the Act includes his property
in India or elsewhere outside this country and that the official receiver is entitled to co-operation from Mr Tejendra Singh in supplying information
about those assets.’

Effect of s 306 vesting foreign land in the trustee

8. In Singh’s case Sir Richard Scott V-C went on to say: ‘It is a separate question to what extent the official receiver can do anything about the
realisation of those assets …’ (Sir Richard Scott V-C’s emphasis.)
9. That might have been the problem in this case. Dicey and Morris on the Conflict of Laws (13th edn, 2000) vol 2, p 1173, para 31–023 discuss it as
follows:

‘But the sections of the Act relating to the vesting of the bankrupt’s property in his trustee and to the discharge of his debts purport to have a
universal effect. With regard to foreign countries, however, it is obvious that the question whether property of the bankrupt situated in such a
country does or does not pass to the English trustee in bankruptcy must depend in the last resort on the lex situs whatever English law may say, in
theory, on the question. For no Act of Parliament can of its own force and effect transfer property situated, e.g. in France from the bankrupt to the
trustee. Hence, although English law says that all the property of the bankrupt vests in his trustee, it may be difficult for the trustee to make his title
effective, so far as property in a foreign country is concerned, as against, e.g. a judgment creditor levying execution there, or the trustee in a later
local bankruptcy.’

10. However it is not suggested on behalf of the bankrupt that Portuguese law would refuse to recognise that English law vests ownership of the
property in the trustee. And indeed the trustee has some evidence of Portuguese law which suggests that it would apply renvoi at least where the
individual concerned is domiciled abroad. And the sort of problem involving priorities mentioned at the end of the passage from Dicey and Morris does
not arise here.
11. I do not actually know whether Portuguese law would go so far as automatically to apply the provisions of s 306(2) of the 1986 Act. It would
seem not for otherwise this application would not have been necessary—it is hardly likely that the relevant Portuguese land registry would automatically
treat the trustee as owner simply upon notification of the English court’s bankruptcy order. I will assume it would not so act and would not do so unless
there was an order of the Portuguese court.

Does the English court have jurisdiction—art 16(1) of the Brussels Convention?
12. That brings me to the real point taken on behalf of the bankrupt by Mr Prentis in his elegantly presented argument. He was prepared to assume
that a Portuguese court would recognise the English bankruptcy and its effect. What he said was that it was only in a Portuguese court that orders for
possession and sale can be sought. He relied upon the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters
1968 (as set out in ­ 775 Sch 1 to the Civil Jurisdiction and Judgments Act 1982) (the Brussels Convention) which forms part of United Kingdom law
by virtue of s 2(1) of the 1982 Act. The argument goes in stages. (1) By art 1 the convention applies in ‘civil and commercial matters’, which these
proceedings are. (2) The second exception in art 1, that the convention shall not apply to ‘bankruptcy, proceedings relating to the winding-up of insolvent
companies or other legal persons, judicial arrangements, compositions and analogous proceedings’ does not apply here. (3) The Portuguese courts have
exclusive jurisdiction by virtue of art 16(1) of the convention which provides:

‘The following courts shall have exclusive jurisdiction, regardless of domicile: (1)(a) in proceedings which have as their object rights in rem in
immovable property or tenancies of immovable property, the courts of the Contracting State in which the property is situated; (b) [a limited
exception for short-term tenancies] …’

13. There is no doubt that these proceedings are civil matters. But are they ‘bankruptcy proceedings’ and thus excluded from the convention? I
think the answer is clearly not. These are proceedings consequential upon the bankruptcy—not proceedings about whether or not the debtor should be
made bankrupt. The question of bankruptcy has already been determined. Moreover the claim made is not a special bankruptcy remedy—it is just a
property claim. As Rattee J put it in Re Hayward (deceased) [1997] 1 All ER 32 at 41, [1997] Ch 45 at 54: ‘… the nature of the claim … is not a matter
of bankruptcy in the sense that any question of bankruptcy is the principal subject matter of the proceedings.’ His decision, and mine, follow from the
decision of the Court of Justice of the European Communities in Gourdain v Nadler Case 133/78 [1979] ECR 733 at 744. There the court held that for
proceedings to be excluded from the convention they must:

‘… derive directly from the bankruptcy or winding-up and be closely connected with the proceedings for [in that case] the “liquidation des
biens” or the “règlement judiciare” [here, liquidation or bankruptcy proceedings].’

14. So the convention applies. I come therefore to the principal point raised by Mr Prentis. He submits that these proceedings indeed have as their
object rights in rem. Their purpose and subject matter is the transfer of title to Portuguese property. It is no business of the English court to make orders
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for possession or sale of such property. The English court cannot simply act as if the property were here, even though English law says the trustee has
title. Article 16(1) says the trustee must go to the Portuguese courts.
15. I think Mr Prentis is in part, but only in part, right. The thinking behind art 16(1) is that orders relating to land which have effect against all the
world are to be made only by the courts of the lex situs. The form of para 1 of the order made here purports to be effective against the world. In Portugal
the land is registered in the name of the bankrupt yet the order purports to authorise the trustee to sell. I do not see how, in the face of art 16(1), such an
order can be made.
16. However this case does not turn on the form of the order. It is now settled by Webb v Webb Case C-294/92 [1994] 3 All ER 911, [1994] ECR
I-1717 that where an English trust exists over land held abroad, art 16(1) is no objection to enforcement of that trust. So if land elsewhere is held on a
bare trust by X for Y, Y will have the usual remedies of a beneficiary against a trustee. He can, for ­ 776 instance, compel X to have the land conveyed
to him. In Webb v Webb the court spelt that out with precision:

‘The aim of the proceedings before the national court is to obtain a declaration that the son holds the flat for the exclusive benefit of the father
and that in that capacity he is under a duty to execute the documents necessary to convey ownership of the flat to the father. The father does not
claim that he already enjoys rights directly relating to the property which are enforceable against the whole world, but seeks only to assert rights as
against the son. Consequently, his action is not an action in rem within the meaning of art 16(1) of the convention but an action in personam.’ (See
[1994] 3 All ER 911 at 930, [1994] ECR I-1717 at 1738 (para 15).)

17. Mr Prentis sought to escape that conclusion. He submitted that the trustee’s action was more than an action in personam because it actually
sought to determine ownership and possession of immovable property, relying upon para 11 of the decision of the court in Reichert v Dresdner Bank AG
Case C-115/88 [1990] ECR I-27 at 41–42. However, it seems to me that his argument was exactly that rejected by the court in Webb v Webb. As
Advocate General Darmon put it in Webb v Webb [1994] 3 All ER 911 at 923, [1994] ECR I-1717 at 1724: ‘… the claim of ownership undeniably
underlies the claim for the recognition of such a trust.’
18. There is no doubt that English law regards the Portuguese landholding as vested in the trustee. To the extent that the trustee’s title has not been
perfected, the bankrupt is, by English trust law, holding it for the trustee. So the bankrupt can be compelled to complete the trustee’s title or do any other
act in relation to the land at the trustee’s direction. Any such order, provided it is in personam, is an order which the English court can make having, at it
does, jurisdiction over the bankrupt who is domiciled here. I say nothing about the position if he had not been so domiciled.
19. The second part of para 2 of the district judge’s order, which required the respondents to do all things that may be necessary to procure the sale of
the property with vacant possession, seems to me to be nearly the appropriate order. It is in principle right because it is in personam. It might be more
happily expressed as an order directing the respondents to sell the property at the best price reasonably obtainable. No doubt in practice the trustee could
liaise with the bankrupt over the sale, but it is the bankrupt who must be effecting the sale and not the trustee. Alternatively, and perhaps better, the
bankrupt can be required to convey the property to the trustee, again by an order in personam. If that were done the trustee could effect his own sale in
Portugal under Portuguese law.
20. I should mention a point under the Trusts of Land and Appointment of Trustees Act 1996. By s 14(1) and (2):

‘(1) Any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order
under this section.
(2) On an application for an order under this section the court may make any such order—(a) relating to the exercise by the trustees of any of
their functions (including an order relieving them of any obligation to obtain the consent of, or to consult, any person in connection with the
exercise of any of their functions), or (b) declaring the nature or extent of a person’s interest in property subject to the trust, as the court thinks fit.’
­ 777 Section 27(3) provides that the 1996 Act extends only to England and Wales. Mr Prentis submitted that therefore no order could be made
under the 1996 Act. That is self evidently so but seems to me to be irrelevant. What the 1996 Act does not say is that the court cannot act in
relation to trust property held abroad or that similar orders as can be made under the 1996 Act cannot be made by virtue of the court’s jurisdiction
over property held under an English trust.
21. That concludes the main point on this appeal. It was conceded by Mr Prentis that any rental income and interest from the property since the date
of the bankruptcy and any future rent was subject to the bankruptcy and that the court had jurisdiction to make orders in respect of that money. The order
of the district judge required that 50% of this money should be paid to the trustee. This assumes that the bankrupt and his wife are entitled to equal shares
of the property. This is inconsistent with para 5 of the order which contemplates a determination of the respective shares. It was agreed that the
appropriate order should be that 50% of the monies be paid to the trustee’s solicitors to be held pending any claim by the wife that she was entitled to
more than 50% of the property. Any such claim would have to be made within a short period which I will set if it is not agreed.

Order accordingly.

Celia Fox Barrister.

[2000] 2 All ER 779

Skipton Building Society v Stott

LAND; Mortgages

COURT OF APPEAL, CIVIL DIVISION

EVANS, POTTER LJJ AND ALLIOTT J
1, 10 DECEMBER 1999

Guarantee – Surety – Rights against creditor – Creditor’s duty to take reasonable care to obtain price equal to market value – Creditor not obtaining
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market value of security – Whether failure to obtain market value extinguishing guarantor’s liability or reducing liability pro tanto – Whether loss to be
calculated on difference from market value or loss of a chance – Building Societies Act 1986, Sch 4, para 1(1)(a).

Mortgage – Sale – Duty of mortgagee – Standard of duty in exercising power of sale – Duty to take reasonable care to obtain price equal to market value
– Mortgagee not obtaining market value of security – Whether failure to obtain market value extinguishing mortgagor’s liability or reducing liability pro
tanto – Whether loss to be calculated on difference from market value or loss of a chance – Building Societies Act 1986, Sch 4, para 1(1)(a).

S was a director of a company which had acquired a leasehold interest in a property with a mortgage obtained from a building society. S and his fellow
director guaranteed the mortgage. The company ran into financial difficulties and receivers were appointed by the building society. The business could
not be sold as a going concern and had to be closed. The occupiers of an adjoining property made an offer for the leasehold, which was eventually
accepted after the building society had sought the advice of an independent chartered surveyor. The offer was less than the balance of the mortgage debt
guaranteed by S, and the building society claimed the shortfall. S contended that the building society had not complied with an implied term in the
contract of guarantee, reflecting its duty under the Building Societies Act 1986, Sch 4, para 1(1)(a), to take reasonable care to ensure that the price at
which the land was sold was the best price which could reasonably be obtained. The judge found that, by not advertising the availability of the lease, the
building society had lost a chance of obtaining a better price, and valued the loss of that chance at £2,500, holding that the building society’s breach was
equivalent to a breach of a warranty rather than a breach of condition. S appealed on the ground that the true effect of the society’s breach was to release
him from all further liability.

Held – Although a guarantor could be discharged by a variation in the terms of the contract of guarantee made without his consent, a creditor’s failure to
obtain the proper value of a security which he sold merely reduced pro tanto the amount for which the guarantor was liable. In the instant case, the judge
had been wrong in law to attempt to assess a figure representing the value to S of the lost chance of achieving a better price. The correct approach was to
assess the market value and then to compare it with the amount recovered by the creditor. The assessment of the market value was an issue of historic
fact which had to be established on the evidence by whichever party had the burden of proof; there was no question as to a future uncertain event which
might require the court to assess the value of the loss of a chance. As it was clear that the market value was considerably higher than ­ 779 the amount
secured, the building society had to give credit for a higher amount, which meant that there was no longer a shortfall. Accordingly, the appeal would be
allowed (see p 783 b to d, and p 785 f to p 787 c f g, post).
Mutual Loan Fund Association v Sudlow (1858) 5 CBNS 449, Watts v Shuttleworth (1861) 7 H & N 353 and China and South Sea Bank Ltd v Tan
[1989] 3 All ER 839 considered.

Notes
For the duty of a mortgagee on exercise of power of sale, see 32 Halsbury’s Laws (4th edn reissue) para 659.
As from 1 December 1997, Sch 4 of the Building Societies Act 1986 was repealed by the Building Societies Act 1997, s 12(1), Sch 9.

Cases referred to in judgments

Allied Maples Group Ltd v Simmons & Simmons (a firm) [1995] 4 All ER 907, [1995] 1 WLR 1602, CA.
Capel v Butler (1825) 2 Sim & St 457, 57 ER 421.
China and South Sea Bank Ltd v Tan [1989] 3 All ER 839, [1990] 1 AC 536, [1990] 2 WLR 56, PC.
Mutual Loan Fund Association v Sudlow (1858) 5 CBNS 449, 141 ER 183.
Pearl v Deacon (1857) 24 Beav 186, 53 ER 328.
Strange v Fooks (1863) 4 Giff 408, 66 ER 765.
Taylor v Bank of New South Wales (1886) 11 App Cas 596, PC.
Watts v Shuttleworth (1861) 7 H & N 353, 158 ER 510, Ex Ch; affg (1860) 5 H & N 235, 157 ER 1171.
Wulff v Jay (1872) LR 7 QB 756.

Appeal
The second defendant, John Stott, appealed from the order of Mr Recorder Duggan in the Burnley County Court on 4 December 1998, whereby he gave
judgment in favour of the claimant, the Skipton Building Society, in the sum of £14,930·58, in respect of the shortfall on a mortgage debt guaranteed by
Mr Stott. The first defendant, Mr Kenneth Bratley, took no part in the proceedings. The facts are set out in the judgment of Evans LJ.

Michael Mulholland (instructed by Farleys, Blackburn) for Mr Stott.

Paul Brook (instructed by Walker Foster, Skipton) for the society.

Cur adv vult

10 December 1999. The following judgments were delivered.

EVANS LJ.

Introduction
1. This appeal is by the second defendant in the action, John Stott, from the order made by Mr Recorder Duggan in the Burnley County Court on 4
December 1998. The judgment was in favour of the claimants, Skipton Building Society, whom I shall call ‘the society’, in the sum of £14,930·58. That
was £2,500 less than the society claimed. ­ 780 2. The issue raised by the appeal is what rights the lender of money secured by a property mortgage has
against a guarantor of the loan, when the lender has exercised his right to sell the property as mortgagee.
3. The property in question was a leasehold interest in commercial premises known as Plot 2, Tarran Industrial Estate, Town Way, Morton, Wirral.
The premises are a purpose-built single-storey warehouse including office accommodation with a total gross internal area of about 6,800 square feet. The
interest was acquired by D K Precision Engineering Co Ltd (the company) in May 1991, and it was charged in favour of the society in the sum of
£130,000 by a legal charge dated 28 May 1991. The appellant and his co-defendant Kenneth Bratley were directors of the company. Each signed a deed
of guarantee on the same day in respect of the company’s loan.
4. By November 1994 the company was in financial difficulties. Receivers were appointed by the society on 22 November 1994. They continued to
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operate the company at the premises for a period of 28 days while they attempted to sell the business as a going concern. Selling agents were appointed
for that purpose. The attempt was unsuccessful and the business was closed. Meanwhile, the occupiers of adjoining property revealed their interest in
acquiring the additional space. On 9 December 1994 they offered the receiver £120,000 for the company’s interest. A valuation was obtained by the
receiver and the offer was refused. Soon afterwards, on 12 January 1995, the offer was increased to £122,500 and was made to the society, which
obtained a report from an independent chartered surveyor, Mr Grainger, and accepted the offer on 24 January 1995. By that date the outstanding debt
which the directors guaranteed, including interest, was £132,430.
5. The sale was not completed until 12 April 1995. After deducting expenses of £4,751·25, which did not include an agent’s commission because no
agent was appointed, the net proceeds of sale were £118,001·49. The sum due under the mortgage had increased to £135,432·07. This left a balance of
£17,430·58 which the society claimed from the appellant in this action. The summons was issued in the Skipton County Court on 24 January 1996.
6. The dispute centres on whether the society obtained the full market value for the property.

The judgment
7. The judge heard evidence from expert witnesses and was assisted by counsel who are experienced in this field. His findings of fact are not
challenged, although Mr Brook, counsel for the society, submits that to some extent the findings are inconsistent with each other. The judge began as
follows:

‘It is important for me to understand a number of concepts of valuation. Firstly, there is the concept of an open market value. An open market
value is the value which property can be expected to achieve if it is properly marketed for a reasonable period of time. That concept is to be
contrasted with a forced sale valuation which is the price which property can be expected to achieve if it is marketed for a restricted period of time,
of necessity a period less than a reasonable period of time. The concept of a forced sale valuation also incorporates an additional element of
discount below the open market value because if a purchaser is able to discover that property has to be sold that in itself has the consequence of
depressing the offer which he is prepared to make. The purchaser, knowing that the seller ­ 781 must sell, is in a good negotiating position and
therefore is likely to reduce the figure which he is prepared to offer for the property. There was agreement between the surveyors that in the
circumstances of this case a forced sale valuation represented 85% of an open market evaluation. An additional concept of valuation has to be
grasped and that is that the value of property can be increased by the involvement of a “special interest” buyer. So, for example, if a neighbour has
a particular interest in acquiring property adjacent to his own he may be prepared to pay more to acquire that property than an outsider may be
prepared to do.’

8. The judge then records that counsel had narrowed the issue to the question of—

‘whether the building society had complied with an implied term in the contract of guarantee. That implied term reflects the statutory duty of
the building society under para 1(1)(a) of Sch 4 to the Building Societies Act 1986 … The issue becomes whether the building society have “taken
reasonable care to ensure that the price at which the land is sold is the best price that can reasonably be obtained”.’

9. He then found that there were two potentially valid criticisms made of the society:

‘… firstly, that they did not advertise, that they did not wait for further interest; secondly, that they did not properly take on board the fact that
the value was affected by the presence of a “special interest” buyer. I take those two matters together and apply the appropriate test as to whether
or not the building society had taken reasonable care to ensure that the price at which the land is sold [was] the best price that [could] reasonably be
obtained.’

Having considered the evidence of the society’s arrears manager, Mr Taylor, who made a number of damaging admissions but who also identified a
number of factors which he had to take into account, and of the expert witnesses, the judge found that Mr Grainger, who approved the sale at £122,500,
had made no more than ‘a mechanical forced sale valuation’ and he and the society between them failed ‘to take reasonable care to ensure that the price at
which the land was sold was the best price that could reasonably be obtained’. They were negligent in two ways: they did not seek further interest by
placing the property on the market, and they failed to take account of the purchaser’s ‘special interest’ when deciding to accept their offer. It is implicit in
these findings that the society could reasonably have sought other offers, with or without the use of agents, at least until April 1995 when the property was
in fact sold.
10. Next the judge asked himself ‘whether by exposing the property to the market in this way the building society would have obtained any more for
the sale’. He found:

‘In my judgment, there was a real chance, if advertising had taken place, that someone else would have entered the market place. If they did
there was real prospect that Bimark would be prepared to increase their offer … but I do find that there is no certainty that further attempts at
marketing would have met with success. Indeed even expressed to the appropriate civil standard success has not been proved on the balance of
probabilities. What has been proved to my satisfaction on the balance of probabilities is that there was a chance of succeeding in procuring a better
price and a chance not ­ 782 so nebulous that the building society were entitled to ignore it; a real chance of success.’
He then proceeded to consider the nature and extent of that real chance of success. He concluded:

‘… there was lost a real chance of success to which I ascribe the valuation of £2,500. That is a figure which represents the discounted value of
the increased price which might have been achieved, discounted to reflect the fact that there is a lack of certainty that the increased net price would
have been achieved.’

11. In my judgment, for reasons which I shall give below, this venture into assessing a figure to represent the value to the defendant of the lost
chance to achieve a better price was misguided and wrong in law. The evidence enabled the judge to assess what the market value was, and that figure
would correspond with the price that could be expected to be achieved, given exposure to the market for a reasonable time. The question, what the figure
was, was an issue of historic fact which had to be established on the evidence by whichever party had the burden of proof. There was no question as to a
future uncertain event which required the court to assess the value of the loss of a chance (see Allied Maples Group Ltd v Simmons & Simmons (a firm)
[1995] 4 All ER 907, [1995] 1 WLR 1602).
12. In my view, therefore, it was unfortunate that the judge embarked on this inquiry, but I should add that he was encouraged to do so by both
counsel, neither of whom challenged the ‘loss of chance’ approach in their skeleton arguments for the appeal. The judge explained with engaging
frankness that he had no experience in this branch of the law and he expressed his indebtedness to counsel for their guidance. He commented that neither
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party had sought to have the transaction transferred to a specialist court. I would have been inclined to criticise the county court listing authorities for
allowing the case to come before a judge from whom an explanation which amounted to an apology became necessary, but I do not know what the full
circumstances were.
13. There is no cross-appeal by the society from the judge’s approach nor do they say that he was wrong to deduct £2,500 from their claim. Mr
Brook submits, however, that the judge found that no greater price could have been obtained, implying that the price achieved was not less than the
market value. But there were further findings, which the judge stated as follows:

‘If I am forced to choose between the evidence given by [expert witnesses] … if I am driven to make a choice between these valuers … the
proper outcome would be that the open market value would be £155,000 and the forced sale value would be £132,000. Of course, those figures fail
to reflect the “special interest” element which arises from the particular interest in this property of Bimark, the neighbouring occupier.’

Hence the inconsistency of which Mr Brook complains between these figures for market value, and the earlier ‘finding’ that the judge was not satisfied
that any higher figure than £122,500 would have been obtained.
14. Finally, turning to the legal consequences, the judge rejected Mr Mulholland’s submission that the effect of the society’s breach was to release
the defendant from all liability. He held that the breach was equivalent to a breach of warranty rather than a breach of condition, and that the defendant
was entitled to deduct the £2,500 but no more. ­ 783 The appeal
15. Mr Mulholland renews his submission that the effect of the society’s breach was to release the guarantors from all further liability. Alternatively,
he contends that the amount of credit due to the guarantor should be at least sufficient in the present case to offset the amount of the society’s claim,
which by April 1995 was £135,432.
16. Mr Brook supported the arguments set out in his skeleton argument, which included much useful citation of authority. He contended that the
judge was right to reject the first of Mr Mulholland’s submissions, and that his assessment of the defendant’s loss at £2,500 was appropriate, given that
the forced sale valuation was £115,000.

Authorities
17. These date mostly from the nineteenth century, the main exception being China and South Sea Bank Ltd v Tan [1989] 3 All ER 839, [1990] 1 AC
536. There, the issue was whether a creditor who is secured by a property mortgage as well as by a guarantee, is under a duty to sell the property in order
to achieve the best price obtainable for it and thus reduce the amount of the outstanding debt for which the guarantor is liable. The Judicial Committee of
the Privy Council held that he is not. Lord Templeman said:

‘The creditor had three sources of repayment. The creditor could sue the debtor, sell the mortgage securities or sue the surety. All these
remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all. If the creditor chose to sue the
surety and not pursue any other remedy, the creditor on being paid in full was bound to assign the mortgage securities to the surety. If the creditor
chose to exercise his power of sale over the mortgage security he must sell for the current market value but the creditor must decide in his own
interest if and when he should sell.’(See ([1989] 3 All ER 839 at 842, [1990] 1 AC 536 at 545.)

Watts v Shuttleworth (1860) 5 H & N 235, 157 ER 1171 was cited with approval and the principle was acknowledged that the creditor must not injure the
security, nor do any act inconsistent with the rights of the security.
18. Watts’s case was decided in the Court of Exchequer in 1860. The guarantee was of a contract to fit out a warehouse which included an
undertaking by the employer to insure the fittings. The contractor defaulted and the creditor claimed against the guarantor, but he had not insured them.
His claim failed, because in the words of the headnote:

‘In equity upon a contract of suretyship, if the person guaranteed does any act injurious to the surety, or inconsistent with his rights, or if he
omits to do any act which his duty enjoins him to do, and this omission proves injurious to the surety, the surety will be discharged.’

This reflects the passage from Pollock CB’s judgment which Lord Templeman approved in Tan’s case in 1990. The report also shows that Martin B
observed during argument:

‘The substance of the plea is that the defendant entered into the guarantee upon the faith that the plaintiff would carry out the agreement by
which he undertook to insure; and because the plaintiff has not performed the ­ 784 agreement it is his own fault that the loss has happened, and
he cannot in fairness call on the defendant for compensation.’ (See 5 H & N 235 at 242, 157 ER 1171 at 1174.)

19. The principle is commonly applied when the creditor, without the agreement of the guarantor, gives the debtor extra time to pay; the terms of the
contract are changed. Watts’s case was approved in the Exchequer Chamber, and this revealing passage appears in the judgment given by Williams J:

‘In this case the Court, at the close of the argument was unanimous in thinking that the defendant, as surety, was discharged by the plaintiff’s
omission to insure. But some doubts were felt whether the discharge ought to be regarded as total, or only to the extent of the damage which could
be shewn to have been sustained by the surety in respect of that omission. In support of the latter view, it was contended … that the present case is
analogous to that of a creditor who has lost or given up to his debtor a security which he has in his hands, where the surety is held to be thereby
discharged … not however in toto, but only to the extent of the security so lost or given up. But on consideration we are all of opinion that, in the
present instance, the discharge of the surety, being effected by reason of his position having been deteriorated in respect of having been made
responsible for an uninsured principal, in lieu of an insured one, the case is analogous to those where a surety has been held discharged by time
having been given to the debtor, as in [cases] where the creditor had so conducted himself as to alter the situation of surety, and the surety was held
to be thereby totally discharged.’ (See (1861) 7 H & N 353 at 354, 158 ER 510 at 510–511).

20. The question raised by Mr Mulholland’s first submission is whether the creditor’s breach of duty in failing to obtain the current market value if
he chooses to sell the property is in the same category; that is to say, whether the breach releases the surety from all further liability. There is no clear
answer to be found in the decided cases. In Mutual Loan Fund Association v Sudlow (1858) 5 CBNS 449, 141 ER 183 goods held as security were sold at
an undervalue and the creditor’s claim against the surety failed; but the goods, ‘but for the misconduct of the persons employed by the plaintiffs to sell
them, would have produced enough to satisfy the entire balance due upon the promissory-note’ (see 5 CBNS at 450, 141 ER at 184). The pro tanto
defence therefore was sufficient for the guarantor’s purpose. Support for the discharge pro tanto rule is found also in Capel v Butler (1825) 2 Sim & St
457, 57 ER 421 and Strange v Fooks (1863) 4 Giff 408, 66 ER 765. In Wulff v Jay (1872) LR 7 QB 756 differing reasons were given in the Court of
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Queen’s Bench for the conclusion that whilst the surety was discharged in respect of the principal debt, he remained liable for a small amount of interest,
but the majority, Cockburn CJ and Quain J (who was also the trial judge) appear to support the headnote: ‘… he was discharged to the amount that the
goods were worth’. In Pearl v Deacon (1857) 24 Beav 186, 53 ER 328 (affirmed 1 De G & J 461) there were references to the surety being discharged,
but again it appears that the amount involved was sufficient to discharge the debt. In my judgment the effect of these older authorities was summarised in
Taylor v Bank of New South Wales (1886) 11 App Cas 596 at 603 in the opinion of the Privy Council given by Lord Watson. He referred to cases where:
­ 785 ‘… there had been an alteration of the original contract between the creditor and the principal debtor, without the consent of the surety, who was
held to be wholly discharged, on the plain ground that he could not be made liable for default in the performance of a contract which he had not
guaranteed. The present case would … have been within the rule of Pearl v. Deacon, where the creditor had, by his own act, rendered unavailable part of
the security, to the benefit of which the surety was entitled, and the latter was held to be discharged, not absolutely, but only pro tanto.’

21. Despite Mr Mulholland’s measured submission that there is nothing in these authorities which precludes the court from holding that a breach by
the creditor of his duty to obtain the current market value of the secured property, if he sells it, discharges the guarantor entirely, regardless of the
amounts involved, nevertheless I am clearly of the view that the rule is to the contrary effect. The guarantor may be discharged by a variation in the terms
of the debtor’s contract, made without his consent, but the creditor’s failure to obtain the proper value of a security which he sells reduces pro tanto the
amount for which the guarantor is liable. I therefore would reject the submission in the present case.
22. It remains possible that the guarantor may be freed from further liability if the creditor’s breach of the contract of surety is properly regarded as
repudiatory, applying the distinction between conditions and warranties to which the judge referred: see Chitty on Contracts (28th edn, 1999) paras
44-091 and 44-095. But that is not the present case, because the judge’s view, that the breach was a breach of warranty only, is not and probably could
not be challenged on the appeal.

Current market value

23. The remaining question, therefore, is whether the price of £122,500 (gross) £118,001 (net) which the surety obtained was less than the current
market value. The judge’s findings are not explicit, for the reasons he explained, but they include the following. (1) The receivers (Barclays Bank)
obtained valuations in December 1994 of £115,000 (forced sale) and £150,000 (open market). (2) The surety’s expert witness, Mr Grainger, who reported
that the £122,500 offer figure was ‘realistic’, placed the value in a bracket between £120,000 (or £120,700) (forced sale) and £144,000 (or £142,000)
(open market). (3) The appellant’s expert witness, Mr Cook, placed the bracket between £144,000 and £168,000. (4) The ‘open market’ figures did not
allow for presence of a ‘special interest’ purchaser, which the judge found ‘would have the consequence of increasing the value of the property beyond
what it otherwise might have been’. (5) It was common ground that a forced sale valuation was 85% of an open market valuation, as it appears from the
passage quoted above.
24. These findings are sufficient, in my view, to enable the court to answer the relevant question in the present case. It is not necessary to determine
an exact figure because, for the reasons already given, the society has no claim under the guarantee if the current market value was greater than £135,430
(net), the amount of the debt before credit is given for the proceeds of sale. The actual expenses of sale were £4,751 and these clearly would have been
greater if the property had been placed on the market, although the presence of the ‘special interest’ purchaser did not make it inevitable that estate agents
would be employed. A gross sale price of £140,500 would allow (say) £5,000 for expenses, with a greater margin if the price was higher than that. The
question therefore becomes, on the evidence, was the current market value significantly in excess of £140,500? ­ 786 25. In my view, it is wrong as a
matter of principle to take only the ‘forced sale’ valuations into account as the society urges should be done. The essential criticism of their conduct is
that they failed to expose the property to the market. If they had done so, even for a short though reasonable time, they could have expected to receive
offers closer to the market value figures, and these could have been increased further (on the judge’s finding, they would have been) by the special
interest factor.
26. Adopting this approach, the society’s expert witness gave an open market valuation of £142,000 or £144,000, not allowing for the special interest
purchaser, and the judge’s finding ‘if he had to choose’ was that the figures were higher: £132,000 (forced sale) and £155,000 (open market), based on a
return of 13%, midway between the witnesses’ figures of 12% and 14%. These figures make it clear in my view that the current market value was
significantly higher than £140,500 or £135,500 (net). If the society has to give credit for that amount, as in my judgment it does, then there is no longer a
balance in its favour and the claim must fail.
27. Questions might arise as to where the burden of proof lies in relation to an issue as to the current market value of property which the creditor has
sold. In principle, it seems to me that the creditor has to give credit for the current market value, and therefore he must show that he has obtained it; but
the guarantor may have the burden of proving that the creditor was in breach of his obligation to obtain it. In practice, the burden is unlikely to be
difficult for the creditor to discharge, if he has taken reasonable steps to market the property, and if his figure is challenged, then there will be evidence
from both parties which will make the burden of proof academic, as in my judgment it is here.

Conclusion
28. For these reasons, I would allow the appeal and enter judgment for the second defendant dismissing the society’s claim.

POTTER LJ. I agree, subject to one further observation in respect of para 27 of the judgment of Evans LJ. The incidence of the burden of proof very
rarely proves critical in a case of this kind, the question of market value depending on the rival evidence of surveyors. The judge is likely to prefer the
evidence of one of them after considering all the circumstances of the case. I would reserve deciding where the burden of proof lies to a case in which it
will in fact be decisive.

ALLIOTT J. I agree.

Appeal allowed.

Dilys Tausz Barrister.

[2000] 2 All ER 788
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Masters and another v Secretary of State for the Environment and another

TRANSPORT; Road: ENVIRONMENTAL

QUEEN’S BENCH DIVISION, CROWN OFFICE LIST

HOOPER J
30 JUNE, 1 JULY, 1 OCTOBER 1999

Highway – Classification – Definitive map – Byway – Whether highway could be described as byway without current user – Wildlife and Countryside Act
1981, s 66(1).

The respondent county council made an order under s 53(2)(b) of the Wildlife and Countryside Act 1981, changing the status of a right of way shown on
the definitive map as a road used as a public path to that of a byway open to all traffic. Under s 66(1)a of the 1981 Act, such a byway was defined as a
highway over which the public had a right of way for vehicular and all other kinds of traffic, but which was used by the public mainly for the purpose for
which footpaths and bridleways were so used. The order was opposed by the owners of the land through which the route passed, but was confirmed by
the Secretary of State following a public inquiry. The landowners appealed, contending, inter alia, that the highway could not be properly described on
the definitive map as a byway in the absence of current user.
________________________________________
a Section 66, so far as material, is set out at p 791 b, post
________________________________________

Held – On the true construction of s 66(1) of the 1981 Act, the definition of byway referred to a type of highway and was not confined to those which
were currently and actually used by the public mainly for the purpose for which footpaths and bridleways were so used. Such a construction was
consistent with the purpose of the statutory definition, namely to distinguish byways from ordinary roads and to exclude the latter. Moreover, a
conclusion to the contrary would result in walkers and riders losing the valuable protection of the definitive map. Accordingly, the landowners’
construction would be rejected, and the appeal would be dismissed (see p 795 j, p 796 j, p 797 b to e, and p 800 h, post).
R v Wiltshire CC, ex p Nettlecombe Ltd [1998] JPL 707 not followed.

Notes
For the definitive map, see 21 Halsbury’s Laws (4th edn reissue) para 264.
For the Wildlife and Countryside Act 1981, s 66, see 20 Halsbury’s Statutes (4th edn) (1999 reissue) 462.

Cases referred to in judgment

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 1 All ER 680, [1948] 1 KB 223, CA.
R v Secretary of State for the Environment, ex p Hood [1975] 3 All ER 243, [1975] QB 891, [1975] 3 WLR 172, CA.
R v Wiltshire CC, ex p Nettlecombe Ltd [1998] JPL 707.
Stevens v Secretary of State for the Environment (1998) 76 P & CR 503.
Suffolk CC v Mason [1979] 2 All ER 369, [1979] AC 705, [1979] 2 WLR 571, HL. ­ 788 Cases also cited or referred to in skeleton arguments
Caswell v Dairy Produce Quota Tribunal for England and Wales [1990] 2 All ER 434, [1990] 2 AC 738, HL.
R v Secretary of State for the Environment, ex p Simms [1990] 3 All ER 490, [1991] 2 QB 354, CA.
Tesco Stores Ltd v Secretary of State for the Environment [1995] 2 All ER 636, [1995] 1 WLR 759, HL.

Appeal
The appellants, David Herbert Masters and Marlene Peggy Masters, appealed pursuant to para 12 of Sch 15 to the Wildlife and Countryside Act 1981
from the decision of the first respondent, the Secretary of State for the Environment, on 6 August 1997 confirming an order made by the second
respondent, Somerset County Council, on 10 June 1994 under s 53(2)(b) of the 1981 Act whereby the status of a right of way shown in the County of
Somerset Definitive Map as a road used as a public path was modified to the status of a byway open to all traffic. The facts are set out in the judgment.

George Laurence QC and Louise Davies (instructed by Thrings & Long, Bath) for the appellants.
John Hobson and Robert Palmer (instructed by the Treasury Solicitor) for the Secretary of State.
Edwin Simpson (instructed by Andrew North, Taunton) for the county council.

At the conclusion of the argument Hooper J announced that the appeal would be dismissed for reasons to be given later.

1 October 1999. The following judgment was delivered.

HOOPER J.
1. This is an appeal under para 12 of Sch 15 to the Wildlife and Countryside Act 1981 against the decision of the first respondent dated 6 August
1997 to confirm the Somerset County Council (Road Used as a Public Path) Wincanton 16/11 (No 1) Modification Order 1994 made on 10 June 1994.
The route passes from one minor road, which used to be a turnpike road, to another minor road through Lower Clapton Farm which is owned by the
appellants and Upper Clapton Farm.
2. By that order, made under s 53(2)(b) of the 1981 Act, the status of a right of way shown in the County of Somerset Definitive Map as a road used
as a public path (RUPP) was modified to the status of a byway open to all traffic (byway). The order described the relevant date for the purposes of s
56(2)(b) as being 2 March 1994. The order being opposed by the appellants could not take effect unless confirmed either by a person appointed by the
Secretary of State or by himself (Sch 15 of the 1981 Act). By letter dated 24 March 1995, the Secretary of State announced that he intended to take the
decision himself.
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3. One of his reasons for so doing was that the appellants in 1993 had applied to the council for an order pursuant to s 53(2), (3)(c)(iii) and (5) of the
1981 Act deleting the RUPP from the definitive map, on which it had been shown since 1972. The council declined to make the order sought by the
appellants and Mrs Masters appealed to the Secretary of State under Sch 14 to the 1981 Act.
4. The Secretary of State established a public inquiry to investigate whether the 1994 order should be confirmed. On 26 July 1996, the inspector
reported ­ 789 recommending the confirmation of the order. On 6 August 1997 the first respondent both confirmed the order and dismissed the
Masters’ appeal. It is the confirmation of the order which is the subject matter of this appeal.
5. The bundle of documents filed for the purposes of the hearing tend to show that the route had fallen into disuse around the turn of the century, had
become overgrown and impassable and was then obliterated by the then owner in so far as it passed through Upper Clapton Farm. He was successfully
prosecuted for obstruction of a highway in 1991 and that part of the route is now open. Complaints are recorded as having been made as long ago as
1975. At the time of the prosecution the appellants were asked to remove barbed wire fencing and a tubular framed barrier which were obstructing the
route. They did so but put in gates. In 1991 Mr Masters sent to the rights of way section of the county council an invoice for supplying and fitting two
gates on the route. That invoice received a frosty response from the second respondent, which declined to pay and required the removal of the gates as an
unauthorised obstruction of a RUPP. Riders have been challenged at Lower Clapton Farm and a washing line was, at some point, strung across the route
there. The inspector reported: ‘The route is now ridden infrequently because of the challenges by the Masters family at Lower Clapton Farm’ (para 5.8, p
228). Particular alleged challenges are recorded at pp 286, 303, 312 and 314. If the witnesses are giving accurate accounts, it would not be surprising that
riders have ‘ridden infrequently’. (In addition to the pages cited, see also pp 98, 150, 223 and 227.)

The law
6. There was no dispute as to the correctness of the maxim: ‘Once a highway, always a highway.’
7. The statutory background is helpfully set out in the appellants’ skeleton argument:
‘3. Section 27 of the National Parks and Access to the Countryside Act 1949 (the 1949 Act) imposed a requirement upon county councils to
survey their areas and produce a map showing footpaths, bridleways or roads used as public paths (RUPPs). Section 27(6) defined a RUPP as “a
highway, other than a public path, used by the public mainly for the purposes for which footpaths or bridleways are so used”. Section 32(4)(b) of
the 1949 Act provided that where the map showed a bridleway or a RUPP, that was to be conclusive evidence that the public had thereover a right
of way on foot and a right of way on horseback or leading a horse, without prejudice to the question whether the public had at that date any right of
way other than those rights. 4. The Countryside Act 1968 (the 1968 Act) required county councils to review their definitive maps and reclassify
every RUPP as either a byway open to all traffic (BOAT), a bridleway or a footpath. The expression RUPP was no longer to be used. As part of
that review process, consideration was to be given to the suitability of a RUPP for vehicular traffic and to whether extinguishing vehicular rights
would cause undue hardship (paragraphs 7 to 10 in Part III of Schedule 3 to the 1968 Act). 5. Not all RUPPs were reclassified in consequence of
the 1968 Act. The current legislation is the 1981 Act. That Act does not define a RUPP. Section 54(1) of the Act requires county councils to carry
out a review of RUPPs [meaning for the purposes of the section ‘a way which is shown in a definitive map and statement as a road used as a public
path’]. Section 54(2) provides that the definitive map and statement shall show a RUPP as either a byway open to all traffic, a bridleway or a
footpath. Section 54(3) provides that a RUPP shall ­ 790 be shown: “(a) if a public right of way for vehicular traffic has been shown to exist, as a
byway open to all traffic; (b) if paragraph (a) does not apply and public bridleway rights have not been shown not to exist, as a bridleway; and (c) if
neither paragraph (a) nor paragraph (b) applies, as a footpath.” 6. The various categories of highway which may be shown on the definitive map are
defined in s 66(1) of the 1981 Act. A BOAT is defined as “a highway over which the public have a right of way for vehicular and all other kinds of
traffic, but which is used by the public mainly for the purpose for which footpaths and bridleways are so used.” 7. Section 53(2) of the 1981 Act
requires county councils to keep the definitive map and statement under review and make such modifications to the map and statement as appear to
them to be requisite in consequence of the occurrence of certain specified events. Section 53(3)(c) provides that one relevant event is: “(c) the
discovery by the authority of evidence which (when considered with all other relevant evidence available to them) shows—(i) that a right of way
which is not shown in the map and statement subsists or is reasonably alleged to subsist … (ii) that a highway shown in the map and statement as a
highway of a particular description ought to be there shown as a highway of a different description; or (iii) that there is no public right of way over
land shown in the map and statement as a highway of any description, or any other particulars contained in the map and statement require
modification.” 8. Section 53(5) provides that any person may apply to the authority for an order under s 53(2) making such modifications as appear
to the council to be requisite in consequence of an event failing within, inter alia, sub-s 53(3)(c). The council’s obligations on receipt of such an
application are provided for in paragraphs 1, 2 and 3 of Schedule 14 of the 1981 Act …’
8. Section 56 of the 1981 Act provides for the effect of a definitive map and statement:
‘(1) A definitive map and statement shall be conclusive evidence as to the particulars contained therein to the following extent, namely—(a)
where the map shows a footpath, the map shall be conclusive evidence that there was at the relevant date a highway as shown on the map, and that
the public had thereover a right of way on foot, so however that this paragraph shall be without prejudice to any question whether the public had at
that date any right of way other than that right; (b) where the map shows a bridleway, the map shall be conclusive evidence that there was at the
relevant date a highway as shown on the map, and that the public had thereover at that date a right of way on foot and a right of way on horseback
or leading a horse, so however that this paragraph shall be without prejudice to any question whether the public had at that date any right of way
other than those rights; (c) where the map shows a byway open to all traffic, the map shall be conclusive evidence that there was at the relevant date
a highway as shown on the map, and that the public had thereover at that date a right of way for vehicular and all other kinds of traffic; (d) where
the map shows a road used as a public path, the map shall be conclusive evidence that there was at the relevant date a highway as shown on the
map, and that the public had thereover at that date a right of way on foot and a right of way on horseback or leading a horse, so however that this
paragraph shall be without prejudice to any question whether the public had at that date any right of way other than those rights …’ ­ 791 9.
During the course of argument Mr Laurence QC for the appellants spoke of the use by ‘4x4s’ of byways. Highway authorities have the power to
make traffic regulation orders preventing the use of motorised vehicles (see letter to the appellants from Somerset County Council dated 7 March
1994.)

Ground (c)—‘predominant use on foot and horseback as required to fulfil byway definition not established’
10. Ground (c) was not a matter which the Secretary of State had considered or was asked to consider. Mr Laurence relies upon the decision of
Dyson J in R v Wiltshire CC, ex p Nettlecombe Ltd [1998] JPL 707. In that case he successfully argued that a highway could not properly be described on
the definitive map as a byway in the absence of evidence of current user. He relied on the definition of byway in s 66(1) of the 1981 Act (see above para
7) and, particularly, the words ‘which is used by the public mainly for the purpose for which footpaths and bridleways are so used’. He argues that there
must be evidence of ‘current use by vehicles and equestrians and pedestrians’ at the relevant date. He further argues that there must be ‘more such
current use by pedestrians and equestrians (combined) than by vehicles’. As Mr Laurence himself wrote in an article:
‘In my experience, there was prior to Nettlecombe a more or less universal assumption that a public vehicular carriage-way could properly be
shown on the map as such as long as it was not mainly or exclusively used with vehicles. In other words, the definition was treated as being
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directed to preventing ordinary tarred roads, on which the motor car dominated, from being shown on the map. All other public vehicular
carriageways have been thought to qualify for inclusion on the map as BOATs.’ (‘User Element in Definition of BOATs (1)’ [1998] Oct (8.2)
RWLR 87.)
11. During the course of argument I made it clear that I had doubts about the correctness of Ex p Nettlecombe Ltd and Mr Laurence rightly reminded
me that I should follow it unless I thought it was plainly wrong. I also made it clear that, if Mr Laurence was right, then the matter would have to go back
to be reconsidered by the first respondent, in the light of the fact that the point had not been taken before. Although Mrs Smith, the second respondent’s
rights of way officer, has summarised the evidence before the enquiry of user, I take the view that it would not be right for me to apply what Mr Laurence
says is the right test, to that evidence.
12. Before looking at the law, it is helpful to look at the practical consequences if Mr Laurence’s interpretation is right. (i) If under s 53 of the 1981
Act, the authority has decided that a RUPP shown on the definitive map is a highway with a public right of way for vehicular traffic then, although under
sub-s (3)(a), it has a duty to show it as a byway on the map, it will not be able to do so unless there is evidence that it is actually used by the public mainly
for the purpose for which footpaths and bridleways are so used, a matter to which I return shortly. (ii) In the absence of such evidence, it could not be
shown as a byway or, indeed, as a RUPP, because s 54(2) of the 1981 Act provides that a definitive map and statement ‘shall not employ the expression’
RUPP. (iii) Nor could it be shown as a bridleway or footpath because, by virtue of s 66(1) of the 1981 Act, to be a bridleway or footpath it must be a
highway over which the public have only the limited rights associated with bridleways and footpaths. This would be inconsistent with the finding that
there is public right of way for vehicular traffic. (iv) Albeit that the public would continue to have full vehicular, equestrian and ­ 792 pedestrian rights
over the highway, the definitive map and statement could not show this and, presumably, the signs saying ‘byway’ would have to be taken down. (v)
Given that s 56 of the 1981 Act (which makes the definitive map and statement conclusive evidence of the existence of a highway) would no longer
apply, the authority would have to prove to the criminal standard that the route was a highway if it prosecuted a person for obstructing the route. (vi) Not
only would a prosecution be expensive but, as anyone knows who has been involved with highway cases of this kind, it can often be difficult to prove the
existence of a highway and will become increasingly more difficult as potential witnesses die. (vii) Assuming that the highway had been removed from
the definitive map and statement, the authority, on its own motion or on application under s 53 of the 1981 Act, would have to restore it if there was
evidence that it was now actually being used by the public mainly for the purpose for which footpaths and bridleways are so used. (viii) Assuming that the
definitive map and statement showed the highway as a byway but for one reason or another, including unlawful stopping up, obstruction or harassment by
the landowner over whose land the highway passes, the highway was not now actually being used by the public mainly for the purpose for which
footpaths and bridleways are so used, then the authority, on its own motion or on application under s 53 of the 1981 Act, would have to remove the
highway from the map and statement altogether.
13. I now turn to the evidence which, according to Mr Laurence, would have to be produced to show or to continue to show a byway on a definitive
map. Helpfully he has set it out in a schedule to the article from which I have already cited a passage:

Category Current public Current public Current public Balance of use BOAT?
vehicular use? pedestrian use? equestrian use?
1. Yes No No Only current public vehicular No
use
2. Yes Yes No More current public vehicular No
use than current public
pedestrian use
3. Yes No Yes More current public vehicular No
use than current public
equestrian use
4. Yes Yes Yes More current public vehicular No
use than current public
pedestrian and current public
equestrian use combined
5. No No No Balancing impossible No
6. No Yes No Only current public pedestrian No
use: balancing impossible
7. No No Yes Only current public equestrian No
use: balancing impossible
8. No Yes Yes Only current public pedestrian No
use and current public
equestrian use; no current
public vehicular use: balancing
impossible
9. Yes Yes Yes Less current public vehicular Yes
use than current public
pedestrian and current public
equestrian use combined
10. Yes Yes No Less current public vehicular No
use than current public
pedestrian use than current
public equestrian use
11. Yes No Yes Less current public vehicular No
use than current equestrian use,
but no current public pedestrian
use

­ 793
14. One can see from the schedule that there is only one set of circumstances—no 9—in which a byway survives. Number 8 fails because of no
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current public vehicular use. Thus if motorised vehicles are barred from the byway by order, only use by horse-drawn vehicles will enable it to stay as a
byway. Given the declining interest in driving horses many byways could disappear. If the landowner over which a highway passes seeks an order under
s 53 of the 1981 Act removing the byway from the definitive map, how does an authority show that no 9 applies? Persons using byways do not sign in!
As I put it to Mr Laurence during the course of argument, in order to retain a byway, ramblers, horse-riders and those who drive horses would have to get
together to make sure that they used the byway in the right proportions. Even then their best efforts may be thwarted by others who destroy the balance
which they had hoped to achieve. If the byway was open to ‘4x4s’ a group of them could tilt the balance from no 9 to no 4.
15. I hope that I have shown the extraordinary consequences which would follow if Mr Laurence is right. Hard pressed authorities could be deluged
with applications and would have to spend an inordinate amount of time and money preserving what many see as one of the great heritages of this
country, namely our system of byways, bridleways and footpaths criss-crossing rural England and Wales and enshrined in a definitive map.
16. In the light of this and given what Mr Laurence described as a ‘more or less universal assumption’ (para 10 above), I would be very reluctant to
accept his submissions unless constrained to do so. He relies on the wording of the definition of byway and draws support from the slightly different
wording by ­ 794 which the National Parks and Access to the Countryside Act 1949 defined a RUPP (para 7 above). He points, in that definition, to
the use of the plural ‘purposes’ rather than the singular ‘purpose’ and the use of ‘or’ rather than ‘and’ between the words ‘footpaths’ and ‘bridleways’. It
is the use of the word ‘and’ in the 1981 Act which underpins, for example, nos 10 and 11 in his schedule.
17. The background to the 1949 Act was fully explored by the House of Lords in Suffolk CC v Mason [1979] 2 All ER 369 at 379, [1979] AC 705 at
720–721. As Lord Hailsham of St Marylebone LC said:
‘… its target is the maintenance of access to the countryside, not primarily in the interest of the local inhabitants (who would not be inclined to
leave paths disused or impassable or allow them to he stopped up if they found them of substantial local value), but of the public at large, including
particularly perhaps the inhabitants of our towns, who might wish to enjoy access to the amenities of countryside and areas of natural beauty. Still
further from the mind of the legislature seems to have been the idea of extinguishing any existing right. On the contrary, its targets appear to have
been the inroads of nature, the apathy of local inhabitants, the proprietary zeal of rural occupiers, and the fallibility of human memory.’
That last sentence could certainly apply to the route in question, assuming that it is a highway. In R v Secretary of State for the Environment, ex p Hood
[1975] 3 All ER 243 at 248, 249, 250, [1975] QB 891 at 899, 901, 903, all three members of the court were of the view, as the headnote states, that it was
the intention of Parliament that the definitive maps should, subject to s 32(4)(b) of the 1949 Act (now, albeit in a slightly different form, s 56(1)(d) of the
1981 Act) and the review section (now s 53 of the 1981 Act) finally decide all questions as to public rights of way without them being reopened ‘when the
evidence on which the definitive decision was made might no longer be available’.
18. In Suffolk CC v Mason Lord Fraser of Tullybelton said, as to the 1949 Act:
‘Its whole emphasis is on recording and preserving rights which might otherwise be lost. That is also in my view the reason why the definitive
map is not required to show ordinary roads over which of course there must be a public right of way on foot and on horseback. Such roads are
entirely outside the scope of the Act.’ (See [1979] 2 All ER 369 at 387, [1979] AC 705 at 731.)
In Ex p Hood Lord Denning MR said:
‘Much difficulty was caused by [the] definition of “road used as a public path”. Seeing that it is a highway, it must come within the third
category of the common law, namely a cartway over which the public have a right, not only on foot or horse, but also in carts. The word “mainly”
is the problem. The object of the draftsman was to include cartways over which there is a public right of cartway, but which are used nowadays
mainly by people walking or riding horses, like the Berkshire Ridgeway or the ways over the South Downs. The draftsman intended to exclude
metalled roads used by motor cars.’ (See [1975] 3 All ER 243 at 246, [1975] QB 891 at 897; Lord Denning MR’s emphasis.)
The definition of RUPP in the 1949 Act was designed to exclude such roads. In my judgment, that was also the purpose of the definition of byway in the
1981 Act.
19. I now turn to R v Wiltshire CC, ex p Nettlecombe Ltd [1998] JPL 707. Mr Laurence (at 710) submitted that— ­ 795 ‘(1) the definition in
section 66(1) of the 1981 Act shows that for a particular way to come within Part III of the Act as a by-way open to all traffic, it must be currently used
by the public, and such public use must be predominantly pedestrian and/or equestrian; (2) the Council has no authority to make an order unless it
discovers evidence which (when considered with all other relevant evidence available to it) shows that the land over which a right of way subsists or is
reasonably alleged to subsist is currently used by the public; (3) no evidence was discovered by the Council which satisfied it, or could have satisfied any
reasonable authority that the condition in (2) was made out.’
20. Mr Gordon QC submitted on behalf of the council that the words ‘but which is used’ obliged the authority to determine the potential use by the
public of the highway. Dyson J said (at 711):
‘I reject Mr Gordon’s arguments. First, the language of the definition is clear and unambiguous. It is expressed in the present tense, and refers
to current use, not past or future or potential use. Secondly, I cannot think of any policy reason why Parliament should have intended an authority
to carry out the difficult exercise of speculating into the future as to the possible uses of highways. Finally, I find nothing odd in the notion that in
relation to by-ways open to all traffic, Parliament was concerned not with rights of way, but with actual user. The aim and object of Part III of the
1981 Act is to protect the interests of walkers and riders in the countryside. It is entirely sensible and rational to say that the benefit of the
definitive map and statement should be accorded to pedestrian and equestrian users of bridleways and footpaths, i.e. highways over which such
users have rights of way, and to say in relation to highways over which the public have a right for vehicular and other kinds of traffic, that the
protection of the definitive map and statement is accorded only if they are actually used by the public mainly for the purpose for which footpaths
and bridleways are used. In my view, it is open to an authority to have regard to recent use when it decides whether a highway is currently being
used by the public within the meaning of the definition of by-way open to all traffic in section 66(1). There will be borderline cases in which it is
difficult to decide how far back in time an authority can properly go in order to determine the present use of a highway … I should add that the
interpretation contended for by Mr Laurence is consistent with the meaning of “road used as a public path” in section 27(6) of the National Parks
and Access to the Countryside Act 1949. The “road used as a public path” was the predecessor of the “byway open to all traffic” under the 1981
Act. It was defined as “a highway, other than a public path, used by the public mainly for the purposes for which footpaths or bridleways are so
used”. Dicta in R. v. Secretary of State for the Environment, ex parte Hood ([1975] 3 All ER 243 at 246, 251, [1975] QB 891 at 897, 904) “but
which are used nowadays by people walking or riding horses”, “a public way which is mainly used as a footpath or bridleway”, and Suffolk County
Council v. Mason ([1979] 2 All ER 369 at 372, 375, [1979] AC 705 at 710, 715) “those which are exclusively, or mainly, used either by ramblers
alone or by both riders and ramblers”, show that, in relation to a road used as a public path, there had to be actual current use. I am fortified in my
conclusion by these dicta, since the definition of a by-way open to all traffic points even more clearly to actual current use than did its predecessor.’
21. I have already said that, in my judgment, the purpose of giving a definition to byway was to distinguish byways from ordinary roads. Mr Gordon
did not ­ 796 apparently submit that the purpose of the definition is to exclude ordinary roads. Nor apparently did he argue that giving the word
‘byway’ a restrictive meaning would have the serious consequences which I have outlined. Dyson J says, in this passage, that: ‘The aim and object of
Part III of the 1981 Act is to protect the interests of walkers and riders in the countryside.’ Although on the authority of Suffolk CC v Mason that is true
of the 1949 Act, I am not sure that that is true of the 1981 Act if by that passage Dyson J meant that the rights of those (for example) who drive horses are
not being protected. In any event, as I hope I have shown, the consequence of interpreting the definition in this way is that, although walkers and riders
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may continue to use byways, they lose the very valuable protection of the definitive map. I accept that the dicta cited by Dyson J and other passages set
out by Mr Laurence in his article offer support for the proposition that the definition introduces a requirement of current use. However, I take the view
that they cannot be decisive of the issue.
22. In conclusion, the intention behind defining the word ‘byway’ in s 66(1) of the 1981 Act in the way that it is defined was to distinguish byways
from ordinary roads. Having regard to the duty in s 54 of the 1981 Act to reclassify a RUPP as a byway if ‘a public right of way for vehicular traffic has
been shown to exist’, to the maxim ‘once a highway, always a highway’, to the legislative intention to record and preserve highways by making a
definitive map and statement conclusive and having regard to the serious consequences which would follow from the literal interpretation which Mr
Laurence seeks to give to the definition, the definition should be construed in a purposive manner. The definition is referring to a type of highway and
not seeking to limit byways to those which are currently and actually ‘used by the public mainly for the purpose for which footpaths and bridleways are
so used’. Ground (c) fails.

Ground (b)—the 1929 handover map

23. The appellants submit that the Secretary of State erred in law in treating the council’s belief that in 1929 at the time of the handover that there
were vehicular rights as independent evidence supporting the conclusion that such rights did indeed exist. The relevant paragraphs are paras 12–13.
24. Under s 29 of the Local Government Act 1929 the responsibility for all highways maintainable at public expense was transferred to county
councils and they became county roads. The list prepared by Wincanton Rural District Council and accepted by the county included this route. The
Secretary of State concluded that the omission of footpaths and bridleways from the route ‘suggests that [Wincanton] intended to show only vehicular
routes which they believed they had an obligation to maintain’. The Secretary of State lists the reservations about any such list but: ‘He … agrees with
the Inspector’s view that the Handover List and Map were a positive statement of what was then believed to be the status of the roads listed.’ As Mr
Hobson pointed out: ‘That belief was evidence of the reputation of the road at the time and the basis upon which the County Council accepted the
responsibility to carry out repairs.’
25. Mr Laurence submits that this conclusion was one that the first respondent could not lawfully reach in the light of Stevens v Secretary of State
for the Environment (1998) 76 P & CR 503 (Sullivan J). In that case it was held that on a reclassification of a RUPP, the mere fact that it was a RUPP
could not in itself establish the existence of vehicular rights. That is not relevant to this case. Here there is not only belief in the status of the road but
also acceptance by the county council of that status with the consequences that could follow from that. The Secretary of State’s decision to treat this as a
relevant ­ 797 consideration is not Wednesbury unreasonable (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 1 All ER 680,
[1948] 1 KB 223). I see no merit in ground (b).

Ground (a)—the 1886 ordnance survey map

26. This argument is developed in the appellants’ skeleton argument:

‘12. The order route is shown on the 1886 OS map with the southern line thickened over most of its length. In paragraph 8.8 of his report
(bundle p 236) the Inspector concluded that: “If the cartographer was following the instructions in the OS circulars of 1884 and 1885 then he clearly
intended to convey the opinion that the through route, including the order length was a metalled public road for wheeled vehicles repairable by the
highway authority …” 13. The Secretary of State in his decision letter (paragraph 10 bundle p 246) stated that: “The Secretary of State agrees with
the council that the OS Circular of 1884 cannot be ignored—this clearly states that all metalled public roads for wheeled traffic kept in good repair
by the Highway Authority will be shaded … if the cartographer was carrying out the instructions contained in the OS circulars of 1884 and 1885, he
was indicating that the route was a metalled public road for wheeled vehicles and repairable at public expense. No evidence has been produced to
persuade the Secretary of State that the 1886 OS map was wrong in this respect.” 14. The OS circular of 1884 (bundle p 259) provided that “All
metalled Public Roads for wheeled traffic kept in good repair by Highway Authority will in future be shaded”. The 1885 OS circular (bundle p
262) provided that “All Metalled Carriage Drives will in future be shaded as 2nd Class Roads, but the shading not quite so prominent as on Public
Roads”. There was no evidence before either the Inspector or the Secretary of State to indicate whether the shading of the order route on the 1886
OS map was of the more or less prominent variety. Accordingly the conclusion drawn by the Inspector and the Secretary of State, that a
cartographer following the 1884 and 1885 circulars must have been intending to indicate that the order route was a public vehicular highway was
clearly wrong. The shading on the order route could have indicated either a metalled public vehicular highway kept in good repair (1884 circular),
or a metalled carriage drive (1885 circular). It is not possible to determine from the OS map which was intended, and so the OS map was neutral on
the question of status.’
27. In para 15 of the skeleton it was submitted that, at the inquiry, it had been accepted by the second respondent that the 1886 map indicated only
metalling and not status. This appears to have been a misunderstanding on the part of the appellants as the following paragraphs from the affidavit of Mrs
Smith, the second respondent’s right of way officer show. In giving evidence at the enquiry, she said that, in her opinion, the surveyor who prepared the
1886 road believed the land to be a public road (her statement is at pp 288–289 and the summary of the case being presented by the second respondent is
in para 4.16 of the report, p 225).
‘4. I was aware of the distinction to be drawn between shading that was “not so prominent” (metalled carriage drives) and more prominent
(public roads) and can recall that this issue was considered during the Public Inquiry. 5. I had previously carried out a comparative exercise in
respect of three local parishes (Maperton, Holton and Corton Denham) where ways shown on the 1886 O.S. Map with thickened boundaries were
compared to the ­ 798 roads shown on the 1929 handover map and the subsequent road maintenance records dated 1930, 1950 and the present
day. 6. I had also compared the thickened line of the Order Route to the thickened line of the Class III County Road which runs from the A371 to
the A303, and which adjoins the Order Route in the vicinity of Lower Clapton Farm (this route was turnpiked in 1753). This road is also shown
with a similar thickened line. 7. My conclusion was that there was a consistent pattern shown of roads that were shaded on the 1st Edition O.S.
Map being now maintained by the Highway Authority as public vehicular routes. That pattern could be traced from the 1886 O.S. Map down
through the various road maintenance maps (showing roads maintained by the County Council as vehicular routes) to the present day. 8. All the
ways which had thickened boundaries within the three Parishes that I investigated later appeared as publicly maintainable vehicular roads. 9. I
presented the comparison maps in respect of the three Parishes to the Inspector at the Public Inquiry and he retained a copy of these maps [a copy
was provided to me during the course of argument]. 10. In the course of my investigation, I was not able to find any way known now to be of the
status of private carriage road within the three Parishes concerned and to check how it might have been depicted on the O.S. map in 1886. 11.
During the course of the Inquiry I was cross-examined on my evidence over a period of two days. I cannot recall indicating a change in my view as
to the significance that might be attached to the “thickened” line in the 1886 O.S. map.’
28. In a letter dated 18 August 1998, the second respondent wrote in reply to a letter which put forward the proposition that Mrs Smith had altered
her position:
‘The Rights of Way Officer … does not believe that she would have moved from the position set out in her statement. She notes that the
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Inspector’s report sets out the County Council’s position with regard to the significance of the O.S. map and would have expected the Inspector to
reflect any significant change of position on the part of the County Council in his report.’
29. In the light of this affidavit the appellants are wrong in submitting:
‘There was no evidence before either the Inspector or the Secretary of State to indicate whether the shading of the order route on the 1886 OS
map was of the more or less prominent variety.’
30. During the course of argument some time was spent analysing para 8.8 of the inspector’s report. In para 8.5 he had written: ‘… I believe it is
significant that the road was always a through route, connecting into the highway network of the area. It is more than a route between two farms.’
Paragraph 8.8 reads:
‘The 1886 OS 1st Edition opened the issue of status again by showing the eastern and southern boundaries of the through route more heavily
shaded, possibly indicating that it was then a metalled public road for wheeled vehicles, and not a footpath. [4.16] Although the view was
subsequently expressed by the Ordnance Survey Office [6.19] that their maps do not indicate status, the letter of the 11th March 1994 from the
Office to Mrs Masters does not in my view clarify the situation as at 1886 or their intentions in shading the road boundaries. There was no
evidence that at any time the Order route section was in fact metalled. However the shading on the map is clear, and the ­ 799 marking of what is
now FP WN 16/1 as a footpath is also clear. [4.16] If the cartographer was following the instructions in the OS Circulars of 1884 and 1885 then
he clearly intended to convey the opinion that the through route, including the Order length was a metalled public road for wheeled vehicles and
repairable by the highway authority. This shading could not have been done in error and even though by 1903 the OS map 2nd Edition did not
show shading, [4.16] it is in my view more than a possibility that the intention was to show that the through route was a public vehicular highway in
1886.’ (My emphasis.)
31. Paragraph 4.16, the reference to which follows the words which I have emphasised, and para 6.19 contain a summary of, respectively, the case
for the second respondent and for the appellants.
32. Given the evidence put before the inspector by the second respondent and the reference to ‘more heavily shaded’, it seems clear that the
inspector did understand the relevance of the type of shading. Mr Laurence submits that the next few words, ‘… possibly indicating that it was then a
metalled public road for wheeled vehicles, and not a footpath …’, indicate that either the inspector had some doubts about the value of relying on the
survey or that he was unable to determine whether the route was heavily shaded or not. In my view the second of those cannot be right for the reasons I
have given. Given the inspector’s conclusion at the end of para 8.8, these words, whatever they mean, do not affect the validity of his conclusions.
33. Mr Laurence submitted that even if the inspector had understood the relevance of the shading, the first respondent had not done so. In para 8, the
Secretary of State writes:
‘… it is generally accepted that where a route is portrayed on a number of maps in a similar manner to other routes which are known today to be
public roads then it is reasonable to conclude, on the balance of probability, that the route in question was also public and possibly vehicular, in the
absence of evidence to the contrary.’ (See also para 18.)
It seems safe to assume that the Secretary of State had in mind the exercise which Ms Smith had done for the inspector (see para 2). Although the
Secretary of State does not himself use words such as ‘more heavily shaded’, his reference to both Ordnance Survey circulars indicates that he must have
had in mind the need to decide which shading was being used. His concluding words were: ‘No evidence has been produced to persuade the Secretary of
State that the 1886 OS map was wrong in this respect.’ Although the appellants complain about the conclusion reached by the inspector and by the first
respondent, they have not produced any evidence to contradict the evidence produced by the second respondent as to shading. Ground (a) also has no
merit.
34. I therefore dismiss the appeal.

Appeal dismissed. Permission to appeal granted on ground (c) only.

Dilys Tausz Barrister.

[2000] 2 All ER 801

Tanfern Ltd v Cameron-MacDonald and another

CIVIL PROCEDURE

COURT OF APPEAL, CIVIL DIVISION

LORD WOOLF MR, PETER GIBSON AND BROOKE LJJ
12 MAY 2000

Practice – Appeal – New provisions governing civil appeals in private law matters – Explanation and guidance – Access to Justice Act 1999 – Access to
Justice Act 1999 (Destination of Appeals) Order 2000.

(1) Under new provisions governing civil appeals in private law matters which came into effect on 2 May 2000, an appeal court (ie the court hearing the
first appeal from a decision) will, as a general rule, only allow an appeal where the decision of the lower court was wrong, or where it was unjust because
of a serious procedural or other irregularity. Moreover, the Court of Appeal will only hear a second appeal if it considers that such an appeal will raise an
important point of principle or practice or that there is some other compelling reason to do so. Accordingly, the decision of the ‘first instance’ judge in
what used to be called an ‘interlocutory appeal’ will assume a much greater importance than under the old procedure in which the ‘judge in chambers’
conducted a complete rehearing, with an entirely fresh discretion to exercise and the decision of the appeal court, whether a circuit judge or a High Court
judge, is in most cases now likely to be final. Those changes will compel litigants and their advisers to pay even greater attention to the need to prepare
their cases with appropriate care because they may now find it much more difficult to extricate themselves from the consequences of an ill-prepared case
before a judge at first instance in a lower court (see p 808 d to g, p 811 d e and p 813 b to d, post).
(2) Where, in a claim allocated by a court to the multi-track under CPR 12.7, 14.8 or 26.5, the final decision is given by a district judge or circuit
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judge in the county court, or a master or district judge of the High Court, an appeal from that decision will, under the new provisions, lie directly to the
Court of Appeal. Before those provisions came into effect, an appeal from a county court district judge in such a case would have had to have been
brought before the circuit judge (see p 804 f h to p 805 b d, p 806 b c and p 813 d, post).
(3) In the context of multi-track claims, a final decision is one that will finally determine the entire proceedings, subject to any possible appeal and or
detailed assessment of costs, whichever way the court decides the issues before it. It includes the assessment of damages or any other final decision made
at the conclusion of part of a hearing or trial which has been split into parts and would be a final decision if made at the conclusion of that hearing or trial,
but does not include a decision only on costs. Accordingly, if a judge makes a final decision on any aspect of a claim, such as limitation, or on part of a
claim which has been directed to be heard separately, that is a final decision within the meaning of art 1(3)a of the Access to Justice Act 1999
(Destination of Appeals) Order 2000. However, orders striking out the proceedings or a statement of case, and orders giving summary judgment under
CPR Pt 24, are not final decisions because they
________________________________________
a Article 1, so far as material, is set out at p 806 c, post
________________________________________
­ 801
will not finally determine the entire proceedings whichever way the court decides the issues before it (see p 806 c to f and p 813 d, post).
(4) Every order made on appeal must record the name and status of the judge against whom the appeal has been brought. Orders relating to the final
decisions of a lower court must also make it clear whether the order was made in the small claims track, the fast track or the multi-track. If it was made in
the latter, the order must state whether it was made in a claim allocated to the multi-track or whether the procedure under CPR Pt 8 was followed (see p
812 a to c and p 813 d, post).
(5) The new rules and destination arrangements will apply in all cases in which an appeal notice has been filed or an application for permission to
appeal has been made on or after 2 May 2000. If an application for permission to appeal has been made to the appeal court before 2 May, and that court
gives permission to appeal (whether before or after 2 May), the appeal will be brought and will continue its progress under the old rules. However, where
the lower court granted permission to appeal, the appeal will be governed by the old rules only if the notice of appeal was filed at the appeal court before
2 May (see p 812 d j and p 813 d, post).

Cases referred to in judgments

A T Poeton (Gloucester) Plating Ltd v Horton (9 May 2000, unreported), CA.
Director General of Fair Trading v Stuart [1991] 1 All ER 129, [1990] 1 WLR 1500, CA.
G v G [1985] 2 All ER 225, [1985] 1 WLR 647, HL.
Swain v Hillman (1999) Times, 4 November, [1999] CA Transcript 1732.

Application for directions

By notice of application dated 27 April 2000, the claimant, Tanfern Ltd, applied for directions in respect of bringing an appeal from the decision of
District Judge Ackroyd at Portsmouth County Court on 23 February 2000 dismissing its proceedings for unpaid rent against the defendants, Gregor
Cameron- MacDonald and Mona Berit Cameron-MacDonald. The facts are set out in the judgment of Brooke LJ.

Paul Emerson (instructed by Marks Miller & Co) for the claimant.
The defendants did not appear.

BROOKE LJ (giving the first judgment at the invitation of Lord Woolf MR).
1. This is an application made by the claimants in curious circumstances. They brought an action against the defendants for unpaid rent in relation to
a lease of cafe-restaurant premises in Petersfield which the defendants vacated in August 1996. The arrears of rent amounted to just over £20,000,
together with interest of about £7,000 up to 23 February 2000, the date of the hearing in the court below. The claim was originally started in the High
Court before being transferred to the county court. It was allocated to the multi-track, and with the consent of the parties District Judge Ackroyd heard
the claim and entered judgment for the defendants. His jurisdiction to try a multi-track claim was founded in para 11.1(d) of practice direction 2B, which
supplements CPR Pt 2. The district judge then gave permission to appeal.
2. The claimants sought to lodge their appeal at the county court as an appeal to the circuit judge. Their solicitors were advised, however, that the
designated civil judge had directed the court office at the Portsmouth County Court that ­ 802 since this was a multi-track case heard by the district
judge by consent, the appeal must go to the Court of Appeal. They did not believe that this was correct, and when they sought advice from a lawyer in
the Civil Appeals Office, she advised them to go back to the county court. They were also told that if they had tried to lodge an appeal at the Court of
Appeal under these circumstances the papers would have been returned to them since the Court of Appeal did not have jurisdiction to hear the appeal.
3. When they raised the matter of the appeal with the county court again, they were told that the designated civil judge had commented on their
further letter in these terms:

‘I still think that the appeal in this case goes direct to the Court of Appeal. CCR 37 R6 deals with appeals from District Judges exercising their
usual jurisdiction, and as appears from the notes extends and also covers cases within the concurrent trial jurisdiction of the County Court Judge and
the District Judge. But this case does not come into either category: it was a multi-track case being heard by a District Judge with the agreement of
the parties, ie he was in effect sitting as in the capacity of a Circuit Judge, and consequently an appeal from his decision cannot be entertained by
another Circuit Judge. That is a view shared by other Designated Judges.’

4. They therefore returned to the Court of Appeal in search of a home for their appeal. On this occasion the papers were referred to me, and I
directed that the matter should be listed before a two-judge court as soon as possible so that there could be an authoritative judicial ruling as to which
level of court the appeal should lie. I also requested the preparation of a bench memorandum by a lawyer in the Civil Appeals Office (to be shown to the
claimant’s solicitors) which would set out dispassionately the arguments for and against this court having jurisdiction to hear the appeal, since the matter,
although important, did not appear to warrant the instruction of an amicus. We are very grateful for the assistance we received, both from this source, and
from Mr Emmerson, who appeared for the claimants before us. Although we understand that the county court is now willing to list the matter as a
substantive appeal, it appeared to us to be very desirable to give an authoritative ruling on the point.
5. This was a county court matter, and at the relevant time appeals from orders of district judges in the county court were governed by CCR Ord 37, r
6 (as scheduled to the CPR). This provides that:
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‘(1) Any party affected by a judgment or final order of the district judge may, except where he has consented to the terms of the order, appeal
from the judgment or order to the judge …’
6. This rule was made under powers created by s 77(1A) of the County Courts Act 1984 which was inserted by Sch 17 to the Courts and Legal
Services Act 1990. This subsection enables rules of court to make provision:
‘… for any appeal from the exercise by a district judge, assistant district judge or deputy district judge of any power given to him by virtue of
any enactment to be to a judge of a county court.’
7. The situation was different so far as High Court proceedings were concerned. RSC Ord 58, r 2 (as scheduled to the CPR) provided for an appeal
from certain decisions of masters or district judges to go to the Court of Appeal. These included a judgment, order or decision of a master given or made
at trial ­ 803 on the hearing or determination of any cause, matter, question or issue tried before him (Ord 58, r 2(1)(a)). Ord 58, r 3 was concerned with
appeals from district judges in the High Court:
‘(1) An appeal shall lie from any judgment, order or decision of a district judge in any proceeding in any Division in the same circumstances
and … subject to the same conditions as if the judgment, order or decision were given or made by a Master or Registrar in those proceedings in that
Division, and the provisions of these rules with respect to appeals shall apply accordingly.’
8. When the Civil Procedure Rules were introduced on 26 April 1999, the practice direction which supplemented Ord 58, r 2 provided in para 1.1
that the provision was ‘not intended to alter the route of appeal from a decision of a Master or district judge’. Paragraph 1.2 stated that where, before 26
April 1999, an appeal would have lain from a decision of a master or district judge to a judge under RSC Ord 58, r 1, ‘it shall continue to do so under the
Civil Procedure Rules’. Paragraph 1.3 of the practice direction stated that:
‘RSC Order 58, rule 2(1)(a) provides that an appeal lies to the Court of Appeal from a decision of a Master or District Judge made “at trial …
on the hearing or determination of any cause, matter, question or issue tried before him”. This provision only applies where the parties have given
their consent for the Master or District Judge to try a case which has been allocated to the multi-track under Part 26 (see paragraph 4.1 of the
Practice Direction on Allocation of Cases to Level of Judiciary—Part 2B).’
9. If this action had been proceeding in a district registry of the High Court, the designated civil judge at Portsmouth would have been correct to
decline jurisdiction in these circumstances. These, however, were county court proceedings, and there is nothing in the county court rules to indicate a
direct route of appeal from a district judge of the county court to the Court of Appeal in circumstances like these.
10. So far as county court procedure is concerned, the judgment of this court in Director General of Fair Trading v Stuart [1991] 1 All ER 129,
[1990] 1 WLR 1500 elucidates the position helpfully. In that case the registrar of the Salford County Court (who would now be described as a district
judge) granted an injunction, to which the appellant raised no objection, restraining him from conducting any unfair trade practices. The appellant
appealed to the Court of Appeal, relying on s 42(2) of the Fair Trading Act 1973 which appeared to prescribe that route of appeal.
11. In his judgment, with which the two other members of the court agreed, Lord Donaldson of Lymington MR mentioned this submission, and said:
‘We have, of course, given due weight to that submission, but the error lies in failing to appreciate that an appeal to the judge of the county
court is in the nature of an internal appeal, and it is only if the litigant wishes to appeal outside the county court, an appeal from the county court to
another court, that s 42 comes into play and specifies that the court shall be the Court of Appeal rather than a Divisional Court or the Restrictive
Trade Practices Court or any other court.’ (See [1991] 1 All ER 129 at 130, [1990] 1 WLR 1500 at 1501–1502.)
­ 804
12. He added:
‘So, in summary, the appeal does lie to the judge under Ord 37 because that internal form of appeal within the county court is not the type of
appeal to which s 42(2) of the Fair Trading Act 1973 applies. It applies to appeals from the county court to another court and such an appeal can
only be brought after the internal remedies have been exhausted by an appeal from the registrar to the judge. I would so declare.’ (See [1991] 1 All
ER 129 at 130, [1990] 1 WLR 1500 at 1502.)

13. In my judgment, this accurately reflects the status of the appellate regime within the county courts up to 2 May 2000, and there is nothing in any
rule or practice direction to suggest that the regime would be any different because on a particular occasion a district judge was exercising the jurisdiction
of a circuit judge (see practice direction 2B, para 11.1(d)). This may seem to be an anomalous result, because if the district judge had been exercising
similar jurisdiction as a district judge of the High Court the appeal would indeed have lain to this court. It was always likely, however, that there would
be some anomalies during the interim period of 12 months between the introduction of a modern, integrated set of Civil Procedure Rules for first instance
hearings and the introduction of a similar set of procedures in respect of appeals. This interim period is now at an end, and as will be seen from the
second part of this judgment, appeal from the final decision of a district judge exercising jurisdiction in the multi-track in a case of this kind will in future
lie direct to this court, whether the action assigned to the multi-track is proceeding in the county court or in the High Court.
14. This is sufficient to dispose of the present matter, which must therefore proceed as an appeal to a circuit judge in the county court, with the costs
of this application being costs in the appeal. On 2 May 2000, however, a number of major changes were made to the arrangements for appeals in civil
courts, and this judgment provides the opportunity to explain their effect. For the many points of detail, courts and practitioners will of course have to
consult the instruments which introduced these changes. These are the Access to Justice Act 1999, CPR Pt 52 (together with rr 27.12–27.13 and CPR Pt
47, section VIII), the practice direction supplementing CPR Pt 52 (PD 52) and the Access to Justice Act 1999 (Destination of Appeals) Order 2000, SI
2000/1071. I have incorporated the effect of the Civil Procedure (Amendment No 2) Rules 2000, SI 2000/940 (the Amendment No 2 rules) and the latest
version of PD 52 into this judgment. The general rules relating to appeals in CPR Pt 52 are expressly made subject to any rule, enactment or practice
direction which sets out special provisions with regard to any particular category of appeal (r 52.1(4)). In this judgment I am concerned only with appeals
in civil proceedings in private law matters. I am not concerned with appeals in public law cases or with appeals in family proceedings.

Appeal to next level in judicial hierarchy: the general rule

15. As a general rule, appeal lies to the next level of judge in the court hierarchy. Thus in the county court appeal lies from a district judge to a
circuit judge, and from a circuit judge to a High Court judge; and in the High Court appeals lie from a master or district judge of the High Court to a High
Court judge and from a High Court judge to the Court of Appeal. The court hearing a first appeal is described in CPR Pt 52 as ‘the appeal court’ (r
52.1(3)(b)), and the court from whose decision an appeal is brought is described as ‘the lower court’ (r 52.1(3)(c)).
­ 805
A High Court judge hearing an appeal must have attained the status of a High Court judge or a judge of the Court of Appeal. Although retired judges
of this status may hear such appeals, they may not be heard by deputies of lesser status (PD 52, para 8.9(1)).

Appeal to next level in judicial hierarchy: the exceptions

16. The normal route of appeal will not be followed where a district judge or a circuit judge in the county court, or a master or district judge of the
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High Court gives the final decision in a multi-track claim allocated by a court to the multi-track under CPR 12.7, 14.8 or 26.5 (the 2000 order, art 4(1)).
This exception does not apply to a decision made in a Pt 8 claim (which is treated as allocated to the multi-track pursuant to r 8.9(c)) or a decision in a
claim allocated to the multi-track under some other provision, where the normal route of appeal will apply.
17. For this purpose a final decision is one that would finally determine the entire proceedings, subject to any possible appeal or detailed assessment
of costs, whichever way the court decided the issues before it (the 2000 order, art 1(2)(c)). A final decision includes the assessment of damages or any
other final decision where it is ‘made at the conclusion of part of a hearing or trial which has been split up into parts and would, if made at the conclusion
of that hearing or trial, be a final decision’ (the 2000 order, art 1(3)); it does not include a decision only on costs. This means that if a judge makes a final
decision on any aspect of a claim, such as limitation, or on part of a claim which has been directed to be heard separately, this is a final decision within
the meaning of this provision. Mr Emmerson told us that there was concern in some quarters that parts of a final decision might be subjected to one
avenue of appeal and other parts might have a different avenue of appeal, but the language of the 2000 order, art 1(3) appears to preclude this possibility.
18. Orders striking out the proceedings or a statement of case, and orders giving summary judgment under CPR Pt 24 are not final decisions because
they are not decisions that would finally determine the entire proceedings whichever way the court decided the issues before it.
19. The Court of Appeal is the appeal court for appeals against final decisions of the type described above (the 2000 order, art 4(a)). It is also the
appeal court where a final decision is taken in specialist proceedings to which r 49(2) applies, whatever level of judge made this final decision (the 2000
order, art 4(b)). These proceedings are admiralty proceedings, arbitration proceedings, commercial and mercantile actions, patents court business,
technology and construction court business, proceedings under the Companies Acts 1985 and 1989 and contentious probate proceedings.

Permission to appeal: the general rule

20. As a general rule permission is required for an appeal (CPR 52.3(1)). Permission may be granted either by the lower court at the hearing at
which the decision to be appealed was made, or by the appeal court (r 52.3(2)). If an appeal court refuses permission without a hearing, a request may be
made for the reconsideration of that decision at an oral hearing (r 52.3(4)). If at that oral hearing the appeal court refuses permission to appeal, then no
further right of appeal exists, and that is the end of the matter (the 1999 Act, s 54(4); CPR PD 52, para 4.8). One further new provision needs to be noted:
if an appellant is in receipt of services funded by the Legal Services Commission (or legally aided) and permission to appeal has been refused by the
appeal court without a hearing, ­ 806 the appellant must send a copy of the reasons the appeal court gave for refusing permission to the relevant office
of the Legal Services Commission as soon as it has been received from the court (PD 52, para 4.17).
21. Permission to appeal will only be given where the court considers that an appeal would have a real prospect of success or that there is some other
compelling reason why the appeal should be heard (r 52.3(6)). Lord Woolf MR has explained that the use of the word ‘real’ means that the prospect of
success must be realistic rather than fanciful (see Swain v Hillman (1999) Times, 4 November, [1999] CA Transcript 1732, para 10).
22. An order giving permission to appeal may limit the issues to be heard. It may also be made subject to conditions (r 52.3(7)). If a court confines
its permission to some issues only, it should expressly refuse permission on any remaining issues. Those other issues may then only be raised at the
hearing of the appeal with the appeal court’s permission. That court and the respondent should be informed of any intention to raise such an issue as soon
as practicable after notification of the court’s order giving permission to appeal (PD 52, para 4.18).

Permission to appeal: exceptions

23. Permission to appeal will not be required where the appeal is against a committal order, a refusal of habeas corpus or a secure accommodation
order made under s 25 of the Children Act 1989 (r 52.3(1)(a)). In these cases, where the liberty of the subject is in issue, appeal lies as of right.
24. Permission to appeal is not required for an appeal from a district judge to a circuit judge in relation to a decision made in the small claims track.
(By r 52.1(2)(a), CPR Pt 52 does not at present apply to an appeal against an order in the small claims track, although I understand that the position
relating to such appeals is currently under review.) If a circuit judge dismisses such an appeal without a hearing because no sufficient ground is shown in
the notice of appeal (see PD 27, para 8.6), an appeal against that ruling lies to a High Court judge (the 2000 order, art 3(1): it is not a decision on an
appeal falling within art 5). No permission is required for this further appeal.
25. Similarly, permission to appeal is not required for an appeal from a decision made (exceptionally) by a circuit judge on hearing a claim allocated
to the small claims track, for which a High Court judge is the appeal court (the 2000 order, art 5 does not apply in these circumstances).
26. Permission to appeal is not required for an appeal from a decision made by an authorised court officer in detailed assessment proceedings to a
costs judge or a district judge of the High Court (r 47.21 as substituted by the Amendment No 2 rules). On the other hand, permission to appeal is required
from a decision made by a costs judge or a district judge of the High Court in such proceedings to a High Court judge (the 2000 order, art 2), because the
exception mentioned in r 52.1(2)(b) applies only to appeals in detailed assessment proceedings against the decision of an authorised court officer, and not
to this higher level of appeal in such proceedings. Where costs are summarily assessed by a judge as part of a final decision in a multi-track claim, then
the principles relating to appeals against final decisions in multi-track claims will be applied (see paras 17 and 19 above).
­ 807

First appeals diverted from the normal route so as to be heard by the Court of Appeal
27. If the normal route of a first appeal would be to a circuit judge or to a High Court judge, either the lower court or the appeal court may order the
appeal to be transferred to the Court of Appeal if they consider that it would raise an important point of principle or practice or there is some other
compelling reason for the Court of Appeal to hear it (r 52.14(1)). This rule refers to first appeals, because what is in question is whether the appeal in
question should be heard in the county court or the High Court on the one hand or in the Court of Appeal on the other. By the 2000 order, art 5, all
second appeals lie to the Court of Appeal and nowhere else, so that this question could not arise in that context.
28. The Master of the Rolls also has the power to direct that an appeal which would normally be heard by a circuit judge or a High Court judge
should be heard instead by the Court of Appeal (the 1999 Act, s 57(1)).
29. In such cases the Master of the Rolls and the Court of Appeal also have the power to remit an appeal to the court in which the original appeal was
or would have been brought (r 52.14(2)).

The appellate approach: the general rule

30. As a general rule, every appeal will be limited to a review of the decision of the lower court. This general rule will be applied unless a practice
direction makes different provision for a particular category of appeal, or the court considers that in the circumstances of an individual appeal it would be
in the interests of justice to hold a rehearing (r 52.11(1)). The appeal court will only allow an appeal where the decision of the lower court was wrong, or
where it was unjust because of a serious procedural or other irregularity in the proceedings in the lower court (r 52.11(3)).
31. This marks a significant change in practice, in relation to what used to be called ‘interlocutory appeals’ from district judges or masters. Under
the old practice, the appeal to a judge was a rehearing in the fullest sense of the word, and the judge exercised his/her discretion afresh, while giving
appropriate weight to the way the lower court had exercised its discretion in the matter. Under the new practice, the decision of the lower court will
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attract much greater significance. The appeal court’s duty is now limited to a review of that decision, and it may only interfere in the quite limited
circumstances set out in r 52.11(3).
32. The first ground for interference speaks for itself. The epithet ‘wrong’ is to be applied to the substance of the decision made by the lower court.
If the appeal is against the exercise of a discretion by the lower court, the decision of the House of Lords in G v G [1985] 2 All ER 225, [1985] 1 WLR
647 warrants attention. In that case Lord Fraser of Tullybelton said:
‘Certainly it would not be useful to inquire whether different shades of meaning are intended to be conveyed by words such as “blatant error”
used by Sir John Arnold P in the present case, and words such as “clearly wrong”, “plainly wrong” or simply “wrong” used by other judges in other
cases. All these various expressions were used in order to emphasise the point that the appellate court should only interfere when it considers that
the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court
of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible.’ (See [1985] 2
All ER 225 at 229, [1985] 1 WLR 647 at 652.)
­ 808
33. So far as the second ground for interference is concerned, it must be noted that the appeal court only has power to interfere if the procedural or
other irregularity which it has detected in the proceedings in the lower court was a serious one, and that this irregularity caused the decision of the lower
court to be an unjust decision.

The need for a suitable record of all judgments

34. This new emphasis on the importance of the decision made at first instance gives added weight to the need for all such decisions to be recorded
accurately, so that the appeal court will be able to read a reliable version of the judgment which it is concerned to review. If it is a short judgment, the
judge or master may of course dictate it to the parties at dictation speed, to save the cost and delay involved in obtaining a transcript. CPR PD 39
(Miscellaneous Provisions Relating To Hearings), para 6.1, requires a judgment to be recorded unless the judge directs otherwise, and if a judge or master
is anxious to spare a party of limited means the cost of obtaining an approved transcript, he or she must take steps to ensure that by some other means
there is an incontrovertibly accurate record of the judgment.
35. There is a section of the new practice direction headed ‘Suitable record of the judgment’ (PD 52, paras 5.12–5.13) which brings conveniently into
one place a number of rules and other principles which were previously not always easy to find. Because it is still the case that no reliable record is often
produced to an appeal court of a judgment by a master or district judge, and sometimes of a judgment by a circuit judge, I am setting out in this judgment
the parts of that practice direction which apply to civil proceedings. Careful attention must be paid in the future to these matters by all who sit or practise
in civil courts, because it will be likely to lead to injustice if an appeal court is expected to review a decision when there is no reliable record of what was
said in the lower court. The practice direction reads, so far as is material:
‘5.12 Where the judgment to be appealed has been officially recorded by the court, an approved transcript of that record should accompany the
appellant’s notice. Photocopies will not be accepted for this purpose. However, where there is no officially recorded judgment, the following
documents will be acceptable: Written judgments (1) Where the judgment was made in writing a copy of that judgment endorsed with the judge’s
signature. Note of judgment (2) When judgment was not officially recorded or made in writing a note of the judgment (agreed between the
appellant’s and respondent’s advocates) should be submitted for approval to the judge whose decision is being appealed. If the parties cannot agree
on a single note of the judgment, both versions should be provided to that judge with an explanatory letter. For the purpose of an application for
permission to appeal the note need not be approved by the respondent or the lower court judge. Advocates’ notes of judgments where the appellant
is unrepresented (3) When the appellant was unrepresented in the lower court it is the duty of any advocate for the respondent to make his/her note
of judgment promptly available, free of charge to the appellant where there is no officially recorded judgment or if the court so directs. Where the
appellant was represented in the lower court it is the duty of his/her own former advocate to make his/her note available in these circumstances.
The appellant should submit the note of judgment to the appeal court …
­ 809
5.13 An appellant may not be able to obtain an official transcript or other suitable record of the lower court’s decision within the time within
which the appellant’s notice must be filed. In such cases the appellant’s notice must still be completed to the best of the appellant’s ability on the
basis of the documentation available. However it may be amended subsequently with the permission of the appeal court.’

The appellate approach: the exceptions

36. The general rule is set out in r 52.11(1) which starts with the words ‘Every appeal will be limited to a review of the decision of the lower court
unless …’ I have already set out the exceptions contained in that rule, and I have also mentioned the fact that CPR Pt 52 does not apply to two categories
of appeal: appeals against orders under Pt 27 (the small claims track) and appeals against a decision of an authorised court officer in detailed assessment
proceedings.
37. So far as the former is concerned, the only permissible grounds of appeal are that there was a serious irregularity affecting the proceedings or that
the court made a mistake of law (r 27.12). As to the latter, on an appeal against a decision of an authorised court officer in detailed assessment
proceedings, the court will rehear the proceedings which gave rise to the decision appealed against (r 47.23(a) as substituted by the Amendment No 2
rules). In other words, in such a case the court hearing the appeal will exercise its discretion afresh.

Powers of the appeal court: the general rule

38. The general rule set out in CPR Pt 52 provides that every appeal court has all the powers of the lower court (r 52.10(1)). It also has power to
affirm, set aside or vary any order or judgment made or given by the lower court; to refer any claim or issue for determination by the lower court; to order
a new trial or hearing and to make a costs order (r 52.10(2)). It may exercise its powers in relation to the whole or part of an order of the lower court (r
52.10(4)). In other words every appeal court, whether a circuit judge or a High Court judge or the Court of Appeal, has been expressly given the same
powers in relation to appeals governed by CPR Pt 52. The Court of Appeal also has special powers in an appeal from a claim tried by a jury (r 52.10(3)).

Powers of the appeal court: the exceptions

39. The court hearing an appeal against a decision made in the small claims track may make ‘any order it considers appropriate’ if it is satisfied that
there was a serious irregularity affecting the proceedings or that the lower court made a mistake of law. It also has the power to dismiss an appeal without
a hearing (r 27.12). I have already mentioned the fact that a review of the appeal procedures in the small claims track is currently being undertaken, so
that courts and practitioners must be alert to any future change to this rule.
40. In an appeal from an authorised court officer in detailed assessment proceedings, the court hearing the appeal may ‘make any order and give such
directions as it considers appropriate’ (r 47.23(b) as substituted by the Amend- ment No 2 rules).
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Second appeals
41. Parliament is responsible for controlling the expenditure of public resources on the administration of justice (whether in relation to the direct
costs of the courts, including the cost of the judiciary, or in relation to expenditure on ­ 810 what used to be called legal aid). It has now made it clear
that it is only in an exceptional case that a second appeal may be sanctioned. Section 55(1) of the 1999 Act provides that:

‘Where an appeal is made to a county court or the High Court in relation to any matter, and on hearing the appeal the court makes a decision in
relation to that matter, no appeal may be made to the Court of Appeal from that decision unless the Court of Appeal considers that—(a) the appeal
would raise an important point of principle or practice, or (b) there is some other compelling reason for the Court of Appeal to hear it.’ (My
emphasis.)

42. This reform introduces a major change to our appeal procedures. It will no longer be possible to pursue a second appeal to the Court of Appeal
merely because the appeal is ‘properly arguable’ or ‘because it has a real prospect of success’. The tougher rules introduced by a recent Court of Appeal
Practice Direction for ‘second tier appeals’ related only to cases where a would-be appellant had already lost twice in the courts below (see Practice
Direction (Court of Appeal: procedure) [1999] 2 All ER 490 at 499, [1999] 1 WLR 1027 at 1036, para 2.19.1). The new statutory provision is even
tougher—the relevant point of principle or practice must be an important one—and it has effect even if the would-be appellant won in the lower court
before losing in the appeal court. The decision of the first appeal court is now to be given primacy unless the Court of Appeal itself considers that the
appeal would raise an important point of principle or practice, or that there is some other compelling reason for it to hear this second appeal.
43. All courts are familiar with the litigant, often an unrepresented litigant, who will never take ‘no’ for an answer, however unpromising his/her
cause. Under the new appeals regime, however, such litigants must appreciate that the general rule will be that the decision of the appeal court on the first
appeal will be the final decision. If they wish to pursue the matter further, and to incur the often quite heavy costs involved in paying the court fee and
preparing the appeal papers, the Court of Appeal may dismiss their application quite shortly, saying that the appeal raises no important point of principle
or practice, and that there is no other compelling reason for the court to hear the appeal.
44. The reason for this significant change of appellate policy can be found in the 1997 review of the business of the Court of Appeal (Civil Division).
This review reported that over the previous decade there had been a substantial increase in the number of cases coming to the Court of Appeal. Its
authors believed that if there had to be an appeal in a civil case this should normally be the end of the matter. This principle reflected the need for
certainty, reasonable expense and proportionality, and they said that there must be special circumstances if there was to be more than one level of appeal.
Elsewhere in their report they had said that judges of the quality of Lords Justices of Appeal were a scarce and valuable resource, and that it was
important that they were used effectively and only on work which was appropriate to them (Review of the Court of Appeal (Civil Division), pp 10, 26 and
22).
45. It is clear that in the 1999 Act Parliament not only accepted the report’s analysis of the problems confronting the Court of Appeal but that it also
adopted even tougher measures than those recommended by the review to ensure that second appeals would in future become a rarity and that the judges
of this court would be freed to devote more of their time and energy in hearing first appeals ­ 811 in more substantive matters which either their court
or a lower court had assessed as having a realistic prospect of success.
46. These new arrangements are likely to impose great burdens on the staff and lawyers in the Court of Appeal, unless the status of the order being
appealed against is completely clear on its face. Every order made on appeal must therefore record the name and status of the judge against whom the
appeal was brought. Orders relating to final decisions of a lower court must also make it clear whether the order was made in the small claims track, the
fast track or the multi-track, and if it was made in the multi-track, it must state whether it was made in a claim allocated to the multi-track or whether the
Pt 8 procedure was followed. If these steps are taken, it will be possible for the Civil Appeals Office to ascertain without undue difficulty whether the
Court of Appeal possesses jurisdiction, and whether this is a first appeal or a second appeal, simply by reading the order under challenge.

Transitional arrangements
47. The new rules (and the new destination arrangements) will apply in all cases in which an appeal notice has been filed or an application for
permission to appeal has been made on or after 2 May 2000. If an application for permission to appeal has been made to the appeal court before 2 May,
and that court gives permission to appeal (whether before or after 2 May) the appeal will be brought and will continue its progress under the old rules (see
the Civil Procedure (Amendment) Rules 2000, SI 2000/221, r 39, as amended by the Amendment No 2 rules, r 2, and the 2000 order, art 6). Rule 2 of the
Amendment No 2 rules, which came into effect on 2 May 2000, reads:

‘In the Civil Procedure (Amendment) Rules 2000, rule 39 (transitional provisions) is amended to read—“39. Where a person has filed a notice
of appeal or applied for permission to appeal before 2nd May 2000—(a) rule 19 of these Rules shall not apply to the appeal to which that notice or
application relates; and (b) the rules of court relating to appeals in force immediately before 2nd May 2000 shall apply to that appeal as if they had
not been revoked’’.’

48. Mr Emmerson suggested to us that the language of these transitional arrangements also appeared to embrace an application for permission to
appeal to the lower court which had either been granted before 2 May, although no notice of appeal had been filed at the appeal court before that date, or
which had been made before, but granted after, that date. Although the language of these provisions might appear to allow for that interpretation of the
rule, I am satisfied that on its proper construction, when viewed in the context of a rule which begins with a reference to the filing of the notice of appeal,
the words ‘applied for permission to appeal’ must be taken to refer to an application for permission made to the appeal court before 2 May. In other
words, if the lower court granted permission, the notice of appeal must have been filed at the appeal court before 2 May for the old rules to continue to
apply to the appeal. If it did not grant permission, or refused permission, before 2 May, an application for permission must have been made to the appeal
court before 2 May if the old rules are to be applied to the appeal.
49. In a judgment on security of costs delivered three days ago, on 9 May 2000, in A T Poeton (Gloucester) Plating Ltd v Horton (unreported)
Morritt LJ was clearly not made aware of the Amendment No 2 rules. If he had been told about this ­ 812 rule, he would no doubt have held that
because Mr Horton had filed a notice of appeal before 2 May 2000 the provisions of RSC Ord 59 applied to that appeal as if they had not been revoked.
This judgment should therefore not be followed.

Conclusion
50. I have explained these changes, and their effect, in some detail because in many ways they mark the most significant changes in the arrangements
for appeals in civil proceedings in this country for over 125 years. In future the decision of the ‘first instance’ judge in what used to be called an
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‘interlocutory appeal’ will assume a much greater importance than it ever did in the days when the ‘judge in chambers’ conducted a complete rehearing,
with an entirely fresh discretion to exercise. And the decision of the ‘appeal court’, whether a circuit judge or a High Court judge, is in most cases now
likely to be final. These changes will compel litigants and their advisers to pay even greater attention to the need to prepare their cases with appropriate
care, because they may find it much more difficult to extricate themselves from the consequences of an ill-prepared case before a judge at first instance in
a lower court.

PETER GIBSON LJ. I agree.

LORD WOOLF MR. I also agree.

Direction accordingly.

Kate O’Hanlon Barrister

[2000] 2 All ER 814

Newman (t/a Mantella Publishing) v Modern Bookbinders Ltd

ADMINISTRATION OF JUSTICE; Contempt of Court

COURT OF APPEAL, CIVIL DIVISION

BROOKE, ROBERT WALKER AND SEDLEY LJJ
3 DECEMBER 1999, 20 JANUARY 2000

Contempt of court – Committal – County court – Breach of undertaking – Committal for rescuing goods seized in execution under process of a county
court – Requirement to give defendant adequate notice of charge and inform him of entitlement to apply for legal aid – Guidance – County Courts Act
1984, s 92 – Legal Aid Act 1988, s 29.

Interpleader – Issue of interpleader summons – Circumstances in which district judge required to issue interpleader summons – County Courts Act 1984,
s 101.

A county court bailiff attempted to levy execution on three computers in the possession of N, a judgment debtor. N denied that he owned the computers,
but signed a walking possession agreement. He breached that agreement by moving the computers into a different room in the same premises, thereby
placing himself in contempt of court under s 92(1)a of the County Courts Act 1984 as a person rescuing goods seized in execution under the process of a
county court. Subsequently, the bailiff received a statement from B, the person claiming to be the owner of the computers, together with certain
documents apparently supporting N’s contention that he was not the owner. Despite that, the court failed to issue an interpleader summons under s 101b
of the 1984 Act, and N refused tell the bailiff where the computers were located. One of those computers was later removed by B to his home for
upgrading, but the other two were probably returned to their original location. The bailiff eventually arrested N for contempt of court for removing levied
goods, but gave no further particulars. At the subsequent hearing before the judge, N, who was unrepresented, misunderstood the nature of the problem
and was not told that he could apply for legal aid under s 29c of the Legal Aid Act 1988. The judge concluded that N had disregarded his obligation
under the walking possession agreement, and sentenced him to one month’s imprisonment. N appealed.
________________________________________
a Section 92 is set out at p 816 e f, post
b Section 101 is set out at p 816 g to j, post
c Section 29, so far as material, is set out at p 817 a to c, post
________________________________________

Held – The appeal would be allowed for the following reasons—

(1) An alleged contemnor had a common law right to adequate notice of what was being alleged, and nothing in s 92 of the 1984 Act cut down that
right. Moreover, as a matter of good practice, the charge should be put in writing and, unless it was clear that the defendant had already read and
understood it, should be read over to him at the outset of a hearing under s 92 in order to eliminate any possibility that he was unaware of the case which
he had to answer. In the instant case, N had not been given adequate notice of what he had been accused of doing and that failure constituted a denial of
justice (see p 821 g h, p 823 e and p 825 b, post).
(2) Where a court was exercising any of its powers under s 29(1) of the 1988 Act, it was required to have in mind its power to grant the alleged
contemnor ­ 814 representation on legal aid under that provision. Accordingly, the court had to ask an unrepresented defendant whether he wished to
be represented as soon as it appeared that there was an appreciable risk of imprisonment. If the defendant did so wish, the court had to consider whether it
was desirable in the interests of justice that he should be granted representation on legal aid. Where such representation was granted, an adjournment for
advice would necessarily follow, but such an adjournment might well be pointless unless the defendant was given an adequate statement of the charge in
writing. In the absence of a written charge, the defendant would probably be unable to give the adviser an adequate account of the problem, and the
statutory purpose of s 29 would probably be frustrated. In the instant case the court had not told N that he could apply for legal aid when it appeared that
he could be facing imprisonment, and that failure also constituted a denial of justice sufficient to vitiate the committal (see p 822 b c h to p 823 a e and p
825 b, post).
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(3) Where a claim was made to or in respect of any goods seized in execution under process of a county court, a district judge had an obligation to
consider whether the claim was on its face sufficient in detail and credible in substance. Once, however, a claim met those elementary tests, the district
judge had no option but to issue an interpleader summons under s 101 of the 1984 Act. In the instant case, there was enough information to require the
district judge to issue such a summons, and the failure to do so was an error which unravelled the entire process of arrest and committal that followed (see
p 824 d to h and p 825 b, post).

Notes
For interpleader in the county court and for representation in contempt proceedings, see respectively 25 Halsbury’s Laws (4th edn reissue) paras
1071–1082 and 27(2) Halsbury’s Laws (4th edn reissue) para 2008.
For the County Courts Act 1984, ss 92, 101, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 673, 678.
For the Legal Aid Act 1988, s 29, see 24 Halsbury’s Statutes (4th edn) (1998 reissue) 49.

Cases referred to in judgments

Benham v UK (1996) 22 EHRR 293, ECt HR.
Chiltern DC v Keane [1985] 2 All ER 118, [1985] 1 WLR 619, CA.
Christie v Leachinsky [1947] 1 All ER 567, [1947] AC 573, HL.
Cooper v Wandsworth Board of Works (1863) 14 CBNS 180, 143 ER 414.
King v Read (1996) [1999] 1 FLR 425, CA.
R v Chilton (1850) 15 QB 220, 117 ER 441.
R v Clerk to South Cheshire Justices, ex p Bold (1996) Times 15 July, [1996] CA Transcript 903.
R v Telfer [1976] Crim LR 562, Crown Ct.
Shoreditch County Court Bailiffs v de Medeiros (1988) Times 24 February, CA.

Appeal
Christopher Newman appealed with permission of the Court of Appeal granted on 25 June 1999 from the order of Johnson J made at the Milton Keynes
County Court on 15 June 1999 committing him to prison for one month for rescuing or attempting to rescue certain goods seized in execution of a
judgment debt obtained against him by the claimant, Modern Bookbinders Ltd. The Lord ­ 815 Chancellor’s Department intervened in the appeal, but
the judgment creditor took no part in the proceedings. The facts are set out in the judgment of the court.

Claire Miskin (instructed by Jay Benning & Peltz) for Mr Newman.

Paul Kilcoyne (instructed by the Treasury Solicitor) for the Lord Chancellor’s Department.

At the conclusion of the argument the court announced that the appeal would be allowed for reasons to be given later.

20 January 2000. The following judgment of the court was delivered.

SEDLEY LJ.
1. This is an appeal, by permission of the full court, against the committal of Christopher Newman to prison for one month by Johnson J sitting at
Milton Keynes County Court on 15 June 1999. When it gave permission to appeal on 25 June 1999 this court admitted the appellant to bail with a
condition of surrender on the day set for hearing. At the conclusion of the hearing on 3 December 1999 the court allowed the appeal, reserving its
reasons.

THE LAW
2. Section 92 of the County Courts Act 1984 provides:

‘Penalty for rescuing goods seized.—(1) If any person rescues or attempts to rescue any goods seized in execution under process of a county
court, he shall be liable—(a) on summary conviction, to imprisonment for a term not exceeding one month or to a fine of an amount not exceeding
level 4 on the standard scale, or both; or (b) on an order made by the judge in that behalf, to be committed for a specified period not exceeding one
month to prison or to a fine of an amount not exceeding level 4 on the standard scale or to be so committed and to such a fine, and a bailiff of the
court may take the offender into custody, with or without warrant, and bring him before the judge.
(2) The judge may at any time revoke an order committing a person to prison under this section and, if he is already in custody, order his
discharge.’

Section 101 provides:

‘Interpleader by district judge.—(1) If a claim is made to or in respect of any goods seized in execution under process of a county court, or in
respect of the proceeds or value of any such goods, the district judge may, as well before as after any action brought against him, issue a summons
calling before the court the party at whose instance the process issued and the party making the claim.
(2) Upon the issue of the summons, any action brought in any county court or other court in respect of the claim or of any damage arising out of
the execution of the warrant shall be stayed.
(3) On the hearing of the summons, the judge shall adjudicate upon the claim, and shall also adjudicate between the parties or either of them and
the district judge upon any claim to damages arising or capable of arising out of the execution of the warrant by the district judge, and shall make
such order in respect of any such claim and the costs of the proceedings as he thinks fit.’
­ 816
Section 29 of the Legal Aid Act 1988 provides:

‘Representation in contempt proceedings.—(1) This section applies to any proceedings where a person is liable to be committed or fined—(a)
by a magistrates’ court under section 12 of the Contempt of Court Act 1981; (b) by a county court under section 14, 92 or 118 of the County Courts
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Act 1984; (c) by any superior court for contempt in the face of that or any other court; and in this Act “proceedings for contempt” means so much of
any proceedings as relates to dealing with a person as mentioned in paragraph (a), (b) or (c) above.
(2) In any proceedings for contempt against a person the court may order that he be granted representation under this section for the purposes of
the proceedings if it appears to the court to be desirable to do so in the interests of justice …’

HISTORY
3. Mr Newman ran a small publishing business, Mantella Publishing, with his partner Jan Burgess and her husband Tom Burgess. The enterprise was
dependent, as practically all such businesses now are, on computers. They published a magazine about reptiles: one guesses that it had a modest
circulation, but it had been going since 1993. Mr Newman is dyslexic, a characteristic which the bailiff understandably enough considered unusual in a
publisher. Mr Burgess is a computer specialist: his proper job is as a senior systems engineer with a national company; but his written evidence before this
court is that two of Mantella’s three computers, the Mesh and the Olivetti, had been bought by him and were still being paid for by him, bar some £200
contributed by Mr Newman. The third, he deposes, had no name because he had built it himself.
4. Mr Newman found himself sued to judgment in the Aylesbury County Court for a debt of £470·31. His attempts to have the judgment set aside,
which there is no need to detail, had failed by October 1998. The judgment creditors, Modern Bookbinders Ltd, finally instructed the court bailiff to levy
execution on his goods.
5. There is substantial, though not complete, agreement between Mr Newman and James Dickins, the court bailiff, about what then happened. The
warrant of execution was issued on 8 February 1999. Ten days later Mr Dickins made a first visit to the house at 191 Meadowcroft, Aylesbury, where Mr
Newman lived and had his publishing office. When on 23 February he finally found Mr Newman at home, the latter told him that he did not owe the
money. Mr Dickins gave him some advice about applying to set the judgment aside. There followed a series of further visits until on 23 March Mr
Newman’s renewed application was dismissed with a bar on the making of any more applications without leave.
6. Six days later Mr Dickins came round again. He gave Mr Newman the option of having his goods taken there and then or signing a walking
possession form which would leave them on the premises for the time being. Mr Newman responded that he did not own the computers. This, Mr Dickins
credibly deposes—
‘is not an uncommon statement for any defendant to make to a bailiff and I confirmed to him that if this was the case the third party would have
to take the necessary steps to prove that they owned the goods, since I was entitled to levy on those which appeared to be the defendant’s, as these
items did.’
7. The material part of the form, N 42, begins: ‘Please do not take my goods listed here …’ The bailiff has listed the Olivetti computer, the Mesh
computer ­ 817 and ‘one computer no name’, each with its screen and keyboard, together with a Brother fax machine. The form goes on to say:

‘I agree that until payment is made or the warrant withdrawn I will: not remove or damage the goods or allow anyone else to do so; show this
form to anyone who calls and tries to take these goods and I will tell you that they called; and allow you to re-enter the premises at any time (and as
often as you want) to see the goods or to complete the enforcement of this warrant.’

Mr Newman says that, being (as he told the bailiff) dyslexic, he did not realise that what he was signing included an admission that the goods were his. In
the event it may not matter, since it is common ground that he had already told Mr Dickins that they were not. For the rest, it is clear that Mr Dickins
fairly described the effect of the agreement to Mr Newman.
8. On 3 June Mr Dickins returned with a colleague to take the computers. Mr Newman told him again that they were not his. He also says, and Mr
Dickins does not contest it, that he told the bailiff that the data they held were needed to run the business. Later that day the bailiffs returned to find that
Mr Newman had removed the computers from the office. They had simply been moved, according to Mr Newman, into the adjacent living room; but Mr
Newman admits that he did not volunteer this when asked, and Mr Dickins says that he asserted that Tom Burgess had taken them. Whichever it was, this
was a breach of the walking possession agreement and a contempt of court.
9. Next day Mr Newman got Mr Burgess to provide a statement and some documentation showing that the computers were his (or more accurately in
the case of two of them, a finance company’s) and faxed these to Mr Dickins. The statement reads:

‘Declaration of computers and accessories.

I hereby certify that the following computers and peripherals are owned solely by myself and currently on loan to Mrs J Burgess at 191
Meadowcroft, Aylesbury, Buckinghamshire. Two of these machines (Mesh and Olivetti) were purchased on credit and are still being paid for by
myself. Third machine has been built by myself, invoices for components available
T. A. Burgess
(All software on all PCs is owned and registered to myself)’

Annexed were two apparently authentic copy documents, one a credit agreement for a loan of £4,500 dated March 1995, the other a credit sale agreement
dated February 1998 for a multimedia PC at a price of £1,750·13 plus interest. But when Mr Newman followed up by telephone Mr Dickins said the
documents proved nothing. Mr Dickins explains that he had consulted the court manager and they had agreed that the documents did not amount to an
interpleader. The court manager for his part deposes that he showed the documents to District Judge Rhodes, who ‘directed that the material showed
insufficient proof of ownership to commence the interpleader procedure’. We have no statement from the district judge himself.
10. There followed a further conversation on 7 June which amounted to a stand-off, Mr Newman refusing now to tell the bailiff where the computers
were. Five days later, apparently without telling Mr Newman, Mr Burgess let himself into the house to upgrade the Mesh computer, but finding that he
had left his toolbox at home, took the computer away with him, leaving a note to say so.
­ 818
11. On 15 June Mr Newman was arrested by the bailiffs ‘We told him,’ Mr Dickins deposes, ‘that he was under arrest for contempt of court for
removing levied goods’. He was taken to Milton Keynes County Court where Johnson J happened to be sitting as family liaison judge. The judge
helpfully made a note of his recollection of the hearing about a week later. We now have the benefit of what we are told is a full transcript of both the
hearing and his judgment; but it may be incomplete, for it does not record what the judge says he was told before he asked Mr Newman to tell him his
side of the story.

THE HEARING
12. The transcript shows that from the start Mr Newman had the wrong end of the stick. He thought that the problem was that he had signed the
walking possession agreement, and he came back repeatedly to his dyslexia and his belief that he had been misled into signing something more onerous
than he had realised. The judge explained to him at an early stage that he was being asked to fine him or commit him to prison. He offered Mr Newman
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a chance to go with the bailiffs and show them where the equipment was. Mr Newman replied that the bailiffs had seen it that morning. This Mr Dickins
denied. He said to the judge:

‘I asked him [Mr Newman] whether or not the equipment was still there. It is my understanding, from a letter from Mr Burgess, that the
equipment has been removed because it is owned by Mr Burgess. What he has done is in fact entered as an interpleader. I spoke to District Judge
Rhodes this morning and his view was that it was not satisfactory, just a letter, but we were to go ahead and arrest Mr Newman and bring him
before you.’

13. On the evidence before us the likelihood is that two computers, the home-made one and the Olivetti, were back in Mr Newman’s office on the
day of his arrest together with the fax machine, while the Mesh computer was at Mr Burgess’s home. By then, however, the bailiffs had orders to arrest
him. Before the judge, Mr Newman’s second serious error was to decline the judge’s repeated invitation to go home and show the bailiffs what was there.
Mr Newman’s evidence is that he was by now confused because he could not identify the machines by name to the judge. When the judge finally
proposed to the bailiffs that they should go back with Mr Newman and recover whatever goods were there, it was Mr Newman who said:

‘I see little point in going back, because my point is that when I was asked to sign that document Mr Dickins was well aware I was dyslexic. I
was not informed what I was signing … I don’t want to waste any more of the court’s time by going away and us coming back in two hours and
saying Yes, there are two computers and a fax machine, and we will be in exactly the same situation … I think I have been very unfairly treated in
that I have been asked to sign a document I am not aware of and without these computers the business cannot function …’

14. It is unsurprising that the judge felt he could do no more. He expressed his conclusion in this way:

‘I am satisfied that Mr Newman has disregarded his obligation under the walking possession agreement; that he has, in the words of s 92,
rescued or attempted to rescue the goods the subject of that agreement, that is to say put them outside the capacity of the bailiffs to enforce the
judgment. Accordingly I hold that I have jurisdiction under the section to impose a ­ 819 penalty upon him. I sentence him to one month’s
imprisonment. I make it plain that if at any time during the period that he is in prison he co-operates with the bailiffs so that they are able to
recover the equipment the subject of the walking possession agreement, then it will be open to him to make an application for his early release …’

15. The warrant of committal recites simply that the sentence follows proof to the satisfaction of the court that Mr Newman ‘on the 7 June 1999
rescued or attempted to rescue certain goods seized under the process of this court’.

SUBMISSIONS
16. On Mr Newman’s behalf Ms Miskin, in a clear and economical argument, submits that the committal was bad in law; or if not, then excessive in
duration. Her grounds, though not in quite this order, are these. First, that the goods were not Mr Newman’s and so not open to distraint. Second, that as
the tools of his trade they were exempt from seizure under what is now s 89(1) of the 1984 Act but was for centuries the common law. Third, that if these
are not facts upon which this court is able to proceed, they are issues which the judge should have tried out or made arrangements to have tried out.
Fourth, that the documents furnished to the bailiff were sufficient to constitute an interpleader and should have been treated accordingly. Fifth, that
notwithstanding the absence of any prescribed procedures under s 92, Mr Newman was entitled to written notice of the charge and its factual basis, and to
an adequate opportunity to prepare a defence and seek legal advice and representation, if appropriate on legal aid. Lastly, if all else fails, Ms Miskin
submits that a month’s imprisonment—the statutory maximum—was unwarranted.
17. When permission to appeal was granted, and in the correct anticipation that the judgment creditor would be taking no interest in the appeal, Her
Majesty’s Attorney General was invited by the court to consider instructing an amicus. The Attorney General suggested that it might be more helpful to
the court if counsel were instructed directly on behalf of the Lord Chancellor’s Department. This was accepted, and we have in consequence had the
assistance, for which we are grateful, of Mr Kilcoyne for the department.

CONCLUSIONS
18. The conclusions which we have reached, and which are sufficient to dispose of the appeal, are these. First, it was a denial of justice not to give
Mr Newman adequate details of what he was accused of doing and an opportunity to apply for legal aid as soon as the possibility of imprisonment became
apparent. Secondly, sufficient was known to the county court to make it possible that the computers were wholly or partly owned by someone other than
Mr Newman, with the result that to proceed with enforcement before the determination of an interpleader was an error of law.
19. These conclusions make it unnecessary to consider whether the computers were immune from seizure under s 89(1)(a)(i) as ‘equipment …
necessary to [the debtor] for use personally by him in his employment, business or vocation’, and whether the imposition of the statutory maximum
sentence was excessive. As to seizure of personal equipment and household essentials, however, we would record our view that Mr Kilcoyne was right to
resile from his initial stance that it was for the debtor to retrieve such goods if they were distrained upon. Such goods are by statute exempt from seizure
and are taken at the bailiff’s peril. We do not have to decide, however, whether the computers fall into this class.
­ 820

(1) Committal
20. Section 92, as can be seen, offers two alternative bases for punishing people who rescue goods subject to distraint: a summary offence created by
sub-s (1)(a), and committal—manifestly for contempt of court—under sub-s (1)(b). What matters, especially in a legal system which is about to be
required to accommodate the standards of the European Convention on Human Rights (Convention for the Protection of Human Rights and Fundamental
Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969)) (the convention), is that this is a penal process. Whether it takes the summary or the
contempt path, a charge of rescue of goods contrary to s 92 is for convention purposes a criminal charge: see Benham v UK (1996) 22 EHRR 293. As
such it carries a number of basic procedural rights.
21. One such right, which has long been part of our common law (see Christie v Leachinsky [1947] 1 All ER 567, [1947] AC 573, now codified in
the Police and Criminal Evidence Act 1984, s 28), is the right to be told in broad but clear terms why one is being arrested. How much detail is required
will depend on the circumstances. Thus in R v Telfer [1976] Crim LR 562 it was held insufficient for a constable to tell a citizen that he was being
arrested for burglary: it was necessary to say when and where the burglary had occurred. Mr Newman was told when he was arrested on 15 June that it
was ‘for removing levied goods’. This might have been sufficient if the arrest had related to the situation obtaining that day, as both Mr Newman and the
judge evidently thought it did. It now appears, however, that it was a week earlier that Mr Dickins had received instructions from the supervising bailiff,
Mr Jacklin, to arrest Mr Newman, but that the arrest was delayed because the latter was not due to come to Aylesbury for some days. It was not until the
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warrant of committal was drawn up that it could be seen that the charge on which Mr Newman was eventually taken into custody related to the rescue of
goods eight days earlier. We did not hear full argument on the point, but our present view is that if the arrest was to be lawful the bailiffs should probably
have told Mr Newman that the charge related to his having removed goods subject to distraint on or shortly before 7 June.
22. Next, however, the hearing of a charge of this kind carries a common law right to adequate notice of what is being alleged. Nothing in s 92 cuts
this down. Applying it, it seems to us that the minimum to which Mr Newman was entitled following his arrest and before being tried was to be told in
detail what goods he was alleged to have rescued and when and from where. In our judgment good practice, if nothing else, demands that the charge
should be put in writing and read over to the defendant (unless it is clear that he has already read and understood it) at the outset of the hearing in order to
eliminate any possibility that he does not know the case he has to answer. We do not need to go further, since we have no evidence that Mr Newman was
even given adequate oral details of the charge he faced; but it should be appreciated that even before the Human Rights Act 1998 comes into force a
failure to put a charge of this kind in writing may leave an appellate court in doubt whether adequate notice has been given. When the 1998 Act comes
into force, a charge such as this will rank as a criminal charge attracting the provisions of art 6(3) of the convention: direct effect will have to be given to
art 6(3)(a), which entitles a defendant to be informed promptly and in detail of the nature and cause of the accusation against him, and to art 6(3)(b),
which requires him ‘to have adequate time and facilities for the preparation of his defence’.
­ 821
23. Next, regardless of whether Mr Newman asked for an adjournment to seek legal advice or representation, he was entitled under s 29 of the Legal
Aid Act 1988 (see para 2 above) to apply for legal aid. In relation to committal for rescue of goods, this provision closes the gap in the availability of
legal aid revealed in Benham’s case in relation to committal for non-payment of the community charge (see R v Clerk to South Cheshire Justices, ex p
Bold (1996) Times, 15 July, [1996] CA Transcript 903). It means that in this regard the United Kingdom’s law complies with the convention.
24. In our judgment it follows from s 29 that a court exercising any of the powers spelt out in sub-s (1) of that section must (a) have in mind its
power to grant the alleged contemnor representation on legal aid; (b) accordingly ask any unrepresented defendant, as soon as it appears that there is an
appreciable risk of imprisonment, whether he or she wishes to be represented; and (c) if the answer is Yes, consider whether it is desirable in the interests
of justice that they should be granted representation on legal aid. It is at stage (c) that it is necessary to bear in mind the principle, underscored by art
6(3)(c) of the convention, that a person facing possible imprisonment who wants legal representation should have it if the interests of justice so require.
As Lord Woolf MR pointed out in King v Read (1996) [1999] 1 FLR 425 at 430, holding that ‘at its lowest, the [contemnor] should have been informed
… of his entitlement to legal aid’:

‘a truculent person, such as the appellant, will often benefit from legal advice over and above the benefit which is normally obtained because it
would include advice as to the inappropriateness of the conduct with which he was involved.’

25. The importance of not letting speed degenerate into haste in summary contempt procedures in the county court was spelt out by Bingham LJ in
Shoreditch County Court Bailiffs v de Medeiros (1988) Times, 24 February, CA:

‘… this was an incident which occurred at about half past eight … and the matter came before the learned judge in the middle of the morning.
The appellant therefore had had very little opportunity to reflect on his position, since he had been arrested and taken almost directly to the court,
and very little opportunity to consider whether he wished to have the benefit of legal advice or not … [I]t does seem to me to be generally desirable
that an alleged contemnor, when invited to consider whether he wishes to be legally represented, should receive some warning, preferably from the
judge himself, as to the possible penalty that he may face if the complaint against him is established.’

26. If representation on legal aid is granted, an adjournment will necessarily follow. But whether it is granted or not, an alleged contemnor is still
entitled to an adequate statement of what it is that he or she is alleged to have done in contravention of the law. The entitlement set out in art 6(3)(a) of
the convention ‘to be informed promptly, in a language which he understands and in detail, of the true nature and cause of the accusation against him’ is
one of the rights known longest to the law of England—since, at least, the moment 350 years ago when John Lilburne demanded and finally obtained a
sight of the indictment on which he was to be tried (see Stephen History of the Criminal Law of England (1883) vol 1, p 367). If the information is not
given in writing, as a matter of practicality any adjournment for advice may well be pointless, since the odds are that the defendant will be unable to give
the adviser an adequate account of the problem.
­ 822
Certainly where legal aid is granted under s 29, the want of a written charge is likely to frustrate the statutory purpose.
27. There is a further reason in contempt cases why the offence needs to be spelt out with particularity. If committal follows, the contemnor is
ordinarily free to purge his contempt and seek release or mitigation of sentence as envisaged in s 92(2). Unless the warrant of committal spells out
precisely why he is in prison, he may be unable to do this: see Chiltern DC v Keane [1985] 2 All ER 118, [1985] 1 WLR 619, CA. It follows, since the
warrant of committal must reflect all or part of the charge, that the charge must be spelt out with commensurate particularity.
28. None of these things was done. It appears from what we have been told that it is not the practice to do them. If so, aspects of the practice may
well be unlawful. The want of prescribed procedures does not mean that no procedures are necessary if the process is to be fair. It means simply that
there is no express inhibition on resort to what Byles J classically called the justice of the common law (see Cooper v Wandsworth Board of Works (1863)
14 CBNS 180, 143 ER 414); and it has not been suggested that there is any implicit inhibition on doing so. The legal position will be beyond doubt when
the Human Rights Act 1998 comes into force, and it would be prudent if corrective steps were taken, with due consultation, before that date. In the
meantime, for the reasons we have given, the practice of putting charges of this kind in writing in advance of the hearing should be adopted without delay.
For the rest, we limit ourselves to holding that there were two denials of justice sufficient to vitiate the committal of Mr Newman to prison: the failure to
make clear to him at the outset of the hearing exactly what he was charged with, and the failure to tell him he could apply for legal aid as soon as it
appeared that he could be facing imprisonment.
29. It is worth observing that this was in our judgment a paradigm case of need for advice and representation. Whether Mr Newman was (as he
insists) confused or (as we strongly suspect) stalling, the intervention of a lawyer on his behalf would have ensured that the judge was presented not with
an irrelevant plea that he had not understood what he was signing or the disastrous response that there was now no point in going back to the house with
the bailiffs, but with an admission that on 7 June the computers had been moved into the next room and an assurance that, apart from one which Mr
Burgess had without his knowledge taken away for repairs, they were back where they had been and open to distraint. We cannot conceive that in such a
situation, at least if it was marked by an apology, Johnson J would have committed Mr Newman to prison.

(2) Interpleader
30. So far we have treated the issue as if it concerned the debtor alone. But others were at least potentially interested in the goods distrained on.
31. Section 85 of the County Courts Act 1984 authorises recovery of judgment debts ‘by execution against the goods of the party against whom the
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judgment … was obtained’. For the bailiff this poses an immediate problem: what, in law, are the goods of the debtor? The bailiff cannot conduct a
formal inquiry into title. He is (as Mr Kilcoyne was, we think, ultimately disposed to accept) entitled to treat any goods in the debtor’s possession as the
debtor’s goods, provided (for present purposes) that (a) they are not exempted goods under s 89(1)(a), that is to say tools of the debtor’s trade or
household essentials; (b) they are not manifestly somebody else’s, for example because a credible document, such as a hire-purchase ­ 823 agreement,
is produced; and (c) the proceeds of sale of jointly owned goods are accounted for to the joint owner in due proportion.
32. That a seizure made in reliance on simple possession is not in itself unlawful follows plainly enough from the statutory provision for interpleader,
which would be unnecessary if any accidental distraint on the goods of someone other than the debtor were tortious. It corresponds with the protection
accorded by s 98 to the sale of goods in the debtor’s possession to which no claim has been made or is apparent. It corresponds, too, with the provisions
of s 99 which, in short, make the debtor’s general property in his goods, but ‘not merely a special property’ in them, subject to the warrant from the
moment the warrant is applied for; so that, for example, property held by a temporary bailee or holder of a lien is not open to distraint.
33. It is evident from s 101, which is set out at the beginning of this judgment, that no particular formality is required for a claim. It is the district
judge whose summons, if he issues one on receiving such a claim, must be in proper form. The phrase ‘a claim … to or in respect of any goods seized’ in
sub-s (1) is apt to include notice to the district judge either that the person giving the notice claims a title superior to the debtor’s possessory title in the
goods or that a fourth party—typically a finance company—has such a title.
34. The information known to the court through the bailiff or directly was that: (a) the goods were those of an unincorporated business in which
others had a stake; (b) both Mr Newman and Mr Burgess were asserting that the computers were the latter’s; (c) Mr Burgess had produced documents
which purported to show that at least one of the computers was neither Mr Newman’s nor his but a finance company’s property. This was in our
judgment fully enough to require the district judge to issue an interpleader summons under s 101. In R v Chilton (1850) 15 QB 220, 117 ER 441 the
Court of Queen’s Bench held that to constitute a valid interpleader under the County Courts Act 1846 and rules, particulars both of the goods and of the
grounds of the claim must be given. Lord Campbell CJ pointed out that the applicant had failed wholly to give the latter; but Patteson J added: ‘It is not,
of course, necessary to set out the whole particulars of the title in all respects.’ (See 15 QB 220 at 224, 117 ER 441 at 443.)
35. Mr Kilcoyne submitted that the use in s 101(1) of the verb ‘may’ gives the district judge a residual discretion to issue or withhold a summons.
We cannot accept this reading of a provision which has to do with the ascertainment of property rights of potential importance to those concerned. This is
in our judgment a subsection which creates a power not otherwise available to the court, and like all such powers it is to be exercised in all appropriate
cases. What the district judge undoubtedly does have is the obligation to consider whether the claim is on the face of it sufficient in detail and credible in
substance, and a corresponding area of judgment; but once a claim meets these elementary tests, it appears to us that the district judge will have no option
but to issue an interpleader summons.
36. Until an interpleader summons was issued and disposed of it was not possible to know whether the distress was well levied. To the extent that it
was not, no question of unlawful rescue could arise. All of this went by the board before Johnson J because he was told, correctly, that the district judge
had declined to treat the faxed materials as grounds for interpleading. We do not know the district judge’s side of the story. The Lord Chancellor’s
Department has put before us only the evidence of the court manager, and we therefore have only on hearsay the reasons why the district judge considered
it inappropriate to ­ 824 issue a summons. On the evidence before us, however, a summons should have been issued, and the failure to do so was an
error which unravels the entire process of arrest and committal which followed it.

(3) Summary
37. For each of the above reasons we consider that the committal of Mr Newman to prison for rescuing goods of which the bailiff was in walking
possession was contrary to law.
38. We therefore direct that the case be remitted to the county court so that an interpleader summons may be issued and determined before any
further steps are taken by the bailiff.

Appeal allowed.

Kate O’Hanlon Barrister.

[2000] 2 All ER 826

TSB Bank plc v Robert Irving & Burns (a firm) (Colonia Baltica Insurance Ltd, third party)
PROFESSIONS; Lawyers

COURT OF APPEAL
MORRITT, TUCKEY LJJ
25 NOVEMBER, 16 DECEMBER 1998

Privilege – Legal professional privilege – Solicitor and client – Communications between legal adviser and joint clients – Insurers instructing solicitors
to conduct defence of proceedings brought against insured – Solicitors instructing counsel to consider whether insurers entitled to repudiate liability –
Insurers repudiating liability and insured bringing third party proceedings against insurers – Insurers’ defence relying on statements made by insured at
conference with counsel – Whether implied waiver of privilege between joint clients extending beyond emergence of actual conflict of interest.

The claimant bank brought proceedings for negligent valuation against RIB, a firm of surveyors and valuers. In accordance with RIB’s professional
indemnity policy, their insurers took over the conduct of their defence and instructed solicitors. Counsel instructed by the solicitors advised the insurers
that there was no basis for denying liability to indemnify RIB, but several months later he was asked by the solicitors to reconsider the matter after a
conference to be attended by B, a partner in RIB. At that conference, counsel effectively cross-examined B who was unaware that the insurers were still
considering repudiating liability. Subsequently, counsel advised the solicitors that the insurers could repudiate liability and they duly did so. As a result,
RIB brought third party proceedings against the insurers to enforce the indemnity. In their defence, the insurers relied on the statements made by B at the
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conference with counsel. On an application by RIB to strike out that part of the defence, the recorder concluded that the relevant material was privileged
against the insurers, holding that the circumstances were outside the scope of the rule which prevented joint clients from maintaining privilege against
each other. The insurers appealed, contending that in joint retainer cases a client’s waiver of his privilege was not brought to an end by the emergence of
an actual conflict of interest, but continued until the time when the retainer was automatically terminated, namely the point at which the client had been
deceived by the other client or the solicitor into believing that the information was sought for the purposes of the joint retainer.

Held – The waiver of privilege implied at the outset of a joint retainer was limited so as to exclude communications made after the emergence of an actual
conflict of interest. A conclusion to the contrary was unacceptable since the concept of an automatic discharge was inconsistent with the general rule for
the discharge of contracts, which conferred an option on the innocent party to accept the repudiation constituted by the deception or to affirm the contract
notwithstanding the other party’s breach. Indeed, there was no reason why the innocent client should be obliged by an automatic discharge to instruct a
new solicitor if he did not wish to do so. Moreover, the waiver of privilege implied from the existence of the joint retainer was based on the normal rules
for the implication of contractual terms, and none of those could justify the implication of a waiver extending to communications made by one client to
the common solicitor after an actual conflict ­ 826 of interest had emerged but in ignorance of it. It followed that the waiver of privilege implicit in a
joint retainer extended only to communications made by the insured to the solicitors down to such time as an actual conflict of interest emerged, and to
communications made by the insured to those solicitors after notification of such conflict and the lapse of such further time as the insured reasonably
required to decide whether to instruct separate solicitors. In the instant case, there had been an actual conflict of interest at the time when the solicitors
had drafted instructions to counsel, and thus the waiver of privilege did not extend to communications made by B at the conference. Accordingly, the
appeal would be dismissed (see p 832 e to h, p 834 f g and p 835 a c j to p 836 b, post).
Groom v Crocker [1938] 2 All ER 394 and Brown v Guardian Royal Exchange Assurance plc [1994] 2 Lloyd’s Rep 325 considered.

Notes
For confidential communications between a client and his legal adviser, see 17 Halsbury’s Laws (4th edn) para 237.

Cases referred to in judgments

Bristol and West Building Society v Mothew (t/a Stapley & Co) [1996] 4 All ER 698, [1998] Ch 1, [1997] 2 WLR 436, CA.
Brown v Guardian Royal Exchange Assurance plc [1994] 2 Lloyd’s Rep 325, CA.
Cia Barca de Panama SA v George Wimpey & Co Ltd [1980] 1 Lloyd’s Rep 598, CA.
Clark Boyce v Mouat [1993] 4 All ER 268, [1994] 1 AC 428, [1993] 3 WLR 1021, PC.
Goddard v Nationwide Building Society [1986] 3 All ER 264, [1987] QB 670, [1986] 3 WLR 734, CA.
Groom v Crocker [1938] 2 All ER 394, [1939] 1 KB 194, CA.
Harris v Harris [1931] P 10.
Mortgage Express Ltd v Bowerman and Partners (a firm) [1996] 2 All ER 836, CA.

Appeal
The third party, Colonia Baltica Insurance Ltd (Colonia), appealed from the decision of Mr Recorder Moxon-Browne QC, sitting as a Deputy Official
Referee on 22 July 1998, striking out part of their defence to third party proceedings for enforcement of an insurance indemnity brought by Robert Irving
and Burns (RIB), the defendant valuers in proceedings for professional negligence brought by the claimant, TSB Bank plc. The case was heard and
judgment given in secret by the Court of Appeal which ordered that the contents of the judgment should remain confidential until the determination of the
main action. The case is reported following the settlement of that action. The facts are set out in the judgment of Morritt LJ.

Alan Steinfeld QC and Roger Stewart (instructed by Manches & Co) for Colonia.
Nicholas Underhill QC and Derek Holwill (instructed by Williams Davies Meltzer) for RIB.

Cur adv vult

16 December 1998. The following judgments were delivered.

MORRITT LJ.
1. This appeal raises a point of some general importance: when solicitors are instructed by insurers on behalf of themselves and their insured to
defend a claim ­ 827 brought against the latter in what (if any) circumstances are communications between the insured and those solicitors privileged
from disclosure to the insurer? In this case the solicitors are Reynolds Porter Chamberlain (RPC), the insured is the defendant Robert Irving & Burns
(RIB), the insurer is Colonia Baltica Insurance Ltd (Colonia) and the claimant is the plaintiff TSB Bank plc (TSB). Mr Recorder Moxon-Browne QC
considered that in the circumstances of this case the communications between RIB and RPC on which Colonia relied in their defence to the third party
claim brought by RIB were so privileged and, on 22 July 1998, struck out the passages to which RIB objected. This is the appeal of Colonia from that
order.
2. RIB are a firm of surveyors and valuers in which Mr Braier and Mr Burns were partners. In September 1987 and again in March 1989 Mr Braier,
on behalf of RIB, carried out valuations of the Old Lamb Motel and Restaurant, Theale, Berkshire. On 31 July 1990 Mr Braier ceased to be a partner in
RIB. On 17 August 1990 a further valuation of the Old Lamb was carried out ostensibly by Mr Burns on behalf of RIB.
3. On 16 October 1990 TSB afforded facilities to the owners of the Old Lamb, Azim Lakha and Mohammed Damji, to the total value of £840,000
relying, so they claim, on the valuation carried out in August 1990. In 1994 and 1995 the Old Lamb was sold for £222,500, much less than the amount of
the valuation, £1·25m, or the outstanding debt, £785,000, for which it stood as security.
4. On 29 July 1996 TSB issued the writ in this action against RIB claiming damages in respect of its losses arising from the allegedly negligent
valuation carried out in August 1990. RIB was insured against such claims with Colonia under policy no 808/66070016, but, by memorandum 2, it was
agreed that ‘with effect from 15th July 1996 this policy excludes any claim arising out of work undertaken by Michael Braier’. General condition 1
entitled the insurers ‘at any time to take over and conduct in the name of the insured or the said firm, as the case may be, the defence or settlement of’ the
claim. General condition 4 provided that: ‘Where notice has been given in accordance with General Condition 2 or 3 the Insured shall give such full
co-operation to Insurers as they shall reasonably require.’
5. RIB duly notified Colonia of the claim made against them by TSB. On 21 November 1996 the loss adjusters instructed by Colonia informed RIB
that they were seeking underwriters’ instructions as to the appointment of solicitors. On 26 November 1996 they told RIB that Colonia had indicated that
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they wished to appoint RPC. The loss adjusters duly instructed RPC and, following a telephone call on 27 November, on 28 November Mrs Williams, a
partner in RPC, wrote to Mr Burns confirming that RPC had been instructed by Colonia to investigate the claim. She confirmed that an acknowledgement
of service had been filed, requested a copy of Mr Burns’ file and—

‘suggested that we should arrange a meeting to discuss the claim once the Statement of Claim has been served … In the meantime, as you will
appreciate pending completion of my investigations in this matter, I am unable to complete a report to your Underwriters. Accordingly their rights
remain reserved.’

6. On 9 January 1997 the meeting between Mrs Williams, her assistant and Mr Burns took place. Mrs Williams had by then read Mr Burns’ files. Mr
Burns was questioned about the case generally including the extent to which, in making ­ 828 the valuation in August 1990, he had relied on the work
of Mr Braier and whether he had ever visited the Old Lamb. On 20 February 1997 counsel instructed by RPC, Mr Paul Parker, advised the insurers in
writing that they had no grounds to justify a denial of liability to indemnify RIB in respect of the claim of TSB. This advice was accepted by the insurers
at that time and, on 15 March 1997, a defence, settled by counsel, was duly served. The recorder found that:

‘This fact [acceptance of liability] was not expressly communicated to [RIB]. However (as Mrs Williams accepted) [Colonia’s] conduct in
continuing to support the defence, and RPC’s letters to [RIB] (using language only consistent with the fact that there was valid cover) combined to
give [RIB] the unequivocal impression that liability had been accepted: so in my judgment it comes to the same thing as if the acceptance had been
conveyed expressly.’

7. RPC set about preparing for trial including obtaining evidence from experts. One of them, Mr Butter of Gerald Eve, produced a draft report
suggesting that it would be hard, if not impossible, to defend the allegations of negligence made by TSB. On 21 November 1997 Mrs Williams sent
written instructions to counsel to advise in conference on 25 November 1997 on ‘behalf of [RIB] who may have the benefit of cover from professional
indemnity underwriters’. She reminded counsel of the underlying facts of the case, commented on the extensive discovery which had taken place, referred
to the draft report of Mr Butter’s and his critical comments of Mr Burns’ valuation and continued:

‘In particular, Counsel is instructed to advise on Mr Butter’s expert evidence and to make recommendations, if any, on the form of the report
which he must now produce for the purpose of exchange. Counsel is also instructed to advise on the factual evidence of Mr Burns. Following the
conference with Mr Burns, Counsel is instructed to consider again on behalf of Underwriters their liability to indemnify the Defendants under the
terms of the Policy. Counsel will recall Instructing Solicitors’ reservation about whether Mr Burns did, in fact, actually inspect the Motel for the
purpose of producing his 1990 valuation. Mr Burns clearly relied very heavily indeed upon the work carried out by Mr Braier in 1987 and 1989.
Memorandum number 2 in the policy schedule, of course, excludes cover in respect of any work carried out by Mr Braier. (In fact as Counsel will
appreciate from the Judgment at Bundle 9 above, Mr Braier’s exclusion from cover by Underwriters’ predecessors (CNA Re) lead to an action by
the Defendants against the last Underwriters who were prepared to cover Mr Braier’s work).’

8. The conference duly took place on 25 November 1997. Notes of what transpired prepared by Mrs Williams’ assistant, Mr Butcher, and by Mr
Parker’s pupil were duly produced. Mrs Williams and Mr Burns were both cross-examined. The findings of the recorder were:

‘I am left in no doubt about the following matters.

(a) No hint was given to Mr Burns that the policy point was still in issue, and indeed he believed (with good reason) that it had long since
ceased to be an issue.
­ 829
(b) Mr Parker cross-examined Mr Burns persistently about the extent to which he relied upon Mr Braier’s work.
(c) The principal purpose of this cross-examination was to elicit answers which might found a repudiation of policy cover. In particular, Mr
Burns was tested hard about whether he had visited the property himself (eg “what was the weather like?”—a pure cross-examination question).
(d) Although Mr Burns’ answers essentially conformed to what he had said in January 1997, his language was unguarded. In particular he is
recorded as having admitted several times that he had been “blinded” by Mr Braier’s figures.
(e) The skilled cross-examination of Mr Burns about matters adverse to his interest with a view to founding a repudiation of cover, in a situation
where Mr Burns was entitled to and did repose trust and confidence in his solicitors and counsel, and had received no warning of any sort as to the
peril in which he was placed, was manifestly very unfair; and in my judgment it was also a breach of the duties owed to the defendant by both RPC
and Counsel.’

9. Following the conference Mr Parker advised RPC that insurers might repudiate liability and so they did by a letter dated 15 December 1997. On
21 January 1998 third party proceedings were instituted by RIB against Colonia pursuant to the order of Judge Thornton QC made on 14 January 1998.
By its third party notice RIB claimed an indemnity against its liability to TSB on the footing that such liability was covered by the policy because the
valuation was not the work of Michael Braier and because the conduct of the insurers between January and December 1997 was such as to estop them
from avoiding their liability. On 17 February 1998 Colonia served its third party defence in which it averred in paras 4 and 5 that:

‘Although the valuation report was signed by Mr Burns of the Defendant it is averred: (a) that he gave no material independent thought to the
valuation of the property; (b) that he relied blindly on Mr Braier’s previous opinions of value as set out in the reports identified in paragraph 2
above; (c) that he did not, himself, visit the property prior to signing the valuation report on 17 August 1990.
5. In support of the averments made in sub-paragraphs 4(a) and (b) above the Third Party will rely as admissions on statements made by Mr
Burns at a conference on 25 November 1997 to the following effect: (a) that he had been blinded by Mr Braier’s valuations as: (i) in 1987 Mr Braier
valued the property at £750,000; and (ii) the market for hotels increased by 60% between 1987 and 1989; (b) that a lot, if not all, of his report was
attributable to Mr Braier; (c) that his alteration of Mr Braier’s valuation figure from £1.245m to £1.25m arose as much from a desire to tidy up the
figure as being a result of calculations; (d) that in the light of the fact that he had been blinded by Mr Braier’s valuation it was possible that he had
started with a valuation of £1.25m and worked backwards to justify it.’

By summonses dated 15 April and 22 May 1998 RIB applied to strike out para 5 of the third party defence and for injunctions to restrain Colonia from
relying on the answers given by Mr Burns at the conference held on 25 November 1997.
10. Those summonses came before Mr Recorder Moxon-Browne on 13 July 1998. As I have indicated he heard oral evidence from both Mr Burns
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and Mrs Williams. He concluded that the arrangements made in November 1996 ­ 830 gave rise to two retainers of RPC, first a joint retainer by RIB
and Colonia and, second, a separate retainer of RPC by Colonia to advise them as to their rights under the policy. In considering the consequences of a
joint retainer he observed:
‘There is obviously a distinction between consenting to a waiver of privilege in relation to matters inevitably revealed in the course of the
exercise of a joint retainer, and consent to waive privilege in relation to communications elicited in confidence in circumstances where the insured
does not know and has no reason to envisage that they could or will be used against his interest. Consent express or implied in the latter situation is
unlikely to be found.’

The recorder found that Mr Burns must be taken to have known and consented to information derived from him at the meeting held on 9 January 1997 as
to the involvement of Mr Braier being communicated by RPC to Colonia and had thereby waived privilege to that extent. But with regard to the
information conveyed by Mr Burns at the conference held on 25 November 1997 the recorder said:

‘The first question for my decision is whether the material in question is privileged as against the third party. I have no doubt that it is. The
material was communicated to the defendant’s lawyers in circumstances of trust and confidence. To the extent that Mr Burns knew and accepted
that what he said would be repeated to his insurers, that knowledge and that acceptance was confined to the context of the subject matter of the joint
retainer; which is to say, the defence of the action in the common interest of insurer and insured. Having read his affidavit and heard him
cross-examined, I find as a fact that Mr Burns did not know that in November 1997 the insurers were still considering repudiating cover, and he did
not know that his statements at the conference with his lawyers might be used against the defendant to found such a repudiation. A fortiori he did
not consent to his statements being passed on so that they might be used against him in this way; and nor is any such consent to be implied from any
of the surrounding circumstances. The rule that clients who have jointly retained a solicitor to further a common interest cannot maintain privilege
against each other has no application.’

11. It is common ground that the retainer of RPC was joint, it being immaterial that there might also, as the recorder thought, be a separate retainer of
RPC by Colonia. Further it is well established and was not in dispute that:

‘If A. and B. have a common interest in litigation against C. and if at that point there is no dispute between A. and B. then if subsequently A.
and B. fall out and litigate between themselves and the litigation against C. is relevant to the disputes between A. and B. then in the litigation
between A. and B. neither A. nor B. can claim legal professional privilege for documents which came into existence in relation to the earlier
litigation against C.’ (See Cia Barca de Panama SA v George Wimpey & Co Ltd [1980] 1 Lloyd’s Rep 598 at 615 per Bridge LJ and cited with
approval by Neill LJ in Brown v Guardian Royal Exchange Assurance plc [1994] 2 Lloyd’s Rep 325 at 329.)

It is apparent from that statement of principle that the waiver of privilege by A and B only extends to communications made by them at a time when there
is ­ 831 ‘no dispute between’ them and they have ‘not fallen out’. Where the parties differ is in identifying when and why the waiver ceases. For
Colonia it is submitted that that point comes when A was deceived by B or the solicitors into believing that the information sought was required for the
purposes of the joint retainer; in such a case, it is submitted, the deception would destroy the joint retainer. This is disputed by RIB. It submits that the
waiver only extends to communications made before an actual conflict of interest between A and B emerges. It contends that on the emergence of such a
conflict the solicitors should give notice to both A and B so that each of them may decide whether, notwithstanding the actual conflict, to continue the
joint retainer or to terminate it. It is accepted that if the joint retainer is continued then a further waiver of privilege should be implied.
12. Counsel for Colonia objected that the existence of an actual conflict of interest was not the reason for the recorder’s conclusion. He contended
that the point was not foreshadowed in the written argument of RIB or covered by a respondent’s notice and, by inference, not open to RIB on the hearing
of this appeal. I do not accept that submission. It seems to me that the recorder, in the passages from his judgment I have quoted in para 10, was
founding his decision on what might be called an actual conflict of interest; the point was made expressly in para 8 of RIB’s written argument. In any
event it was not suggested that any prejudice was sustained by Colonia because of the absence of a respondent’s notice, if one was needed. In those
circumstances I would grant leave, if such leave is required, under RSC Ord 59, r 6(2).
13. Thus the choice is between the automatic discharge of the retainer at the point of deception and a limit on the waiver implied at the outset of a
joint retainer so as to exclude communications made after an actual conflict of interest has emerged. In principle I prefer the latter. The concept of
automatic discharge is inconsistent with the general rule for the discharge of contracts. This confers an option on the innocent party to accept the
repudiation, undoubtedly constituted by the deception, so as to discharge him from further performance or to affirm the contract notwithstanding the other
party’s breach. I see no reason why the innocent client should be obliged by an automatic discharge to instruct a new solicitor if he does not wish to do
so. Moreover the waiver of privilege implied from the existence of the joint retainer is based on the normal rules for the implication of contractual terms.
I do not consider that any of those principles (necessity, the officious bystander, business efficacy etc) could justify the implication of a waiver extending
to communications made by one client to the common solicitor after an actual conflict of interest had emerged but in ignorance of it.
14. There is no direct authority on the point but it seems to me that such assistance as is afforded by the reported cases supports a limited waiver
rather than an automatic discharge. The first in time is Harris v Harris [1931] P 10. This was referred to by the recorder. In my view it does not assist
because the judge in that case appears to have proceeded on the basis of a single not a joint retainer. The decision was that the communications were
privileged because they were made to the solicitor as a solicitor rather than as a friend.
15. The principal authority in this field is Groom v Crocker [1938] 2 All ER 394, [1939] 1 KB 194. In this case the solicitor had been instructed by
insurers to act on behalf of the insured as well as themselves. In performance of an agreement entered into by the insurers with the insurers for the other
party to the accident ­ 832 the solicitors admitted the liability of the insured. They had no instructions from the insured to make such an admission and
were sued by the insured in respect of the financial consequences to him of their unauthorised action. The position resulting from such a joint retainer
was described by Greene MR in the following terms:
‘The duty of the solicitor so nominated to the insured for whom he is to act cannot, of course, be the same as that which arises in the ordinary
case of solicitor and client, where the client is entitled to require the solicitor to act according to his own instructions. The whole object and
usefulness of these provisions would be defeated if the insured were to be entitled to interfere with the conduct of the proceedings in that way. The
insured, in my opinion, is not entitled to complain of anything done by the solicitor upon the instructions, express or implied, of the insurers,
provided it falls within the class of things which the insurers are, as between themselves and the insured, entitled to do under the terms of the policy
when properly construed. A solicitor who, acting on instructions, express or implied, from the insurer, does something to which the insurers, as
between themselves and the insured, are not entitled to require the insured to submit to, would, in my view, be acting beyond his competence; and,
if what he does is something which, in the ordinary way, would be a breach of duty to his client, he will be liable to the client accordingly.’ (See
[1938] 2 All ER 394 at 400, [1939] 1 KB 194 at 202–203.)
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Two further qualifications of the position of the joint solicitor were adverted to by Mackinnon LJ where he said:

‘… the second condition in the policy, which provides that “The society shall have absolute conduct and control of all or any proceedings
against the insured” is subject to an implied term that the solicitor who is selected by the society shall act reasonably in the interests of both the
insured and the society. As the insured is the litigant, the solicitor is his solicitor on the record, and owes him the duty of a solicitor to his client.
Having regard to the circumstances, however, the solicitor also owes a duty to the society. I do not think the insured can regard the solicitor as
entirely his solicitor, to be instructed only by himself … the solicitor, nominated by the society, is the solicitor for the insured, who is his client. He
is also, however, appointed by the society to protect its interests. If, in regard to any question of tactics in conducting the litigation, the solicitor has
reason to discern a conflict, or possible conflict, of interest between the society and the insured, it is the duty of the solicitor to inform the insured of
the matter. If the insured then insists on a course that the society disapproves, they can refuse to conduct or control the proceedings any longer, and
can leave the insured to do so at his own cost, and at the risk, if the society are right in their view, of not being able to recover that cost under his
policy.’ (See [1938] 2 All ER 394 at 416–417, [1939] 1 KB 194 at 226–227.)

It would be inconsistent with those observations of Mackinnon LJ if the common solicitor were permitted not to point out an actual conflict of interest to
the insured thereby enabling the insurer to obtain from the insured the material necessary to repudiate liability under the policy. Though Mackinnon LJ
refers to ‘a conflict, or possible conflict’ I do not think that a possible conflict would suffice ­ 833 to entitle an insured to maintain privilege against his
insurer. It is of the essence of the original joint retainer and the basis for the implied waiver that there is such a possible conflict of interest.
16. In Brown v Guardian Royal Exchange Assurance plc [1994] 2 Lloyd’s Rep 325 a client claimed against his former solicitor and solicitors were
instructed by insurers on behalf of both the solicitor and the insurer. In the course of investigating the claim, but before any actual conflict of interest had
emerged, the solicitors ascertained from their client facts which apparently entitled the insurers to repudiate liability. The insurers did repudiate and the
solicitor instituted an arbitration against them claiming to be entitled to an indemnity under the policy. The insurers sought discovery of the file of the
solicitors jointly instructed, the solicitor claimed that it was privileged from production. The Court of Appeal rejected his objection because it was an
express term of the policy that insurers might require reports from the solicitors to be made to them directly. The court declined to limit that express right
of the insurers either by reference to matters relevant only to the claim against the insured or to the period during which the retainer existed. But
Hoffmann LJ (at 327) recognised that the implied waiver of privilege where the solicitors are jointly instructed by insurer and insured is necessary to
enable the insurer to make informed decisions as to settling or defending the claim. Neill LJ (at 329) considered that the fact that insurers were funding
the defence and had a common interest in the defeat of the claim did not necessarily entitle them to see all the documents passing between the insured and
the common solicitors. There is no such necessity or common interest when an actual conflict of interest has arisen.
17. We were also referred to Goddard v Nationwide Building Society [1986] 3 All ER 264, [1987] QB 670, Mortgage Express Ltd v Bowerman and
Partners (a firm) [1996] 2 All ER 836, Clark Boyce v Mouat [1993] 4 All ER 268, [1994] 1 AC 428 and Bristol and West Building Society v Mothew (t/a
Stapley & Co) [1996] 4 All ER 698, [1998] Ch 1. I am unable to discern anything in any of them which assists on this issue. As I have indicated already
I prefer the submissions for RIB. They appear to me to be more consistent with both principle and such authority as there is. Accordingly I would hold
that the waiver of privilege implicit in the joint retainer extends to (a) all communications made by the insured to the solicitors down to such time as an
actual conflict of interest emerges, and (b) to all communications made by the insured to those solicitors after the notification by the solicitors to the
insured of such conflict and the lapse of such further time as the insured reasonably requires to decide whether to instruct separate solicitors.
18. Thus the question is whether an actual conflict of interest had arisen before the conference held on 25 November 1997 and if so whether RIB or
Mr Burns knew. Colonia contends that the recorder’s conclusions as to what happened, quoted in para 8 above, were wrong. It contends that, instead of
the findings expressed in sub-paras (b), (c) and (e), the recorder should have found that the questions asked of Mr Burns and his answers were relevant to
the proper conduct of the defence of the claim brought by TSB and that Mr Burns volunteered that he had relied blindly on the work of Mr Braier. This
contention was advanced in the context of the proposition for which Colonia argued, namely that deception discharged the retainer and with it the waiver
of privilege. As I would reject that as the material test it follows that the issues of fact raised by Colonia do not arise except to the extent, if at all, that
they bear on the question ­ 834 of whether there was an actual conflict of interest at the time of the conference held on 25 November.
19. It seems to me to be clear beyond doubt that at the time Mrs Williams drafted the instructions to counsel there was an actual conflict of interest.
The evidence of Mr Butter made it clear that it would be difficult, if not impossible, successfully to defend the claim brought by TSB. At the same time it
made it more, rather than less, probable that the liability under the policy might be avoided by reliance on the exclusion provided for in memorandum 2.
The instructions in terms described RIB as someone ‘who may have the benefit of cover’ and counsel was asked specifically ‘to consider again on behalf
of underwriters their liability to indemnify’ RIB in the light of that memorandum and the evidence of Mr Burns. The recorder found, and it is not
disputed, that Mr Burns did not know that the policy point was still in issue, though it is clear that its consideration was at least a purpose of the
conference. In accordance with my conclusions on the law the waiver of the privilege to which, but for the joint retainer, RIB would otherwise have been
entitled did not extend to the communications made by Mr Burns to RPC and counsel at the conference held on 25 November.
20. It does not appear to me that any of these conclusions is affected by the findings of fact made by the recorder which Colonia sought to challenge.
But for the sake of completeness I would add that I see nothing wrong with those findings save that I consider that it would have been more consistent
with the picture painted by the notes of the conference to which we were referred if the opening word of para (c) had been ‘a’ rather than ‘the’. Some of
the questions were undoubtedly directed to the conduct of the defence. Nevertheless, in my view, it is clear that one of the principal purposes of the
conference as a whole was to elicit information to justify a repudiation of liability and the description of that process as a cross-examination does not
appear to me to be unfair. It is true that some of Mr Burns’ most damaging answers were volunteered in the sense that his answer was in terms even more
favourable to Colonia than would have been a mere acceptance of the question; but that merely emphasises the conclusion of the recorder that the
treatment of Mr Burns was manifestly very unfair. I express no view on whether the conduct of RPC or counsel constituted a breach of their duties to
RIB lest any view I might express should prejudice any disciplinary proceedings which may be pending.
21. Before the recorder it was contended that once the communications had been made and the information thereby imparted passed on to Colonia it
was too late to rely on any privilege to which RIB might otherwise have been entitled. The recorder did not agree; not only did he strike out the passage
in the defence to the third party claim but he accepted undertakings in lieu of injunctions restraining the use by Colonia of the relevant information.
Colonia have not contended that the recorder was wrong on this point. Accordingly we have not been concerned with any issues which might arise
consequent on the onward transmission of the privileged information by the solicitors to the insurers.
22. For all these reasons I would dismiss this appeal.

TUCKEY LJ. I agree. I only wish to emphasise one point in my Lord’s judgment. This is that the waiver of privilege implicit in the joint retainer
extends to communications made by the insured to the solicitors where there is merely a possible conflict of interest. Without such a waiver I can see that
it would be very ­ 835 difficult for a solicitor ever to accept a joint retainer in a case such as this. Many solicitors do, and it is in the interests of both
insurers and insureds that they should continue to be able to do so. It is only where, as here, there is an actual conflict of interest that the waiver comes to
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an end and even then it will continue if, after notification of the conflict, the insured decides not to instruct separate solicitors. For these reasons I do not
think that this clarification of the law will cause real difficulty in practice.

Appeal dismissed.

Kate O’Hanlon Barrister

[2000] 2 All ER 837

Sunworld Ltd v Hammersmith and Fulham London Borough Council

R v Crown Court at Blackfriars, ex parte Sunworld Ltd

CIVIL PROCEDURE: ADMINISTRATIVE

QUEEN’S BENCH DIVISION

SIMON BROWN LJ AND TURNER J
9, 23 NOVEMBER 1999

Crown Court – Appeal from Crown Court – Appeal to Divisional Court – Mode of appeal – Case stated or application for judicial review – Appellant
asking Crown Court to state case on three questions – Crown Court stating case only on one question and appellant challenging decision in judicial
review proceedings – Guidelines on procedure for challenging court’s refusal to state case.

S Ltd was convicted by magistrates of offences under the Trade Descriptions Act 1968. On appeal, that conviction was upheld by the Crown Court in a
fully-reasoned written judgment. Subsequently, S Ltd asked the Crown Court to state a case for the High Court on three questions, but the recorder stated
a case only in respect of one of those questions. S Ltd therefore brought judicial review proceedings, seeking an order requiring the Crown Court to state
a case on the two other questions. At the hearing of the judicial review proceedings, the judge ordered that the application should be renewed in the case
stated proceedings. When those proceedings came before the Divisional Court, the issue arose of the appropriate procedure to be adopted in such
circumstances.

Held – Where a magistrates’ court or a Crown Court refused to state a case, the aggrieved party should without delay apply for permission to bring
judicial review proceedings, seeking either an order for mandamus requiring the court to state a case and/or an order quashing the order which that party
sought to appeal. If the court below had already given a reasoned judgment containing all the necessary findings of fact and/or explained its refusal to
state a case in terms which clearly raised the true point of law in issue, the single judge should, if he thought the point properly arguable, grant permission
for judicial review which directly challenged the order complained of, thereby avoiding the need for the case to be stated at all. Where, however, the
court had stated a case in respect of some questions only, the better course might be to apply for the case to be amended unless there already existed
sufficient material to enable the Divisional Court to deal with all the properly arguable issues in the case. That court would adopt whatever course
involved the fewest additional steps and the least expense, delay and duplication of proceedings. Whether or not it would be possible to proceed at once
to a substantive determination of the issues inevitably depended in part upon whether all interested parties were represented and prepared, and in part
upon the availability of court time. In the instant case, the Crown Court had given a fully-reasoned judgment and there would be little advantage in
troubling it to set out the whole matter again by way of case stated. Nor was there any good reason to embark on a fresh round of proceedings with a
view to ­ 837 compelling the Crown Court to state a case on additional questions. Accordingly, the court would proceed as if the challenge had been
brought by judicial review rather than remit the case stated to the Crown Court for further questions to be raised. The challenge itself would be allowed
(see p 840 e, p 841 e to j and p 845 h j, post).
R v Thames Magistrates’ Court, ex p Levy (1997) Times 17 July followed. R v Crown Court at Ipswich, ex p Baldwin [1981] 1 All ER 596n
distinguished.

Notes
For appeals by way of case stated from the Crown Court and for judicial review of Crown Court decisions, see 11(2) Halsbury’s Laws (4th edn reissue)
paras 1474, 1484.

Cases referred to in judgments

Airtours plc v Shipley (1994) 158 JP 835, DC.
R v Crown Court at Ipswich, ex p Baldwin [1981] 1 All ER 596n, DC.
R v Thames Magistrates’ Court, ex p Levy (1997) Times 17 July, DC.
Wings Ltd v Ellis [1984] 1 All ER 1046, [1984] 1 WLR 731, DC; rvsd [1984] 3 All ER 577, [1985] AC 272, [1984] 3 WLR 965, HL.

Appeal by way of case stated and application for judicial review

The appellant, Sunworld Ltd, appealed by way of case stated from the decision of the Crown Court at Blackfriars (Mr Recorder Christopher Sallon QC
and two lay justices) on 15 April 1999 dismissing its appeal against its conviction by the West London Magistrates’ Court on 22 December 1998 on
informations laid by the respondent, Hammersmith and Fulham London Borough Council, alleging offences contrary to the Trade Descriptions Act 1968.
At the hearing of the appeal, Sunworld renewed, on the order of Latham J made on 15 July 1999, an application for judicial review of the Crown Court’s
decision on 19 May 1999 to state a case only on one of the three questions which it had requested to be put before the High Court. The facts are set out in
the judgment of Simon Brown LJ.
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John Wardell (instructed by Mason Bond, Leeds) for Sunworld.

Simon Blackford (instructed by Louise Round) for Hammersmith.

SIMON BROWN LJ. On 15 April 1999 the Crown Court at Blackfriars (Mr Recorder Christopher Sallon QC and two lay justices) dismissed an appeal
by Sunworld Ltd (Sunworld) against their conviction by the West London magistrates on 22 December 1998 on three informations laid against them by
the London Borough of Hammersmith and Fulham (Hammersmith).
Sunworld are amongst the top four tour operators in the United Kingdom. The informations alleged that in their brochure, published in the autumn
of 1996, advertising Greek holidays for the summer of 1997, they recklessly made false statements to Mr John Martin in relation to certain self-catering
apartments on the Greek island of Lygia, contrary to s 14(1)(b)(ii) of the Trade Descriptions Act 1968.
The false statements were respectively: (1) that the apartments were within beautiful lawned and flowered areas, when they were not; (2) that the
apartments comprised three blocks, when, in fact, they consisted in addition of two unfinished blocks; (3) that there were no apartments or studios within
close proximity of the swimming pool when, in fact, there were.
­ 838
Section 14(1)(b)(ii) provides:

‘It shall be an offence for any person in the course of any trade or business … recklessly to make a statement which is false; as to any of the
following matters, that is to say … the nature of any services, accommodation or facilities provided in the course of any trade or business.’

It is convenient also at this stage to set out s 14(2)(b) of the Act:

‘For the purposes of this section … a statement made regardless of whether it is true or false shall be deemed to be made recklessly, whether or
not the person making it had reasons for believing that it might be false.’

The Crown Court found, first, that the statements in each of the informations were false; second, that they had been made without regard to their
truth or falsity and, accordingly, were reckless within the meaning of s 14(2)(b); and, third, that Mr Alan James, Sunworld’s brochure information
manager who had devised the system for ensuring brochure accuracy, was part of the company’s controlling mind so as to render Sunworld liable under s
14(1)(b). Sunworld now challenge the second and third of those findings. Before turning to the substance of their challenge, it is necessary to indicate
just how this case has come before the court.

The procedural issue

On 4 May 1999 Sunworld requested the Crown Court to state a case for the opinion of the High Court on three particular questions:

‘(1) Whether the Crown Court was correct in holding that Mr James was reckless as to the truth or falsity of entries made in Sunworld Limited’s
Holiday brochure. (2) Whether the defects in the system (if any) adopted by Sunworld Limited for ensuring the brochure accuracy could justify the
conclusion that the system failed to have regard to the truth or falsity of the brochure entries. (3) Whether Mr James could as a matter of law be
treated as part of the directing mind of Sunworld Limited so as to found liability under s 14(1)(b) of the Trade Descriptions Act 1968.’

On 7 May 1999 the recorder agreed to state a case on question (3) but refused to do so on questions (1) and (2), which he regarded as matters of fact
not law.
On 11 May Sunworld reformulated questions (1) and (2) so as to make them questions of law:

‘(1) Whether there was any evidence on which the Crown Court could hold that Mr James was reckless as to the truth or falsity of entries made
in Sunworld Limited’s holiday brochure. (2) Whether there was any evidence to justify the conclusion that the system adopted by Sunworld
Limited failed to have regard to the truth or falsity of the brochure entries.’

On 19 May, however, the recorder maintained his decision and a month later stated a case solely with regard to question (3). Meanwhile, on 10
June, Sunworld sought leave to move for judicial review to mandamus the Crown Court to state a case also on questions (1) and (2).
On 23 June the Crown Court sent the signed case to Sunworld’s solicitors for lodging with the Crown Office and added: ‘I also attach a copy of the
written judgment which should be included with the original case when lodged.’
­ 839
That written judgment is important. It consists of ten closely typed pages handed down on the fourth morning of the Crown Court hearing.
On 15 July 1999 Sunworld’s application for judicial review came before Latham J on the documents. He ordered: ‘Renew orally in case stated
proceedings on notice to respondents. Application can be made at the same time to amend case stated.’
Thus it was that the matter first came before us a fortnight ago. We then indicated that we would adjourn the hearing of the substantive challenge
until today and would then decide it on the existing documents without further reference to the Crown Court, giving our reasons for doing so within the
main judgment. Let me now deal with that.
As was pointed out by this court in R v Crown Court at Ipswich, ex p Baldwin [1981] 1 All ER 596n, proceedings to challenge a Crown Court’s
decision may be brought ‘either by case stated or by judicial review, whichever is the most convenient in the circumstances’.
In that particular case, as Donaldson LJ stated (at 596): ‘... it is much more convenient that it should be brought by case stated because then we can
get at the facts.’
Or, as McNeill J observed (at 597):

‘… in a case such as this which bristles with factual difficulties the only convenient and proper way to get it before the Divisional Court is by
case stated and not by way of application for judicial review.’

The present case, however, is strikingly different. Here, as stated, the Crown Court gave a fully reasoned judgment when it reached its decision and,
for my part, I see little advantage in these circumstances in troubling the court below to set out the whole matter again by way of a stated case; still less do
I see any good reason to embark upon a whole round of fresh proceedings with a view to compelling the Crown Court to state a case on additional
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questions.
This sort of problem crops up not infrequently in this court. A variant of it arose in R v Thames Magistrates’ Court, ex p Levy (1997) Times 17 July
and I hope it may be helpful if I repeat now something of what I said then:

‘On 13 November 1996 the magistrate refused to state a case, explaining fully and helpfully the reasons why he regarded the applicant’s
argument as unsustainable and why in the result he concluded that the application was frivolous within the meaning of s 111(5) of the Magistrates’
Court Act 1980. Invited by the applicant’s solicitors on 4 December 1996 to reconsider his decision, the magistrate on 11 December refused,
pointing out that, in any event, “the case has in effect been stated in the body of that letter” (ie his earlier letter of 13 November). The same day, 11
December 1996, the applicant brought judicial review proceedings seeking an order for mandamus to require the respondent magistrate to state a
case. Leave to move was granted … on 26 January 1997, and it was in that form that the matter first came before us today. As, however, I have
had occasion to remark in a number of other cases, such a course, although conventional and technically correct, is in fact, in circumstances such as
arise here, absurdly inconvenient. If it succeeds, all it produces is an order for a case to be stated which in reality advances the resolution of the
substantive issue not one jot. Far better surely, in a case like this where the facts are not in dispute and where in any event the magistrate has, as he
observed, already in effect stated ­ 840 the case, that the true issue should be placed directly before this court (as so easily it can be) by way of a
straightforward judicial review challenge to the legality of the conviction …’

I can omit the next paragraph which stressed the pointlessness of an arid debate as to whether or not the point of law raised was to be regarded as
misconceived, and continue:

‘With these considerations in mind, we gave leave at the outset of the hearing to amend the proceedings to include a separate judicial review
challenge going directly to the conviction on 23 October 1996 so as to raise squarely for present decision—rather than merely for the expression of
a prima facie view upon—the critical issue arising. I should just note that we took this course with the agreement not merely of the applicant, but
also of the Crown Prosecution Service who fortunately were represented before us.’

In that case, of course, as the quoted passage stated, the facts were not in dispute. Here, in certain respects at least, they were, but, as one hopes will
generally be the case in the Crown Court, such findings of fact as were necessary to the decision were included in the court’s judgment. Although it is
impossible to lay down principles which will apply in every case, and this court should retain the flexibility to deal with unusual situations as they arise, I
would suggest the following approach.
(1) Where a court, be it a magistrates’ court or a Crown Court, refuses to state a case, then the party aggrieved should without delay apply for
permission to bring judicial review, either (a) to mandamus it to state a case and/or (b) to quash the order sought to be appealed.
(2) If the court below has already (a) given a reasoned judgment containing all the necessary findings of fact and/or (b) explained its refusal to state a
case in terms which clearly raise the true point of law in issue, then the correct course would be for the single judge, assuming he thinks the point properly
arguable, to grant permission for judicial review which directly challenges the order complained of, thereby avoiding the need for a case to be stated at
all.
(3) If the court below has stated a case but in respect of some questions only, as here, the better course may be to apply for the case stated to be
amended unless again, as here, there already exists sufficient material to enable the Divisional Court to deal with all the properly arguable issues in the
case.
(4) This court for its part will adopt whatever course involves the fewest additional steps and the least expense, delay and duplication of proceedings.
Whether, as in Ex p Levy, it will be possible to proceed at once to a substantive determination of the issues must inevitably depend in part upon whether
all interested parties are represented and prepared, and in part upon the availability of court time.
Applying those principles to the present case, there can be no doubt that rather than remit the case stated to the Crown Court for further questions to
be raised, this court should proceed as if this challenge had been brought by judicial review. I see no possible need to produce further formal documents
for the purpose.

The substantive challenge

Sunworld make two main criticisms of the decision: first, they contend that the recorder misdirected himself in that he regarded the fact that errors
had occurred ­ 841 as being determinative of the issue of Mr James’ recklessness; second, they submit that the recorder erred in law in holding that Mr
James was part of the directing mind of the company.
The first of those points effectively encompasses questions (1) and (2) of the three originally raised. To understand these criticisms it is necessary
first to understand Sunworld’s system for seeking to ensure the accuracy of their brochure and to understand also how the system failed to prevent the
false statements that were undoubtedly made in the present case.
First, the system was devised, as already indicated, by Mr James. The procedure for verifying the factual accuracy of the relevant brochure entries
was at the time contained in two documents, one called ‘Brochure Production System and Its Use In Helping To Ensure Brochure Accuracy’, the other,
‘Brochure Errata System and Its Use In Helping To Ensure Brochure Accuracy’. For new properties, ie those which had not previously been featured in
Sunworld’s programme, a product information form (PIF) was sent to the area/resort manager who was required to complete all sections and was
instructed that the document would form the basis of the text used in the brochure. The PIF stated that the details supplied had to be comprehensive and
accurate. It had to be signed by the area manager and certified as correct by the proprietor of the property or his manager.
The PIF once completed was then used as the basis for a text for the brochure. Galley proofs were sent to the area manager under the cover of a fax
from Mr James which stressed that:

‘It is a strict legal requirement that all entries in the brochure be verified by as many sources as possible in order to ensure compliance with
ALL APPROPRIATE EC AND UK LEGISLATION. It is imperative that your personal involvement in this be understood and that your attention
is focused on every single word of copy and that this is reflected in your response. Read all the text and check it thoroughly. PLEASE DO NOT
ASSUME THAT ANY TEXT IS CORRECT.’

The area manager was requested to check the text thoroughly and to sign and date each page of copy before sending it all back to Sunworld. When
all the galley proofs were returned, any amendments were collated in a master copy, which was then used in the brochure. Once the brochure had been
printed it was sent out to the area manager, who was required to check the description and any photographs and to sign a declaration that the information
in the brochure was accurate. This declaration had to be countersigned by the owner or manager of the property. The final check was carried out prior to
the start of the season. The area manager was required to complete a pre-season declaration confirming that the information remained accurate; this too
had to be countersigned by the owner or manager of the property.
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A similar but amended procedure was adopted for properties which had previously been featured. As with the new property, the area manager had to
check the draft text carefully before signing off each page. Once the brochure was produced, the area manager had to sign a declaration confirming the
brochure’s accuracy and had to carry out a similar pre-season check (in both cases securing the confirmatory signature of the owner or manager).
Next I must indicate how the system came to fail in this case and fail, indeed, over two consecutive years, although it is only in respect of the second
year’s ­ 842 failures that Sunworld were charged. Sunworld’s area manager for Lefkas was Miss Mittroyanni. In 1995 she completed the PIF for the
relevant apartments, a new property for Sunworld’s brochure. She stated that there were extensive gardens with lawns and flowers but said nothing as to
their quality. She said that the apartments comprised two blocks (as then they did) and that ‘there are two unfinished buildings in the gardens’. She said
nothing as to the atmosphere around the swimming pool. So far so good.
The PIF was then used as the basis for the text for the brochure and it is here that things began to go badly wrong. The draftsman, who was either
one of Sunworld’s own employees or a freelance copywriter, (a) described the lawned and flowered area as ‘beautiful’; (b) omitted mention of the two
unfinished buildings within the grounds; and (c) described the atmosphere around the swimming pool as ‘very private’. That description, let me explain,
coupled with the photograph used to illustrate the entry, was the basis of the third misstatement, namely that there were no apartments or studios within
close proximity of the swimming pool.
There then followed four successive failures by Ms Mittroyanni to take the opportunities given to her to correct those misstatements. The first two
were in 1995 when initially she approved the draftsman’s copy for the 1996 brochure—she made, I should note, one or two alterations but none with
regard to these three misstatements—and then signed off the 1996 brochure as correct.
The next two were in 1996 when (in June) she was sent the 1996 entry as the basis for the 1997 brochure—when she changed the reference to two
blocks to read ‘Three blocks, two being featured by Sunworld’, a correction duly made for the 1997 brochure—and (in October) was sent the proof for the
1997 brochure and, again, simply signed it off as correct. I may add that she failed to correct the errors a fifth time in May 1997 when she made her
pre-season declaration for that year but, of course, this post-dated both the publication complained of and the informations before the court. On each
occasion she failed, so also did the local property owner. On each occasion too, it is right to note, she did so despite receiving a copy of Mr James’ fax
(quoted above) requiring that ‘attention is focused on every single word of copy’.
I come now to those parts of the Crown Court’s judgment which appear central to this challenge as it has developed. First, having referred to a
policy change introduced by Mr James in 1996 with regard to future brochure production, a change which had no application to the property here in
question, the court commented:

‘It did nothing to remedy the problem which had arisen in the 1996 brochure, namely that although the PIF was supposed to be used to inform
the brochure, the brochure entries in 1996 and 1997 for the Thalero Apartments, contained assertions which were not included in the PIF.’

Next this:

‘Mr Mason [he, I interpolate, is Sunworld’s solicitor who acted for them in the Crown Court] asks us to find that the system for verification was
excellent. We do not agree. There was not only a failure to include fundamental information by those asked to fill out the PIF, but also the inclusion
of information in the brochure which had never been in the PIF. To this extent the procedure was ignored.’
­ 843
Later:

‘Next it is argued that the statements were not made recklessly. Applying the wider meaning as bestowed by the deeming section of the Act [a
reference to s 14(2)(b)] we feel there was recklessness in relation to all three charges. I have already stated why we find that the system for
verifying brochure entries was unsatisfactory. In so far as descriptions not contained in the PIF were put into the entry, and disadvantageous
material included in the PIF was omitted, we find so we are sure that the system in operation failed to have regard to the truth or falsity of what was
in the brochure.’

Finally: ‘Accordingly we find that the company was reckless in relation to the false statements made through the controlling mind of Mr James.’
Let me at this point address the third question originally raised, that dealt with by the case stated:

‘Whether Mr James could as a matter of law be treated as part of the directing mind of Sunworld Limited [serves] to found the liability under s
14(1)(b) of the Trades Descriptions Act 1968.’

To my mind that question simply does not arise. What it is crucial to understand about this prosecution is that on true analysis it centres on
Sunworld’s system for ensuring brochure accuracy. This case, therefore, is essentially unlike the cases of Wings Ltd v Ellis [1984] 1 All ER 1046, [1984]
1 WLR 731 and Airtours plc v Shipley (1994) 158 JP 835.
Giving the judgment of this court in Wings Ltd v Ellis Mann J said:

‘The most that could be said for the respondent is that the members of this class [those ruling the company], although establishing a system,
failed to establish a system which would have prevented the mistake which occurred. That failure cannot, in our judgment, constitute
“recklessness”. There may be cases where the system is such that he who establishes it could not be said to be having regard to the truth or falsity
of what emerged from it, but that is not this case.’ (See [1984] 1 All ER 1046 at 105, [1984] 1 WLR 731 at 741.)

That, however, Mr Blackford submits to us is this case.

In Airtours plc v Shipley (1994) 158 JP 835 at 837 McCowan LJ, having considered the appellant’s system, said:

‘It seems to me to amount to an excellent system. Indeed, the system is not criticized on the part of the respondent. What has happened here is
that there has been human error.’

In the present case, I repeat, it is the system which is criticised. That being so, it seems to me that Sunworld themselves must necessarily be
responsible in law for that system; either they delegated to Mr James their own responsibility for ensuring brochure accuracy, in which case he became
for the purpose the company’s directing mind; or, as Mr James and Sunworld in fact contend, he was acting under the overall supervision of the board and
was answerable for the system to others senior to him, in which case those more senior officers were the directing mind of the company and, in turn,
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responsible for permitting Mr James to operate his system. The fact that Mr James was expressly found by the Crown Court to be a man of integrity and a
credible witness seems to me nothing to the point.
­ 844
To my mind, therefore, everything ultimately turns on whether it could properly be said of Sunworld’s system that it did not have proper regard to
the truth or falsity of what emerged from it (ie the accuracy of the brochure). That seems to me to be the single question upon which the court below
should have been focusing. It is, however, far from clear that that is how they saw it and, certainly, it is difficult to find in the court’s reasoning any clear
indication of how they came to convict on that basis. Alas that Hammersmith were not represented in the Crown Court by counsel. In a case of this
complexity, they surely should have been. In the result there appears to have been no exploration of a number of features of Sunworld’s system which on
the face of it seem to me to have cried out for consideration.
Mr James said in his evidence that ‘the system works extremely well’; nobody apparently asked him even whether the errors here were the only ones
ever to have been made. No one considered whether Ms Mittroyanni had proved to be an unusually unreliable area manager. No one asked what
instructions were given to the copywriters. No one asked what if any sanctions were visited upon copywriters who departed from the PIF, or area
managers who failed to correct such departures.
Mr Blackford submits that the Crown Court’s decision here rested on the criticism implicit in their judgment that no one in the company
independently verified that the brochure entries accurately reflected the contents of the PIF (someone, that is, independent both of the copywriter and of
the area manager).
One difficulty with this submission, however, is that no such criticism of the system appears to have been put to Mr James in cross-examination. On
the contrary, the only improvement suggested to him was that perhaps the PIF should have been returned to the area manager with the draft copy so that
he/she could be reminded of the information originally given.
Another difficulty with Mr Blackford’s argument is that it invites this court to read into the reasoning below more than is clearly there, something
which, for my part, I am loath to do in a borderline case such as this. It is a serious thing to stigmatise an apparently responsible system as one whose
authors are careless of the truth or falsity of its product. Of course those who produce travel brochures (and the like) are under a duty to guard against
inaccuracies and, as Mr Wardell rightly recognises, if the system devised clearly overlooks other more obviously desirable safeguards, then a conviction
on this basis may well be appropriate. It may even be that a properly reasoned conviction could have been supported on the facts of this very case. That,
however, we do not have. We could of course in the result quash the Crown Court’s decision and remit the matter for further hearing. But the thought of
a further three or four day hearing after this length of time discourages me from such a course; rather, I think the time has come to draw a line under this
litigation. I would, accordingly, quash the Crown Court’s decision and substitute for it an order by which Sunworld’s appeal against their conviction by
the magistrates is allowed.

TURNER J. I agree with what Simon Brown LJ has said as to procedure and have nothing to add to it. I also agree with his decision on the substance of
the case. My tentative reservation related to the failure of the system to introduce an element of internal authentication or audit and consistency by those
not involved in the process of compilation of the brochure material.
­ 845
The difficulty in proceeding along these lines in the present case is due to the absence of an effective examination of the applicant’s systems during
the course of the hearing before the Crown Court. It does not appear to me that the Crown Court received the assistance which it would and should have
had from both parties if they had been represented by advocates experienced in this field of practice. In the result, the findings of the Crown Court lack
sufficient detail to enable me to be confident that the proper issues were canvassed and addressed. For these reasons I agree with my Lord’s conclusion
that it is now too late for this case to go back to the Crown Court.

Application allowed.

Dilys Tausz Barrister.

[2000] 2 All ER 847

Bache v Essex County Council

EMPLOYMENT; Industrial relations

COURT OF APPEAL, CIVIL DIVISION

PETER GIBSON, MUMMERY LJJ AND FERRIS J
10 DECEMBER 1999, 21 JANUARY 2000

Industrial tribunal – Procedure – Advocate – Whether employment tribunal having power to remove party’s representative – Employment Tribunals Act
1996, s 6(1) – Employment Tribunals (Constitution and Rules of Procedure) Regulations 1993, Sch 1, r 9.

The appellant, B, brought employment tribunal proceedings against the respondent local authority. At the hearing, she was represented by L, a friend who
was neither legally qualified nor a representative of a trade union. The tribunal took the view that L was causing delays and clouding the issues, and
therefore removed him as representative. Thereafter B represented herself, with L assisting but not cross-examining witnesses. Following the dismissal
of her claim, B appealed to the Employment Appeal Tribunal (EAT), contending that the employment tribunal had improperly prevented L from
representing her. The EAT held that the tribunal’s power to conduct proceedings in the most appropriate manner for the clarification of the issues and just
handling of proceedings, conferred by r 9a of Sch 1 to the Employment Tribunals (Constitution and Rules of Procedure) Regulations 1993, extended to
the regulation of a representative’s conduct. It further held that the tribunal had exercised that power properly, and accordingly dismissed the appeal. B
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appealed to the Court of Appeal, relying on s 6(1)b of the Employment Tribunals Act 1996 which provided that a person could be represented before an
employment tribunal by counsel or a solicitor, a representative of a trade union or an employers’ association, or any other person whom he desired to
represent him.
________________________________________
a Rule 9 is set out at p 852 a to c, post
b Section 6(1) is set out at p 851 f, post
________________________________________

Held – The right of a litigant, under s 6(1) of the 1996 Act, to be represented by any person of his choice was unqualified. Thus although an employment
tribunal had power to control the conduct of the proceedings by the representative so as to confine him to what was relevant, it had no power to dismiss
the representative. If, however, a representative, with the knowledge and approval of the party, persisted in doing what he had been told not to do, that
might in an extreme case constitute contempt or an abuse of process disentitling that party from relief or from being entitled to defend proceedings. In the
instant case, the tribunal had made an error of law in dismissing L as B’s representative, but that error had not affected the outcome of the case.
Accordingly, the appeal would be dismissed (see p 852 j to p 853 d, p 855 a to d, p 856 c to f j to p 857 a and p 858 j to p 859 b, post).

Notes
For procedure at hearings before employment tribunals (formerly industrial tribunals), see 16 Halsbury’s Laws (4th edn) para 521.
For the Employment Tribunals Act 1996 (formerly the Industrial Tribunals Act 1996), s 6, see 16 Halsburys Statutes (4th edn) (1997 reissue) 510.
­ 847
For the Employment Tribunals (Constitution and Rules of Procedure) Regulations 1993 (formerly the Industrial Tribunals (Constitution and Rules of
Procedure) Regulations 1993), Sch 1, r 9, see 7 Halsbury’s Statutory Instruments (1998 issue) 294.

Cases referred to in judgments

Dobie v Burns International Security Services (UK) Ltd [1984] 3 All ER 333, [1985] 1 WLR 42, CA.
Peach Grey & Co (a firm) v Sommers [1995] 2 All ER 513, DC.
R v Cheshire CC, ex p C [1998] ELR 66.
R v Leicester City Justices, ex p Barrow [1991] 3 All ER 935, [1991] 2 QB 260, [1991] 3 WLR 368, CA.
Zurich Insurance Co v Gulson [1998] IRLR 118, EAT.

Appeal
The appellant, Brenda Bache, appealed with leave of the Court of Appeal granted on 28 July 1998 from the decision of the Employment Appeal Tribunal
(Kirkwood J, Mr P Dawson OBE and Miss D Whitcombe) on 17 February 1998 dismissing her appeal from the decision of an employment tribunal sitting
at Bury St Edmunds on 2 December 1996 dismissing her proceedings for constructive dismissal against the respondent, Essex County Council. The facts
are set out in the judgment of Peter Gibson LJ.

Thomas Roe (instructed by the Bar Pro Bono Unit) for Mrs Bache.
Thomas Linden (instructed by CJ Trowhill, Chelmsford) for the council.

Cur adv vult

21 January 2000. The following judgments were delivered.

PETER GIBSON LJ. The primary issue in this case is one of some importance for employment tribunals: where a party is represented by a person
whom he desires to represent him but the tribunal takes the view that by reason of that person’s conduct of the case that party should represent himself,
does the tribunal have the power to stop that person from representing that party?
The appellant, Brenda Bache, was employed by the respondent, Essex County Council (the council), as a care assistant in its social services
department from August 1989 until 15 November 1995 when she sent a letter of resignation to the council after being suspended for a lengthy period
through disciplinary proceedings. She applied on 1 February 1996 to a tribunal, claiming that the council was in breach of contract and that she was
constructively dismissed. Her application was opposed by the council.
The hearing before the tribunal took place on 24 and 25 October and 2 December 1996. Initially she was represented by a friend, Mr Leggett. He is
not a barrister nor a solicitor nor a representative of a trade union, but had represented Mrs Bache in the disciplinary proceedings. The burden of proof
being on Mrs Bache to establish constructive dismissal, she gave evidence first. But before her evidence was completed, with Mr Leggett’s agreement
three witnesses for the council were interposed and they were cross-examined by Mr Leggett. The tribunal took the view that Mr Leggett was not
performing very well, and the chairman’s notes record that Mrs Bache herself intervened three times, on one occasion the ­ 848 chairman noting:
‘Applicant asks via Leggett to be able to cross-examine at this point. He is floundering.’ On the morning of the second day a witness for the council,
after questioning by Mr Leggett, was questioned by Mrs Bache herself. The chairman then recorded the following incident:

‘(The Tribunal adjourned to discuss. Mr. Leggett is causing enormous delay and diversion in the development of the evidence. Applicant also
cross-examining. Losing sight of issues and won’t be guided. All on tribunal agreed to “sack” Leggett. His questions are not questions at all. In
(sic) causing huge delay and clouding the issues).
Resuming
The tribunal room cleared save for the presence of the parties, so as not to cause embarrassment to Mr. Leggett. Tribunal view put. Applicant
agrees to represent herself with Leggett assisting. Leggett told to assist, but not to examine or cross-examine witnesses.’

The hearing then recommenced. A witness for the council gave evidence and was cross-examined by Mrs Bache. She then resumed giving evidence. The
chairman recorded two interventions by Mr Leggett while Mrs Bache was being cross-examined. On the first, Mr Leggett was asked to remain silent or
leave. On the second, he was told to be silent and was advised to make notes during cross-examination for re-examination. At the conclusion of the
cross-examination the chairman recorded: ‘The ban on Leggett is lifted to allow him to prompt the applicant on any matters she may have forgotten.’ Mrs
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Bache then gave further evidence by way of re-examination. One further council witness was heard and cross-examined by Mrs Bache that day. There
was then an adjournment for five weeks. On the resumed hearing on 2 December 1996 a further council witness was heard and cross-examined by Mrs
Bache, but it is evident that Mr Leggett was also joining in the questioning. The chairman recorded:

‘Chairman stops Leggett from cross-examining. He is welcome to help the applicant but is confusing to us all for both of them to join in the
cross-examination.’

When a further witness for the council gave evidence and was cross-examined by Mr Bache the chairman did not allow Mr Leggett to cross-examine him
on a particular matter. One more witness for the council gave evidence and was cross-examined by Mrs Bache. Final submissions were then made.
Those for Mrs Bache took the form of lengthy written submissions on which Mr Leggett helped Mrs Bache. She was given a further opportunity, after
oral submissions had been made for the council, to reply but she had nothing to add.
The tribunal dismissed Mrs Bache’s application. It gave its summary reasons on 5 December 1996 and its extended reasons on 14 March 1997. It
held that there was no breach of contract by the council and so there was no constructive dismissal. Mrs Bache decided to appeal to the Employment
Appeal Tribunal (EAT). In a letter to the EAT she raised a large number of points about the merits of the case, but she also complained about the conduct
of the chairman, saying:

‘My representative was prevented from representing me fully and effectively at the Tribunal by [the chairman] when he momentarily stumbled
over the immense paper-work in front of him and I was left to try and decipher Mr. Leggett’s hand-written notes … My representative was warned
that he would be removed from the Hearing on two occasions. He was not ­ 849 rude or abrasive and does not understand why … At a second
hearing my representative had prepared some questions he expected to be allowed to ask as he was under the impression that he could represent me
having had time to recover. I did not receive any indication that I would be expected to represent myself again at that second hearing and was not
advised to seek professional advice or representation at the close of the first hearing. My representative was immediately stopped from asking
questions and further confusion ensued as his questions were handwritten and ran to many pages.’

On 10 July 1997 Mrs Bache swore an affidavit in support of her appeal. She accused the tribunal of not being sufficiently impartial. Among the
many points taken was this:

‘[The chairman] cut my representative short when he asked if he could ask a question as [the chairman] had previously stopped him
representing me … At a second hearing my representative began to open his questioning when [the chairman] stopped him and said “Not you!”
pointed to me and said “You!” … [The chairman] shouted to my representative on at least two occasions and threatened to remove him from the
hearing. My representative and I can think of no reason for this. If there was, it was not explained to us so that he could be more careful.’

In Mrs Bache’s formal notice of appeal one point which she took was that the tribunal prevented her representative from acting fully and effectively
for her by admonishing him over minor stumbles and delays in formulating questions.
As is the practice when criticisms are made of a tribunal’s conduct, the comments of the chairman were invited by the EAT. He replied, saying:

‘Mr. Leggett … did not demonstrate a sufficient understanding of his task so as to be able to help the applicant and, though he was unfailingly
courteous, was unnecessarily prolonging the proceedings by his method of cross-examination and apparent failure to grasp the purpose and focus of
the hearing … [T]he Tribunal had to offer guidance and explanation, often having to repeat it … I and my colleagues adjourned to discuss Mr.
Leggett’s involvement and decided that he could no longer be asked to assist because he was not assisting. The Tribunal was resumed in Chambers
so as not to embarrass Mr. Leggett and the matter was explained to him and it was in these circumstances that he was removed as the applicant’s
representative though he remained at all times and in fact … continued to play a part.’

At the preliminary hearing of Mrs Bache’s appeal before the EAT (Judge Hicks QC presiding) on 17 September 1997 she was allowed to go ahead
with that appeal on only two procedural points one of which was that the tribunal had improperly ruled that Mr Leggett could no longer represent Mrs
Bache and could not examine or cross-examine witnesses.
At the full hearing of the appeal before the EAT (Kirkwood J presiding), Mrs Bache was represented by counsel. The EAT dismissed the appeal. In
giving the judgment of the EAT, Kirkwood J referred to r 9(1) of Sch 1 to the Employment Tribunals (Constitution and Rules of Procedure) Regulations
1993, SI 1993/2687 and said that the discretion of the chairman extended to necessary regulation of the conduct of a representative. He pointed out that
the chairman could discourage, disallow even, irrelevant questions and refuse to receive irrelevant matter advanced by the representative. But he asked
what if ­ 850 the representative persisted with lengthy and irrelevant material or was persistently offensive to witnesses. The judge said that
circumstances in which a chairman could properly feel it necessary to disempower entirely a representative must be very rare indeed but the EAT was
satisfied that the power of control, to be exercised judicially and judiciously, was there because of the chairman’s duty to control and conduct the
proceedings in a fair and business-like manner. The judge then considered whether the chairman exercised the power properly and said that there was
nothing to show that the chairman was manifestly wrong in the way he acted nor did anything occur in the way in which the chairman exercised his power
to lead the EAT to overturn his decision.
The EAT refused permission to appeal but permission was given by this court.
The questions which arise on this appeal are the following. (1) Does the tribunal have the power to prevent a representative chosen by a party from
acting for that party? (2) If so, was that power exercised properly? (3) If the tribunal does not have that power, did Mrs Bache acquiesce in conducting
the case herself or is she otherwise prevented from taking the point that the tribunal did not have the power? (4) If there was no acquiescence and no such
prevention, was the decision of the tribunal nevertheless plainly and unarguably right so that the decision should stand, or should the case be remitted for
a rehearing?

(1) Power to dismiss a representative

Mr Roe, to whom we are indebted for appearing for Mrs Bache pro bono and for his lucid arguments, submitted that the tribunal cannot deprive a
party of his statutory right to be represented by the person of his choice. He relied on s 6(1) of the Employment Tribunals Act 1996, which (as amended)
provides:

‘A person may appear before an employment tribunal in person or be represented by—(a) counsel or a solicitor, (b) a representative of a trade
union or an employers’ association, or (c) any other person whom he desires to represent him.’
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He pointed out that a predecessor provision attached the qualification ‘with the leave of the tribunal’ to what is now para (c) (see para 7(1) of the schedule
to the Industrial Tribunals (Redundancy Payments) Regulations 1967, SI 1967/359), and that it was replaced without the qualification by para 9 of Sch 6
to the Industrial Relations Act 1971. He described the right as unqualified.
Mr Linden, appearing for the council, submitted that that right was qualified by certain provisions of the 1993 regulations. He pointed out that those
regulations were made pursuant to the power conferred on the Secretary of State by para 1(1) and (2)(f) of Sch 9 to the Employment Protection
(Consolidation) Act 1978 (now s 7 of the 1996 Act). Paragraph 1(2)(f) is in this form:

‘The regulations may in particular include provision … (f) for prescribing the procedure to be followed on any appeal, reference or complaint or
other proceedings before an industrial tribunal, including provisions as to the persons entitled to appear and to be heard on behalf of parties to such
proceedings …’

Mr Linden relied in particular on r 9(1) and (2) of Sch 1 to the 1993 regulations, which provide:
­ 851
‘(1) The tribunal shall, so far as it appears to it appropriate, seek to avoid formality in its proceedings and shall not be bound by any enactment
or rule of law relating to the admissibility of evidence in proceedings before the courts of law. The tribunal shall make such enquiries of persons
appearing before it and witnesses as it considers appropriate and shall otherwise conduct the hearing in such manner as it considers most
appropriate for the clarification of the issues before it and generally to the just handling of the proceedings.
(2) Subject to paragraph (1), at the hearing of the originating application a party shall be entitled to give evidence, to call witnesses, to question
any witnesses and to address the tribunal.’

Mr Linden submitted that r 9(1) and (2) was made pursuant to that part of the power in para 1(2)(f) which refers to ‘provisions as to the persons entitled to
appear and to be heard on behalf of parties’. That seems to me to be an unnatural way of regarding r 9(1) and (2), given that para 6 of Sch 9 to the 1978
Act contained a provision the equivalent of s 6(1)(c) of the 1996 Act. I own to having difficulty in understanding precisely what Parliament had in mind
by the reference to provisions as to who might appear and be heard in the light of the enactment of para 6. Rule 9(1) and (2) seems to me plainly to have
been made pursuant to the power for providing the procedure to be followed on proceedings before a tribunal. If it was to have cut down the specific right
of the party to have the representative of his choice (assuming, without deciding, that such cutting down were possible), it would have required clear and
specific wording to do so, and general provisions, not directed to the position of a representative, such as are found in r 9 (1) and (2), would not, in my
judgment, suffice.
It is not in dispute that a tribunal has the power under r 9(1) to control the way a party or his representative conducts his case before the tribunal.
Thus, the tribunal can exclude irrelevant evidence and argument and stop lines of questioning and submissions which do not assist. Kirkwood J well
stated the position under r 9(1) and (2) in Zurich Insurance Co v Gulson [1998] IRLR 118 at 119 (paras 13, 14 and 16), where he referred to the duty of
the tribunal to keep the inquiry before it within what it considers to be proper bounds. I wholeheartedly indorse the existence of that duty. Mr Linden
submitted that there was no true distinguishing line between preventing a representative from asking questions or making submissions on the one hand
and preventing the representative from doing more than assisting the party whom he represents to ask questions and make submissions on the other.
I see no difficulty in drawing a clear distinction. The tribunal in the one case is exercising its undisputed power to control the conduct of the
proceedings by the representative so as to confine the representative to what is relevant. In the other case the tribunal is purporting to deprive the party of
his statutory right to have the representative of his choice represent him but to reduce that representative to the status of a McKenzie friend. In my
judgment there must be statutory authority if that statutory right is to be cut down, and I cannot find it in r 9(1) and (2). To my mind Mr Roe is right to
say that s 6(1) confers an unqualified statutory right. If a party chose to be represented by a solicitor or counsel the tribunal may be able to ensure
compliance with its directions by a threat to report the representative to his professional body, but it would not, in my judgment, be possible for the
tribunal to direct that the party had to represent himself. Similar considerations apply where a party chooses to be represented by a trade union or ­ 852
employers’ association representative. I can see no difference in principle where the party chooses someone else to represent him under s 6(1)(c). I do
not see how the tribunal can take away the party’s right to that representative representing him.
I fully recognise that so to hold could leave tribunals with potentially very difficult situations, as the Employment Appeal Tribunal envisaged, when
a representative may try to persist in doing what he has been told not to do. If the representative so acts with the knowledge and approval of the party,
that may in an extreme case constitute an abuse of process such as may disentitle the party from relief or from being entitled to defend the proceedings.
The conduct may in an extreme case constitute contempt, though the tribunal itself will not be able to punish for contempt but may have to cause
contempt proceedings to be instigated (see CPR Sch 1, RSC Ord 52, r 52(1)(2)(a)(iii) and Peach Grey & Co (a firm) v Sommers [1995] 2 All ER 513). It
is perhaps unfortunate that the leave of the tribunal is no longer a requirement for representation by a representative under s 6(1)(c). But that is a matter
for Parliament.
For these reasons I would respectfully disagree with the view of the Employment Appeal Tribunal and hold that the tribunal does not have the power
to dismiss a representative.

(2) Improper exercise of power

This question therefore does not arise.

(3) Acquiescence
Mr Linden submitted that Mrs Bache cannot now complain of the absence of a power in the tribunal to dismiss a representative for two reasons.
The first reason was said to be that Mrs Bache agreed on 25 October 1996 to represent herself and to Mr Leggett merely assisting her. He relied on
the chairman’s notes to that effect.
I cannot accept that Mrs Bache ‘agreed’ in any meaningful sense. It is apparent from those notes that the chairman thought that the tribunal had the
power to ‘sack’ Mr Leggett and that he could be ‘told to assist but not to examine or cross-examine witnesses’. The chairman referred to the ‘ban’ on Mr
Leggett. In the chairman’s letter when commenting on the criticisms made of him, he referred to Mr Leggett no longer being ‘asked to assist’, as though
it was with the tribunal’s leave that Mr Leggett appeared as Mrs Bache’s representative. I do not doubt that the putting of ‘the tribunal’s view’, after
which Mrs Bache agreed to represent herself, was done in unequivocal terms, so that little choice was given to Mrs Bache, unprotected as she was by any
professional representative. She was not forewarned by the tribunal that this might happen if Mr Leggett continued to be inadequate. She was not given
time to think about it or consider whether she might obtain someone else to represent her. She herself in her affidavit referred to the chairman as having
‘stopped [Mr Leggett] representing me’. That in truth was what happened, and I cannot treat her ‘agreement’ to representing herself as constituting
acquiescence in that.
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Mr Linden’s second reason was that Mrs Bache had not protested or objected to the tribunal at the sacking of Mr Leggett and he suggested that it was
too late for Mrs Bache to take the point before the EAT. I reject that. A party aggrieved at a procedural decision by the tribunal must be entitled to take
the point on appeal even if he did not object at the time of the decision, particularly when the party is without legal representation at that time.
­ 853

(4) Correctness of decision

Mr Roe submitted that this court was bound in the circumstances to remit the case to the tribunal for a rehearing. Mr Linden however drew our
attention to the decision of this court in Dobie v Burns International Security Services (UK) Ltd [1984] 3 All ER 333, [1985] 1 WLR 42 in arguing that
that was not inevitable. In Dobie’s case, where there had been a misdirection by the tribunal, Donaldson MR said:

‘Once you detect that there has been a misdirection, and particularly that there has been an express misdirection of law, the next question to be
asked is not whether the conclusion of the tribunal is plainly wrong, but whether it is plainly and unarguably right notwithstanding that
misdirection. It is only if it is plainly and unarguably right notwithstanding the misdirection that the decision can stand. If the conclusion was
wrong or might have been wrong, then it is for an appellate tribunal to remit the case to the only tribunal which is charged with making findings of
fact.’ (See [1984] 3 All ER 333 at 337, [1985] 1 WLR 42 at 49; Donaldson MR’s emphasis.)

Mr Linden submitted that in the present case there is no reason to think that the sacking of Mr Leggett had, or might have had, any effect whatsoever on
the outcome of the case, and said that in those circumstances the appeal should be dismissed.
Mr Roe contended that this court could not be certain that if Mr Leggett had been allowed to continue, the outcome would have been the same. He
referred us to R v Leicester City Justices, ex p Barrow [1991] 3 All ER 935 at 947, [1991] 2 QB 260 at 290 where Lord Donaldson MR, in quashing an
order because of procedural unfairness, said: ‘I cannot be sure that the applicants were not prejudiced.’ Mr Roe also referred us to R v Cheshire CC, ex p
C [1998] ELR 66. In that case the day before a hearing before a special educational needs tribunal the expert, who was to represent a parent as well as
give evidence, went ill, but the tribunal refused the parent an adjournment. The parent had the statutory right to be represented. In judicial review
proceedings, Sedley J referred to the unqualified right of the parent to be represented and held that fairness had required the tribunal to allow an
adjournment.
Both these cases are distinguishable on their facts. In Ex p Barrow a McKenzie friend had wrongly been excluded and so there could have been
points taken with the friend’s assistance which were not taken. In the present case Mr Leggett remained assisting Mrs Bache throughout the remainder of
the proceedings. In Ex p C the intended representative was also an intended witness and his evidence was not heard. In the present case there does not
appear to have been any evidence which was not given which might have been given. Mr Leggett was specifically allowed to prompt Mrs Bache in
re-examination. No witness was not called who might have been called. Mr Leggett’s written prepared questions were made available to Mrs Bache and
he was at hand to supplement or clarify them. He helped prepare the extensive written closing submissions for Mrs Bache. I would add this. The
tribunal had had the opportunity to hear and see Mr Leggett acting for Mrs Bache and found that he was not assisting. It had also seen Mrs Bache both
give evidence and also cross-examine, and in the light of that it decided to sack Mr Leggett. Quite clearly it formed the view that she could do better than
he could in prosecuting her case. There is no reason whatever to think that if he had continued to act for Mrs Bache, as he would have done but for his
sacking, it would have made the slightest difference to the ­ 854 evidence given by either party or to the submissions made by or on behalf of each.
The case was one which was always going to be extremely difficult for Mrs Bache to win, and Ferris J has set out in his judgment the relevant facts. In
the circumstances despite the fact that Mrs Bache was wrongly deprived of her representative, I see no justification for giving her a second bite of the
cherry so many years after the relevant events. I am satisfied that the tribunal’s error had no effect on the outcome of the case.
For these reasons, although differing from the EAT’s reasoning, I would dismiss this appeal.

MUMMERY LJ. I agree. I also agree with the judgment of Ferris J which I have read in draft. The employment tribunal made an error of law in the
course of hearing the proceedings brought by Mrs Bache against the council. For the reasons stated by Peter Gibson LJ the tribunal had no power to
dismiss Mr Leggett as Mrs Bache’s representative. Mrs Bache therefore had grounds for appealing against the decision of the tribunal rejecting her claim
for unfair dismissal by the council. It does not follow, however, that her appeal should have been allowed by the EAT or that it should be allowed by this
court by an order remitting the case to the employment tribunal for rehearing.
I would dismiss the appeal for the same reasons as Peter Gibson LJ. I would add the following general comments in view of the particular
difficulties sometimes encountered by tribunals in hearing cases conducted by lay representatives as well as by parties acting in person.
(1) At the hearing the tribunal must follow a procedure which is fair to both sides. It must normally allow each party to call relevant evidence, to ask
relevant questions of the other side’s witnesses and to make relevant submissions on the evidence and the law.
(2) The tribunal is responsible for the fair conduct of the hearing. It is in control. Neither the parties nor their representatives are in control of the
hearing.
(3) Procedural fairness applies to the conduct of all those involved in the hearing. Just as the tribunal is under a duty to behave fairly, so are the
parties and their representatives. The tribunal is accordingly entitled to require the parties and their representatives to act in a fair and reasonable way in
the presentation of their evidence, in challenging the other side’s evidence and in making submissions. The rulings of the tribunal on what is and is not
relevant and on what is the fair and appropriate procedure ought to be respected even by a party and his representative who do not agree with a ruling. If
the party and his representative disagree with a ruling an appeal lies against it if the tribunal has made an error of law.
(4) A tribunal makes an error of law in its procedural rulings if it either has no power to make the ruling or if, in the exercise of its discretion, it
makes a ruling which is plainly wrong in the sense that no tribunal properly instructed could have made that ruling.
(5) Even if the appeal tribunal or the Court of Appeal find that a ruling has been made in error of law it does not follow that the appeal should be
allowed and that the case should be reheard by the tribunal in whole or in part. This is not to diminish the importance of procedural fairness: it is as
important in many ways as the application of the substantive law to the facts of the case. But the response to the finding of an error of law in procedure
should be proportionate. If the appeal tribunal is sure that the result of the case is unarguably right and that ­ 855 the outcome would have been the
same, even if the error of procedure had not occurred, it would be unnecessary, unjust and disproportionate to remit the case to the tribunal for a
rehearing. There are no good grounds for ordering a rehearing of this case.

FERRIS J. The facts relating to the course of the hearing of this case in the industrial tribunal and the EAT have been fully stated in the judgment of
Peter Gibson LJ and I will not set them out again. As my Lord has said these facts give rise to four questions. I wish to add something of my own on the
first and fourth of these.
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(1) Does an employment tribunal have power to prevent a representative chosen by a party from acting for that party?
In my view there is a clear distinction between the right of a party to proceedings before the tribunal to select a person who is to represent him in
those proceedings and the power of the tribunal to regulate the conduct of that representative in the performance of his task. The first matter is governed
by s 6(1) of the Industrial Tribunals Act 1996, the terms of which Peter Gibson LJ has set out. These give a person appearing before a tribunal the right to
be represented by, amongst other persons, ‘any other person whom he desires to represent him’. Although the Secretary of State has power to make
regulations which include provisions as to the persons entitled to appear and to be heard on behalf of parties to the proceedings, I cannot regard r 9(1) and
(2) of the Employment Tribunals (Constitution and Rules of Procedure) Regulations 1993, SI 1993/2687 as doing any such thing. My reasons for this
conclusion are those which Peter Gibson LJ has given. It was not suggested that any other regulation has this effect. Section 6(1) therefore stands alone
and gives a party an unqualified right, if he so chooses, to be represented not only by a person within para (a) or (b) of that section but by any other
person whom he desires to represent him.
I consider that r 9(1) and (2) are directed to the second matter. They give the tribunal wide powers to control the proceedings before it, including the
power to control the conduct of any representative of a party (regardless of which of the paragraphs of s 6(1) describe that representative) or, indeed, of
the party himself if he chooses to represent himself. As to the scope of these provisions I agree with what was said by the EAT (Kirkwood J presiding) in
Zurich Insurance Co v Gulson [1998] IRLR 118 at 119 (paras 13, 14 and 15). In particular the following statement (in para 13) appears to me to be
entirely correct:

‘… it is in no sense incumbent on the tribunal and forms no part of the discretion it has, to allow lengthy and detailed cross-examination on
matters that do not appear to the tribunal to be of assistance to it, however enthusiastically the advocate endeavours to pursue that line.’

This must apply equally to other forms of conduct which involve irrelevance or prolixity or which are otherwise disruptive of the proceedings.
There being a distinction between the two matters which I identified earlier, the answer to the question under consideration must depend on whether
the act of the tribunal in this case was one which denied to Mrs Bache her right to be represented by a person of her choice or merely one which
controlled the activities of Mr Leggett in acting as her chosen representative. In my judgment there can be no doubt that it was the first of these. One
need look no further than the tribunal’s own note of what it did, with its reference to the tribunal agreeing ­ 856 ‘to “sack” Leggett’. This it had no
power to do, any more than, if Mrs Bache had instructed counsel or a solicitor to represent her, it would have had power to withdraw her instructions from
him.
It follows that I agree that the second question does not arise. On the third question I agree entirely with Peter Gibson LJ and do not wish to add
anything.

(4) Was the decision of the tribunal plainly and unarguably right so that the decision should stand, or should it be remitted for a rehearing?
In my judgment the three authorities referred to by Peter Gibson LJ (Dobie v Burns International Security Services (UK) Ltd [1984] 3 All ER 333,
[1985] 1 WLR 42, R v Leicester City Justices, ex p Barrow [1991] 3 All ER 935, [1991] 2 QB 260 and R v Cheshire CC, ex p C [1998] ELR 66) speak
with a single voice on the principle which is to be applied. Where a tribunal has misdirected itself on a matter of law the case must be remitted unless the
tribunal’s decision is plainly and unarguably right. As Donaldson MR put it in Dobie’s case:

‘It is only if it is plainly and unarguably right notwithstanding the misdirection that the decision can stand. If the conclusion was wrong or
might have been wrong, then it is for an appellate tribunal to remit the case to the only tribunal which is charged with making findings of fact.’
(See [1984] 3 All ER 333 at 337, [1985] 1 WLR 42 at 49; Donaldson MR’s emphasis.)

As to the basis of the decision of the tribunal in this case we have nothing to go on except the extended reasons of the tribunal sent to the parties on
14 March 1997. The question which the tribunal had to decide was whether Mrs Bache had resigned from her employment or whether, as Mrs Bache
contended, she had been constructively dismissed by her employer, Essex County Council.
Mrs Bache’s claim that she had been constructively dismissed rested on the contention that she had unjustly been subjected to disciplinary
procedures as the result of two separate complaints about her conduct as a care assistant. The first complaint, by a Miss P, had led to a disciplinary
hearing on 28 November 1994. Mrs Bache was represented by Mr Leggett. The result of the hearing was that the complaint was held to be well-founded.
Mrs Bache was given a first and final written warning which was to remain on her file for two years. Mrs Bache appealed from this decision under the
council’s internal disciplinary machinery. The appeal was not heard until 9 June 1995, largely it seems as the result of postponements requested by Mrs
Bache. Its result was a partial success for Mrs Bache, in that it was decided that the first and final warning was to remain on her file for 12 months only.
While the procedures in respect of the complaint by Miss P were in progress the county council received another complaint, this time from a Mrs T.
The council decided that it would be unreasonable to proceed on this complaint until the appeal in relation to Miss P’s complaint had been concluded.
Even after that had happened the new disciplinary hearing was subject to a number of postponements at Mrs Bache’s request. It finally took place on 10
October 1995, Mrs Bache once again being represented by Mr Leggett. The outcome was that part of the complaint against Mrs Bache was held to be
well-founded and it was decided that the first and final warning on Mrs Bache’s file should be extended for a further period of twelve months. Mrs Bache
appealed against this decision, but before the appeal was heard further events occurred.
While the complaints against Mrs Bache were pending she had been suspended from duty by the council. The suspension came to an end when the
­ 857 complaint of Mrs T was dealt with at the hearing on 10 October 1995. The council then invited Mrs Bache to resume her duties. This was
followed by an exchange of correspondence which culminated in a letter dated 9 November 1995 in which Mrs Bache set out the conditions on which she
was willing to be reinstated. These were:

‘The allegations and charges against me dropped, a warning removed and all employees and work colleagues informed that the matter has been
resolved with no implications against my character and reputation.’

When the council stated that it would not accept these conditions Mrs Bache wrote a letter of resignation on 15 November 1995. She was urged by the
council to reconsider her position but she declined to withdraw her resignation. Her appeal against the decision made on 10 October 1995 was not
proceeded with. Her application to the industrial tribunal, made on the basis that she had been constructively dismissed, was made on 1 February 1996.
The hearing before the tribunal took place on 24 and 25 October and 2 December 1996. On the latter date the application was dismissed.
The facts which I have summarised are, as I indicated, taken from the tribunal’s extended reasons. It appears from those reasons that the tribunal
gave very careful consideration to the county council’s disciplinary procedures. The primary facts on which it relied in this respect are those which must
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have emerged from the council’s files. Little, if anything, seems to have turned on oral evidence heard by the tribunal. In para 13 of its reasons the
tribunal stated:

‘It is right to make a point at this stage that the various minutes of the meetings that have been taken in the case have been challenged by the
applicant. The Tribunal took the view that the minutes accurately recorded the material they purport to record and are not a distortion in any way of
what was said, nor was any material omitted. There may have been minor differences between the notes taken by Mr. Leggett and the notes taken
at the hearings, but these were not material to the outcome. The Tribunal have every confidence in being able to rely on all of the records of the
meetings in arriving at its decision.’

It was not suggested before us that the tribunal would or might have made a different decision on this important point if Mr Leggett had been allowed to
continue to represent Mrs Bache.
The conclusion of the tribunal was to the effect that the county council had fully complied with the requirements of good industrial practice in its
handling of the two complaints and in dealing with Mrs Bache. The tribunal was somewhat concerned with the length of the period during which Mrs
Bache had been suspended while disciplinary proceedings were pending against her, but it concluded that the council was not to be blamed for this, most
of it having resulted from the council’s efforts to accommodate the requests of Mrs Bache. The tribunal clearly did not think it unreasonable of the
council to have refused to accede to the demands of Mrs Bache that the allegations against her be abandoned or withdrawn. It observed that Miss P’s
complaint had been found to be established in the first appeal process and that Mrs T’s complaint was awaiting the outcome of the second appeal.
I have felt it necessary to examine the tribunal’s decision in some detail in view of the need to be satisfied, if the case is not to be remitted, that the
decision is plainly and unarguably right notwithstanding the tribunal’s unjustified refusal to ­ 858 allow Mr Leggett to continue to represent Mrs Bache.
Having considered the matter with care I have reached the conclusion that, even on the assumption (which may be unjustified) that Mr Leggett would
have made an appreciably better job of representing Mrs Bache than she did herself, there is no significant part of the tribunal’s decision which would
have been different.
I am thus satisfied that the decision of the tribunal in this case is plainly and unarguably right and that this appeal must be dismissed.

Appeal dismissed.

James Wilson Barrister (NZ)

[2000] 2 All ER 860

Re Maxwell Fleet and Facilities Management Ltd (in administration) (No 2)

EMPLOYMENT; Transfer of undertakings

CHANCERY DIVISION (COMPANIES COURT)

DAVID MACKIE QC (SITTING AS A DEPUTY JUDGE OF THE HIGH COURT)
2, 3 DECEMBER 1999, 20 JANUARY 2000

Employment – Continuity – Transfer of trade, business or undertaking – Employment by transferor immediately before transfer – Transferor company in
administration – Transferee wishing to acquire business of transferor without assuming responsibility for employee liabilities – Administrators agreeing
to transfer business to transferee by means of wholly-owned subsidiary of transferor – Subsidiary agreeing not to employ transferor’s employees –
Whether transactions transferring employee liabilities to transferee – Transfer of Undertakings (Protection of Employment) Regulations 1981, reg 4.

F Ltd wished to acquire the business of M Ltd from its administrators, but without assuming responsibility under the Transfer of Undertakings (Protection
of Employment) Regulations 1981 for M Ltd’s liabilities to its employees under their contracts of employment. Accordingly, the parties agreed to transfer
the business by means of a series of transactions agreed on the same date. Under the first transaction, the administrators agreed to sell M Ltd’s business to
D, an off-the-shelf company whose shares were held by the administrators. The agreement provided that D would not take M Ltd’s employees into its
employ. In the second transaction, D agreed to sell its business to F Ltd. By those means, the parties hoped to take advantage of reg 4a of the 1981
regulations which provided that, where a liquidator, receiver or administrator transferred a company’s undertaking to a wholly-owned subsidiary, the
transfer was deemed, for the purpose of the regulations, not to have been effected until that undertaking was transferred by the transferee to another
person, and that the transfer was taken to have effect immediately before that date by one transaction only. The 1981 regulations had implemented
Council Directive (EEC) 77/187, which sought to safeguard employees’ rights on a transfer, but the directive itself contained no provision corresponding
to reg 4. In subsequent proceedings, the issue arose as to whether reg 4 had in fact prevented the transfer of the employment contracts to F Ltd, or
whether, like other provisions of the regulations, it should be given a construction which defeated attempts to circumvent the purpose of the directive.
________________________________________
a Regulation 4, so far as material, is set out at p 886 e f, post
________________________________________

Held – On its true construction, reg 4 of the 1981 regulations did not prevent the transfer of employees’ liabilities to the ultimate transferee where an
intermediary was introduced into the transaction solely for the purpose of preventing such a transfer. Rather, although not specifically envisaged by the
directive, reg 4 enabled its purposes to be achieved, while permitting a true hive down, ie the segregation of the viable parts of the business from the
remainder so that they could continue to flourish or be sold. Thus the purpose of the hiving down would be achieved and the relevant transfer postponed,
not cancelled, to meet the directive’s objective in passing responsibility for those employee liabilities to the ultimate transferee, rather than leaving them
with the assetless intermediary.
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­ 860

In the instant case, the transaction was not part of an orthodox hive down, and D had been introduced for the sole purpose of achieving the mutual wish of
the contracting parties to transfer the business to F Ltd stripped of the liability to employees. Accordingly, the transaction was in substance a single
transfer which had transferred M Ltd’s liabilities under the employment contracts to F Ltd (see p 870 b to f and p 871 c, post).
Litster v Forth Dry Dock and Engineering Co Ltd [1989] 1 All ER 1134 applied.

Notes
For transfers by receivers, liquidators and administrators, see 16 Halsbury’s Laws (4th edn reissue) para 250.
For the Transfer of Undertakings (Protection of Employment) Regulations 1981, reg 4, see 7 Halsbury’s Statutory Instruments (1998 issue) 217.

Cases referred to in judgment

Abels v Administrative Board of the Bedriffsvereniging voor de Metaalindustrie en de Electrotechnische Industrie Case 135/83 [1985] ECR 469.
Bork (P) International A/S (in liq) v Foreningen af Arbejdsledere i Danmark Case 101/87 [1988] ECR 3057.
d’Urso v Ercole Marelli Elettromeccanica Generale SpA Case C-362/89 [1991] ECR I-4105.
Jules Dethier Équipement SA v Dassy Case C-319/94 [1998] All ER (EC) 346, [1998] ECR I-1061, ECJ.
Litster v Forth Dry Dock and Engineering Co Ltd [1989] 1 All ER 1134, [1990] 1 AC 546, [1989] 2 WLR 634, HL.
Longden v Ferrari Ltd [1994] ICR 443, EAT.

Application
By para 2(i) of an application dated 9 February 1999, the joint administrators of Maxwell Fleet and Facilities Management (MFFM) asked the court to
determine whether the sale of MFFM’s business and assets on 9 April 1992 transferred the liabilities of the contracts of employment of certain named
individuals (including Mr Brian Moss) to Fleet and Distribution Management Ltd (FDML) in accordance with the Transfer of Undertakings (Protection of
Employment) Regulations 1981. The facts set out in the judgement.

Jonathan Swift (instructed by Lewis Silkin) for the joint administrators.

David Altaras (instructed by Michael J Baker & Co, East Horsely) for FDML.
Mr Moss appeared in person.

Cur adv vult

20 January 2000. The following judgment was delivered.

DAVID MACKIE QC.

1. This is the determination of issue 2(i) in the application dated 9 February, the other questions having been resolved by the court or agreed by the
parties. It is apparently the first case about reg 4 of the Transfer of Undertakings (Protection of Employment) Regulations 1981, SI 1981/1794, a
paragraph left, it seems, in obscurity following the decision of the House of Lords in Litster v Forth Dry Dock and Engineering Co Ltd [1989] 1 All ER
1134, [1990] 1 AC 546 to which I refer later.
­ 861
The central issue is whether a sale by the administrators, in a series of steps on 9 April 1992, of the assets and business of the company, Maxwell
Fleet and Facilities Management Ltd (MFFM), to Fleet Distribution and Management Ltd (FDML), had the effect of transferring from MFFM to FDML
liabilities under the contracts of employment of certain employees. The parties to this application have been MFFM, FDML and the employees, one of
whom, Mr Moss, attended court and addressed me. MFFM and FDML have been ably represented by Mr Jonathan Swift and by Mr David Altaras
respectively.

Facts
2. These are set out in the agreed written statement of facts but as the legal issues have narrowed since it was produced the list of relevant events can
be further shortened.
3. MFFM carried on a business with more than 50 employees comprising, for the most part, the running of a fleet of vehicles and a parcel
distribution service. The joint administrators were appointed by order on 10 February 1992 for the purpose of ‘a more advantageous realisation of the
Company’s assets than would be effected on a winding-up’ and had to dismiss 41 of the company’s 53 employees. This case is about the remaining 12
employees. It is agreed between the parties that Mr Rose is in a different category to the other 11 and that he should no longer be included in the
administrators’ application. His case aside, for the purpose of the present application, no distinctions are made as to the positions of other employees,
although FDML specifically reserved its position in the case of Mrs Heap, should the present application be determined adversely to FDML and should
Mrs Heap subsequently proceed against it.
4. A provisional management buyout for MFFM’s business was agreed which, after advice had been taken, took the form of the following series of
steps on 9 April 1992, which apart from minor deletions and compression, I take verbatim from paragraphs of the agreed statement of facts as this
contains, as well as facts, some sensible admissions by the parties:

‘(i) The two subscriber shares in an off the shelf company, Dancequote, were transferred one to each of the Administrators. (ii) The
Administrators advised each of the remaining employees of the immediate termination of their contracts of employment. (iii) Each employee was
dismissed by the Administrators, under a scheme whereby FDML’s proposed purchase of the assets and business of MFFM should follow a hive
down of such assets and business into a subsidiary company, accompanied by the dismissal of MFFM’s employees. As the Administrators knew
FDML intended by the scheme to seek to prevent the transfer of the employees’ contracts of employment to FDML under the provisions of the
Regulations. (iv) By an agreement dated 9th April 1992 (“the First Agreement”) made between MFFM, the Administrator’s and Dancequote,
MFFM agreed to sell and Dancequote to buy MFFM’s business as a going concern: see clause 2.1. By clause 13 of the Agreement Dancequote
agreed “not to take into its employ” any of the employees whose names were set out in Schedule 4. (v) By a Deed of Assignment between MFFM
and Dancequote, MFFM assigned its interest in its business premises to Dancequote. (vi) By an agreement dated 9th April 1992 (“the Second
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Agreement”) between Dancequote and FDML, Dancequote agreed to sell and FDML to buy Dancequote’s business as a going concern: see clause
2.1. The business in question was one which ­ 862 Dancequote had bought from MFFM. The FDML and Dancequote agreements to buy were in
similar but not identical terms. In particular, there was no equivalent to a clause 13 of the Dancequote agreement in the FDML agreement. (vii) By
a Deed of Assignment between Dancequote and FDML, Dancequote assigned its interest in the premises to FDML. After this Dancequote had no
trading activities of any sort. (viii) As a result, FDML acquired the business of MFFM as a going concern.’

5. FDML informed each employee that no offer of employment could be made until the agreements of 9 April had been signed. After signature of
the agreement FDML told the employees that an offer of employment would be forthcoming and it was on 13 April 1992. Thereafter the employees (with
exceptions) entered into contracts with FDML carrying out much the same work as they had done for MFFM.
6. On various dates between 30 March and 20 August 1992 most of the employees made claims for sums due to them which total some £355,910·63.
7. MFFM and FDML agree that the transaction is a transfer for the purpose of the regulations but not that it is effective to pass employment liabilities
across to FDML.

The law
8. I first step back from the detailed points of difference between the parties to describe the nature and effect of the regulations.
9. The regulations were made in 1981 to give effect to the acquired rights directive (Council Directive (EEC) 77/187) (the directive).
10. The directive concerns ‘the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of
transfers of undertakings, businesses or parts of businesses’. It begins by reciting that economic trends have brought about many changes in the structure
of undertakings and that ‘it is necessary to provide for the protection of employees in the event of a change of employer, in particular to ensure that their
rights are safeguarded’. Article 3 requires that the transferor’s rights and obligations under contracts of employment existing on the date of the transfer of
the business shall, ‘by reason of such transfer, be transferred to the transferee’.
11. The regulations give effect to this requirement by identifying in reg 3 what a relevant transfer is. By reg 5 a transfer does not operate to
terminate the contract of employment of the employee of the transferee ‘but any such contract which would otherwise have been terminated by the
transfer shall have effect after the transfer as if originally made between the person so employed and the transferee’. But by reg 5(3) that paragraph
relates only to a person ‘so employed immediately before the transfer, including where the transfer is effected by a series of two or more transactions, a
person so employed immediately before any of those transactions’.
12. It is therefore necessary to identify who is, and who is not, ‘employed immediately before the transfer’. In Litster v Forth Dry Dock and
Engineering Co Ltd [1989] 1 All ER 1134, [1990] 1 AC 546 the House of Lords held that the courts were under a duty to give a purposive construction to
the regulations to accord with the decisions of the Court of Justice of the European Communities on the directive and, where necessary, to imply words
which would achieve that effect. As a result there is implied into reg 5(3) after the words ‘immediately before the ­ 863 transfer’ the words ‘or would
have been so employed if he had not been unfairly dismissed in the circumstances described by reg 8(1)’. Regulation 8(1) provides:
‘Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated … as
unfairly dismissed if the transfer or a reason connected with it is the reason or principle reason for his dismissal.’

It is conceded that reg 8(1) applies and that the employees were dismissed for such a reason.
13. In view of the competing submissions to which I shall turn shortly I bear in mind the reasoning by which the House of Lords reached this result.
Lord Keith of Kinkel identified the risk that if a literal meaning was given to the words ‘a person so employed immediately before the transfer’ the
regulation would be—

‘capable of ready evasion through the transferee arranging with the transferor for the latter to dismiss its employees a short time before the
transfer becomes operative. In the event that the transferor is insolvent, a situation commonly forming the occasion for the transfer of an
undertaking, the employees would be left with worthless claims for unfair dismissal against the transferor.’ (See [1989] 1 All ER 1134 at 1136,
[1990] 1 AC 546 at 554.)

He referred to P Bork International A/S (in liq) v Foreningen af Arbejdsledere i Danmark Case 101/87 [1988] ECR 3057 and to other decisions of the
Court of Justice where employees dismissed for a reason connected with the transfer at a time before the transfer takes effect have been treated as still
employed by the undertaking at the time of the transfer. He then held that it is the duty of the court to give to reg 5 a construction which accords with the
decisions of the Court of Justice upon the corresponding provisions of the directive to which the regulation was intended by Parliament to give effect and
to imply into reg 5(3) words indicating that where a person has been unfairly dismissed in the circumstances described in reg 8(1) he is to be deemed to
have been employed in the undertaking immediately before the transfer or any of a series of transactions whereby it was effected.
14. Lord Templeman similarly concluded that the courts—

‘are under a duty to follow the practice of the European Court by giving a purposive construction to directives as regulations issued for the
purpose of complying with directives.’ (See [1989] 1 All ER 1134 at 1139, [1990] 1 AC 546 at 558.)

He follows Lord Keith’s suggestion as to how reg 5(3) must be construed (see [1989] 1 All ER 1134 at 1139–1140, [1990] 1 AC 546 at 558–559).
15. Lord Oliver of Aylmerton also held that the approach to construction is not in doubt and that—

‘such a purposive construction will be applied even though, perhaps, it may involve some departure from the strict and literal application of the
words which the legislator has elected to use …’ (See [1989] 1 All ER 1134 at 1140, [1990] 1 AC 546 at 559.)

He observes—
‘that it is always to be borne in mind that the purpose of the directive and of the regulations was and is to “safeguard” the rights of employees
on a ­ 864 transfer and that there is a mandatory obligation to provide remedies which are effective and not merely symbolic to which the
regulations were intended to give effect. The remedies provided by the [directive] in the case of an insolvent transferor are largely illusory unless
they can be exerted against the transferee as the directive contemplates and I do not find it conceivable that, in framing regulations intended to give
effect to the directive, the Secretary of State could have envisaged that its purpose should be capable of being avoided by the transparent device to
which a resort was had in the instant case.’ (See [1989] 1 All ER 1134 at 1153, [1990] 1 AC 546 at 576.)

(The employees were dismissed with immediate effect one hour before the transfer took place.) Lord Oliver then went on to make implications similar to
those of Lord Keith and of Lord Templeman, adding:
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‘For my part, I would make such an implication which is entirely consistent with the general scheme of the regulations and which is necessary if
they are effectively to fulfil the purpose for which they were made of the giving effect to the provisions of the directive.’ (See [1989] 1 All ER
1134 at 1153, [1990] 1 AC 546 at 577.)

16. Another pertinent case is Longden v Ferrari Ltd [1994] ICR 443, a decision of Mummery J and his colleagues in the Employment Appeal
Tribunal. That decision concerned the regulations and, in particular, reg 5(3), to which I have referred and also reg 3(4). By reg 3(4) (as originally
enacted):

‘It is hereby declared that a transfer of an undertaking or part of one may be effected by a series of two or more transactions between the same
parties, but in determining whether or not such a series constitutes a single transfer regard shall be had to the extent to which the undertaking or part
was controlled by the transferor and transferee respectively before the last transaction, to the lapse of time between each of the transactions, to the
intention of the parties and to all the other circumstances.’

17. The judge added ‘some preliminary observations, relevant to the construction of regs 3(4) and 5(3) which cannot be seriously disputed’ (at
448–449):

‘(1) Those particular regulations have an evident anti-avoidance purpose. They should, where the words allow, be construed in a purposive
manner in order to defeat ingenious devices and schemes designed to deprive employees in an undertaking of the protection which it is intended
they should have in the context of a transfer. (2) The obvious case at which regulations 3(4) and 5(3) are aimed is that of an attempt to disguise the
fact that there is a transfer of an undertaking within the meaning of the Regulations of 1981 and Directive (77/187)/E.E.C.). The parties to the
proposed transfer of an undertaking may, with professional advice, arrange for the transfer to be effected in a series of two or more transactions
dealing with separate assets, none of which, taken individually, could be regarded as the transfer of an undertaking. A composite plan of subdivision
or fragmentation of a transfer may be adopted for no sensible commercial purpose, other than to avoid the consequence of the application of
regulations enacted for the protection of employees. The Regulations of 1981 direct the tribunal to treat as a single transfer of an undertaking a
transfer which is effected by such a series of transactions. Although the ­ 865 Regulations do not define a transfer, they direct a tribunal to treat
what might in form be a series of separate transactions as, in substance, a single transfer. In determining whether or not there is a single transfer the
tribunal is directed by regulation 3(4) to look at all the circumstances, including the extent to which the undertaking or part was controlled by the
transferor and transferee respectively before the last transaction, to the lapse of time between the transactions and to the intention of the parties.
Those are matters expressly set out in regulation 3(4) as relevant to the question whether or not such a series of transactions constitutes a single
transfer. A similar approach is required in dealing with the related question in regulation 5(3) whether a person is employed in an undertaking or
part of one “immediately before” the transfer. In such cases the tribunal must ask itself: (a) was the transfer effected by a series of two or more
transactions, and, if so, (b) was the person employed in the undertaking immediately before any of those transactions?’ (Mummery J’s emphasis.)

18. Regulation 4, at the heart of this case, deals with transfers by receivers, liquidators and, since 1986, with administrators. The provision contained
in reg 4 is not found anywhere in the directive and it appears to have been introduced, within England, to facilitate the work of those engaged with
insolvencies. Regulation 4 provides that where the liquidator, receiver or administrator transfers all or part of the company’s undertaking (the ‘relevant
undertaking’)—

‘to a wholly owned subsidiary of the company, the transfer shall for the purpose of these Regulations be deemed not to have been effected until
immediately before—(a) the transferee company ceases (otherwise than by reason of it being wound up) to be a wholly owned subsidiary of the
transferor company; or (b) the relevant undertaking is transferred by the transferee company to another person; whichever first occurs, and, for the
purpose of these Regulations the transfer of the relevant undertaking shall be taken to have been effected immediately before that date by one
transaction only.’

19. It is against that background of agreed facts and the regulations that I consider the submissions of MFFM that the liabilities passed to FDML and
FDML’s submissions that they do not. As I have indicated, the debate has been shortened by the parties agreeing, first, that the transactions amounted to
a relevant transfer and, secondly, that the employees were not dismissed for a reason which would take their cases outside reg 8(1). The issue which
remains therefore is the effect of the agreed relevant transfer on the employees.

Submissions of MFFM
20. MFFM accept that the employees were dismissed on 9 April 1992 immediately before the first agreement and that on a literal construction of reg
5 they would not therefore have had their obligations transferred either to Dancequote or to FDML. It is, however, necessary to give a purposive
interpretation, as explained in Litster’s case, to the regulations and to reg 5(3) in particular and as a result the liabilities under the contracts of employment
pass to the transferee.
21. It might be suggested that because of the two transfers the employees would, by the application of Litster’s case, be transferred to Dancequote
but not then on to FDML. No employee had ever been employed by Dancequote and ­ 866 there was nothing on which reg 5 could bite because at the
time of the transfer to Dancequote to FDML the employees had nothing other than a right to claim damages against Dancequote.
22. That argument should be rejected because it depends on the court having regard only to the form rather than to the substance of the transaction
and disregards the fact that all the events on 9 April 1992 were devised as part of a single scheme. The scheme should not be evaluated by its individual
parts particularly where Dancequote came into existence only at the insistence of FDML to be a ‘middle man’. If the argument were accepted the
consequence identified by Litster‘s case as one to be avoided, employees left with a worthless remedy against an assetless company like Dancequote,
would follow. Moreover, that argument is contrary to the authority of Longden’s case. This scheme like that in Longden’s case was, as is accepted,
adopted to avoid the application of the regulations. Further, a relevant transfer can comprise more than one transaction and this is consistent with the
language of reg 4.

Submissions of FDML
23. FDML contends that the business was ‘hived down’ in the manner set out in reg 4 and that that is an end of the matter. Both parties to the
scheme intended that there should be no transfer of employees’ rights to FDML and that was the basis of the deal. The employees have always looked to
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MFFM rather than FDML for their remedies. That contention was supported by the submissions made to me by Mr Moss, who helpfully explained the
commercial and human background to these transactions and to the misfortune which had befallen MFFM.
24. Regulation 4 does not appear in the directive and for that reason assistance in its interpretation cannot be derived from the directive itself. This is
in contrast to the position of other regulations intended to give effect to the directive. The object of reg 4, in contrast to the directive, is to preserve the
administrators’ freedom to dispose of a company’s business as a going concern free from any claims by the workforce against the prospective purchaser.
Regulation 4 should be construed to give effect to that purpose. The regulation was regarded as significant by Parliament and indeed the Transfer of
Undertakings (Protection of Employment) (Amendment) Regulations 1987, SI 1987/442 amended reg 4 to apply to administrators following the passing
of the Insolvency Act 1986.
25. Mr Altaras supported his submission that reg 4 should be approached differently from the remainder of the regulations with a submission based
on decisions of the Court of Justice concerning the special status of insolvent concerns. In Abels v Administrative Board of the Bedriffsvereniging voor de
Metaalindustrie en de Electrotechnische Industrie Case 135/83 [1985] ECR 469 the court, on a reference from the Netherlands by the Raad van Beroep
(Social Security Court), considered two questions of interpretation about arts 1(1) and 3(1) of the directive. In that case a company, Thole, was granted
judicial leave to suspend payment of debts (‘sursance van betaling’) before being put into liquidation. During the liquidation Thole’s business was
transferred to another company which operated the undertaking and took over most of its workforce. The first issue which arose was whether the
directive extended to a transferor of an undertaking adjudged to be insolvent or a ‘sursance van betaling’. In the course of reaching its decision the court
considered the relationship between the directive and insolvency law. The court held that insolvency law is characterised ­ 867 by special procedures
and that these are very different in the various member states, thus leading it to observe that (at 484 (para 17)):
‘… it may be concluded that if the directive had been intended to apply also to transfers of undertakings in the context of such proceedings, an
express provision would have been included for that purpose.’

The decision contains other observations about the special position of insolvency procedure before concluding that the directive does not apply to a
transfer where the transferor has been adjudged insolvent but does when an undertaking is transferred to another employer in the course of a procedure
such as ‘sursance’ (see [1985] ECR 469 at 486 (para 30)). There is also d’Urso v Ercole Marelli Elettromeccanica Generale SpA Case C-362/89 [1991]
ECR I-4105. In this case the court distinguished between a procedure which has the same effect in substance as insolvency and one which allows the
undertaking to continue to trade under the direction of a receiver with the primary purpose of ensuring that the undertaking achieves the stability
necessary to ensure its future concluding that it would be inconsistent with the objectives of the directive to deprive employees in such conditions of the
rights given to others. The matter moved further in Jules Dethier Équipement SA v Dassy Case C-319/94 [1998] All ER (EC) 346, [1998] ECR I-1061, a
case relied upon by Mr Swift. Here the court held that the form of the procedure as well as its purpose was important. The directive applied to the transfer
of an undertaking, the subject of an administrative or judicial procedure, if the procedure, having regard to its purpose and form, was directed to keeping
the undertaking in business with a view to its recovery in the future. Thus the directive applied in the Jules Dethier Équipement SA case where the
undertaking continued to trade while it was being wound up so that continuity of the business was assured and the undertaking was transferred.
26. According to FDML the first transfer envisaged by reg 4 is deemed not to have been effected until immediately before the second. By that stage,
the workforce having been dismissed by the administrators, no one was employed by the company in that undertaking. So no rights of former employees
could be transferred under reg 5 to the subsidiary or ultimately, after the second transfer, to the third party transferee. Whatever the ambiguity of the
concluding words of reg 4(1) ‘… the transfer of the relevant undertaking shall be taken to have been effected immediately before that date by one
transaction only’, it does not provide that the two transfers are to be regarded as one. These remain two separate transfers. The word ‘transactions’ in
regs 3(4) and 5(3) may refer to a situation where the transfer was effected in a series of two or more transactions dealing with separate assets, none of
which, taken individually, can be regarded as the transfer of an undertaking.
27. Litster v Forth Dry Dock and Engineering Co Ltd [1989] 1 All ER 1134, [1990] 1 AC 546 should not apply to reg 4, which should be seen as a
separate code within the regulations. Regulation 4, unlike the others, makes no reference to ‘relevant transfers’. There is no need to give a purposive
construction to reg 4 to give effect to Court of Justice decisions on the directive. So reg 4 should have its everyday meaning.
28. FDML accept that the words ‘until immediately before’ in reg 4 can only be understood by reference to reg 5(1) and (3), the words at the heart of
Litster‘s case, but claim that it is still unnecessary to make the Litster implications when construing reg 4 because an employee’s dismissal before the
second transfer (from the subsidiary to the third party transferee) will almost always be for a ­ 868 reason in connection with the transfer. If that is so
and Litster’s case applies to reg 4 this provision is otiose and does not fulfil the object of reg 4 as identified by FDML, the preservation of the
administrators’ freedom of action and the purpose behind it.
29. Mr Altaras has an alternative submission if he be wrong and Litster ‘s case applies to reg 4. If Litster’s case is applied then upon the first
transfer from MFFM to Dancequote what is transferred to Dancequote is a liability to pay damages to the employees—the dismissal of the employees was
legally effective, not a nullity. That part of the submission I accept. It follows that upon the second transfer there was no further transfer of these
liabilities because no employee was employed by Dancequote immediately before the second transfer and by virtue of cl 13 of the first agreement none
would have been so employed if he or she had not been unfairly dismissed within reg 8(1).
30. Regulation 4 does not require a court to ignore the fact that a transfer from a parent company through a subsidiary to a third party is by means of
two separate transfers. It is inappropriate to place emphasis on all the events of 9 April being devised as part of a single scheme. That obligation applies
equally to any hiving down operation. The risk that employees would be left with a worthless remedy against Dancequote, a company with no assets,
follows directly from the application of Litster‘s case to the facts. The scheme is no more contrary to Longden’s case, than any other hiving down
operation devised to take advantage of reg 4.

MFFM’s response
31. In truth FDML’s argument is that reg 5 should be given a meaning different to that set out in Litster’s case where reg 4 also applies. This process
would be as contrary to the purpose of the regulations as the argument rejected in Litster’s case. It would also mean derogation from the directive, one of
the conclusions in Litster‘s case being that a purposive interpretation was necessary to ensure the regulations complied with EEC law.
32. The directive does not allow for a reduced platform of rights in cases where the transferee is in administration. It is clear that the directive does
apply to situations analogous to administration (see the Jules Dethier Équipement SA case).
33. Regulation 4 does not exclude the operation of the regulations or the effect of reg 5. It merely delays the operation of reg 5(3) until the transfer
to the ultimate purchaser.
34. FDML’s arguments that the liabilities remain with Dancequote and so, regardless of Litster’s case, there is no transfer to FDML, fail because
they ignore the deeming provision at the end of reg 4 which deems a transfer from MFFM to FDML to have taken place in a single transaction—the
reference to ‘the transfer’ is to the overall transfer not to the individual steps from MFFM to Dancequote and from the latter to FDML. A purposive
construction is needed as much to these last three lines of reg 4 as to the remainder of the regulations.
35. If this approach is not followed it is suggested the court should see the substance of what happened on 9 April as being a single transfer. If so, the
situation is outside reg 4, since the transfer to Dancequote was a mere device. Dancequote came into existence at the instance of FDML in an attempt to
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avoid the application of the regulations. This was in reality not a true hiving down where the business is transferred to the intermediary in the hope that
the administrators can continue to run it and make it thrive. Disposal of employees after that depends on the needs of the business. In the present case
employees ­ 869 were dismissed before the first transfer only because of FDML’s desire to obtain the business without taking the usual consequences.
There was no commercial purpose beyond circumvention of the regulations—this is precisely what Mummery J had in mind in Longden’s case [1994]
ICR 443 at 448 and allows the court to avoid the consequences of FDML’s argument which leaves the employees with a worthless remedy against
Dancequote.

Conclusions
36. I have followed the rival submissions with admiration but the answer to this issue appears to me straightforward. The transaction on 9 April was
not part of an orthodox hive down by which the viable parts of a business are segregated from the remainder and placed by the administrator in the
position where they may continue to flourish and/or be sold. This transaction introduced an intermediary Dancequote for one purpose only, achieving the
mutual wish of the contracting parties to transfer the business to FDML stripped of the liability to employees.
37. The regulations require that where there is a relevant transfer those employee liabilities will be assumed by the transferee provided the other
conditions are satisfied. Regulation 4, although not specifically envisaged by the directive, enables the purpose of the directive to be achieved while
permitting a business to be hived down to a subsidiary as is so frequently the case in English insolvencies. The purpose of the hiving down is achieved
and the relevant transfer postponed (not cancelled) to meet the objective of the directive in passing responsibility for these employee liabilities to the
ultimate transferee. There would otherwise be risks including that of the intermediary subsidiary created by the administrators being left with
responsibilities which the directive intended should rest with the transferee, not the assetless intermediary. In this case the agreement between the parties
sought to achieve a purpose quite different from that of reg 4.
38. I see no warrant for construing reg 4 differently from the remainder of the regulations. It is true that reg 4 is not an obligation imposed by the
directive. I also accept that, as the European cases show, some judicial insolvencies, those of a terminal kind, may be outside the directive. This is not a
reason to adopt a different approach to construction. Furthermore, this particular administration is a procedure to which the directive unquestionably
applies. The regulations as a whole were intended to give effect to the directive in the manner which Parliament has approved. That is their only purpose.
Regulation 4 modifies the effect of regs 3 and 5 which are central to the directive and in my judgment must be interpreted in the same way. The fact that
a particular regulation does not directly give effect to the directive is not a reason for construing it in a different manner.
39. It follows from the fact that I hold that reg 4 must be approached in the same way as the other regulations that Litster‘s case applies to this case.
Furthermore, while I may not be strictly bound by the observations of Mummery J in Longden’s case, the guidance in that case seems to me highly
relevant. The reality of this transaction is what I have described (at para 36 above). It was the sale of a business on one day complicated by a mutual
desire to avoid what would otherwise be the effect of the regulations. In substance it was a single transfer and I have no hesitation in finding, fortified by
the authorities to which I have referred and by the sense of the final words in reg 4, that it should be construed to defeat an ingenious device designed to
deprive ­ 870 employees of protection which would otherwise be available to them. Mr Altaras’ alternative submissions, on the assumption that
Litster‘s case applies, are ingenious but beset by the same artificiality of approach which that case invalidates.
40. This leaves arguments based on the wishes of the parties and, perhaps, the employees. The fact that MFFM and FDML intended to achieve a
situation where liabilities to employees should not be passed to FDML is beside the point. The regulations concern the fate of employees and necessarily
override the wishes of transferor and transferee. The fact that one or more employees in this case may have looked primarily to MFFM to meet liabilities
rather than to FDML seems to me irrelevant.
41. I accordingly find that the transactions on 9 April 1992 transferred the liabilities under the relevant contracts of employment under the 1981
regulations and my answer to the question in 2(i) of the application is Yes.

Order accordingly.

Gillian Daly Barrister.

[2000] 2 All ER 872

R v Tuegel and others

CRIMINAL; Criminal Law, Sentencing: ADMINISTRATION OF JUSTICE; Judiciary: IMMIGRATION

COURT OF APPEAL, CRIMINAL DIVISION

ROSE LJ, TUCKER AND ELIAS JJ
17, 18, 19 NOVEMBER 1999

Criminal law – Trial – Judge – Interventions by judge during witness’s testimony and counsel’s closing speech – Guidance.

Sentence – Deportation – Recommendation – Judge passing sentences of imprisonment on defendants but adjourning question of deportation at their
request – Judge making deportation recommendation three months after imposing prison sentences – Whether judge having power to adjourn question of
deportation beyond seven days – Whether judge having power to make recommendation for deportation outside 28-day time limit for varying sentence –
Immigration Act 1971, s 6(2).

Three foreign nationals, M, T and S, were charged with various offences of dishonesty involving bogus companies. M pleaded guilty at the close of the
prosecution’s opening speech, and the other defendants were convicted after a trial lasting five months. During the course of T’s testimony, which
spanned ten days, the judge asked over fifty questions, and he interrupted seven times during the four-day closing speech of T’s counsel. The judge
passed sentences of imprisonment on each of the defendants in October 1998, but at their request adjourned the question of deportation to allow the
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service of further evidence. In January 1999 the judge recommended that M and T should be deported at the completion of their sentences. In subsequent
appeals against convictions and sentences, T contended that his convictions were unsafe, relying, inter alia, on the judge’s interventions while he was
giving evidence and during counsel’s closing speech. M and T contended, inter alia, that the judge had no power to adjourn the question of deportation
beyond the seven-day period prescribed by s 6(2)a of the Immigration Act 1971, that a recommendation for deportation was to be treated as a sentence,
that the court had no power to vary or rescind a sentence after 28 days and that accordingly the judge had lacked the jurisdiction to make the deportation
orders.
________________________________________
a Section 6(2), so far as material, provides: ‘A court shall not recommend a person for deportation unless he has been given not less than seven days notice in writing … ’
________________________________________

Held – (1) Although it might exceptionally be necessary for a judge in the presence of the jury to interrupt a speech by counsel, it was generally
preferable for him not do so. Such interventions might disrupt the speaker’s train of thought or inappropriately divert the jury’s attention, with
consequences prejudicial to the case being made. Ideally, therefore, interventions for the purpose of clarifying or correcting something said, either by
judge or counsel, should be made in the first instance in the absence of the jury and at a break in the proceedings, so that, if necessary, the point could
subsequently be dealt with before the jury in an orderly fashion. In the instant case, the judge’s interventions during the final speech of T’s counsel were
courteously expressed, few in number in the context of a four-day speech and did not render T’s convictions unsafe. Accordingly, that ground of appeal
failed (see p 888 e to g, post).
­ 872
(2) Although a judge should avoid asking a witness questions which appeared to suggest that he was taking sides, he had a duty to ask questions
which clarified ambiguities in answers previously given or which identified the nature of the defence, if that was unclear. Such questions, particularly in
a very long case, would most likely help the jury and everyone else if they were asked at, or close to, the time when the ambiguity first became apparent.
Indeed, if a witness were in the box for many days, it would be contrary to good sense and the proper conduct of the trial to require the judge to save his
questions until the end of the witness’s evidence. In the instant case, neither the number nor the nature of the judge’s questions were improper, and T’s
appeal against conviction would be dismissed (see p 888 h to p 889 b, post).
(3) A judge had power to adjourn deportation questions. That power existed at common law and was not conferred by s 6(2) of the 1971 Act, which
merely provided a mechanism for giving the defendant, by service of a notice, at least seven days’ warning of the possibility that the court would make a
recommendation for deportation. Although such a recommendation was part of the sentence, it did not have to be made within 28 days, provided that it
was made outside that period by virtue of an earlier adjournment rather than as a consequence of late afterthought by prosecution or judge. It followed
that in the instant case the judge had had jurisdiction to make the deportation orders (see p 894 a to c, post); R v Menocal [1979] 2 All ER 510
distinguished.

Notes
For recommendations for deportation and for the role of the trial judge generally, see respectively 11(2) Halsbury’s Laws (4th edn reissue) para 1283 and
37 Halsbury’s Laws (4th edn) para 510.
For the Immigration Act 1971, s 6, see 31 Halsbury’s Statutes (4th edn) (1994 reissue) 64.

Cases referred to in judgment

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, CA.
Mears v R [1993] 1 WLR 818, PC.
R v Annesley [1976] 1 All ER 589, [1976] 1 WLR 106, CA.
R v Bergman [1996] 2 Cr App R 399, CA.
R v Buffrey (1992) 14 Cr App R (S) 511, CA.
R v Clowes (1992, unreported).
R v Cole (1998) Independent, 30 April, CA.
R v Duncan (1996, unreported).
R v Efionayi (1994) 16 Cr App R (S) 380, CA.
R v Fairbanks [1986] 1 WLR 1202, CA.
R v Gokal (3 April 1997, unreported), CCC; affd (11 March 1999, unreported), CA.
R v Ingle [1974] 3 All ER 811, CA.
R v Maxwell [1990] 1 All ER 801, [1990] 1 WLR 401, HL.
R v Menocal [1979] 2 All ER 510, [1980] AC 598, [1979] 2 WLR 876, HL.
R v Nelson [1997] Crim LR 234, CA.
R v Shergill [1999] 2 All ER 485, [1999] 1 WLR 1944, [1999] 2 Cr App R (S) 341, CA.

Appeals against convictions and sentences

The defendants, Peter Johannes Eric Tuegel, Sebastiano Claudio Saia and Gerhard Werner Martens, appealed against sentences of imprisonment imposed
­ 873 on them by Langley J at the Crown Court at Bristol on 9 October 1999 following their conviction for various offences of dishonesty. Tuegel and
Saia also appealed against their convictions. The facts are set out in the judgment of the court.

Jeremy Roberts QC and Martin Picton (assigned by the Registrar of Criminal Appeals) for Tuegel.
Nigel Pascoe QC and Francis Sheridan (instructed by Braunstein & Co, Sutton) for Saia.
Charles Barton QC and Neil Ford QC (assigned by the Registrar of Criminal Appeals) for Martens.
Francis Gilbert QC, Paul Garlick QC and Andrew Oldland (instructed by the Serious Fraud Office) for the Crown.

19 November 1999. The following judgment of the court was delivered.

ROSE LJ. On 13 February 1998, at the Crown Court at Bristol, the appellant Martens pleaded guilty to two counts of conspiracy to defraud on counts 3
and 4 in the indictment and one count of obtaining property by deception on count 6. On 27 July 1998, following a trial which lasted more than five
months, before Langley J, at the same court, the appellant Tuegel was unanimously convicted by the jury, first, on count 3, and, a little later, on count 4,
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and the appellant Saia was unanimously convicted on count 4. On 9 October 1998, Martens was sentenced to seven years’ imprisonment on count 3, four
years’ imprisonment concurrently on count 4 and one year’s imprisonment consecutively on count 6. He was also disqualified for 15 years from being a
director or being concerned in the management of companies. On 15 January 1999, sitting at Middlesex Guildhall, Langley J recommended that Martens
be deported on completion of his sentence. On 26 April 1999, the trial judge certified a benefit of £6·8m and assets of £3·6m in relation to Martens and a
confiscation order was made in the sum of £3·6m. Further orders were made in relation, in particular, to the balance of compensation to be paid, which
attracted a default sentence of imprisonment of ten years consecutively to the sentence of eight years in the event of non-compliance. The total sentence
on Martens was, therefore, eight years’ imprisonment, together with the other penalties to which we have referred.
The appellant Tuegel, on 9 October 1998, was sentenced to five years’ imprisonment on count 3 and three years concurrently on count 4. He was
disqualified for ten years from being a director of a company. No recommendation in relation to deportation was made in his case. But on 22 April 1999
a benefit in his case was certified by the judge at a sum in excess of £478,000 but, there being no releasable assets, no order was made for compensation.
On 9 October 1998 the appellant Saia was sentenced to four years’ imprisonment on count 4, and he, like Tuegel, was disqualified for ten years from
being a director. On 15 January 1999 the judge recommended that Saia be deported on completion of his sentence, and on 26 April the judge assessed a
benefit of £185,000 and assets of £155,000 were certified against Saia and a confiscation order made in the latter sum. He was also ordered to pay a sum
of £90,000-odd held by his solicitors. A default order was made of two years and five months’ imprisonment consecutive to the sentence of four years’
imprisonment if the balance of the confiscation order was not paid in full by 23 August 1999.
­ 874
There was a co-accused called Ganatra, who pleaded guilty to a count in the indictment which corresponded to count 6, to which Martens had
pleaded guilty, and he (Ganatra) was sentenced to 12 months’ imprisonment.
The appellant Martens appeals against sentence by leave of the single judge, and the appellants Tuegel and Saia appeal against conviction and
sentence by leave of the single judge. In relation to each of the appellants, the single judge gave leave to appeal the sentence of imprisonment passed on
each of the appellants. In the course of the hearing before this court, we gave leave to appeal in relation to the confiscation and deportation orders made
in relation to Martens and Saia.
The case involved a number of bogus companies, many of them said to be banks. Because they were bogus, their full names are of no materiality
and we shall, for the most part, refer to the companies by their initials.
Count 3 alleged that the appellants Martens and Tuegel conspired together and with others, between January 1993 and September 1995, to defraud
such persons as might be induced to enter into agreements with AHE, CSD, ASDWIF and BancEurope.
In count 4 the three appellants were charged with conspiring together and with others, between December 1993 and September 1995, to defraud such
persons as might be induced to enter into dealings with themselves and AHE and ASDWIF by falsely pretending that those companies were legitimate
banks and that they were then trading as such and were authorised so to trade, and that AHE and ASD held in accounts at AHE and/or ASD the funds
which they represented to their customers and to others were deposited in the accounts.
So far as count 3 is concerned, in general terms, it related to the fraudulent obtaining of advance fees from customers of bogus banks and companies
operated by the appellants Martens and Tuegel, both of whom are German nationals. The bogus banks were established, some in the state of Delaware in
the United States, by Martens and were controlled by him (according to the prosecution) for the sole purpose of defrauding people. He was the author and
creator of various fraudulent schemes and he was indeed the person who drafted most, albeit not all, of the fraudulent documents which he and Tuegel
used in the course of the conspiracy. It is to be noted that no business was ever done by these companies in Delaware and, although the Delaware
legislation permitted companies to be incorporated with the name ‘bank’ in the title, that legislation did not refer to ‘non-bank banks’, which was a
concept about which Mr Martens, in particular, spoke. So far as Tuegel was concerned, he knew that, in this country, it was not possible properly to use
the word ‘bank’ unless the company in question was so licensed by the Bank of England. These companies had no assets or books of account, or any real
address, nor did they operate any legitimate business. There were, however, attractive documents emanating from smart addresses in Manhattan and
elsewhere, and one of the phrases used in the course of the trial was that there was effectively a ‘conman’s kit’ prepared by Martens and used to impress
potential victims.
These companies operated through what was called a European Customer Services Centre in Torquay. They offered for sale, mainly to German,
Swiss and Austrian customers, a range of supposedly sophisticated banking and financial services, including the provision of loans, guarantees and
standby letters of credit (which we shall refer to as ‘SLCs’), munibond investment, mortgage-backed loan stock and blocked funds letters (which we shall
refer to as ‘BFLs’). The victims were induced into paying advance fees on the pretext that they were entering into ­ 875 a bona fide transaction, which
would enable them to obtain loans or other financial benefits for a variety of projects.
The transactions were bogus and banking instruments were issued by Martens and Tuegel to the customers, which the prosecution said the appellants
knew were worthless. The customers never obtained the loans which they were promised and they never got their money back. One consequence was
that Martens and Tuegel each benefited to a substantial extent.
The association between Martens and Tuegel began in the autumn of 1992 when Martens approached Tuegel with a view to Tuegel fronting the sale
of munibond investments in Switzerland on behalf of CSD and, in particular, there was an investment sold to a Swiss national called Guido Macai. The
case for the prosecution was that, thereafter, over a period of some two and a half or three years, Tuegel was an energetic and lively second-in-command
to Martens. It was the case for the prosecution that he, Tuegel, knew from the outset that these activities were dishonest. He himself undoubtedly
countersigned a number of bogus documents and some of the corporate documentation and he had direct contact with a number of the victims and was
instrumental in persuading them to enter these fraudulent arrangements. Tuegel’s business card described him as ‘Investment Manager’ of ASDWIF, but
some of the formal documents he signed as ‘President’ or, on occasions, ‘Vice President’ of one or other of the companies. In the spring and summer of
1995 Tuegel persuaded several people in Austria to enter into dealings with CBCD and AHE and, in connection with that, he opened bank accounts in
Austria into which a total sum of some £290,000 was paid. Some of the inducements included the acquisition by the victims of foreign currency. Neither
Martens nor Tuegel nor the companies had the means or, the prosecution said, intention, of honouring any of the various commitments and promises.
Some £6·8m was paid over by the victims, who included lawyers, accountants and financial advisers. Martens’ benefit was of the order of £3·5m,
and Tuegel’s gains in the United Kingdom were of the order of £200,000, plus the further sum to which we have referred in relation to the Austrian
transactions.
There were three techniques primarily used to effect the fraud. First, the munibond investment. Mr Macai, to whom we have referred, was persuaded
to pay 250,000 Swiss francs, ostensibly to be invested in municipal bonds issued by the City of Los Angeles on the assurance of a three-year return at an
annual rate of 16.78%. In connection with that transaction, in May 1993, Macai signed a trust agreement which Tuegel had drafted and signed. It was an
agreement with DSCT, which was a company which Tuegel had bought from Martens, who had in turn bought it ‘off the shelf’. Macai paid his money.
He never got it back, and within a very short time of it having been paid, it had been disbursed in the direction of Martens and Tuegel. Some 30%,
claimed by Tuegel to be by way of commission, passed into his hands within a day or two of the payment by Macai and several weeks before the trust
agreement was actually executed.
There were then standby letters of credit used for two purposes, what were referred to as the Omron Bank loans and ‘in-house’ loans. So far as the
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Omron Bank was concerned, between August 1993 and the spring of 1995, a number of victims were induced to believe that Omron, which was a
fictitious bank, could produce loans against the security of SLCs provided by AHE. That company, AHE, was merely a vehicle for fraud. It, like the
Omron Bank, which had been created by a man called Karl-Kollner, was likewise a vehicle for fraud. When matters came to the crunch, the Omron Bank
and AHE blamed each other for the ­ 876 disappearance of the money. But in fact neither of them was ever in a position to provide the funds which
were alleged to be available.
Early in 1995, Tuegel, as well as Martens, signed a letter in reply to one from a Mr Meinhardt which had asserted that the SLCs signed by Tuegel
and Martens were not worth the paper they were written on.
There was a company called Craster, which was effectively owned by a man called Kraushaar, a lawyer and property developer from Ontario. He
was among the victims who sought Omron Bank loans. On this aspect of the matter, some $US1·58m, some 4·27m Deutschmarks and some £14,000 were
paid by victims into the accounts of one or other of the bogus banks between September 1993 and April 1995.
The other form of SLCs, the in-house loans, was similar to the Omron Bank transactions, but instead of the Omron Bank, the bank supposed to
provide the resources was an in-house bank of Mr Martens called BancEurope. A number of victims paid commitment fees as a result of inducements and
promises that they would receive in-house loans in respect of advance guarantee fees. BancEurope was to provide the funds. BancEurope never had any
sufficient funds to honour its guarantees. They did on one occasion have $US300 in an account in the United States. In general, no loans were
forthcoming and the fees paid by the victims were lost.
Both Martens and Tuegel signed letters seeking payment of the balance of fees and letters providing explanations and excuses for the delays and
ultimate non-arrival in relation to the loans. Several witnesses had spoken to Tuegel, or had written to him, saying that they had been told that
BancEurope guarantees were useless. Tuegel had replied that BancEurope was one of the three largest banks in Europe and was licensed as a bank by the
DTI. In evidence Tuegel said that these explanations that he was said to have given resulted from misunderstandings and, indeed, fantasies on the part of
the prosecution witnesses. There were occasional payments of loans intended as an encouraging bait for other victims. Between June 1993 and May
1995, the victims contributed over $US25,000, 650,000 Deutschmarks and 80,000 Swiss francs.
The third fraudulent technique was the confirmation of reserved nominated funds (CRNFs) and blocked funds letters (BFLs). Martens and Tuegel
issued bogus documents purporting to certify that funds had been reserved in nominated accounts by companies for the benefit of clients. The companies
were bogus. The documents induced clients to believe that they were acquiring the right to a blocked account with AHE, with a larger sum to be released
against a bank guarantee. The victims believed that the documents would produce a prime guarantee or at least access to trading programmes with
resulting attractive profits. Large sums were paid by clients, none of whom obtained any benefit. There were no blocked funds.
Martens was arrested by the police in England at the beginning of September 1995. Tuegel was arrested by the Austrian police in August 1995 and
by the English police on 9 September 1995, and he was interviewed on a number of occasions by the Austrian police before he was interviewed by the
English police. In the course of his Austrian interviews, Tuegel said that he was a mere employee in customer services, paid a salary, but no commission.
In due course, in evidence, he said he had been paid 3.5% commission.
Martens, he said, managed ASD and was, together with Karl-Kollner, the co-owner of BancEurope. Tuegel’s signature on papers emanating from
the various companies merely meant that he was the person dealing with a ­ 877 particular transaction as a second signatory, but the sole responsibility
for any particular loan was that of Martens. Tuegel said he had nothing to do with ASD; he had no knowledge of the Omron Bank; the three accounts he
had with the Hypo Bank contained money belonging to clients; AHE and BancEurope were registered in Delaware; and he said that he was licensed to
transact banking business in England. In evidence, he denied saying to anyone that he had a licence of that kind.
In interviews in England, an interpreter was used. Tuegel repeated that he was only an employee and had signed some documents at a time when his
knowledge of English was not very good. Initially, he believed the businesses were honest, but he now believed that he had been used by Martens. AHE
and BancEurope were not banks, but financial institutions permitted by Delaware law to style themselves as banks. He said at this stage that he was
entitled to a small commission. While working for Martens he never knew about any BFL or CRNF deals being successfully completed. He said that he
had first suspected that fraud was involved when he was in Austria, in April or May 1995. He also said that it had slowly dawned on him from Christmas
1994 that something was not right.
Turning to count 4, the appellant Saia, according to the Crown, introduced clients who would be potential victims of Martens, Tuegel and others, but
principally Martens, and they used the fraudulent structure, which we have already described, to defraud the victims of count 4. The essence of that fraud
was to induce the victims to part with money in return for currency transactions or bogus banking documents. Initially, up to September 1994, that was
activity carried out via a company called Tifton Ltd, of which Saia was secretary. But, from September 1994, it was carried out by Regency Commodity
Brokers, which was Saia’s company and which, according to its writing paper, proffered services in banking, letters of credit and financing, among other
things. The method of operation attributed to Saia was that he would remain in the background and that he would use front men or false names, in
particular Albanese or Mattiolli, in order to deceive potential victims.
From March 1995, Saia had his own bogus bank, ANB, which had many of the characteristics of the other companies to which we have referred.
Documents in the so-called Tifton files showed Saia faxing Martens, or Tuegel when Martens was away, and saying he needed a BFL for someone in a
particular amount: this was usually forthcoming within 24 hours. That, the prosecution said, was a remarkable achievement and was solely attributable to
fraudulent activity.
So far as currency frauds were concerned, they took place in the first half of 1994 and involved the selling or buying of Italian lira or Indian rupees
by clients, in the belief that they would receive other currency or payments from funds allegedly held in blocked funds to their benefit. The clients were
offered advantageous exchange rates for their money and an assurance that AHE would make the necessary payments from the blocked funds. Again, the
accounts were bogus; documents were prepared; there was no intention that the victims would receive anything. The bait for the victims was a discount
on the going exchange rate.
So far as lira deals were concerned, no such currency existed. The object was to induce the victim to transfer genuine currency to Saia, on an
assurance that AHE, pretending to be a legitimate bank, held an equal amount of lira to the order of the victim. The transaction was reversed so far as
rupees were concerned: Saia would seek a seller of genuine rupees, which he would offer to buy in another currency, for payment which would be made
after delivery of the ­ 878 genuine rupees. A Mr Mohan was an example of someone who suffered from this aspect of the fraud. He was told that, in
return for a prior payment of 30m rupees, AHE would credit him with $US1m. In the event, the transaction was cancelled, but had Mohan produced the
rupees, there certainly were not any US dollars available in return. Indeed, there was evidence that, had Mr Mohan gone ahead with the transaction, the
appellants would have claimed that his currency was counterfeit and therefore the dollars would not be forthcoming. It is right to say that Mohan’s
dealings were exclusively with a man called Kumar. He never actually met or heard of Saia. Saia claimed that the transaction had nothing at all to do
with him and he did not agree in evidence that the counterfeit rupee letters which had been prepared were false.
There were a number of other victims, including a Mr Fowler, who dealt with a man who called himself Sebastian, who it was admitted was Saia; a
Mr Summers, who said that Saia was using the name Mattiolli and claimed that AHE was a genuine bank; and there was a Mr Kemp, to whom Saia
played the role of an international lawyer and spoke of an offshore bank with offices in Devon. Saia admitted signing a number of the relevant faxes, but,
so far as a Mr Patel was concerned, according to Saia, his role was merely to ‘pass on’ instructions to Martens from a man called Gonzales, who,
according to Saia, defrauded him.
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A Mr Lucas required an insurance guarantee for approximately $US50,000. He was recommended by Saia to approach AHE, who, according to
Saia, would provide evidence that a loan was authorised and would provide an insurance indemnity. Mr Lucas paid £20,000 to AHE and he received a
loan offer of $US1m signed by Martens and Tuegel. Subsequently, Mr Lucas paid a further £19,500 in Italy to a man nominated by Saia and in due
course Mr Lucas was informed that the indemnity for which this money had been paid was a forgery. Mr Lucas was not pleased. He pursued Saia in
correspondence and otherwise. Saia claimed, in response to Lucas’ protestations, that he himself had been conned by the independent intermediaries. In
due course he produced two cheques from those ‘gentlemen’ for Mr Lucas, both of which were not met on presentation. However, it is right to say that
Mr Lucas was ultimately repaid £12,000 by or on behalf of Saia.
Mr Lloyd was a lawyer in Cannes who received, in 1994, an offer to buy a Mrs Biso’s villa for 12m French francs. The offer was made by a Mr
Albanese on paper of Saia’s company, Regency Commodity Brokers. It was said that payment would be made by a future transfer from an AHE account,
blocked for two years, but earning interest in the meantime which would accrue to the vendor. There was no happy outcome to this matter. The sale did
not take place because Mr Lloyd was not satisfied as to the bona fides of AHE or of the other individual concerned. The case for the prosecution was that
the three appellants’ intention was to deceive Mrs Biso into transferring her villa to Saia or his nominee without paying for it. Indeed, no purchase money
was ever in existence.
Saia was arrested when he returned to England on 23 September 1995 and he was interviewed in the presence of his lawyer on 25 September. He
said he knew Martens and AHE and AHE was a financial institution not a bank. He had arranged for accounts to be opened with AHE and Mr Albanese
had several accounts involving promissory notes not money—‘title’, as Saia referred to it. He said that one of his clients had asked him to write a letter in
August 1995 in relation to a sum of some $US300m, but the letter was worthless. He said his job was to put people in touch with AHE. What
subsequently happened was entirely a matter between them and AHE. He, Saia, received no money for the ­ 879 introduction, nor did he dictate the
contents of letters and documents to Martens. He only dictated to Martens the wishes of his, Saia’s, own clients. He accepted that, on occasions, he had
himself used the name Mattiolli, though at one stage he insisted that it was spelt ‘Mallioli’. He also claimed to have worked for Mr Albanese.
Count 6, which related, as we have said, to the appellant Martens only, involved the obtaining of $US40,000 by deception in June or July 1996, by
falsely pretending that BPSA was a legitimate bank in the Caribbean, in a position to make available to him some $US10m. While he was on bail,
Martens had introduced himself to a Mr Tyedmers as a trustee and senior partner of a firm called Meyer Levinson and the European representative of
BPSA. BPSA was in fact a new name for AHE, an arrangement made, in part, by Martens while he was in custody. His claims to Mr Tyedmers when the
two met, together with the co-accused, Ganatra, in Torquay, involved a payment of $US40,000 by Mr Tyedmers which in due course he lost.
Tuegel and Saia both gave evidence before the jury. Tuegel accepted that he had a chequered personal and financial history, but he had no previous
convictions for dishonesty. He had made a great deal of money and lost a great deal while working in various parts of the globe. He had been declared
bankrupt in Switzerland and had subsequently worked in financial futures. He had met Martens in November 1992 in Zurich and they had discussed the
munibond for which he had been promised 30% commission by Martens. In due course he met Mr Macai and discussed the munibond. He accepted that
DSCT was a company which he had bought but it was a company which was the creature of Martens and not his, Tuegel’s. Tuegel claimed that Martens
had subsequently sold DSCT to someone he did not know and without his knowledge. His role was that of second signatory and he had agreed to work
for a tax-free salary of £2,400 a month and 3.5% commission. He was just a salesman who believed in the products he sold. He was deceived himself by
Martens, who was a very impressive person and always had an explanation for everything.
So far as the munibond was concerned, he had done no more than tell Macai what Martens had told him. It was a matter for Martens to honour the
transaction.
So far as the BFLs were concerned, Tuegel had known for some years of the existence of such funds and the essence of the programme was a bank
guarantee, passed on or sold a number of times at a higher rate and culminating in the last person in the chain having a guaranteed return. But, Tuegel
said, he was never involved in trading these programmes before he worked for Martens.
He said that he believed that the word ‘bank’ could not be used in England without a licence. He denied, as we said earlier, telling a Mr Grunert that
he held a bank licence. When he signed documents as vice president or secretary, the first was an honorary title and the second meant he was an office
clerk. He could not explain why some of the documents had been signed by him as president. He had had nothing to do with the finance and was not
interested in the identity of those involved in BancEurope. He signed some documents blind. He had noticed a change in Martens’ personal behaviour
towards him in the first part of 1995. It was to that that he had been referring when, in one of his interviews, he had claimed that it was at about that time
that he had first suspected fraudulent activity.
He said in evidence that he never thought that Martens was fraudulent until September 1995, when Martens was arrested.
So far as count 4 was concerned, Tuegel said he had nothing to do with Saia and had no knowledge of Saia’s association with Martens. He had met
Saia only ­ 880 twice and was unaware that he had any business with Martens. His, Tuegel’s, role was confined to signing documents, of the contents
of which he had no knowledge, and they had been dictated or drafted by Martens. He, Tuegel, was not party to any agreement with Martens, Saia and
others to defraud other people. Indeed, he was completely unaware of any fraud until Martens’ arrest.
Saia said in evidence that he was experienced in the world of trading and commodities but fairly ignorant of banking matters. Any deals which he
had attempted were genuine. No one in those deals had complained to the police. Indeed, so far as the majority of the transactions in relation to count 4
were concerned, they were currency swaps and he, Saia, had not made any attempt to hide himself from the authorities. When he learned of Martens’
arrest, he had voluntarily returned to England from continental Europe. He said, as we mentioned earlier, that he was himself the victim of dishonesty by
Mr Gonzales in connection with Tifton Ltd and, by his two intermediaries, involved in the forged guarantee for Mr Lucas. A man called Poterachi had
also taken £5,000 which had been intended for Mr Lucas. Albanese and Mattiolli were two of his many clients. They both had very substantial sums in
Italian Treasury Bonds and were willing to provide security for AHE. Saia’s role was merely to transmit their instructions and those of Gonzales to
Martens, and it was for Martens then to deal with matters. Martens had told Saia that AHE was a bank-not-bank registered in Delaware and Saia had
always explained this to his clients, none of whom could, in consequence, have been deceived. Such money as he received represented only the proceeds
of cheques cashed by him when using the services of Martens. All were payments for Saia’s professional services. He had had no personal involvement
in the Biso transaction and he had believed in the genuineness of Martens, his companies and products until he heard him plead guilty at the close of the
prosecution case. He, Mr Saia, was a trader, a mere intermediary, with no involvement other than passing on instructions and information from one
person to another. He was not himself dishonest or party to dishonest agreements.
On behalf of Tuegel, Mr Roberts QC submitted, as he summarised his submission in his reply:

‘Tuegel was deprived of the chance of a complete acquittal because of improper cross-examination, the judge’s failure to do justice in his
summing-up to the facts favourable to Tuegel and the judge’s dismissal of what has been referred to as the “halfway house” possibility, namely that
Tuegel may have joined a conspiracy at a later date than the outset, as the prosecution alleged.’

In the forefront of his submissions, Mr Roberts placed ground 3 of the grounds—the ‘halfway house’ aspect. The judge, he submitted, fell into error
in two respects: first, in rejecting a suggestion that a separate count should be added to the indictment to reflect the possibility of knowledge and
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agreement on Tuegel’s behalf from a date later than 1993, as was alleged in count 3 in the indictment; and secondly, and more particularly, the judge fell
into error by dismissing in his summing up as an ‘unnecessary complication’ the ‘halfway house’ possibility. Mr Roberts submitted that it was open to
the jury to arrive at a position where they were not satisfied that Tuegel knew of the fraud from the outset, and that he was, therefore, not a conspirator
throughout, but they were satisfied, having regard to his admissions in interview, which we have already referred to by reference to Christmas 1994 and
April/May 1995, as to when he first suspected that there was fraud afoot. It was legitimately open to the jury on ­ 881 the evidence to find that Tuegel
had guilty knowledge and entered into an agreement from a later stage than that alleged in count 3: the prosecution should either have agreed to what Mr
Roberts submitted was an entirely sensible suggestion that an extra count should be added, or they should have nailed their colours to the mast against
Tuegel, on the basis that he was involved from the outset. The failure to add a count resulted in problems for the defence and for the judge in relation to
sentence.
The jury may have been misled by the summing up into jumping from not believing Tuegel’s evidence in relation to the date of his knowledge of
fraudulent activity to concluding that he was involved in a conspiracy from the outset. The direction given by the judge in his summing up that it was an
‘unnecessary complication’ for the jury to consider this aspect, came in the course of the judge’s directions as to the law and his mapping out of the
approach which the jury should take to Tuegel’s case.
The fundamental question posed by Mr Roberts is whether there is a real possibility that the jury might (had they been given the opportunity) have
convicted of an alternative offence of conspiracy from a date later than the outset.
Mr Roberts drew attention to a number of authorities, including: R v Fairbanks [1986] 1 WLR 1202; R v Maxwell [1990] 1 All ER 801, [1990] 1
WLR 401; R v Efionayi (1994) 16 Cr App R (S) 380; and R v Bergman [1996] 2 Cr App R 399. He submitted that those authorities disclose three
different situations: first, where it is open to a jury, for example, on an indictment charging a s 18 wounding with intent (see Offences Against the Person
Act 1861), to convict of a lesser offence without there being any other count on the indictment; secondly, where a less serious offence is not open to the
jury on the count in the indictment, in which case the judge ought to add a further lesser count, for example, where robbery is charged but burglary may
be admitted—and that was the position in R v Maxwell; and thirdly, there are continuing offences, of which the present is, submitted Mr Roberts, an
example, as was the child cruelty in R v Efionayi, where, if the judge is to have a proper basis for sentencing, a further count ought to be added to the
indictment in order to identify the precise period in relation to which the jury are satisfied conduct of a continuing nature occurred criminally.
Mr Roberts submitted that, if on the evidence before the jury there is a version of the facts properly open to them which involves a significant degree
of criminality lower than what the prosecution are alleging, the indictment should generally be amended, unless there is some particular reason for that
not being done; alternatively a special verdict should be sought from the jury, as, for example, in a manslaughter case, where a judge may be assisted by
knowing whether the jury finds manslaughter on the ground of lack of intent or provocation.
Mr Roberts said that it was not until a discussion took place, in the absence of the jury, part way through his final speech to the jury, that he
appreciated that the prosecution were not nailing their colours to the mast of fraudulent involvement by Tuegel from the beginning, but also wanted a
verdict of guilty on the basis that the jury could convict on the basis of later knowledge on Tuegel’s part. Mr Roberts accepted that there were a number of
problems for Tuegel’s defence: the disposal of almost £300,000 of Austrian money to Tuegel’s own ends; the lies which he had told to the police; and the
differing accounts given in interviews in Austria and England, those accounts also differing from the evidence which he gave in the witness box. Because
of those difficulties, submitted Mr Roberts, it was all the ­ 882 more important that the judge should not fall into the errors which Mr Roberts attributed
to him.
The relevant passage in the summing up appears in volume II of the transcript (at 25 (line 18)), where the judge said:

‘Importantly on this aspect, having said all that, there is no need to complicate matters. I suggest that you concentrate on the way in which the
prosecution put their case and what Mr Tuegel said in evidence to you on oath about it, namely, that the prosecution say you can be sure, on all the
evidence that you have heard, that Mr Tuegel was party to Mr Martens’ fraud and dishonesty, really from the start of his coming to Torquay, and
that you can be sure that his evidence to you that he was unaware of the fraud and conned by Mr Martens from start to finish, is untrue. But I
repeat, if you are sure he was or became party to an agreement with Mr Martens to defraud people, and played his part in doing so at any time
within the period of the charge, then the prosecution has made good the charge that it brings against him.’

Instead of the judge, as Mr Roberts submits, dismissing the ‘halfway house’ scenario, he should have placed it before the jury as a proper matter for
their consideration; his failure to do so wrongly encouraged the jury to think that they might conclude that the defendant, Tuegel, was guilty of conspiracy
from the outset, if they rejected his evidence in the witness box.
Mr Roberts then advanced submissions in support of ground 1, which relates to allegedly improper cross-examination. First, there was
cross-examination about the defendant Tuegel’s visits to the United States. The matter was of materiality in relation to whether what Tuegel was said to
have told a Mrs Law and a Mr Dippold about his prior experience in the United States. At the conclusion of day 66, there appeared this in the
cross-examination by leading counsel for the Crown of Tuegel:

‘Q. You see, you will understand that, as was put by your counsel, the Serious Fraud Office have very extensive powers and contacts to make
investigations within this country and with authorities abroad, do they not? A. That is correct.
Q. And you probably know, do you not, that the American immigration authorities keep detailed records of all movements of people into their
country, do you not? A. Yes, I am aware of that.’

The following day, the cross-examination proceeded in these terms:

‘Q. Mr Tuegel, I am afraid I start with bad news this morning, the American authorities have no records of you ever entering the United States
at all. Do you understand? A. I do not know how long they keep their records.’

Then:

‘Q. You appreciate we will have checked for the period how long they keep their records, that we would have checked for the period you say
you were there in the late ‘70s and once in the early ‘80s, you see? A. Maybe ‘78/’79—I was mistaken. It could have been a bit earlier.’

It is apparent from a statement made on 23 April 1998 by Mr Gothery, an immigration attaché at the United States Embassy, that, if that statement
was ­ 883 correct, no record existed in relation to the defendant Tuegel having ever entered the United States. It is also apparent from a passage in the
Crown’s skeleton argument for the purposes of this appeal that, at some (although it is not precisely clear what) stage, the prosecution had material from
the United States Embassy indicating that further detail was required before they could give a conclusively accurate answer in relation to whether Tuegel
had or had not entered the United States.
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Mr Roberts made the justifiable complaint—particularly bearing in mind that the material from the United States Embassy, to which we have
referred, was not disclosed to the defence—that Tuegel should not have been cross-examined in the terms to which reference has been made. In
cross-examining in that way, counsel was likely to raise in the jury’s mind the belief that Tuegel’s evidence on this aspect was capable of flat
contradiction by information in the possession of the Crown.
Mr Roberts made further complaint in relation to cross-examination, said to be improper, relating to what has been referred to as the ‘X1’ file. This
was a file which was prepared in the course of the trial by the prosecution for their own purposes, from documents belonging to Tuegel which had been
disclosed as part of the unused material prior to trial. Mr Roberts’ submission was that an accused is entitled to know what documentary or other material
the prosecution rely on and is entitled to have served upon him such documentation prior to its introduction at the stage of cross-examination. Mr Roberts
accepted that some of this material had been served, but most of it was unused material. Its presence among the unused material, submitted Mr Roberts,
was an insufficient basis for any claim that the prosecution were going to rely on it. Mr Roberts complained, in particular, of documentation used in
cross-examination of Tuegel in relation to an alleged co-conspirator, Karl-Kollner, to whom reference has earlier been made; documents in relation to a
Mr Grosskopf; and documents in relation to a Mr Zachel. Mr Roberts submitted that the issues to which such cross-examination was directed did not arise
in a manner which the cross-examination should not have expected, and, therefore, the prosecution in relation to these documents was improper.
Furthermore, Mr Roberts submitted that, had the documents been dealt with in the way which he suggests and in the proper fashion, it would have been
possible to have an opportunity to object to their use. However, Mr Roberts said that he could not say one way or the other whether the documents used
in this cross-examination had improperly damaged Tuegel’s credibility, but that there was a risk that they had done so. We comment that that is hardly a
ringing indorsement for the proposition that this cross-examination rendered this conviction unsafe.
As to ground 4, Mr Roberts criticised what he referred to as a lack of balance in the summing up, most importantly in relation to the Macai aspect of
the case, which was of considerable importance because it had occurred early in Tuegel’s relationship with Martens. Mr Roberts asserted that the defence
had a very strong case on this aspect and the judge had failed to put it properly before the jury. He took us to a number of documents relevant to this
aspect of the case. The complaint was also made, in a subsidiary fashion to the Macai aspect, that the judge did not adequately summarise the evidence of
employees of Mr Martens, nor did he adequately refer to the nature of Tuegel’s case on count 4.
Mr Roberts’ final submission was directed to the second ground of appeal, namely interruptions of his final speech by the judge. He took us to a
total of seven interruptions, in a comparatively short space of time, directed to that part ­ 884 of Mr Roberts’ speech when he was dealing with the
bank-not-bank aspect of the case. There was also, in the written grounds, though not further ventilated in oral submissions by Mr Roberts, a complaint
that the judge had improperly and excessively interrupted Tuegel’s evidence before the jury.
On behalf of the Crown, Mr Gilbert QC submitted that there was simply no evidential basis for the ‘halfway house’ aspect to be left to the jury. In
his evidence-in-chief, Tuegel had resiled from the answers which he had given in interview; and he, in cross-examination, repeated that he realised, for
the first time, that Martens was dishonest after Martens had been arrested. Furthermore, he claimed that, in his first interview in Austria, which was
conducted in German, when he had referred to April/May 1995, what he had meant was that that was the time when Martens had changed in his personal
behaviour towards Tuegel. The evidence from Tuegel, said Mr Gilbert, was that ‘fraud simply was not in the air’ until the time of Martens’ arrest. That
being so, submitted Mr Gilbert, no question of adding a further count could arise and there was nothing untoward in the judge’s summing up in the
passage relied on by Mr Roberts.
So far as the Macai aspect of the matter was concerned, Mr Gilbert asserted that the prosecution had a very strong case on this aspect of the matter;
and he took us to a number of documents in support of that contention. He submitted that there was nothing unfair in the judge’s comments in relation to
Tuegel’s defence, which was, he submitted, put fully over several pages of transcript, in relation to the Macai matter. The prosecution case always was
that Tuegel had conspired from the outset; and that was the way in which the matter was put to the jury in the prosecution final speech, as well as in the
prosecution opening. The summing up was, therefore, an accurate reflection of that and also the fact that Mr Roberts, in his final speech, invited the jury
to convict only if they were sure that Tuegel was a party to the conspiracy from the outset.
So far as the cross-examination on the United States aspect is concerned, Mr Gilbert frankly admitted that that should not have taken place in the
form which it did, but, he submits, it does not make the conviction unsafe. The matter was never referred to again in anybody’s speech or in the summing
up.
So far as the X1 file cross-examination was concerned, it did not contain any new material; it had all been disclosed; and, indeed, emanated from the
defendant himself. About a third of it was already put in evidence as part of the prosecution case, although that was not so in relation to the other
two-thirds. But the documents did not change the nature of the prosecution case.
The Karl-Kollner documents, in relation to the Omron Bank and its relationship with AHE, he submitted, were properly used because Tuegel, in his
evidence, had sought to distance himself from Karl-Kollner—a distancing process which was not indicated in advance, either in the defence statement or
in defence counsel’s opening speech.
Similarly, so far as the Grosskopf documents are concerned, Tuegel had said in evidence that Martens had sold DSCT without his knowledge to
someone whom he did not know, but in fact the document showed that it had been sold to Grosskopf, whom Tuegel knew very well. Indeed, the
documentation included a note in Tuegel’s handwriting of a conversation with Grosskopf. The documentation also included a letter to Grosskopf from
Tuegel offering 200m Deutschmarks from BancEurope. That documentation, submits Mr Roberts, was properly used in cross-examination.
So far as Mr Zachel is concerned, he was a friend of Mr Tuegel. Tuegel’s case was that he did not know what was going on and had been duped,
like Martens’ ­ 885 victims. But Zachel’s documents exposed that position because there was a handwritten memorandum by Tuegel recording a
meeting that he had had with Zachel on 28 November 1994 and there were other documents which he had signed, including letters to Zachel involving
large sums of money, and Tuegel had provided documents which Zachel had used. Again, submits Mr Gilbert, there was nothing improper in the use of
those documents in cross-examination.
So far as the alleged failure to put the defence on count 4 was concerned, Tuegel had signed many documents, including ones shortly before
Christmas 1994, when Martens was abroad in the Dutch Antilles. Tuegel had signed a letter to Mr Fowler relating to blocked funds and 5bn lira, and also
a letter in relation to Mr Shamsey in relation to 30m French francs. The fact that Tuegel had, at Christmas 1994, discussed with his wife the possibility
that something might not be right did not begin to explain the jury’s verdict on count 4, which itself, submitted Mr Gilbert, demonstrates the
overwhelming difficulties faced by the defence in relation to the ‘halfway house’ aspect of the matter.
So far as the allegation of lack of balance in the summing up is concerned, Mr Gilbert submitted that, read as a whole, not only was it an extremely
well-prepared summing up, it was a balanced one, properly putting the defence case as well as putting the case for the prosecution.
On behalf of Saia, Mr Pascoe QC, in submissions of admirable succinctness, first advanced ground 1, that the summing up displayed hostility by the
judge to Saia by the remarks which the judge made in the course of his summing up. Mr Pascoe accepted that the test is whether the jury had little real
choice but to comply with the judge’s view (see per Lord Lane CJ in Mears v R [1993] 1 WLR 818 at 822); but this was a highly articulate summing up,
with a masterly analysis of detail, which effectively destroyed Saia’s case. The observations made by the learned judge in the course of that summing up
demonstrated that hostility.
Mr Pascoe referred to twenty passages in the summing up about which complaint is made in relation to observations by the judge and he highlighted
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ten of those passages. They include several references to the possibility that the jury might think that certain aspects of Saia’s case were ‘odd’ or
‘surprising’. They include the posing of questions for the jury, such as: why a company with an Anglicised name should be using an Italian expression
for flag corporation; an invitation to ask themselves whether Saia could have believed that what was being done was done honestly; and an inquiry as to
whether they thought that Saia had faced reality.
As to ground 3, Mr Pascoe submitted that the judge should have discharged the jury following Martens’ plea of guilty, which was made at the close
of the lengthy prosecution opening. It was, says Mr Pascoe, a brilliant opening, but it mostly concerned Martens.
As to ground 4, Mr Pascoe submitted that no great loss would have been done if the judge had permitted Saia to be recalled to give further evidence
to deal with evidence given by Miss Campana in the course of re-examination. Miss Campana was a defence witness. In the course of her evidence, and
in particular her re-examination, she described as ‘all lies’ the suggestion that Mr Albanese was a rich man. It was sought, on behalf of Saia, that he
should be recalled in order to, it was said, ‘put that evidence in context’. The judge should not have refused that application.
As to ground 5, Mr Pascoe submitted that no great harm would have been done had the judge permitted a statement by a Mme Carrara to be read
under the provisions of s 23 of the Criminal Justice Act 1988 relating to witnesses abroad or ­ 886 unfit to attend court. Mme Carrara was employed in
a secretarial and managerial capacity, and her statement included evidence on which the defence wished to rely as to the circumstances in which title
passes in French law. The judge concluded that he was not satisfied that there was a reasonable explanation for her absence from court and he declined to
allow her evidence to be read.
There was an additional ground in relation to which the leave of this court was sought by Mr Pascoe for it to be argued. It relates to the judge’s
inadvertent reference in the course of his summing up to the arrest of Saia near a pizzeria. That was a matter which had been excluded from the jury’s
transcript of the interviews in which this reference appeared and the matter had, in consequence, never been referred to in evidence. The judge, therefore,
was wrong inadvertently to refer to that matter. Mr Pascoe said that Saia believes that the jury’s request to have the tapes of the interview replayed was
motivated by a desire to hear the reference in the interview to the arrest at the pizzeria.
The difficulty with that belief is that, when the tape was replayed, it was stopped before the reference to the arrest and the jury made no complaint
that it had been stopped. It is apparent that, whatever Mr Saia’s belief, there is no basis for it; and, in so far as it is pertinent at this stage to do so, we
refuse leave to argue that additional ground.
On behalf of the Crown, Mr Gilbert submitted that this was a balanced summing up; that the judge’s refusal to discharge the jury when Martens
pleaded guilty was correct. The only material in the opening which would not have been admissible against Saia was that in relation to Martens’
interviews with the police, but they contained nothing whatever prejudicial to the case of Saia. Furthermore, the stance of those representing Tuegel was
that they did not want the jury to be discharged and, indeed, would themselves, had it been necessary to do so, have elicited before the jury the fact that
Martens had pleaded guilty, because it was the foundation of their case that Martens was a fraudulent and brilliant conman by whom Tuegel himself had
been deceived. Accordingly, submitted Mr Gilbert, the judge was right not to discharge the jury.
So far as the possible recall of the defendant was concerned, that was plainly a matter within the judge’s discretion and, submitted Mr Gilbert, it
would not be appropriate to permit a party to seek to recall a witness in order to rebut evidence given by some other witness called by that party. The
principles applicable to the prosecution calling evidence in rebuttal have, submitted Mr Gilbert, no application in this context.
So far as Mme Carrara’s statement is concerned, submitted Mr Gilbert, plainly that lady, by her occupation, was not qualified to give expert evidence
about the law of France and there was ample material justifying the judge’s conclusion that no adequate reason had been demonstrated for her failure to
attend court and it could not be shown that all reasonable steps had been taken to procure her attendance. So, submitted Mr Gilbert, there is no substance
in Saia’s grounds of appeal.
So far as Tuegel’s appeal against conviction is concerned, it is, first, convenient to deal with grounds 1, 2 and 4, which, as we have said, Mr Roberts
did not place in the forefront of his attack on the safety of Tuegel’s convictions. As to the improper cross-examination which is alleged, we are entirely
satisfied that Mr Gilbert’s analysis of the history of the cross-examination of Tuegel in relation to the X1 file demonstrates that there can have been no
legitimate ground of complaint. The documents were the defendant’s own, they had been disclosed; a significant proportion of them had formed part of
the prosecution case. The ­ 887 Karl-Kollner, Grosskopf and Zachel documents were, as it seems to us, properly admissible by way of
cross-examination to negate lines of defence which had not been foreshadowed, either in Tuegel’s defence statement or in counsel’s opening speech for
the defence. The course of questioning (once objection had been taken by the defence) proceeded along lines agreed between counsel for the prosecution
and the defence. No ruling was ever sought from the judge; no adjournment was sought to seek further instructions at the conclusion of cross-examination
and before re-examination occurred. In our judgment, there is no basis for saying that that cross-examination was improper.
The cross-examination about Tuegel’s visit to the United States causes the court concern, as Mr Gilbert recognises. It was not appropriate for him to
use the expression ‘bad news’, which, in the context, may have caused the jury to infer that the prosecution had inconvertible evidence that Tuegel had
not visited the United States as he claimed. It is apparent that, both at the trial and now, the prosecution had and have no such evidence. This part of the
cross-examination came early and we are mindful that its impact on the jury, at that stage, may have been considerable. However, the question of whether
Tuegel had visited the United States as he claimed did not, as it seems to us, bear significantly on any issue in the case and its ultimate impact on Tuegel’s
credit, having regard to the succeeding cross-examination, which extended to the best part of 24 hours in total, cannot have been greater than very slight.
The matter was not referred to again in final speeches or in the summing up. It therefore seems to us highly likely that the jury would have forgotten
about it. In any event, we do not believe that this cross-examination, wrong though it was, is capable of affecting the safety of the convictions.
As to ground 2, interventions in counsels’ speech, exceptionally it may be necessary for a judge, in the presence of the jury, to interrupt a speech by
counsel. But, generally speaking, just as it is preferable for counsel not to interrupt a summing up, so it is preferable for a judge not to interrupt a
speech—whether for prosecution or defence. The reasons are obvious. The speaker’s train of thought may be disrupted and the jury’s attention may be
inappropriately diverted with consequences prejudicial to the case which is being made. Ideally, therefore, interventions for the purposes of correcting or
clarifying something said, either by judge or counsel, should be made, in the first instance, in the absence of the jury and at a break in the proceedings, so
that, thereafter, if necessary, the point can be dealt with before the jury in an orderly fashion.
That said, in the present case it is impossible to contend that the judge’s interventions during Mr Roberts’ final speech were such as to render the
verdicts unsafe. They were few in number in the context of a four-day speech. They were courteously expressed. There is no sign that experienced
leading counsel was put off his stride and counsel himself expressly invited correction by the judge, if that was appropriate. This aspect of ground 2
therefore fails.
So far as interventions during Tuegel’s evidence are concerned, it is of course trite law that a judge’s role is to hold the ring fairly between
prosecution and defence and this cannot be done properly if a judge enters into the arena by appearing to take one side or the other. Questioning which
might suggest this should, therefore, be avoided. Often the best course will be for a judge to remain silent until counsel have had the opportunity to deal
with the matter. But it is not only permissible for a judge, it is his duty to ask questions which clarify ambiguities in answers previously given or which
identify the nature of the defence, if this is unclear. Such questions, particularly in a very long case, are most likely to ­ 888 help the jury and everyone
else if they are asked at, or close to, the time when the ambiguity is first apparent. If a witness is in the box for many days, it would be contrary to good
sense and the proper conduct of the trial to require the judge to save his questions until the end of the witness’s evidence. In the present case, the
appellant Tuegel gave evidence which spanned ten days. The judge asked a number of questions, the terms of which are, for the most part, if not entirely,
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uncriticised. During the ten hours of evidence-in-chief, he asked 14 questions; during 24 hours of cross-examination he asked 24; he also asked ten
during re-examination; and eight at the end. In our judgment, neither the number nor the nature of the questions asked afford any basis whatever for
suggesting that the judge entered into the arena or otherwise abandoned his proper judicial role. This ground therefore fails.
As to ground 4, the alleged lack of balance in the summing up, each member of the court has read the whole of the summing up, parts of it several
times. Following a five-month trial, it was, as it seems to us, a tour de force. It was structured; it focused the jury’s attention on the crucial issues and it
contained impeccable directions as to the law. Tuegel’s defence, on each aspect of the case against him, was put as clearly as it could be. His evidence
and the other evidence called on his behalf was accurately reviewed so far as was material. There are many instances of the judge making points adverse
to the prosecution or favourable to the defence. We bear in mind the observations of Simon Brown LJ in R v Nelson [1997] Crim LR 234; Court of
Appeal (Criminal Division) transcript 25 July 1996 (at 18):

‘Every defendant, we repeat, has the right to have his defence, whatever it may be, faithfully and accurately placed before the jury. But that is
not to say that he is entitled to have it rehearsed blandly and uncritically in the summing up. No defendant has the right to demand that the judge
shall conceal from the jury such difficulties and deficiencies as are apparent in his case. Of course, the judge must remain impartial. But if
common sense and reason demonstrate that a given defence is riddled with implausibilities, inconsistencies and illogicalities—as plainly this
appellant’s defence was—there is no reason for the judge to withhold from the jury the benefit of his own powers of logic and analysis. Why
should pointing out those matters be thought to smack of partiality? To play a case straight down the middle requires only that a judge gives full
and fair weight to the evidence and arguments of each side. The judge is not required to top up the case for one side so as to correct any substantial
imbalance. He has no duty to cloud the merits either by obscuring the strengths of one side or the weaknesses of the other. Impartiality means no
more and no less than that the judge shall fairly state and analyse the case for both sides. Justice moreover requires that he assists the jury to reach
a logical and reasoned conclusion on the evidence.’

The allegation that this was an unbalanced, one-sided summing up is, in our judgment, simply not made out.
Mr Roberts submits that Tuegel had a strong case on the Macai munibond, which the judge failed to present. In his reply, he drew attention to many
undisputed facts and urged that their significance was strongly in Tuegel’s favour and that there was no adequate reference to them by the judge. The
prosecution, on the other hand, say that their case against Tuegel on the Macai episode was extremely strong and they refer to material in support of that
contention.
­ 889
Those are considerations for a jury. The question for this court is not whether every point was made that could be made in relation to the issues on
one side or the other, or whether every rival contention on one side or the other was placed before the jury, but whether the issues and contentions were
adequately and fairly placed before the jury. It is simply not correct to say, as Mr Roberts did in relation to the summing up (volume II (at 56–65)), that
the judge was making prosecution non-points. On the contrary, in that passage there are repeated references to Tuegel’s case. Further, in volume III (at
58–65) the judge rehearsed, in some detail, with quotations from the transcript, Tuegel’s evidence in relation to the Macai munibond. In our judgment,
the issues and evidence in relation to both counts 3 and 4 were properly placed before the jury by the judge in the summing up and this ground fails.
We return to ground 3, the ‘halfway house’ aspect, on which Mr Roberts places most reliance, that is to say the judge’s refusal to amend the
indictment to add a count with a narrower time scale and his summing up in dismissive terms in relation to the ‘unnecessary complication’ of a revised
time scale. There are, as it seems to us, a number of insuperable problems in the path of Mr Roberts’ argument. First, whether or not the indictment
should be amended was essentially a matter within the discretion of the trial judge and there is, as it seems to us, no basis for saying that his refusal to
amend was outwith the proper ambit of his discretion. On the contrary, all the authorities to which we were referred, save R v Efionayi, involved
consideration of the question of adding a count for a different and lesser offence which a conspiracy count, with a more restricted time scale, would not
have been. In R v Efionayi, no question of quashing the conviction arose: the question was one of what was the appropriate sentence.
Secondly, as the same authorities make plain, there must be an evidential basis for an alternative count to be left for the jury’s consideration. Here,
in our judgment, there was none. Tuegel’s evidence-in-chief and in cross-examination was that no whiff of fraud reached him before the arrest of
Martens. His reference in interview to April/May 1995 was not meant as a reference to his knowledge of fraud and dishonesty, but to the change which he
asserted in Mr Martens’ personality and behaviour towards him. It follows, in our judgment, that the so-called ‘halfway house’ position advocated by Mr
Roberts does not have an evidential basis.
Thirdly, both prosecution and defence counsel expressly invited the jury, in their closing speeches, to convict on count 3 only if they were sure that
Tuegel was involved in the fraud from the beginning; and the judge’s summing up, in our judgment, properly focused the jury’s attention on this aspect.
We are wholly unable to accept that the judge was implying in the passage in his summing up (at 25–26), which earlier we cited, that, if they disbelieved
Tuegel in relation to his date of knowledge, they should conclude that he was in it from the beginning.
Fourthly, even if this court were to take the view that an alternative count should have been left for the jury’s consideration, this, as the authorities
again make plain, would afford no basis for quashing the conviction on count 3 unless it were to appear to this court that the jury might, as Hutchison LJ
put it in R v Bergman [1996] 2 Cr App R 399 at 407 ‘have compromised with their consciences’ and may have convicted on this count only in order to
avoid the defendant escaping scot-free (see per Lord Ackner in R v Maxwell [1990] 1 All ER 801 at 807, [1990] 1 WLR 401 at 408).
­ 890
This was clearly not the case, having regard to the way in which the matter was put before them by counsel on both sides and having regard to their
verdict on count 4. Accordingly, this ground also fails. For these reasons, Tuegel’s appeal against conviction was, as we indicated yesterday, dismissed.
We turn to the appeal of Saia in relation to conviction. As to the alleged unbalanced and hostile terms of the summing up, the passage which we
have already cited from Simon Brown LJ in R v Nelson and the general comments we have made about the summing up are as apposite in relation to Saia
as to Tuegel. Even when the twenty comments by the judge are picked out, as they are in the written submissions and highlighted, as they were in Mr
Pascoe’s oral submissions, their individual and cumulative effect does not, in our judgment, suggest either hostility by the judge or that he was usurping
the jury’s role. His comments, even in isolation, were, in our judgment, comparatively mild and displayed no more than proper intermittent scepticism for
the jury’s consideration. Furthermore, when the passages are read in the context of the whole summing up in relation to Saia, the allegation of want of
balance, in our judgment, demonstrably fails.
As to the failure to discharge the jury after Martens’ plea of guilty, it is not suggested that anything of significance in Mr Gilbert’s opening was
inadmissible as against Saia, save, of course, Martens’ interviews, which were non-prejudicial.
The scope of Martens’ dishonest activity was clearly material in proving the conspiracy and was indeed, as we have said, relied on by Tuegel in
support of his claim to have been misled by Martens. To this end, also, Tuegel did not want the jury discharged; and he wanted the jury to know about
Martens’ plea of guilty, which, in any event, as it seems to us, would have been properly admissible under s 74 of the Police and Criminal Evidence Act
1984. The judge was, as it seems to us, correct in ruling that the jury should not be discharged.
As to the application for Saia to be recalled, it is inescapable that the purpose was to seek, by way of rebuttal, to undo the damage to the defence by
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the evidence from the defence witness Miss Campana, in re-examination, that Albanese’s wealth was all lies. That, as it seems to us, did not provide any
proper basis for Saia to be recalled. We accept Mr Gilbert’s submission that the principles in relation to the calling of evidence by the prosecution to
rebut defence evidence do not support the existence of any right on the part of the defence to rebut their own witnesses.
As to the judge’s refusal to permit Mme Carrara’s statement to be read under s 23 of the 1988 Act, this, as it seems to us, was a manifestly correct
decision. The judge concluded, as he was entitled to on the material before him, that the essential statutory prerequisite for such a course, namely that it
was not reasonably practicable to secure her attendance (see s 23(2)(b)(ii)), had not been demonstrated. In any event, her secretarial and administrative
qualifications afforded no basis for her to give the expert evidence about the passing of title in French law which the defence sought to adduce.
Accordingly, Saia’s appeal against conviction fails.
We turn to the sentence appeals. First, we deal with the terms of imprisonment which were imposed. In relation to Martens, Mr Ford QC submits,
first, that the judge’s starting point of ten years was somewhat too high for Martens’ overall criminality in a fraud which cost its victims a £6·8m loss, of
which Martens personally derived something over £3m in cash benefit. He referred the court to R v Duncan (January 1996, unreported) where, in January
1996, a sentence of nine years was passed on a solicitor of good character, following a trial for a fraud over several years involving £19m. In R v Clowes
(1992, unreported), in 1992, a sentence ­ 891 of ten years was passed on a man with no previous convictions, who, following a trial, had defrauded
elderly victims of over £16m. In R v Gokal (3 April 1997, unreported), in April 1997, a sentence of 14 years, which would have been 17 years had it not
been for the defendant’s age (he was 61) was passed, following a trial, on the perpetrator of a massive fraud involving hundreds of millions of pounds.
That sentence was upheld on appeal (11 March 1999, unreported) (Court of Appeal (Criminal Division) transcript of 11 March 1999).
Mr Ford’s second submission was that the judge gave an insufficient discount, namely one-fifth, for the plea of guilty and gave incorrect reasons for
distinguishing R v Buffrey (1992) 14 Cr App R (S) 511, to which the trial judge referred, and where, in 1992, Lord Taylor CJ spoke of one-third as then
being an appropriate discount in that case. It is to be noted that R v Buffrey was a man of good character. It is also to be noted that, since R v Buffrey was
decided, s 48 of the Criminal Justice and Public Order Act 1994 has imposed a statutory duty on the court to have regard to the stage at which a plea of
guilty is made.
Mr Ford further submits that Martens’ proceeds of crime had been invested rather than spent on an extravagant lifestyle and that the judge had paid
too much regard to Martens’ two previous convictions for dishonesty in Germany in the early 1980s and in this country in 1987 for fraud, for which he
was sentenced to 12 months.
In our judgment, there is no valid criticism to be made of the judge’s starting point of ten years. This was a major fraud, over approximately three
and a half years, by a man with previous convictions for dishonesty, including fraud, who pocketed over £3·5m. This starting point was, as it seems to us,
in line with, and not at variance from, the authorities to which Mr Ford referred. As to discount, we accept that the judge’s reasons for distinguishing R v
Buffrey were unsound. But the fundamental question is whether a one-fifth discount for this plea at the close of the prosecution’s lengthy opening was
appropriate in the context of sentencing considerations relevant today. In our judgment, it was. There is no other reason for regarding the total sentence
of eight years, including, as it did, a 12-month consecutive sentence for count 4, the circumstances of which arose in part while the appellant was in
custody, as inappropriate. Accordingly, Martens’ appeal against the sentence of eight years is dismissed.
For Tuegel, Mr Roberts accepts that five years cannot be regarded as inappropriate following a trial for a fraud of this size and length, even though
Tuegel had no criminal record. But, Mr Roberts says a proportionate reduction should be granted to Tuegel if Martens’ sentence is reduced. Mr Roberts
stresses the ill health, in particular angina, from which Tuegel has suffered since 1992 and for which he received hospital treatment last year. He refers to
Tuegel’s benefit as being of the order of £200,000 in this country and somewhat more than that in Austria. The judge was aware of Tuegel’s ill health
and the extent to which he benefited. The sentence of five years was, in our judgment, correct. His appeal against it is dismissed.
For Saia, Mr Pascoe submits that the judge was wrong to say that there was no mitigation at all. He stresses that Saia was involved in count 3 only
and a sentence of four years is, he submits, disparate when compared with the eight years for Martens. Saia had come home to face the music. His wife
and child, to whom he is devoted, are suffering from his absence. He has suffered from depression and angina. The judge was wrong to calculate that he
has a total sentence of five years and ten months outstanding to be served in Italy. But it is conceded that Saia has ­ 892 three previous convictions for
dishonesty in Italy and has there been sentenced, during the 1980s, to periods of imprisonment, the longest of which is three and a half years.
We take all these matters into account. We are unpersuaded that four years, following a trial on count 4, was excessive for a man with a record of
dishonesty. Saia’s appeal against this sentence is dismissed.
We turn to the judge’s recommendation for deportation in relation to Martens and Saia and the question of jurisdiction in relation to the confiscation
orders made against them. No such orders were, as we have said, made in relation to Tuegel. A confiscation order might well have been made in relation
to him, but, instead, within six months of his conviction, he reached an agreement with the Crown whereby, following the sale of his house and motor car,
a sum of £24,500 was paid to the Crown.
The first question which arises in relation to both deportation and confiscation is whether the judge had jurisdiction to make the orders when he did,
namely on 15 January 1999, when he recommended the deportation, and on 26 April 1999, when he made confiscation orders.
For Saia, Mr Sheridan, in submissions adopted by Mr Ford on behalf of Martens, submits that there was no jurisdiction to recommend deportation,
which, by virtue of s 6(5) of the Immigration Act 1971, is to be treated as a sentence for the purpose of an appeal against sentence. The only power to
adjourn, by virtue of s 6(2) of the Act, is for seven days in order to enable the appropriate notice to be served. Once sentence of imprisonment was passed
on 9 October, there was no power to adjourn beyond seven days. By virtue of s 11 of the Courts Act 1971 and s 47 of the Supreme Court Act 1981, a
sentence may only be varied or rescinded by the Crown Court within 28 days. R v Menocal [1979] 2 All ER 510, [1980] AC 598 shows that there is no
statutory power to vary or rescind a sentence after 28 days, and there was no such common law power, save during the current assize or quarter sessions.
Sentence should be passed on conviction or as soon as is practicable thereafter. Defendants, victims and the public are entitled to as prompt a
decision as the circumstances of the case allow. That said, a judge, in our judgment, clearly has inherent power at common law to adjourn the whole or
part of the sentencing exercise. That power is exercised daily in the Crown Court: for example, so as to obtain probation or medical reports; so as to make
inquiries as to the availability of a probation hostel place or a hospital bed; or so as to make further inquiries about a defendant’s financial position,
personal circumstances or antecedents. That power is not subject to any specific common law time limit. It is a power which was expressly recognised
by this court, among other places in R v Ingle [1974] 3 All ER 811 at 815, and R v Annesley [1976] 1 All ER 589, [1976] 1 WLR 106, by which this court
is bound. Separate and different from the power to adjourn or postpone sentence is the power to vary a sentence which has already been passed. In the
days of assizes and quarter sessions this power was exercised until the end of the current assize or quarter sessions. It was preserved for the Crown Court
by s 11 of the Courts Act 1971 and is also to be found in s 47 of the 1981 Act, which empowers the court to vary or rescind within 28 days a sentence
already imposed. It was with this power that the House of Lords dealt in R v Menocal. In that case, on an application first made three months after a
sentence of imprisonment had been imposed, the court made a forfeiture order. The House of Lords held that this was not a permissible variation or
rescission because it was outside the 28-day period. The possibility of forfeiture had not ­ 893 been raised before the court when the sentence of
imprisonment was imposed, so no question of adjourning that aspect of sentencing arose. Powers of adjournment were not discussed in the House of
Lords.
It is in this context that the statutory provisions in relation to recommendations for deportation and confiscation must be construed. As to
deportation, s 6(2) of the Immigration Act 1971 does not confer on the court a power to adjourn deportation questions: it has that power at common law.
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What s 6(2) provides is a mechanism within the scheme of the Immigration Act 1971 whereby a defendant, by virtue of a notice served upon him, will
have at least seven days’ warning of the possibility that a recommendation for deportation will be made. Such a recommendation is part of the sentence,
but it does not have to be made within 28 days, provided it is made outside that period by virtue of an earlier adjournment and not, as in R v Menocal, as a
consequence of late afterthought by prosecution or judge.
In the present case, counsel urged the judge to pass sentence in relation to imprisonment and he did so on 9 October. The question of deportation
was adjourned, at the request of the defendants, so that further evidence could be served in relation to it. In these circumstances the judge had jurisdiction
to make the deportation orders in relation to Martens and Saia on 15 January 1999.
As to the confiscation orders, R v Shergill [1999] 2 All ER 485, [1999] 1 WLR 1944, [1999] 2 Cr App R (S) 341 is distinguishable on its facts, in
that no step of any kind had there been taken in relation to confiscation within six months of conviction. Therefore, as Beldam LJ pointed out, it was too
late for the prosecution to make an application for confiscation under s 71 of the 1988 Act. We should say that we find no express support in the court’s
judgment in that case for the proposition asserted in the first sentence of the headnote (see [1999] 2 Cr App R (S) 341 at 341–342) that a confiscation
order must be made within six months of conviction. However, although we express no concluded view, we doubt the correctness of Mr Garlick QC’s
submission that ‘determining’ in s 72A is a continuing process and, provided it is embarked upon within six months of conviction, this is sufficient to
satisfy the six-month requirement of s 72A(3).
It is unnecessary to express a concluded view because it seems to us to be manifest that all counsel and the judge, at trial, proceeded throughout on
the basis that there were exceptional circumstances within s 72A(3) which justified a confiscation order being made outside the six-month period. We say
this because, on 28 July 1998, at a directions hearing in relation to confiscation proceedings and sentence, it was appreciated that the six-month period in
relation to Martens would expire on 13 August. Junior counsel for the Crown applied for an extension; leading counsel for Martens did not resist this; and
the judge expressly indicated his ‘inclination’ that there were special circumstances. He granted an extension until the end of the first week in October.
At confiscation proceedings on 1 October, counsel for Martens and Saia indicated that they were not ready to deal with realisable property and, thereafter,
rulings having been made on benefit, sentence was adjourned until 8 October and the confiscation hearings were adjourned to 11 January 1999. Saia’s
solicitor needed extra time, and the hearings, in consequence, began on 12 January. They were adjourned part heard, on 15 January, to 15 April, when
they continued until they concluded on 24 April.
It is apparent from this history, that these confiscation proceedings were unusually complex and that all involved proceeded on the basis that there
were exceptional circumstances. It would, of course, have been preferable if the judge had expressly spelt out the exceptional circumstances, as Judge LJ
­ 894 indicated in R v Cole (1998) Independent, 30 April (Court of Appeal (Criminal Division) transcript 22 April 1998 (at 6–7)). There is no statutory
obligation on the judge so to spell out his reasons, provided that he is satisfied that they exist; but clearly it avoids subsequent difficulties if the judge
expressly spells out what the exceptional circumstances are.
The judge, in our judgment, did have jurisdiction to make the confiscation orders in respect of Martens and Saia.
It has been agreed by counsel in this court that if any point, apart from jurisdiction, is to be pursued in relation to the confiscation orders, this will be
done on some future occasion.
There remains the consideration of the merits of the deportation recommendations. For Martens Mr Ford accepted that the judge considered the
correct criteria and, in particular, carried out the appropriate balancing exercise between the seriousness of the offence and the impact of deportation on
Martens’ family. Mr Ford sought to persuade us that, as an act of mercy, this court should take a different view from the judge.
Nothing in the authorities to which he referred us suggests that this would be a proper approach for this court. The recommendation was within the
judge’s discretion and can therefore, as it seems to us, only be challenged on Wednesbury grounds (see Associated Provincial Picture Houses Ltd v
Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223). None is alleged. Accordingly Martens’ appeal on this aspect must fail.
For Saia, Mr Sheridan submits that the judge should not have taken the extradition aspect into account. He says it is still unclear precisely what
period of imprisonment Saia will be expected to serve in Italy. It is the position that a provisional warrant for his arrest has been withdrawn, but Italy’s
extradition request still stands. The judge’s reasons, submits Mr Sheridan, do not include any reference to the impact of deportation on Saia’s young
daughter and the judge should have ignored Saia’s Italian convictions in view of their antiquity.
In our judgment, it is highly unlikely, in view of the submissions made to him (see the transcript of 15 January 1999 (at 60–62)) that the judge would
have overlooked the impact of deportation on Saia’s young daughter. The judge also read a letter written by Mrs Saia, who was living in Belgium with
the daughter. In any event, we have read the judge’s decision and, as appears from the transcript (at 75), the judge in fact makes specific reference to the
four-year-old daughter. In our judgment, he properly directed himself as to the relevant criteria. His decision is unimpeachable and Saia’s appeal against
the deportation recommendation is dismissed.
In conclusion, we express our gratitude to all counsel in this case for their careful and detailed written submissions and their concise oral arguments.

Appeals dismissed.

Caroline Stomberg Barrister.

[2000] 2 All ER 896

Practice Direction (Crown Office list: time limits for papers)

PRACTICE DIRECTIONS
QUEEN’S BENCH DIVISION

Practice – Crown Office list – Time estimates – Skeleton arguments and paginated bundles – New time limits – Arrangements for transcription of
proceedings.

1. In preparation for the full implementation of the Human Rights Act 1998 the number of courts sitting in the Crown Office List from May to the end of
July is to be substantially increased. The success of this initiative depends on all those involved.
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2. In order to ensure that these courts function as efficiently as possible, in any case which has a hearing date from 2 May onwards, solicitors for
applicants/appellants must lodge the paginated bundles and advocates’ skeleton arguments in the Crown Office at least three weeks before the hearing
date of substantive applications/appeals. Advocates for respondents must lodge their skeleton arguments at least 14 days before the hearing. The time
tables set out in the Practice Note (Crown Office list: penalties for late papers) [1994] 4 All ER 671, [1994] 1 WLR 1551 are therefore suspended until
further notice.

3. Although as much advance notice as possible will be given of fixtures, there will remain a need to list cases at very short notice. Parties are reminded
that any case appearing in the Crown Office Warned List is regarded as ready to be heard. Applications for adjournment will only be granted in
exceptional circumstances.

4. Judgments on applications without notice will be recorded on tape. If a transcript of such a judgment is required, the court reporters will use that tape
for transcription purposes. If any party wishes proceedings to be noted for transcription purposes, that party must contact Smith Bernal in advance of the
hearing to make the necessary arrangements. Judgments in substantive matters will be noted and transcribed as at present.

5. In some instances counsel may be asked after judgment has been delivered to draft the order of the court for submission to the court for
approval and sealing.

23 March 2000 Lord Bingham of Cornhill CJ

[2000] 2 All ER 897

Dimond v Lovell

CONSUMER; Consumer credit: TORTS; Negligence

HOUSE OF LORDS
LORD BROWNE-WILKINSON, LORD NICHOLLS OF BIRKENHEAD, LORD HOFFMANN, LORD SAVILLE OF NEWDIGATE AND LORD HOBHOUSE OF WOODBOROUGH
17–19 JANUARY, 11 MAY 2000

Consumer credit – Agreement – Hire charges – Claimant’s car damaged in accident caused by defendant’s negligence – Claimant entering into
agreement for hire of car while own car being repaired – Agreement entitling claimant to postpone payment of hire charges until conclusion of action
against defendant and giving hire company right to pursue action in claimant’s name – Whether agreement providing claimant with credit – Whether hire
charges recoverable as damages – Consumer Credit Act 1974, ss 8, 65.

D’s car was damaged in a road traffic accident caused by L’s negligence. Whilst her car was being repaired, D hired a replacement vehicle from an
accident hire company, ie a company which hired vehicles to drivers whose own cars had been damaged in road accidents caused by another’s fault.
Under cl 5(i) of the agreement, the company allowed D credit on the hire charges until the conclusion of a claim for damages against L, while cl 5(iii)
gave the company the right to pursue such a claim in her name. At trial, L’s insurers contended that the hire charges were irrecoverable as damages, but
that argument was rejected by the judge. His decision was reversed by the Court of Appeal which held that the hire agreement was a consumer credit
agreement within the meaning of s 8a of the Consumer Credit Act 1974, that it therefore constituted a regulated agreement for the purposes of the Act,
that it had not been executed in accordance with the Act’s provisions, that it was therefore unenforceable against D by virtue of s 65(1)b and that
accordingly she had suffered no loss through obtaining the replacement vehicle. On appeal to the House of Lords, the company contended that the
services provided by the agreement were not confined to the use of a car but also extended to the pursuit of D’s claim, that accordingly the agreement did
not postpone payment of the hire charges beyond the date on which they would first have become payable and that therefore the provision for ‘credit’ was
not really credit at all. Alternatively, the company contended, inter alia, that D was entitled to be compensated for loss of the use of her own car even if
the hire agreement was unenforceable.
________________________________________
a Section 8, so far as material, is set out at p 902 f g, post
b Section 65(1) is set out at p 902 c, post
________________________________________

Held – On the true construction of cl 5 of the agreement, the company had provided D with credit. The company’s contention to the contrary depended
upon construing the agreement as imposing upon it a duty to D to pursue the claim, but the agreement was not susceptible to such an artificial
construction. While it gave the company a right to pursue the claim in D’s name, it did not impose a duty to do so, and such a duty could not be implied.
Rather, the company’s only obligation under the agreement was to provide a vehicle. In the absence of credit, it would have been entitled to payment
during or at the end of the hire. The provisions about the pursuit of the claim were express or implied conditions that deferred the right to recover the
hire, and therefore constituted the grant of ­ 897 credit. It followed that the agreement was a consumer credit agreement and a regulated credit
agreement within the meaning of the 1974 Act. As such, it had not been properly executed, and was therefore unenforceable against D. Moreover, she
could not recover damages for the notional cost of hiring a car that she had in fact used free of charge, and it would be contrary to the intention of the
1974 Act to allow her to recover the hire charges as trustee for the company. Accordingly, the appeal would be dismissed (see p 899 b to d, p 903 j to p
904 d, p 905 b c e, p 908 h j, p 911 f g, p 913 f g and p 916 a b, post); Donnelly v Joyce [1973] 3 All ER 475 and Hunt v Severs [1994] 2 All ER 385
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considered.
Per Lord Browne-Wilkinson, Lord Hoffmann and Lord Hobhouse. Where a successful claimant has entered into an accident hire agreement, the
damages recoverable for the cost of hire are limited to the equivalent spot rate for the hire of a car from an ordinary car hire company (see p 899 b c, p
911 e f and p 915 d to h, post).
Decision of the Court of Appeal [1999] 3 All ER 1 affirmed.

Notes
For consumer credit agreements, see 9(1) Halsbury’s Laws (4th edn reissue) para 81.
For the Consumer Credit Act 1974, ss 8, 65, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 23, 61.

Cases referred to in opinions

Admiralty Comrs v SS Chekiang [1926] AC 637, [1926] All ER Rep 114, HL.
Admiralty Comrs v Susquehanna [1926] AC 655, [1926] All ER Rep 124, HL.
Bellingham v Dhillon [1973] 1 All ER 20, [1973] QB 304, [1972] 3 WLR 730.
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Rlys Co of London Ltd [1912] AC 673, [1911–13] All ER Rep 63, HL.
Donnelly v Joyce [1973] 3 All ER 475, [1974] QB 454, [1973] 3 WLR 514, CA.
Giles v Thompson [1993] 3 All ER 321, [1994] 1 AC 142, [1993] 2 WLR 908, HL.
Glenfinlas, The [1918] P 363n, [1918–19] All ER Rep 365n.
Hunt v Severs [1994] 2 All ER 385, [1994] 2 AC 350, [1994] 2 WLR 602, HL.
Kingsway, The [1918] P 344, [1918–19] All ER Rep 360, CA.
London Corp, The [1935] P 70, CA.
McAll v Brooks [1984] RTR 99, CA.
Owners of SS Mediana v Owners, Masters and Crew of Lightship Comet, The Mediana [1900] AC 113, [1900–3] All ER Rep 126, HL.
Orakpo v Manson Investments Ltd [1977] 3 All ER 1, [1978] AC 95, [1977] 3 WLR 229, HL.
Parry v Cleaver [1969] 1 All ER 555, [1970] AC 1, [1969] 2 WLR 821, HL.

Appeal
The claimant, Vanessa Dawn Dimond, appealed with permission of the Appeal Committee of the House of Lords given on 28 October 1999 from the
decision of the Court of Appeal (Sir Richard Scott V-C, Thorpe and Judge LJJ) on 29 April 1999 ([1999] 3 All ER 1, [1999] 3 WLR 561) allowing an
appeal by the defendant, Richard James Lovell, from the decision of Mr Recorder Anton Lodge QC at the Sheffield County Court on 20 July 1998
whereby he awarded Mrs Dimond damages of £346·63 for the cost of hiring a replacement car while her own car was being repaired following an
accident caused by Mr Lovell’s negligence. The facts are set out in the opinion of Lord Hoffmann.
­ 898

Giles Wingate-Saul QC, Marc Willems and Michael Jones (instructed by Cottrill Stone Lawless, Manchester) for Mrs Dimond.
Ian McLaren QC, Steven Turner and Andrew Burrows (instructed by Nelson & Co, Leeds) for Mr Lovell.

Their Lordships took time for consideration.

11 May 2000. The following opinions were delivered.

LORD BROWNE-WILKINSON. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord
Hoffmann. I agree with it and for the reasons which he gives would dismiss the appeal. I further agree with his view that, even if the claim for damages
for loss of the use of the car had been sound, the damages recoverable would have been limited to the sum required to provide an alternative vehicle ie the
spot rate quoted by hirers other than accident hire companies.

LORD NICHOLLS OF BIRKENHEAD. My Lords, I have had the advantage of reading a draft of the speech of my noble and learned friend Lord
Hoffmann. For the reasons he gives I would dismiss this appeal. The only point on which I differ from Lord Hoffmann concerns the measure of damages
which would have been recoverable had the claim not been dismissed. The point is of general importance to accident car hire companies and to insurance
companies operating in this field.
These proceedings arise out of an everyday occurrence. Momentary inattention by a driver results in his car running into and damaging another
vehicle. The damaged car needs repair and is off the road for some days while being repaired. The owner of the damaged car requires a replacement
vehicle. Many car insurance policies make no provision for a replacement if the insured car is damaged in an accident. So the victim of a no fault
accident has to make his own arrangements to tide himself over the days he is without his car.
Under an ordinary car hiring arrangement, the hirer has to produce the hire charge up front. Usually the amount of money involved is not large, but
for many people it is still a considerable sum to have to find. Further, there is no certainty the money will ever be recovered from the insurers of the car
whose driver was at fault. The innocent motorist has no clout when it comes to seeking payment from someone else’s insurers. And no one would wish
to become involved in court proceedings to recover the money from the insurers. So there are many cases where innocent motorists make do as best they
can. They manage somehow without a car, or borrow one from a relation, or get lifts from friends. Either that, or they hire a car and write off the hire
charge as just one of those things.
So it comes about that accident car hire companies are fulfilling a real need. They provide replacement cars and additional services as well. The
hirer does not have to produce any money, either at the time of the hiring or at all. The hire company pursues the allegedly negligent driver’s insurers.
The hire company is not deterred by having to bring court proceedings should this become necessary. If the claim is unsuccessful, in practice the hire
company does not pursue the hirer.
These are valuable additional services. At first sight there seems to be no reason why the negligent driver’s insurers should have to pay for these
additional services. If a car owner wishes to have these services he should pay for them ­ 899 himself. I consider this would be to take too narrow a
view of the position in which the no-fault driver finds himself. The position in law is that the negligent driver, backed by his insurers, is liable to pay
reasonable charges incurred in hiring a replacement car if this is reasonably necessary. For many motorists the existence of this liability of the other
motorist can be more theoretical than real. In practice this source of recompense frequently does not yield money, or even an acceptance of liability, in
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time to be of use. In Giles v Thompson [1993] 3 All ER 321 at 352, [1994] 1 AC 142 at 155, Lord Mustill observed that:

‘… there exists in practical terms a gap in the remedies available to the motorist, from which the errant driver, and hence his insurers, frequently
profit.’

The additional services provided by accident car hire companies bridge this gap. They redress the imbalance between the individual car owner and the
insurance companies. They enable car owners to shift a loss from themselves to the insurance companies which properly belongs to the insurers but
which, in practice, owners of cars often have to bear themselves. So long as the charge for the additional services is reasonable, this charge should be part
of the recoverable damages.
This House was told by counsel of a scheme or proposed scheme, the ‘ABI Initiative’, whereby insurance companies and car hire companies will
provide hire vehicles to victims of no-fault accidents. Depending on its terms, a scheme of this nature may meet the need which has given rise to the
accident car hire business. Until that happens, the accident car hire arrangements provide a reasonable basis by which no-fault victims can in fact obtain
the benefit of the right which the common law and compulsory third party insurance seek to give them against careless drivers. A measure of damages
which does not achieve this result would be sadly deficient. The law on the measure of damages should reflect the practicalities of the situation in which
a wronged person finds himself. Otherwise it would mean that the law’s response to a wrong is a right to damages which will often be illusory in
practice. I do not believe this can be the present state of the law in a situation which affects thousands of people every year.

LORD HOFFMANN. My Lords,

1. THE FACTS
On 30 December 1996 Mrs Vanessa Dimond was driving her Suzuki Vitara home from work when a car driven by Mr Lovell ran into her from
behind. Her vehicle was damaged but still drivable. Her husband made an appointment for a garage to do the repairs two or three weeks later. While it
was in the garage, she needed a replacement vehicle to get to work. On the advice of her insurance broker, she hired a Ford Mondeo from a car hire
company called 1st Automotive Ltd. The charge was £30 a day for the eight days during which her vehicle was off the road, together with £5 a day
collision damage waiver and a £15 delivery charge. The total charge including VAT was £346·63.

2. THE ISSUES
The Co-operative Insurance Society (CIS), which insured Mr Lovell, accepted that he had been negligent and was liable for the loss caused to Mrs
Dimond by the accident. They paid for the cost of repair. But they refused to pay for the hire of the replacement car. They did not say that it was
unreasonable for Mrs Dimond ­ 900 to have hired a car. But they raised two defences. The first was that the form of agreement under which Mrs
Dimond hired the car was technically defective. It was a ‘regulated agreement’ within the meaning of the Consumer Credit Act 1974 and did not contain
the particulars that the Act required. As a result, it was unenforceable. Mrs Dimond could not be required to pay for the hired car and therefore had
suffered no loss. The second was that the sum claimed was excessive. Mrs Dimond could have hired a suitable car from another company for less. She
had therefore either failed to take reasonable steps to mitigate her loss or the hire agreement had given her benefits additional to the use of the car which
she should bring into account in calculating her loss. The Court of Appeal ([1999] 3 All ER 1, [1999] 3 WLR 561) held (reversing the judge) that the
defendant succeeded on the first point. The hire agreement was unenforceable under the 1974 Act and Mrs Dimond had suffered no loss. She had been
lucky enough to have a replacement car for nothing. It was therefore not necessary for the Court of Appeal to consider whether, if it had been
enforceable, the full amount of the hire could have been recovered. But they said that they agreed with the judge that it could. Mrs Dimond appeals to
your Lordships’ House against the decision that she was under no liability to 1st Automotive and Mr Lovell invites your Lordships to express a different
view on the quantum of damages. Of course the real parties in interest are 1st Automotive and the CIS.

3. ACCIDENT HIRE
My Lords, I should explain why this dispute over £346·63 comes before your Lordships’ House. 1st Automotive is an accident hire company. It
specialises in hiring cars to people like Mrs Dimond whose cars have been damaged in road accidents caused by the fault of someone else. I shall in a
moment invite your Lordships’ attention to some of the terms of its standard form of hiring agreement. But the effect of the agreement is that, in the
normal course of events, the hirer will not have to pay. The company pursues the hirer’s claim at its own expense and satisfies its claim for hire out of the
damages recovered on the hirer’s behalf. Thus the hirer is spared the need to lay out the cost of the hire in advance of recovery from the defendant or his
insurers, the trouble and anxiety of pursuing a claim and the risk that the claim may fail.
The services thus offered by an accident hire company, in providing the car on credit and assuming the burden and risk of pursuing the claim, have
filled a gap in the market. Many comprehensive motor insurance policies cover damage to the vehicle but not the cost of hiring a replacement. The
owner of a damaged car can arrange for his car to be repaired in the knowledge that the bill will be sent to the insurance company. Whether his company
meets the cost itself or recovers it from the other driver’s insurer is (apart from the question of a no-claim bonus) not a matter which need concern him. If,
however, he wants to hire a replacement vehicle, he will have to make the arrangements at his own expense and claim the cost from the other driver
himself. Faced with such a prospect, many drivers will make do without a car while their vehicle is off the road. Accident hire companies enable them to
have a replacement car without cost, trouble or risk.
The accident hire business has increased the cost of third party claims against motor insurance companies such as CIS. Motorists not only hire
replacement cars when they would not previously have done so but also, since they are not themselves paying, do not necessarily exercise the closest
scrutiny over the rate that is being charged. Partly for this reason and partly because the companies have to be compensated for the credit and additional
services that they provide, ­ 901 claims by accident hire companies are generally at rates substantially above the market or ‘spot’ rates that an ordinary
hire company would have been willing to offer for ready money. Motor insurance companies have therefore tried to resist such claims. The first attempt
was based upon the theory that the arrangements between motorist and accident hire company were champertous. It was rejected by your Lordships in
Giles v Thompson [1993] 3 All ER 321, [1994] 1 AC 142. The present case is a return to the charge by other means. Your Lordships were told that many
other cases, both at first instance and in the Court of Appeal, wait upon the result.

4. The Consumer Credit Act 1974

Section 65(1) of the Act provides as follows: ‘An improperly-executed regulated agreement is enforceable against the debtor or hirer on an order of
the court only.’
There has been no court order for the enforcement of Mrs Dimond’s hiring agreement and, for reasons which I shall briefly touch upon later, it is
accepted on both sides that on the facts of the present case the court would not have jurisdiction to make one. It is also accepted that, for reasons which I
shall explain, the agreement was improperly executed. So the only question for your Lordships’ decision on this part of the case is whether the hiring
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agreement was a ‘regulated agreement’ within the meaning of the Act.

(a) ‘Regulated agreement’

The Act has a definition of a ‘regulated agreement’ in s 189(1). It means—‘a consumer credit agreement, or consumer hire agreement, other than an
exempt agreement ... ’
The CIS says that the hiring agreement was a consumer credit agreement and that it was not exempt. A ‘consumer credit agreement’ is defined in s
8(2):

‘A consumer credit agreement is a personal credit agreement by which the creditor provides the debtor with credit not exceeding [a sum
specified by regulation, which at the time of the hiring agreement was £15,000 (see the Consumer Credit (Increase of Monetary Limits) Order 1983,
SI 1983/1878)].’

This definition sends one to the definition of a ‘personal credit agreement’, which is to be found in s 8(1):

‘A personal credit agreement is an agreement between an individual (“the debtor”) and any other person (“the creditor”) by which the creditor
provides the debtor with credit of any amount.’

The definition chase ends with the meaning given to ‘credit’ by s 9(1): ‘In this Act “credit” includes a cash loan, and any other form of financial
accommodation.’
My Lords, it seems to me that one emerges from these statutory thickets holding onto a very simple question. Did 1st Automotive provide Mrs
Dimond with credit? If so, the hiring agreement was a personal credit agreement and, since it was for a good deal less than £15,000, a consumer credit
agreement and thus (subject to the question of exemption) a regulated agreement. 1st Automotive contends, as it did in the Court of Appeal, that it did not
provide any credit at all. To consider the merits of this argument, one must examine the terms of the hiring agreement.
Clauses 5 and 6 provides as follows:

‘5. Where the hire is consequent upon the Hirer’s own vehicle being unroadworthy as a result of a road traffic accident: (i) The Lessor will
allow ­ 902 the Hirer credit on the hire charges until such time as a claim for damages has been concluded against the party (hereinafter called the
third party) that the Hirer alleges is liable for damages, arising out of the said accident, subject only to condition (6) hereunder. (ii) The Lessor shall
have the right to pursue an action in the Hirer’s name against the third party. (iii) The Lessor shall have the right to pursue such action through the
County Court and/or High Court and the Hirer must co-operate in the conduct of the action and, if required by the Lessor, attend any hearing that
the Court appoints. (iv) PROVIDED THAT notwithstanding the credit facility referred to above the hirer will discharge any indebtedness as soon as
reasonably practicable, and shall take such action as is necessary to obtain interlocutory judgement or an interim payment of damages for the
purpose of discharging the said indebtedness.
6. If, and only if, the Hirer, is in default of condition (5iii) then the credit allowed by the Lessor to the Hirer shall be terminated and the hire
charges will be due from the Hirer to the Lessor 28 days from the Lessor giving notice thereof to the Hirer by reference to this condition (6).’
So, according to the terms of the contract, 1st Automotive ‘allow[s] the Hirer credit on the hire charges’, this arrangement is described as a ‘credit
facility’ and if there is a breach of condition 5(iii) the ‘credit allowed’ may be terminated. This is unpromising material for an argument that 1st
Automotive does not give credit. CIS adopts Professor Goode’s definition of credit (Goode Consumer Credit Legislation 1999 vol 1, para 443, p 208)
which was approved by the Court of Appeal:

‘… credit [is] extended, whenever the contract provides for the debtor to pay, or gives him the option to pay, later than the time at which
payment would otherwise have been earned under the express or implied terms of the contract.’ (See [1999] 3 All ER 1 at 11, [1999] 3 WLR 561 at
572; Professor Goode’s emphasis.)

CIS says that in the absence of credit terms, hire would have been payable per diem in diem during the hiring period or, at the latest, when it ended.
Allowing the hirer to defer payment until the claim for damages had been concluded was providing credit.
Against this straightforward argument 1st Automotive say that while it might be true that, under an ordinary hiring agreement, the hire would, in the
absence of credit, be payable during or at the end of the hire, this agreement was far more complex. The services provided to Mrs Dimond were not only
the use of the car but also the pursuit of her claim. If one treats these obligations as forming part of an entire contract, 1st Automotive could not recover
any part of the consideration until it has not only allowed Mrs Dimond the use of the car but also brought the claim for damages to a conclusion. Only at
this point would 1st Automotive become entitled to payment and therefore the provision for ‘credit’ was not really credit at all. Payment was not
postponed beyond the date at which it would in any event have first become payable.
This argument depends upon construing the contract as imposing upon 1st Automotive a duty to Mrs Dimond to pursue the claim and treating the
performance of that duty as forming part of an entire contract which also included the provision of the vehicle. I do not think that this contract is
susceptible of so artificial a construction. I draw attention to the fact that nowhere does the contract impose any duty upon 1st Automotive to pursue the
claim. Under cl 5(ii) and (iii) it has a right to pursue the claim in Mrs Dimond’s name and she has a duty to co-operate, but that is all. 1st Automotive say
that such a duty must be ­ 903 implied. But there seems to me no basis for such an implication. I can see the argument for implying a term that 1st
Automotive should not be entitled to recover the hire unless it had made all reasonable efforts at its own expense to pursue the claim. It might even be
possible, with the aid of some unguarded statements in the brochure, to imply a term that 1st Automotive should not be entitled to recover the hire unless
the claim had been successful, although this seems to me far more difficult and contrary to the view expressed by Lord Mustill in Giles v Thompson
[1993] 3 All ER 321 at 356–357, [1994] 1 AC 142 at 160. But I do not think it is possible to read the words ‘shall have the right’ in cl 5(ii) and (iii) to
mean ‘shall have the duty’. Mrs Dimond would not be in the least concerned with whether 1st Automotive pursued her claim or not, as long as she did
not have to pay. It therefore seems to me that any implications about pursuing the claim can relate only to the conditions upon which the hire will be
recoverable and cannot take the form of a positive duty.
In my opinion there was no misuse of language when the contract described cl 5(i) as a credit facility. The only obligation of 1st Automotive under
the agreement was to provide the vehicle. In the absence of credit, it would have been entitled to payment during or at the end of the hire. All the
provisions about the pursuit of the claim were express or implied conditions that deferred the right to recover the hire and therefore constituted a granting
of credit. In addition, of course, the pursuit of the claim by 1st Automotive on behalf of Mrs Dimond may have given rise to further obligations to her,
such as the obligation to indemnify her against a liability for costs which Lord Mustill mentions in Giles v Thompson [1993] 3 All ER 321 at 359, [1994]
1 AC 142 at 163.
Mr Wingate-Saul QC, who appeared for 1st Automotive, advanced a further argument based on s 18 of the Act. The first four subsections read as
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follows:

‘(1) This section applies to an agreement (a “multiple agreement”) if its terms are such as—(a) to place a part of it within one category of
agreement mentioned in this Act, and another part of it within a different category of agreement so mentioned, or within a category of agreement
not so mentioned, or (b) to place it, or a part of it, within two or more categories of agreement so mentioned.
(2) Where a part of an agreement falls within subsection (1), that part shall be treated for the purposes of this Act as a separate agreement.
(3) Where an agreement falls within subsection (1)(b), it shall be treated as an agreement in each of the categories in question, and this Act
shall apply to it accordingly.
(4) Where under subsection (2) a part of a multiple agreement is to be treated as a separate agreement, the multiple agreement shall (with any
necessary modifications) be construed accordingly; and any sum payable under the multiple agreement, if not apportioned by the parties, shall for
the purposes of proceedings in any court relating to the multiple agreement be apportioned by the court as may be requisite.’

I fear that I may not be able to do justice to the argument based upon this section, because I am not sure that I fully understood it. But I think Mr
Wingate-Saul submitted that if his first argument was rejected and the hiring agreement not construed as an entire contract, then it became a multiple
agreement within s 18. One part was the hiring of the car and the other the provisions for pursuit of the claim. If the former were construed as a separate
agreement, it would not include ­ 904 any provision for credit and not be a regulated agreement. The credit provisions, if any, would belong to the part
that dealt with the pursuit of the claim.
The difficulty I have with this argument is that it seems to sever the provisions that create the debt (hiring the car) from the provisions that allow
credit for payment of the debt. Whatever a multiple agreement may be, one cannot divide up a contract in that way. The creation of the debt and the
terms on which it is payable must form parts of the same agreement. The truth of the matter is that I accept that the hiring agreement was a single
contract. But I do not accept Mr Wingate-Saul’s submission as to what that contract was. He argues that it involved multiple obligations on the part of 1st
Automotive that had to be performed over a period starting when the car was hired and ending when the damages were recovered. I consider, on the
contrary, that the only primary obligation of 1st Automotive was to provide the car. The rest of the agreement dealt with the conditions upon which it
would be entitled to recover the hire. To such an agreement s 18 has, of course, no relevance.
Finally on this issue I should mention that it was submitted to the Court of Appeal that a contract for the bailment of a goods to a hirer (such as the
bailment of the car to Mrs Dimond) could not be a consumer credit agreement. It was either a consumer hire agreement if it satisfied the requirements of
s 15(1) of the Act or it was altogether unregulated. The argument, based upon a passage by Professor Goode (Consumer Credit Legislation 1999 vol 1,
para 456.6, pp 215–216), was rejected by the Court of Appeal ([1999] 3 All ER 1 at 12, [1999] 3 WLR 561 at 573) and not pursued before your
Lordships.
It is conceded that the agreement was not an exempt agreement. It is however worth noticing that art 3(1)(a) of the Consumer Credit (Exempt
Agreements) Order 1989, SI 1989/869 exempts consumer credit agreements such as this one if the total number of payments to be made by the debtor
does not exceed four and—‘those payments are required to be made within a period not exceeding 12 months beginning with the date of the agreement ...
’
1st Automotive can therefore obtain exemption from the Act if they include a clause that requires that the hire should in any event be paid (if at all)
within 12 months. But the hiring agreement executed by Mrs Dimond was a regulated agreement within the meaning of s 65(1).

(b) Improperly executed

Although it is conceded that the agreement was not properly executed, I think I should briefly explain why. By s 61(1), a regulated agreement is not
properly executed unless, among other things:

‘… (a) a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under section 60(1) is signed
in the prescribed manner both by the debtor or hirer and by or on behalf of the creditor or owner …’
Section 60(1) gives the Secretary of State power to make ‘regulations as to the form and content of documents embodying regulated agreements’ to
ensure that the debtor or hirer is made aware of, among other things, ‘the amount and rate of the total charge for credit (in the case of a consumer credit
agreement)’. By the Consumer Credit (Agreements) Regulations 1983, SI 1983/1553, the Secretary of State prescribed the form and contents of regulated
consumer credit agreements. Schedule 6 provided that certain terms were to be ‘prescribed terms’ which the document had to contain for the purposes of
s 61(1). These were, in the case of a consumer credit agreement to finance the acquisition of services by the debtor ­ 905 (such as the provision of the
car to Mrs Dimond), ‘A term stating the amount of the credit, which may be expressed as the total cash price of the … services’. It is conceded that no
such term appeared in the agreement signed by Mrs Dimond. The agreement was therefore improperly executed.

(c) Order of the court

Section 65(1) provides that an improperly executed agreement shall be enforceable only ‘on an order of the court’. Section 127 gives the court
power to make orders for the enforcement of agreements that are, for various reasons, improperly executed. But sub-s (3) provides that a court shall not
make an enforcement order for an agreement that does not comply with s 61(1)(a) unless the debtor signed a document containing ‘all the prescribed
terms’. The hiring agreement in this case did not and is therefore irredeemably unenforceable.

5. UNJUST ENRICHMENT
Mr Wingate-Saul says next that that if the hiring agreement is unenforceable, Mrs Dimond has been unjustly enriched. She has had eight days use of
a Ford Mondeo for nothing. She has certainly been enriched at the expense of 1st Automotive. The fact that she only needed a car from 1st Automotive
because Mr Lovell had damaged her Suzuki and was therefore on balance no better off seems to me irrelevant. It is no reason why 1st Automotive should
have provided her with a free car. Mr McLaren QC, who appeared for the CIS, said that that was exactly what the parties intended. The attraction of the
transaction to Mrs Dimond was that she would not have to pay. But that seems to me an oversimplified analysis. The agreement was that Mrs Dimond
would pay. The damages recovered from the CIS would have been Mrs Dimond’s money. They would not have been subject to any assignment or
charge to 1st Automotive. When they were recovered, the debt that she incurred by hiring the car would fall due. But the effect of s 65(1) of the Act is
that she no longer has to pay.
The real difficulty, as it seems to me, is that to treat Mrs Dimond as having been unjustly enriched would be inconsistent with the purpose of s 65(1).
Parliament intended that if a consumer credit agreement was improperly executed, then subject to the enforcement powers of the court, the debtor should
not have to pay. This meant that Parliament contemplated that he might be enriched and I do not see how it is open to the court to say that this
consequence is unjust and should be reversed by a remedy at common law: cf Orakpo v Manson Investments Ltd [1977] 3 All ER 1, [1978] AC 95.
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6. RES INTER ALIOS ACTA

1st Automotive’s next point was that it did not matter whether Mrs Dimond was liable to pay for the hire of the Ford Mondeo. The fact was that Mr
Lovell had negligently deprived her of eight days use of her Suzuki. This was her loss and the fact that she had been lucky enough to obtain the use of
another car for nothing was, as one used to say, res inter alios acta. It should not affect Mr Lovell’s liability, any more than if a friendly neighbour who
happened to be going on holiday had put his car at her disposal. The neighbour would be surprised to learn that his generosity had been for the benefit of
Mr Lovell.
This argument has very respectable support in the authorities. Mr Wingate-Saul began with the decision of this House in Parry v Cleaver [1969] 1
All ER 555, [1970] AC 1. Lord Reid ([1969] 1 All ER 555 at 558, [1970] AC 1 at 14) there said, ­ 906 that it would be unjust for damages to be
reduced to take into account benefits that the plaintiff received ‘from the benevolence of his friends or relations or of the public at large’ so that ‘the only
gainer would be the wrongdoer’. Lord Reid also said that benefits from insurance taken out by or for the plaintiff should be disregarded because ‘the
plaintiff has bought them’ and it would be unjust that ‘the money which he prudently spent on premiums … should enure for the benefit of the tortfeasor’.
He applied this reasoning to hold that benefits from a contributory disability pension fund should also be disregarded.
In Donnelly v Joyce [1973] 3 All ER 475, [1974] QB 454 Megaw LJ derived from these decisions a general theory that benefits received from third
parties were res inter alios acta. A boy of six sustained bad injuries to his leg in a road accident. For six months he required daily attention. His mother
gave up her job to look after him. The claim for damages on behalf of the boy included the mother’s loss of earnings. This was objected to on the
grounds that the boy had incurred no obligation to repay his mother for her services. Megaw LJ said that the fact that the boy had obtained the necessary
care without payment was irrelevant to his claim:

‘The question from what source the plaintiff’s needs have been met, the question who has paid the money or given the services, the question
whether or not the plaintiff is or is not under a legal or moral liability to repay, are, so far as the defendant and his liability are concerned, all
irrelevant. The plaintiff’s loss, to take this present case, is not the expenditure of money to buy the special boots or to pay for the nursing attention.
His loss is the existence of the need for those special boots or for those nursing services, the value of which for purposes of damages—for the
purpose of the ascertainment of the amount of his loss—is the proper and reasonable cost of supplying those needs. That, in our judgment, is the
key to the problem. So far as the defendant is concerned, the loss is not someone else’s loss. It is the plaintiff’s loss.’ (See [1973] 3 All ER 475 at
480, [1974] QB 454 at 462.)

A general principle that benefits provided by third parties are res inter alios acta is obviously strongly supportive of 1st Automotive’s argument. And
that principle was applied by the Court of Appeal in McAll v Brooks [1984] RTR 99 on facts very similar to the present case. The plaintiff reasonably
required a replacement car after his own had been damaged in an accident. His insurance brokers provided the car under an arrangement that was alleged
to be illegal insurance business and would have prevented them from being subrogated to the plaintiff’s claim for damages in respect of the loss of the use
of his car. Lawton LJ (at 103) said that the principle in Donnelly v Joyce made the relationship between the plaintiff and his insurance company
irrelevant:
‘It is admitted by the defendant that the plaintiff had a need for a replacement car. Lords Insurance Brokers Ltd satisfied that need. It is
accepted that the charge of £328 was a reasonable charge having regard to all the circumstances. On the authority of Donnelly’s case that need had
to be paid for by the defendant as the wrongdoer.’
That is the high water mark of authority in favour of 1st Automotive. But since high water the tide has retreated. The courts have realised that a
general principle of res inter alios acta which assumes that damages will be paid by ‘the wrongdoer’ out of his own pocket is not in accordance with
reality. The truth is ­ 907 that virtually all compensation is paid directly out of public or insurance funds and that through these channels the burden of
compensation is spread across the whole community through an intricate series of economic links. Often, therefore, the sources of ‘third party benefits’
will not in reality be third parties at all. Their cost will also be borne by the community through taxation or increased prices for goods and services.
So in Hunt v Severs [1994] 2 All ER 385, [1994] 2 AC 350 the House of Lords rejected the broad res inter alios acta principle of Donnelly v Joyce.
Lord Bridge of Harwich ([1994] 2 All ER 385 at 392, [1994] 2 AC 350 at 360–361) cited the passage from the judgment of Megaw LJ which I have
quoted and said:

‘With respect, I do not find this reasoning convincing. I accept that the basis of a plaintiff’s claim for damages may consist in his need for
services but I cannot accept that the question from what source that need has been met is irrelevant. If an injured plaintiff is treated in hospital as a
private patient he is entitled to recover the cost of that treatment. But if he receives free treatment under the National Health Service, his need has
been met without cost to him and he cannot claim the cost of the treatment from the tortfeasor. So it cannot, I think, be right to say that in all cases
the plaintiff’s loss is “for the purpose of damages … the proper and reasonable cost of supplying [his] needs”.’ (See [1994] 2 All ER 385 at 393,
[1994] 2 AC 350 at 361.)

The House treated the two cases mentioned by Lord Reid in Parry v Cleaver [1969] 1 All ER 555 at 558, [1970] AC 1 at 14 (‘the fruits of insurance
which the plaintiff himself has provided’ and ‘the fruits of the benevolence of third parties’) as ‘apparent exceptions to the rule against double recovery’
founded on the special considerations of policy which Lord Reid had explained (see Lord Bridge [1994] 2 All ER 385 at 389, [1994] 2 AC 350 at 358).
The House declined to create another exception for the case in which, as in Donnelly v Joyce, the plaintiff claims compensation for the reasonable cost of
necessary services which have in fact been provided voluntarily by a third party. It decided that in such a case damages cannot be recovered for the
plaintiff’s own benefit. He can sue only if he claims as trustee for the person who provided the services (see [1994] 2 All ER 385 at 394–395, [1994] 2
AC 350 at 363).
This case is of course far away from the gratuitous provision of services (usually by a relative) which was considered suitable for recovery as trustee
in Hunt v Severs. If Mrs Dimond is allowed to sue Mr Lovell as trustee for 1st Automotive, the effect will be to confer legal rights upon 1st Automotive
by virtue of an agreement which the Act has declared to be unenforceable. This would be contrary to the intention of the Act. The only way, therefore, in
which Mrs Dimond could recover damages for the notional cost of hiring a car which she has actually had for free is if your Lordships were willing to
create another exception to the rule against double recovery. I can see no basis for doing so. The policy of the Act is to penalise 1st Automotive for not
entering into a properly executed agreement. A consequence is often to confer a benefit upon the debtor, but that is a consequence rather than the primary
purpose. There is no reason of policy why the law should insist that Mrs Dimond should be able to retain that benefit and make a double recovery rather
than that it should reduce the liability of Mr Lovell’s insurers.
­ 908
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7. DAMAGES
My Lords, for the reasons I have given and in agreement with the Court of Appeal, I consider that the claim for damages for loss of the use of the car
failed and should have been dismissed. But the Court of Appeal, in addition to dismissing the claim, expressed a firm view on the principles by which
damages should have been calculated if the hiring agreement had been enforceable. Although not necessary for the decision, it can be said to be the most
important point on which your Lordships heard argument. The unenforceability of the agreement is a technical defect which more sophisticated drafting
can easily correct. But the principles upon which damages are calculated are vital to the future profitability of the accident hire business. I would
therefore invite your Lordships, like the Court of Appeal, to express your opinions on the matter.
Prima facie the £346·63 which Mrs Dimond contracted to pay 1st Automotive for the car represents her loss. The judge accepted evidence on behalf
of CIS that the local ‘spot rate’ for hiring a car similar to the Ford Mondeo was a good deal less than that charged by 1st Automotive. But he said that
Mrs Dimond had acted reasonably. She acted on the recommendation of her broker and it was reasonable of her to accept the specialist services which 1st
Automotive offered:

‘I do not find that it was unreasonable of the plaintiff to hire a replacement vehicle on the understanding that she in all probability would not be
required to pay the hire charges. She was in my judgment entitled to use to her advantage the fact that she was the victim without fault.’

The judge accepted the evidence given on behalf of the CIS that 1st Automotive’s rates were considerably higher than the ‘spot rate’ for which a car
could have been obtained for cash from an ordinary car hire company. He said that ‘the rates of hire from 1st Automotive and companies offering a
similar service to faultless victims will always be higher than local spot rates’. But Mrs Dimond was entitled to recover the higher rate because:

‘I have already held that the plaintiff acted reasonably in hiring from 1st Automotive. This finding leads me to the conclusion that I should not
judge the reasonableness of the rates solely against local spot hire rates. 1st Automotive offered more which the plaintiff was entitled to take.’

In the Court of Appeal ([1999] 3 All ER 1, [1999] 3 WLR 561) Sir Richard Scott V-C, with whom Thorpe LJ agreed, said that Mrs Dimond could
not be said to have failed to take reasonable steps to mitigate her damage. He said that whether the plaintiff acted reasonably was a question of fact on
which the judge had found in Mrs Dimond’s favour. In any case, he agreed:

‘I do not think it was obligatory for Mrs Dimond to shop around or to go to an ordinary car hire company. It was reasonable to choose the
special niche service on offer from 1st Automotive.’ (See [1999] 3 All ER 1 at 20, [1999] 3 WLR 561 at 580.)

Judge LJ was unhappy with this conclusion but, if I may say so with respect, did not find it easy to articulate the principle upon which he differed
from the majority. He said that it was all a question of reasonableness which depended upon the particular facts.
­ 909
My Lords, I would accept the judge’s finding that Mrs Dimond acted reasonably in going to 1st Automotive and availing herself of its services. I am
sure that any of your Lordships in her position would have done the same. She cannot therefore be said not to have taken reasonable steps to mitigate her
damage.
But that does not necessarily mean that she can recover the full amount charged by 1st Automotive. By virtue of her contract, she obtained not only
the use of the car but additional benefits as well. She was relieved of the necessity of laying out the money to pay for the car. She was relieved of the
trouble and anxiety of pursuing a claim against Mr Lovell or the CIS. She was relieved of the risk of having to bear the irrecoverable costs of successful
litigation and the risk, small though it might be, of having to bear the expense of unsuccessful litigation. Depending upon the view one takes of the terms
of agreement, she may have been relieved of the possibility of having to pay for the car at all.
My Lords, English law does not regard the need for any of these additional services as compensatable loss. As Sir Richard Scott V-C said ‘damages
for worry and for the nuisance caused by having to deal with the consequences of an accident are not recoverable’ (see [1999] 3 All ER 1 at 19, [1999] 3
WLR 561 at 580). If Mrs Dimond had borrowed the hire money, paid someone else to conduct the claim on her behalf and insured herself against the risk
of losing and any irrecoverable costs, her expenses would not have been recoverable. But the effect of the award of damages is that Mrs Dimond has
obtained compensation for them indirectly because they were offered as part of a package by 1st Automotive. There is in my opinion something wrong
with this conclusion.
I think that what has gone wrong is that the Court of Appeal did not consider the rule that requires additional benefits obtained as a result of taking
reasonable steps to mitigate loss to be brought into account in the calculation of damages. The leading case is British Westinghouse Electric and
Manufacturing Co Ltd v Underground Electric Rlys Co of London Ltd [1912] AC 673, [1911–13] All ER Rep 63. Between 1904 and 1906 British
Westinghouse supplied eight steam turbines to the railway company. They were defective in design and used excessive quantities of steam. The railway
company did not reject them but reserved its claim to damages for breach of contract. In 1907 the railway company replaced them with more efficient
turbines made by Parsons. The railway company claimed damages for the excessive fuel used while they were operating the British Westinghouse
turbines and the whole cost of replacing them with Parsons turbines. The arbitrator found that the railway company had acted reasonably and prudently in
acquiring the Parsons turbines to mitigate their continuing loss in using excessive fuel. But he also found that the Parsons turbines were so efficient that it
would have been to the advantage of the railway company to replace the British Westinghouse turbines when they did, even if the latter had been in
accordance with the contract specification.
The House of Lords held that the additional benefits gained by the railway company from acquiring the Parsons turbines, over and above what would
have been their contractual entitlement as against British Westinghouse, had to be brought into account in calculating the damages. Viscount Haldane LC
([1912] AC 673 at 691, [1911–13] All ER Rep 63 at 70) distinguished cases in which the plaintiff had received benefits which ‘did not arise out of the
transactions the subject-matter of the contract’. These were res inter alios acta. But where ‘the person whose contract was broken took a reasonable and
prudent course quite ­ 910 naturally arising out of the circumstances in which he was placed by the breach’ it was necessary to look at any additional
benefits which he thereby acquired and to ‘balance loss and gain’.
In Bellingham v Dhillon [1973] 1 All ER 20, [1973] QB 304 Forbes J applied the same principle to an action for damages for personal injuries in
which steps taken by the plaintiff to mitigate the loss to his business had produced additional gains. In principle this seems to me to be right: there can be
no difference here between contract and tort.
How does one calculate the additional benefits that Mrs Dimond received by choosing the 1st Automotive package to mitigate the loss caused by the
accident to her car? The hiring contract does not distinguish between what is attributable simply to the hire of the car and what is attributable to the other
benefits. But I do not think that a court can ignore the fact that, one way or another, the other benefits have to be paid for. 1st Automotive have to bear
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the irrecoverable costs of conducting the claim, providing credit to the hirers, paying commission to brokers, checking that the accident was not the hirer’s
fault and so on. A charge for all of this is built into the hire.
How does one estimate the value of these additional benefits that Mrs Dimond obtains? It seems to me that prima facie their value is represented by
the difference between what she was willing to pay 1st Automotive and what she would have been willing to pay an ordinary car hire company for the use
of a car. As the judge said, 1st Automotive charged more because they offered more. The difference represents the value of the additional services which
they provided. I quite accept that a determination of the value of the benefits which must be brought into account will depend upon the facts of each case.
But the principle to be applied is that in the British Westinghouse case and this seems to me to lead to the conclusion that in the case of a hiring from an
accident hire company, the equivalent spot rate will ordinarily be the net loss after allowance has been made for the additional benefits which the accident
hire company has provided.
I would dismiss the appeal.

LORD SAVILLE OF NEWDIGATE. My Lords, I too would dismiss this appeal for the reasons given by my noble and learned friend Lord Hoffmann,
whose speech I have had the advantage of reading in draft. However, I express no view on the question of the principles by which damages should have
been calculated had the agreement been enforceable, which does not arise for decision in the present case. This is a question of great importance and
difficulty, the answer to which may well have widespread ramifications. It is accordingly a question that I would prefer to consider in a case where it does
arise for decision.

LORD HOBHOUSE OF WOODBOROUGH. My Lords, this appeal nominally concerns only a few hundred pounds yet it arises out of an everyday
situation which has an impact on the motor insurance market running to millions of pounds a year. It represents a competition between different
insurance interests. The factual situation is typically a collision between two privately owned motor vehicles. Only one driver is at fault. The other’s car
is damaged and needs to be repaired. It will have to be off the road for a matter of days or weeks while it is repaired. In Mrs Dimond’s case, her car was
not rendered unroadworthy but was at the garage for seven days whilst being repaired and so was not available to her for use during that time.
­ 911
The driver not at fault would like to hire a substitute car so that he is not without one. But he does not want to have to bear the cost. His own
insurance does not cover this expenditure. He appreciates that he should be able to recover from the driver at fault the cost of hiring the substitute but is
reluctant to get involved in the hassle and expense of going to court to recover the money. He therefore engages the services of an accident hire company.
There are quite a number of such companies. They are in a profitable line of business. Their customers are people such as Mrs Dimond. As explained in
their promotional literature they provide a substitute car to a party not at fault and see to the recovery of the cost from the other party. The result is
designed to be that the customer does not have to go without a car, does not have to find any money and is saved the hassle of himself pursuing the guilty
party. It is a good arrangement and understandably popular.
However it is much more expensive than simply hiring a car from an ordinary car hire company. The evidence was that it cost Mrs Dimond £42·37
per day to hire from the accident hire company 1st Automotive; a similar car could have been got from an ordinary car hire company for under £24 per
day. The reason for this discrepancy is not hard to seek. The accident hire company is doing more than just hiring out a car. It is financing the
transaction until the expected recovery is made from the other party; it is bearing a commercial (though normally not the legal) risk that there may be a
failure to make that recovery; it is bearing the cost of handling the claim and effecting the recovery. The £17 per day covers this and a margin of profit.
The popularity of this scheme with the public is matched by its unpopularity with the main line motor insurance companies who are covering the
negligent motorists against third party claims and find themselves faced with these increased claims. They also have an increased incidence of loss of use
claims because the scheme enables drivers, who otherwise would not go to the expense of hiring a substitute car, to hire one and make a claim for it.
These conflicting commercial interests between the insurance companies and the accident hire companies have led to much litigation in which they
are the real entities interested. In Giles v Thompson [1993] 3 All ER 321, [1994] 1 AC 142, the insurance companies challenged the validity of the
scheme on the ground that it was champertous. The attack failed: the validity of the scheme was upheld. But as the nominal parties to the dispute were
the two motorists, the defendant motorist was able to contend that the plaintiff motorist had lost nothing since she had not had to pay for the hire car.
Lord Mustill delivered the leading speech with which the other members of the House agreed. He said that there had been no assignment of the damages
to the accident hire company nor were they entitled to be paid only out of the damages recovered:

‘The car hire company is not an assignee or chargee of the cause of action or its fruits, although it expects that the damages for loss of use will
form part of the assets from which the motorist will in due course pay for the substitute. The liability for the car hire, although suspended as
regards enforcement, rests upon the motorist throughout. It is a real liability, the incurring of which constitutes a real loss to the motorist.
Whatever the publicity material may have conveyed, the provision of the substitute cars was not “free”.’ (See [1993] 3 All ER 321 at 362, [1994] 1
AC 142 at 166.)
­ 912
The accident hire companies won.
The terms of the agreement in that case were effectively the same as those with which the present case is concerned. It is not necessary that I should
set them out again. The agreement is in the form of a car hire agreement, the parties being described respectively as the ‘lessor’ and the ‘hirer’. The
clauses most relevant to payment are conditions 5 to 8. Condition 7, by reference to the lessor’s rental tariff fixes the rate to be charged for ‘the hire of
the vehicle’. Condition 8 provides that, except where condition 5 applies, the charges due are payable on demand. Condition 5 deals with the situation
where the hirer’s car is unroadworthy (an expression which was treated as wide enough to cover Mrs Dimond’s position). It contains a number of
paragraphs. The first provides that: ‘The Lessor will allow the Hirer credit on the hire charges until such time as a claim for damages has been concluded
against [the third party] that the Hirer alleges is liable for damages, arising out of the said accident, subject only to condition 6.’ The second and third
paragraphs give the lessor the right to use the hirer’s name to sue the third party and require the hirer to co-operate (but no more). The fourth paragraph
refers to the ‘credit facility’ provided by the first paragraph and requires the hirer to take advantage of any opportunities to obtain an earlier payment from
the third party so as to enable the hire charges to be paid off before the conclusion of the legal proceedings. Finally, condition 6 provides that ‘If, and
only if’, the hirer is in breach of his obligation to co-operate under the third paragraph of condition 5, ‘the credit allowed by the Lessor to the Hirer shall
be terminated’ and the hire charges become due.
In the present case, the insurance companies have taken advantage of a further opportunity to challenge the validity of this form of agreement. The
Consumer Credit Act 1974 makes formal requirements for what agreements involving the provision of credit must contain. It is not in dispute that if this
agreement is such an agreement it did not comply with the statutory requirements as to form and content. I agree with your Lordships that this agreement
did involve the provision of credit. The answer to that question is not provided by the application of some formula but rather by looking at the terms of
the agreement in the context of the relevant transaction as a whole. Here the terms of the agreement are explicit. The lessor is extending credit to the
hirer. It is described as a ‘credit facility’ and the allowance of credit and its termination are specifically referred to. Under these circumstances there can
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be no escape from the answer which your Lordships have given.
I would add only one further comment. The test formulated by Professor Goode adopted by Sir Richard Scott V-C in the Court of Appeal ([1999] 3
All ER 1 at 11, [1999] 3 WLR 561 at 572) will not always be a satisfactory one to apply. Many commercial agreements contain provisions which could
be said to postpone (or advance) the time at which payment has to be made. Frequently, there will be reasons for this other than the provision of credit.
Payment may be postponed as security for the performance of some other obligation by the creditor. Payments may be made in advance of performance
in order to tie the paying party into the commercial venture. Payment provisions may like any other aspect of the transaction be part of its commercial
structure for the division of risk, for the provision of security or simply the distribution of the commercial interest in the outcome of the transaction.
Where the transaction is a relatively simple consumer transaction little sophistication is required. The car has been hired, used and returned. No
­ 913 payment of the hire charges is stipulated for at that time. Payment is postponed until the hirer has been put in funds: ‘The Lessor will allow the
Hirer credit on the hire charges.’ But neither the lessor nor the hirer is under an obligation to procure that the hirer is put in funds. The lessor has no
obligation; the hirer’s obligation is simply to co-operate. As is illustrated by the present case, the accident hire company itself in the contractual
document characterised what it was doing as the providing a credit facility. It was clearly right to do so.
The consequence of the failure to comply with the statutory requirements is clearly spelt out in the statute. The contract cannot be legally enforced
by the creditor against the debtor (see ss 65 and 127). It may be thought that this may sometimes produce a harsh result and an unmerited windfall for the
debtor. But this is what Parliament has provided no doubt in accordance with a broader policy. Again I agree with your Lordships that there is no basis
for implying an obligation of the hirer to pay contrary to the statute. Nor is there any basis for the application of some restitutionary principle. The
contemplation of the parties was that the hirer should not in fact pay out of her own pocket for the hiring of the car. In the present case she has not been
unjustly enriched; her position is precisely that which was intended.
The position is therefore that she did in fact lose the use of her car during the period of repair but has not paid and is not going to have to pay for the
hiring of the substitute car. Her claim in the action was confined to the charge for hiring the substitute car for a week. There was a division of opinion in
the Court of Appeal whether, assuming that she was entitled to recover the hire charges she had failed to mitigate her loss. This also raised the question
what was her loss.
Mrs Dimond was at the time of the accident the owner and person in possession of her car. It was damaged. Its value was reduced. This can be
expressed as a capital account loss. This loss can be measured as being the cost of making good the damage plus the value of the loss of its use for a
week. Since her car was not unrepairable and was not commercially not worth repairing, she was entitled to have her car repaired at the cost of the
wrongdoer. Thus the measure of loss is the expenditure required to put it back into the same state as it was in before the accident. This loss is suffered as
soon as the car is damaged. If it were destroyed by fire the next day by the negligence of another, the second tortfeasor would only have to pay damages
equal to the reduced value of the car and the original tortfeasor would still have to pay damages corresponding to the cost of putting right the damage
which he caused to the car. These questions are liable to arise in relation to any damaged chattel and have long ago received authoritative answers in
cases concerning ships (see The Glenfinlas [1918] P 363n, [1918–19] All ER Rep 365n, The Kingsway [1918] P 344, [1918–19] All ER Rep 360, The
London Corp [1935] P 70). These cases also distinguish between the cost of the damage to the chattel and consequential losses to the owner of the chattel
such as loss of revenue. However even where the chattel is non-profit earning (as was Mrs Dimond’s car) there may still be scope for awarding general
damages for loss of use (see Owners of SS Mediana v Owners, Masters and Crew of Lightship Comet, The Mediana [1900] AC 113, [1900–3] All ER Rep
126, the Consumer Credit (Increase of Monetary Limits) Order 1983, SI 1983/1878, Admiralty Comrs v SS Chekiang [1926] AC 637, [1926] All ER Rep
114, and Admiralty Comrs v Susquehanna [1926] AC 655, [1926] All ER Rep 124).
I mention these cases and the principles they illustrate to demonstrate that persons such as Mrs Dimond do not have to survive in an environment
where the ­ 914 law does not recognise the losses which they may have suffered and that the law is not without principles covering the provision of
compensation and its assessment. Each case depends upon its own facts but loss of use of the chattel in question is, in principle, a loss for which
compensation should be paid. However one of the relevant principles is that compensation is not paid for an avoided loss. So, if the plaintiff has been
able to avoid suffering a particular head of loss by a process which is not too remote (as is insurance), the plaintiff will not be entitled to recover in
respect of that avoided loss. If the loss has only been avoided by incurring a substituted expense, it is that substituted expense which becomes the
measure of that head of loss. Under the doctrine of mitigation, it may be the duty of the injured party to take reasonable steps to avoid his loss by
incurring that expense.
The problem in the present context is that in individual cases the individual loss is only small and the process of litigating to recover is
disproportionate. This is the underlying problem here and was the problem which the scheme was designed to address, albeit at a cost.
This leads on to the question of mitigation. I agree with my noble and learned Lord Hoffmann that the judge and the majority of the Court of Appeal
approached this question in the wrong manner. What Mrs Dimond was paying for here was more than the cost of hiring a car for a week. It was
reasonable for her to pay the additional sum in order to obtain the additional benefits enjoyable under the scheme even though the accident hire company
were under no legal obligation to do more than provide her with a car on credit. The sum which she paid, having regard to what she was to get was, on
the evidence, reasonable. But she cannot claim the whole cost as the cost of mitigating the loss of the use of her car. The cost of that was, on the
evidence, only about £24 per day. The remainder of what she paid was attributable to other matters and therefore should not be included in the cost of
mitigation. This is the preferred way of looking at this aspect of the dispute between the parties on this point but there are other ways which lead to the
same conclusion. One is that preferred by Judge LJ in the Court of Appeal. The excess cost was not reasonably incurred as the cost of hiring the
substitute car. Mrs Dimond’s right of recovery is limited to the reasonable cost, that is to say the lesser sum. Another way of looking at the matter is to
say, as does my noble and learned friend, that, if the whole cost is to be brought into account, then the benefits must be brought into account as well. This
raises the question discussed in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Rlys Co of London Ltd [1912] AC 673,
[1911–13] All ER Rep 63 and the distinction between what is and is not collateral.
But as I have said, in the present context, I prefer the approach of making a commercial apportionment between the cost of hiring a car and the cost
of the other benefits included in the scheme. The necessity to make some apportionment or other reduction in the claim is demonstrated by the need to
avoid double counting. Prima facie, the court should award statutory interest on the claim; but here the claim already included some element of interest.
Similarly the claim included something in respect of costs; to award costs as well would involve some duplication. The elements to which the uplift in the
charges of the accident hire company was attributable were (and inevitably must be) elements which were not properly included in the claim for damages
for loss of use. As appears from what I have said, some might be recovered from the wrongdoer in another ­ 915 form but it is unlikely that any
scheme could be devised which would enable the insurance element to be recovered.
Finally, I agree with my noble and learned friend Lord Hoffmann that there is no basis on which Mrs Dimond could recover the charges claimed as a
trustee or otherwise for the accident hire company. This follows from what I have already said and from the speech of Lord Mustill in Giles v Thompson
[1993] 3 All ER 321, [1994] 1 AC 142.
I agree that the appeal should be dismissed.

Appeal dismissed.
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Celia Fox Barrister.

[2000] 2 All ER 917

R v Ministry of Defence, ex parte Walker

CRIMINAL; Other Criminal: CONSTITUTIONAL; Armed Forces

HOUSE OF LORDS
LORD SLYNN OF HADLEY, LORD NICHOLLS OF BIRKENHEAD, LORD HOFFMANN, LORD SAVILLE OF NEWDIGATE AND LORD HOBHOUSE OF WOODBOROUGH
20 JANUARY, 6 APRIL 2000

Compensation – Criminal injuries – Entitlement to compensation – Armed forces – Ministry of Defence introducing discretionary ex gratia scheme to
compensate military personnel for criminal injuries sustained abroad – Scheme excluding injuries resulting from war operations or military activity by
warring factions – Soldier taking part in peacekeeping operations in Bosnia injured when single round fired at his accommodation block by Serbian tank
– Whether soldier entitled to compensation – Whether criteria of scheme irrational – Whether criteria adopted unfairly.

In 1995 W, a corporal in the army, was serving in Bosnia as part of a United Nations peacekeeping force. A tank belonging to one of the warring factions
in Bosnia deliberately shelled the accommodation block in which W was staying, causing him severe injuries. He applied for compensation under the
Criminal Injuries Compensation (Overseas) Scheme established by the Ministry of Defence as a discretionary ex gratia scheme to provide compensation
for members of the armed forces injured abroad by crimes of violence. The application was rejected on the grounds that the scheme did not apply where
the relevant act of violence was a result of war operations or military activity by warring factions. When the scheme had been introduced in 1979, the
exclusion had been confined to acts of violence committed by an enemy when a state of war existed or a warlike situation was declared to exist. The
change in criteria had been announced by a minister in the House of Commons in 1994, but had not been widely publicised. W’s application for judicial
review of the ministry’s decision was rejected and his appeal dismissed. On further appeal to the House of Lords, he contended that on the proper
interpretation of the scheme, he was entitled to compensation, since the attack had not been shown to constitute military activity by warring factions, but
was, rather, a deliberate attack on the building of the peacekeeping force, an act contrary to international law. Alternatively he contended that the criteria
adopted by the scheme were irrational, especially since payments were made under the scheme to servicemen injured in Northern Ireland, and that the
criteria had been adopted in an unfair manner.

Held – (Lord Hobhouse dissenting) The appeal would be dismissed for the following reasons—
(1) As a matter of interpretation, it was sufficient to take W out of the ambit of the scheme that his injury resulted from military activity by a warring
faction. There was no necessary incompatibility or mutual exclusiveness between ‘military activity’ and activity criminal under international law. Thus
although the firing of the shell was criminal under international law, it was nevertheless ‘military activity’ for the purposes of the scheme. Accordingly,
the exclusion from compensation covered the injury to W (see p 922 a to d, p 923 a b, p 925 c d p 926 e to g and p 927 d, post).
(2) It was not possible to say that the aim of the scheme was to provide compensation as nearly as possible equivalent to that given for criminal acts
­ 917 committed in the United Kingdom. Nor was it irrational to limit compensation to acts which were really analogous and to exclude the sort of
injury the risk of which soldiers undertook as such, whether on duty in a combatant or peacekeeping capacity. Furthermore the fact the compensation
was paid to soldiers injured on duty in Northern Ireland did not show that the scheme was irrational, since there was a distinction between war operations
and military activity between warring factions on the one hand and support for the police in dealing with terrorism on the other (see p 923 c d g h, p 925
c d and p 927 d, post).
(3) The Ministry of Defence had made no express representation to W that he would be paid under the initial criteria for the scheme or at all, and
thus no legitimate expectation had been frustrated. Moreover, the minister was entitled to reformulate the criteria from time to time, and there was no
absolute right to compensation on the basis originally indicated. W had only been entitled to have the policy in force at the time of the incident applied to
him and to be given the opportunity to make representations that he was in the scheme and outside the exclusion. Although it would have been preferable
for the ministry to give a degree of publicity to the change, there had been no unfairness warranting interference by the courts (see p 924 c d f g j to p
925 a c d, p 926 c to e g to j and p 927 d, post).
Decision of the Court of Appeal [1999] 3 All ER 935 affirmed.

Notes
For the Criminal Injuries Comepnsation Scheme and claims for compensation, see 11(2) Halsbury’s Laws (4th edn reissue) paras 1499, 1509.

Cases referred to in opinions

Findlay v Secretary of State for the Home Dept [1984] 3 All ER 801, [1985] AC 318, [1984] 3 WLR 1159, HL.
R v Criminal Injuries Compensation Board, ex p Ince [1973] 3 All ER 808, [1973] 1 WLR 1334, CA.
R v Criminal Injuries Compensation Board, ex p Lain [1967] 2 All ER 770, [1967] 2 QB 864, [1967] 3 WLR 348, DC.
R v Criminal Injuries Compensation Board, ex p Schofield [1971] 2 All ER 1011, [1971] 1 WLR 926, DC.
R v IRC, ex p Unilever plc [1996] STC 681, CA.
R v North and East Devon Health Authority, ex p Coughlan [1999] 51 BMLR 1, [2000] 2 WLR 622, CA.
R v Secretary of State for the Home Dept, ex p Khan [1985] 1 All ER 40, [1984] 1 WLR 1337, CA.
South Yorkshire Transport Ltd v Monopolies and Mergers Commission [1993] 1 All ER 289, [1993] 1 WLR 23, HL.
Thames Valley Electric Power Board v NZFP Pulp and Paper Ltd [1994] 2 NZLR 641, NZ CA.
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Appeal
Sergeant Trevor Walker appealed with leave from the decision of the Court of Appeal (Auld LJ and Sir Christopher Staughton, Chadwick LJ dissenting)
on 5 February 1999 ([1999] 3 All ER 935, [1999] 1 WLR 1209) dismissing his appeal from the decision of Latham J on 9 February 1998 dismissing his
application for judicial review of the decision of the Ministry of Defence on 31 October 1996 refusing him compensation under the Criminal Injuries
Compensation (Overseas) Scheme for injuries suffered by him on 3 May 1995 ­ 918 while serving in Bosnia as part of the United Nations peacekeeping
force. The facts are set out in the opinion of Lord Slynn of Hadley.

David Pannick QC and Michael Fordham (instructed by Leigh Day & Co) for Sergeant Walker.
Philip Sales and Michael Furness (instructed by the Treasury Solicitor) for the Ministry of Defence

Their Lordships took time for consideration.

6 April 2000. The following opinions were delivered.

LORD SLYNN OF HADLEY. My Lords, in May 1995, Sergeant Trevor Walker, when a corporal in 21 Engineer Regiment, was stationed in Bosnia as
part of the United Nations peacekeeping force, UNPROFOR. The regiment was engaged in constructing a road and helping to rebuild the economy of the
area; Sergeant Walker was ordered not to use weapons except in self-defence.
On 3 May 1995, the accommodation block where he was based was fired on by, as is accepted for the purpose of these proceedings, a Serbian T34
tank belonging to one of the warring factions in Bosnia. He suffered grave injuries. After 13 operations from May 1995 on, his right leg was amputated
above the knee in January 1996. As a result of the incident, he suffered not only pain and loss of amenity, but substantial financial loss which will
continue, since although he is still in the army, his activities are restricted and his career limited.
In February 1996, the commanding officer wrote of him:

‘Exemplary—Sgt. Walker was a soldier of almost unlimited potential to achieve high rank and a full career … I have no adverse comments to
make about Sergeant Walker—he was and is a first class soldier whose amputation has deprived him of a full career. He has born his pain with
enormous fortitude, and has been an example to us all.’

On 27 February 1996, Sergeant Walker applied for compensation under the Criminal Injuries Compensation (Overseas) Scheme (the scheme)
introduced by the Ministry of Defence as a discretionary ex gratia scheme to provide compensation for members of the armed forces injured abroad as a
result of crimes of violence. It is accepted that if he is entitled to be paid compensation under the scheme, the United Kingdom would be reimbursed by
the United Nations.
His application was rejected on 31 October 1996 as the scheme—

‘does not apply to Service personnel who are injured or killed where the act of violence, which resulted in the injury or death, was as a result of
war operations or military activity by warring factions.’

His application for judicial review of that decision was rejected by Latham J on 9 February 1998 and his appeal was dismissed by the Court of
Appeal (Chadwick LJ dissenting) on 5 February 1999 (see [1999] 3 All ER 935, [1999] 1 WLR 1209).
On this further appeal, he contends that on the proper interpretation of the scheme, he was entitled to compensation; in the alternative that if his case
does not fall within the provisions of the scheme, then the criteria adopted by the scheme are ‘irrational’ and were adopted in a manner which was unfair.
­ 919

The scheme
By letter of 9 January 1980, the Ministry of Defence gave notice to military commanders and Ministry of Defence officials that it had been decided,
although all the details of the scheme had not been finally decided, to introduce a scheme for members of the armed forces who are victims of crimes of
violence while serving overseas, ‘so as to give them, as nearly as possible, compensation equivalent to that for which they would have been eligible if the
criminal act had been committed in Great Britain’. The letter added, however, that the scheme would not apply ‘where the act of violence, which resulted
in the injury to, or death of, a serviceman, is committed by an enemy where a state of war exists or a warlike situation is declared to exist’. (My
emphasis.) The letter required that an incident which might be the subject of a claim should be reported to the local police ‘unless it is clearly
inappropriate to do so’ and in any event to the victim’s commanding officer.
Paragraph 89.033 of the scheme for criminal injuries compensation set out in the Army General and Administrative Instructions dated May 1990,
provided that where military personnel, and their eligible dependants outside the United Kingdom by reason of service—

‘sustain personal injury (or death) attributable to a crime of violence, they may be paid, ex gratia, a lump sum payment … Whether or not to
make such a payment, and if so, the amount, shall be wholly within the discretion of the Army Board … or within the discretion of the Secretary of
State for Defence as appropriate.’

On 4 July 1995, the ministry told Mr Roland Boyes MP, who had written on behalf of Sergeant Walker’s mother, that compensation under the
scheme was not payable ‘where the injury to, or death of, a Serviceman or woman was as a result of war operations or, as in Bosnia, military activity by
warring factions’. (My emphasis.)
By letter dated October 1995, the ministry explained to Mr Boyes that in October 1992, the Secretary of State for Defence had decided that warlike
operations were in preparation in Yugoslavia and that it followed that payment under the scheme was not appropriate.
When the British Legion put forward Sergeant Walker’s application, they were told by letter dated 14 March 1996 from the Ministry of Defence that
the scheme did not apply to service personnel injured—

‘where the act of violence, which resulted in the injury, was as a result of war operations or military activity by warring factions. This policy
was confirmed by the Minister of State for the Armed Forces, Nicholas Soames, on 5 December 1994. The Royal Military Police Initial Case
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Report supplied with the application form indicates that Sergeant Walker was injured as a result of being fired on by a Serbian tank. Rocket and
high explosive fire was returned by British and Canadian forces, presumably on the basis that the Serbian action was a warlike act.’ (My
emphasis.)

On 5 December 1994, the minister said that compensation under the scheme was not payable where injury occurred to servicemen ‘as a result of war
operations or military activity by warring factions. Current operations in Bosnia obviously fall into that category’ (Hansard (HC Debates) 5 December
1994, col 122).
­ 920
The minister was in fact asked to comment on Sergeant Walker’s case on two occasions. The second was on 20 May 1996, when he said:

‘… where war operations or warlike operations are in progress as a result of military activity by warring factions, as in Bosnia, the normal
process of the civil law will have broken down. Operations may be undertaken resulting in death or injury, which, if committed by someone subject
to civil law, would constitute a criminal offence. It would therefore be impractical to try to extend the provisions of the criminal injury
compensation scheme to cover the conduct of warlike operations in Bosnia.’ (See Hansard (HC Debates) 20 May 1996, col 77.)

He explained that if Sergeant Walker was invalided out of the service, he would ‘be properly provided for’ by payment under the armed forces
pension scheme and the DSS war pension scheme. It is, however, clear that the lump sum and pension under those schemes would be considerably less
than would be paid for the same injury under the criminal injuries compensation scheme.
It is plainly open to the court on an application for judicial review to consider whether the Ministry of Defence has correctly interpreted the scheme
(as originally made, or as subsequently modified) or whether its decision involves an error of law (see eg R v Criminal Injuries Compensation Board, ex p
Schofield [1971] 2 All ER 1011, [1971] 1 WLR 926, R v Criminal Injuries Compensation Board, ex p Ince [1973] 3 All ER 808, [1973] 1 WLR 1334).
The letter of 9 January 1980 excluded claims where ‘the act of violence was committed by an enemy where a state of war exists or a warlike situation
is declared to exist’ (my emphasis). This seems to mean an enemy of the United Kingdom and probably, though not necessarily, is limited to a case
where there is a state of war in which the United Kingdom is engaged or where the United Kingdom had declared a warlike situation to exist. Here it is
not suggested that whoever fired the shell was ‘an enemy’ of the United Kingdom. Armed forces of the United Kingdom were not engaged in a war and it
has not been suggested that a warlike situation had been declared to exist by the United Kingdom. A claim would not therefore be excluded by these
words in the original letter.
Service personnel were, however, at risk when they served as members of the UNPROFOR and it is against that background that the words of
exclusion were changed and made more general. No payment was to be made if the injury occurred as a result of ‘war operations’ or ‘military activity by
warring factions’. It is not necessary to decide whether ‘war operations’ are limited to operations in a war in which the United Kingdom is engaged
(though, prima facie, I think they are not) since the ministry relied on the words ‘military activity by warring factions’.
Mr Pannick QC says that what is taken to have happened here has not been shown to constitute military activity by warring factions. If Sergeant
Walker had been part of a UN enforcement unit, he would have been excluded, because his unit would have been engaged in military activity. He accepts
for this case that if Sergeant Walker had been injured when one warring faction had attacked another and he had been inadvertently caught in the
cross-fire, he would have been excluded because in that situation the factions would have been warring against each other.
He says that in the present case it is different because this was not fire between warring factions or as part of a war operation in which the UN forces
were engaged, but was a deliberate attack on the building of a UN peacekeeping force.
­ 921
It might be different if there was room for doubt or difficulty in deciding if this was really a military activity between two warring factions. Here,
there is no room for doubt. Moreover, the fact that a military weapon was used by a soldier does not make it ‘a military activity’.
Leaving aside Mr Pannick’s international law arguments, I do not consider that these words are to be construed in the way that he proposes. In the
first place, it seems to me plain that if soldiers fire a shell from a tank which is part of a military force acting on behalf of one of two factions which are
warring, that is ‘military activity’. Does the activity have to be directed by one faction against the other? I think not. As a matter of interpretation, it is
sufficient that the injury results from military activity by one or both of the warring factions, whether directed between the factions, against premises
where UN troops are or against an individual soldier, even one engaged in peacekeeping duties. As a matter of interpretation, I do not feel that it is
necessary or right to draw the distinction which Mr Pannick advocates between a soldier who is in a UN building which is deliberately fired on (whom he
says should be able to recover) and one who happens to be in the street wearing uniform with UN identification and who is caught in cross-fire and who,
for the purposes of this case, he accepts would not be able to recover.
Mr Pannick has, however, laid much stress on the Convention on the Safety of United Nations and Associated Personnel (1994) (Cm 3363) (the
convention), adopted by Resolution 49/59 of the General Assembly of the United Nations on 9 December 1994.
By art 7, ‘United Nations and associated personnel, their equipment and premises shall not be made the object of attack …’ Article 9 of the
convention required each state party to make a crime under its national law (a) the intentional commission of an attack upon the person of UN personnel,
and (b) the violent attack upon the official premises of any UN personnel likely to endanger his or her person.
By s 1 of the United Nations Personnel Act 1997, it is, inter alia, an offence in the United Kingdom to assault, causing injury, a UN worker outside
the United Kingdom if the assault would be an offence if done in the United Kingdom. By s 2, it is an offence in the United Kingdom to commit outside
the United Kingdom an attack on premises used by a UN worker when a UN worker is on the premises if that attack would constitute a breach of the
Criminal Damage Act 1971. A soldier in the position of Sergeant Walker was a UN worker as a member of the military component of a UN operation
other than an operation constituting authorised enforcement action under Ch VII of the United Nations Charter to which the law of international armed
conflict applies.
What happened here, it is said, was a breach of the convention and of the United Kingdom statute. It was an international crime and a national
crime. The court should assume that the United Kingdom intended to fulfil its international obligations and should construe the words of exclusion as
complying with those obligations. It would be incompatible with that obligation to regard criminal conduct in breach of the convention as being ‘military
activity’, so as to exclude a claim by a soldier injured as a result of such a claim.
He submits further that ‘as a matter of international law, conduct is recognised as “military” only and precisely at the point when it ceases to be
criminal’.
In this regard, he relies on a distinction between the legality as a matter of international law of attacks on combatants and military property on the
one hand and the illegality of attacks on civilian populations and property on the other.
­ 922
He refers to arts 48 and 51(2) of Additional Protocol I of 8 June 1977 to the Geneva Conventions relating to war of 12 August 1949 and to the
Commentary on the Additional Protocols by the International Committee of the Red Cross (1987), para 1863 where such distinction is recognised.
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The question, however, is what the scheme as amended has here provided. I do not consider that there is a necessary incompatibility or mutual
exclusiveness between ‘military activity’ and activity which is criminal under international law. What happened was criminal under international law, but
it is still ‘military activity’ for the purposes of the exclusion to the scheme.
Accordingly, in my opinion the exclusion from compensation as a matter of interpretation covers the injury to Sergeant Walker.
It is not for the courts to consider whether the scheme with its exclusion is a good scheme or a bad scheme, unless it can be said that the exclusion is
irrational or so unreasonable that no reasonable minister could have adopted it. Despite great sympathy for Sergeant Walker and his wife, who has given
him so much support, I do not find it possible to say that the aim of the scheme was to provide compensation ‘as nearly as possible’ equivalent to that
given for injury resulting from criminal acts committed in Great Britain. It cannot be said to be irrational to limit the compensation to acts which are
really analogous and to exclude the sort of injury the risk of which soldiers undertake as such whether they be on duty in a combatant or a peace keeping
capacity.
I do not consider that art 20(e) of the convention of 1994, which has been referred to, helps Sergeant Walker on this point. It provides that nothing in
the convention shall effect—

‘The entitlement to appropriate compensation payable in the event of death, disability, injury or illness attributable to peace-keeping service by
persons voluntarily contributed by States to United Nations operations.’

It still leaves open the question of what compensation is paid under national schemes. Nothing paid under the existing war pension schemes is
affected and art 20(e) does not say that general criminal injuries compensation must be paid to soldiers on peacekeeping duties where warring factions are
involved.
Sergeant Walker’s feeling that if compensation is paid to soldiers in Northern Ireland, it ought to be paid to peacekeeping soldiers in Bosnia is well
understandable. But there is a distinction (as explained by Latham J and by the Minister of State for Defence Procurement in his letter of October 1995)
between war operations and military activity by warring factions on the one hand and support for the police forces dealing with terrorism on the other. In
individual cases, the line may be fine, but to adopt it as a general rule cannot be said to have no rational base despite what seemed to me to be common
features between the two situations. It is not irrational accordingly not to pay in Bosnia, simply because payments of compensation are made in Northern
Ireland where the role of troops was different.
If I had come to the view that this phrase was imprecise enough for several meanings to be adopted, then I would not accept that the minister’s
interpretation of it was such as to be ‘so aberrant that it cannot be classed as rational’ (see South Yorkshire Transport Ltd v Monopolies and Mergers
Commission [1993] 1 All ER 289 at 298, [1993] 1 WLR 23 at 32 per Lord Mustill).
The question remains whether the criteria were changed in a way which was unfair to Sergeant Walker so that the courts can interfere.
­ 923
It is common ground that the initial proposal of 9 January 1980 was widely distributed to service commanders and to Ministry of Defence officials;
there is no evidence of any similar distribution when the criteria were changed. On the evidence, the first time it was made known generally, was by the
minister’s statement in the House of Commons on 5 December 1994.
He says, though, that he believed that he would be compensated if he was injured when on UN peacekeeping duties. It is not suggested that he knew
or must have known when he went to Bosnia that, as a result of the criteria then in force, he would not be compensated or that if he had known, he would
have behaved differently, though I accept that he could have taken out insurance under a scheme available to the armed forces.
It is, however, common ground that the ministry made no express representation to Sergeant Walker that he would be paid compensation under the
initial criteria, or at all. Although Sergeant Walker said that he believed that he would be compensated, it is not established that he knew the terms of the
original criteria, or what he believed to be the circumstances in which he would be compensated, or that he relied on any representation as to
compensation in going to Bosnia. Accordingly, it does not seem to me that he can say that any legitimate expectation was frustrated.
Mr Pannick relied on R v IRC, ex p Unilever plc [1996] STC 681. But that case (where the revenue suddenly enforced time limits which it had led
tax payers to believe would not be insisted on, so that the tax payer lost the relief he had expected) is very different from the present. So also cases have
been cited where an individual had been specifically told that a procedure would be followed on which he had relied and which had then been changed
without notice (see R v Secretary of State for the Home Dept, ex p Khan [1985] 1 All ER 40, [1984] 1 WLR 1337), or where a promise had been made and
then withdrawn (see R v North and East Devon Health Authority, ex p Coughlan [1999] 51 BMLR 1, [2000] 2 WLR 622) are very different. See also
Thames Valley Electric Power Board v NZFP Pulp and Paper Ltd [1994] 2 NZLR 641 at 652–653 per Cook P.
The scheme as published in 1990 made it plain beyond any doubt that any payment was ex gratia and ‘wholly within the discretion of the Army
Board … or of the Secretary of State’. It follows that the minister was entitled to reformulate the criteria from time to time and that there was no absolute
right to compensation on the basis originally indicated.
If the criteria initially proposed had been laid down expressly in the scheme, there would be a stronger argument that no general change (as opposed
to decisions of application in individual cases) could fairly be made without written notice of the change being given, but it seems to me that since
Sergeant Walker had not been told that he would be paid on the basis of the original criteria, there was no unfairness to him in the criteria being changed
without his being told that individually and without his having the opportunity to know other than by the minister’s statement in Parliament on 5
December 1994, ie before the incident and it seems before he went to Bosnia (see Auld LJ [1999] 3 All ER 935 at 939, [1999] 1 WLR 1209 at 1213).
Sergeant Walker was entitled to have the policy in force at the time of the incident applied to him and to be given the opportunity to make
representations that he was in the scheme and outside the exclusion. Both of these he had.
Accordingly, although I consider that it would have been better if the ministry had given a degree of publicity of the change similar to that given to
the original ­ 924 proposal, I do not consider that there was here the unfairness which would justify the courts interfering.
It is to be noticed that on 9 January 1997, the United Nations told Mrs Walker that the UN considered that payments had to be made by national
governments, who should be reimbursed by the United Nations, but that at the same time the United Nations recognised that the current arrangements had
resulted in a situation which had disadvantages to service personnel of some nations, including the United Kingdom, and that, pursuant to a resolution of
the General Assembly, revisions were being considered to ensure equality between member states. He added, ‘it is to be hoped, therefore, that agreement
on suitable compensation payments can be reached before too long’. Whether anything came of this initiative by the United Nations, the House has not
been told, but like Latham J and the majority of the Court of Appeal, I consider that there are no grounds for setting aside the minister’s decision in the
present case. The appeal must therefore be dismissed.

LORD NICHOLLS OF BIRKENHEAD. My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends Lord
Slynn of Hadley and Lord Hoffmann. I agree that for the reasons they give this appeal should be dismissed.
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LORD HOFFMANN. My Lords, on 3 May 1995 the appellant Sergeant Walker, a British soldier serving with the United Nations peacekeeping force in
Bosnia, was badly injured by a shell from a Serbian tank. It had deliberately fired upon the building where he and other members of the force were
housed. The attack was a crime under international law, being contrary to the United Nations Convention on the Safety of United Nations and Associated
Personnel (1994) (Cm 3363), adopted by the General Assembly of the United Nations on 9 December 1994.
Sergeant Walker made a claim for compensation under the Criminal Injuries Compensation (Overseas) Scheme (the scheme). He said that he had
been injured by a criminal act which fell within the scheme. The Ministry of Defence rejected the claim. He applied for judicial review but the
application was dismissed by Latham J and his decision was affirmed by the Court of Appeal (Auld LJ and Sir Christopher Staughton, Chadwick LJ
dissenting) ([1999] 3 All ER 935, [1999] 1 WLR 1209). With the leave of the Court of Appeal, Sergeant Walker appeals to your Lordships’ House.
The Ministry of Defence introduced the scheme in 1979. The purpose was to give members of the armed forces stationed abroad rights to
compensation similar to those which existed in the United Kingdom under the Criminal Injuries Compensation Scheme for victims of criminal violence.
Details of the scheme are published in the Army General and Administrative Instructions (Issue 97)(May 1990). Paragraph 89.033 of those instructions
says that payments are to be ex gratia and that ‘whether or not to make such a payment, and if so, the amount, shall be wholly within the discretion of the
Army Board’. But the discretion may not be exercised arbitrarily. The Ministry of Defence has from time to time stated the policy which it intends to
apply and accepts that its decisions must be justifiable within the terms of its own policies.
The ministry made such a statement of policy in a letter given wide circulation within the armed forces in 1980. It contained a general qualification
that the scheme would not apply ‘where the act of violence … is committed by an enemy ­ 925 where a state of war exists or a warlike situation is
declared to exist’. So the scheme did not apply to injuries suffered as a result of military operations by Argentine forces in the Falkland Islands in 1982.
On the other hand, the form of words used in the 1980 letter was not very suitable, one way or the other, to the injuries which might be suffered by British
forces which were sent as part of the peacekeeping force to Bosnia in 1994. It could certainly be said that a ‘warlike situation’ existed there. But none of
the factions involved in the hostilities was technically an ‘enemy’ of the United Kingdom. Clarification was needed.
The Minister of State for the Armed Forces therefore announced a specifically Bosnian policy in the House of Commons on 5 December 1994. He
said, that ‘compensation is not payable where injury … occurs as a result of war operations or military activity by warring factions. Current operations in
Bosnia obviously fall into that category.’ (See Hansard (HC Debates) 5 December 1994, col 122.)
It may be that the Bosnian policy thus declared could be viewed as an application or interpretation of the 1980 policy. Or it may be said to represent
a change in the 1980 policy to cover the new situation in Bosnia. I do not think that it matters. The ministry was entitled to change its policy: see Findlay
v Secretary of State for the Home Dept [1984] 3 All ER 801, [1985] AC 318. I do not think it is legitimate to argue that because the minister thought (as
he may have done) that he was merely interpreting the old policy, he could not give effect to the stated Bosnian policy except insofar as it falls within the
court’s interpretation of the 1980 letter. The minister clearly intended his statement to apply to injuries sustained by servicemen in Bosnia, whether it
strictly fell within the language of the old policy or not.
The next question is whether the injury to Sergeant Walker fell within the terms of the exclusion announced by the minister. I think it plainly did.
He was fired upon by a Serbian tank. I do not see how it can be said that the ministry could not reasonably take the view that this was military activity by
a warring faction. The fact that it was a criminal act under international law does not mean that it cannot have been a military activity within the meaning
of the policy. It was a criminal military activity. As the scheme only applies to criminal acts, there would be no point in an exclusion which applied only
to activities which were not criminal. It seems to me highly unlikely that the minister was intending only to exclude injuries caused by the accidental
effects of cross-fire between the warring factions.
Was the application of the policy unfair? Mr Pannick QC, for Sergeant Walker, says that it was not fair to make the change by a statement in the
House of Commons. It should have been given wider publicity in the army, like the 1980 letter. But I do not think that your Lordships are concerned to
decide in general terms whether it would have been better administration to make the announcement in a different way. The question is whether the
method in fact adopted was unfair to Sergeant Walker. I do not think it was. He had no idea of what the policy was before the minister’s statement. He
says that he understood, and believes that his colleagues understood, that they would be entitled to compensation for injuries in Bosnia. But he never saw
the 1980 letter and there is no suggestion that he derived his understanding from anything which had been said on behalf of the ministry. This is not a
case like R v North and East Devon Health Authority, ex p Coughlan [1999] 51 BMLR 1, [2000] 2 WLR 622, in which a public authority made a specific
promise and then withdrew it. The only legitimate expectation Sergeant Walker could have had was that the ministry would apply whatever its policy
was.
­ 926
Finally it is said that the Bosnian policy was irrational. The main ground was that the situation in Bosnia could not be rationally distinguished from
that in Northern Ireland, in which the ministry paid compensation under the scheme to soldiers injured by terrorist violence. So they were not treating
like cases alike. The ministry says, in defence of the distinction, that civil society in Northern Ireland had not broken down. Victims of terrorism could
go to the police and expect their cases to be investigated. The army acted only in support of the civil arm. It was therefore reasonable to regard terrorists
in Northern Ireland as civilian criminals rather than warring factions engaged in military activity. In Bosnia, on the other hand, civil society had
disintegrated. The different ethnic groups were at war with each other.
Speaking entirely for myself, I find the distinction a fine one. However one might characterise what others were doing, in neither Northern Ireland
nor Bosnia were the British soldiers engaged in warfare. The peacekeeping forces in Bosnia were under instructions not to use their weapons except in
self-defence. Sergeant Walker was there to help build a road for civilian use. But I cannot say that the distinction drawn by the ministry is irrational.
That is too high a hurdle to surmount. I would therefore dismiss the appeal.

LORD SAVILLE OF NEWDIGATE. My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Slynn
of Hadley and Lord Hoffman. For the reasons they give I too would dismiss the appeal.

LORD HOBHOUSE OF WOODBOROUGH. My Lords, I have the misfortune to disagree with your Lordships. For myself I would have allowed this
appeal and will shortly explain why.
The extension of the criminal injuries compensation scheme to servicemen and their dependants whilst serving overseas was originally announced in
a document dated 9 January 1980 issued by the Ministry of Defence and distributed to a long list of recipients including general officers commanding all
commands and districts, home and abroad, and their secretariats and all commanders of overseas detachments. This document said:

‘1. I am commanded by the Army Board of the Defence Council to inform you that it has been decided to introduce a scheme of compensation
for members of the Armed Forces who are the victims of crimes of violence while serving overseas, so as to give them, as nearly as possible,
compensation equivalent to that for which they would have been eligible if the criminal act had been committed in Great Britain. The scheme will
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also apply to the dependants of members of the forces living with them in their overseas station. 2. Although all the details of the scheme have not
yet been finally decided, it will be operative from 1 December 1979. It will not apply, however, where the act of violence, which resulted in the
injury to, or death of, a Serviceman, is committed by an enemy where a state of war exists or a warlike situation is declared to exist … 6. The
scheme in its final form will be published as a DCI as soon as possible.’

The DCI referred to has not been included in the papers before your Lordships but is believed to have corresponded to the text of the Army General
and Administrative Instructions (Issue 97)(May 1990) of which the relevant paragraph ­ 927 for present purposes is para 89.033 appearing under the
heading Criminal Injuries (Overseas) Compensation—

‘When military personnel, and their eligible dependants outside the United Kingdom by reason of service, sustain personal injury (or death)
attributable to a crime of violence, they may be paid, ex gratia, a lump sum payment. Dependants will have the same meaning as in the provisions
for forces family pensions. Whether or not to make such a payment, and if so, the amount, shall be wholly within the discretion of the Army Board
(or a person authorised by them to exercise that discretion) or within the discretion of the Secretary of State for Defence as appropriate.’

These are statements of policy concerning a discretionary ex gratia scheme under the prerogative powers of the executive and, consequently,
decisions of the relevant body charged with carrying out the scheme are amenable to judicial review. (See R v Criminal Injuries Compensation Board, ex
p Lain [1967] 2 All ER 770, [1967] 2 QB 864.) If the ministry fails correctly to interpret and apply the terms of the scheme, the decisions it takes are
open to judicial review. (See R v Criminal Injuries Compensation Board, ex p Schofield [1971] 2 All ER 1011, [1971] 1 WLR 926.)
The appellant, Sergeant Walker, complains that the ministry has misconstrued the terms of the scheme in refusing to accept his claim to
compensation in respect of the injuries which he suffered on 3 May 1995 whilst serving as non-combatant as part of the British contribution to the United
Nations peacekeeping force in Bosnia. The ministry has stated that the circumstances in which he came to be injured did not come within the scope of the
scheme. He contends that they did.
Your Lordships have been shown an affidavit sworn in these proceedings by Mr Robbs, the Head of Service Personnel Policy (Pensions) at the
ministry. He states that by May 1995 the applicable policy had developed beyond that stated in 1980 and he referred to what the minister (Mr Soames)
had said during an adjournment debate in the House of Commons on 5 December 1994 concerning a Corporal Stott who had been wounded in Bosnia by
a mortar shell. Corporal Stott was at the time engaged on peacekeeping duties seconded to the United Nations. Chadwick LJ was right ([1999] 3 All ER
935 at 954, [1999] 1 WLR 1209 at 1229): the speech of the minister does not purport to announce any change to existing policy but appears simply to be
applying existing policy to the case of persons caught up in a zone where there were ‘war operations or military activity by warring factions’. He did not
suggest that there was anything more than that to the circumstances in which Corporal Stott came to be injured.
The minister confirmed that the department pays compensation for members of the armed forces who are victims of crimes of violence while serving
overseas. He contrasted the situation where a person was injured as a result of war operations or military activity by warring factions with a situation
involving some criminal activity, such as terrorist activity in Northern Ireland. He said:

‘… members of the armed forces in Northern Ireland provide military support to the Royal Ulster Constabulary in the fight against terrorism, so
they are not deemed to be involved in war operations while serving there. As terrorist acts are a criminal offence, soldiers and civilians injured in
such attacks would be entitled to apply [for compensation].’ (See Hansard (HC Debates) 5 December 1994, col 122.)

Sergeant Walker contrasts the circumstances under which he came to suffer his injuries with those under which, as he believes, Corporal Stott
suffered his.
­ 928
He submits that the same contrast can be found in the statements of policy and that this shows that, applying the government’s own criteria, he falls
on the right side of the line and is entitled to be compensated.
The starting point is that a member of the armed forces is serving overseas. It is not an objection that the purpose may be to provide ‘military
support’. Nor, patently, is it is critical what weapon is used to inflict the injuries. In Northern Ireland the terrorists have frequently used military weapons
identical to those used in military combat: the armalite, the grenade, the mortar. The contrast between the circumstances which qualify for compensation
and those which do not lies in the ability to classify the acts causing the injuries as criminal and as not being between belligerents.
Thus the phrases used are ‘crimes of violence’, ‘criminal act’ and ‘criminal offence’ in contrast with ‘act of violence … committed by an enemy’,
‘war operations’ and ‘military activity by warring factions’. This contrast is further underlined by the phrase ‘where a state of war exists or a warlike
situation is declared to exist’ in conjunction with the word ‘enemy’. The clear implication is that in the excluded category the violent act is the act of one
belligerent fighting another. Such acts are not ordinarily described as criminal; they are incidents of warfare. Acts of violence against non-combatant
civilians who are not part of the resource of either warring faction are not within the recognised ambit of warfare and are generally recognised to be
criminal. (Indeed, under the Geneva Conventions any military operation not directed at a military objective is criminal.)
In the case of Corporal Stott, as your Lordships have been told, he was injured because the UN camp in which he was happened to be in the line of
fire between the Serb and Muslim forces. It was not the target of the artillery shells which caused his injury; they were directed at the opposing faction.
There was no deliberate attack on the UN peacekeepers.
By contrast, the evidence in the present case is that Sergeant Walker was injured as a result of just such a deliberate attack by a Serbian tank upon a
UN accommodation block. It was not part of any attack on the Muslim forces. Sergeant Walker was not engaged on any combatant activity nor in
assisting one side or the other. By accepted norms, the attack on the civilian non-combatant UN peacekeepers was criminal. Further it had been declared
to be such by the United Nations Convention on the Safety of United Nations and Associated Personnel, of 9 December 1994 (Cm 3363). (See now the
United Nations Personnel Act 1997.) He was injured as the result of a criminal act of violence. He was not injured by an ‘enemy’. He was not injured as
a result of a ‘war’ operation or some military activity by a ‘warring’ party.
My Lords, Sergeant Walker is right to say that applying the government’s own criteria his case falls on the right side of the line and he should be
compensated in accordance with the scheme. The fact that he was in Bosnia seconded to the UN peacekeeping force does not alter this, nor does the fact
that his attacker was a Serb or the fact that the Serbs, but not his attacker at the time, were at war with the Muslims. The attack was a criminal act, not an
act of war.
In the Court of Appeal, the leading judgment was that of Auld LJ. He arrived at a different conclusion. His reasoning and the arguments which he
accepted sought to strip the act of the Serb attacker of its criminal content. He seemed to view the fact that the Serb was at other times, though not at the
relevant time, using his tank to engage in military activity with another warring faction (the Muslims) as requiring the categorisation of Sergeant Walker’s
injuries as ­ 929 having resulted from military activity of warring factions. This is a non sequitur. What if the Serb had thrown a grenade into the mess
or café where Sergeant Walker and other non-combatant civilians were drinking or had waited outside and cut his throat with a knife? The motive would
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be the same—to attack UN peacekeepers, who are not one of the warring factions nor engaged in any warlike operation. With respect, the reasoning
involves a confusion between the role of the United Nations and that of the combatants and fails to recognise the truth, as illustrated by events in Northern
Ireland and emphasised by the minister, that the deliberate infliction of injuries by any means is on its face unlawful without more and (in the present
context) the only exception is an act of war against another warring faction—an enemy.
To argue that a tank was used to fire the shell therefore it must have been a war operation is again a non sequitur; the sniper’s rifle, the bayonet and
the grenade are used by combatants in warfare but it does not follow that on a given occasion they were so used. Similarly, to digress into a discussion of
the English law on recklessness merely adds to the confusion. To say that the administration of the scheme may require some difficult factual
assessments to be made does not justify failing to apply the scheme in accordance with its terms. In any event it is accepted that such a difficulty does not
arise in the present case. It is accepted that Sergeant Walker has established the facts which entitle him to compensation if his legal argument is correct.
The appeal should be allowed.

Appeal dismissed.

Celia Fox Barrister.

[2000] 2 All ER 931

GKR Karate (UK) Ltd v Yorkshire Post Newspapers Ltd and others

CIVIL PROCEDURE: TORTS; Defamation

COURT OF APPEAL, CIVIL DIVISION

MAY AND TUCKEY LJJ
5, 11 JANUARY 2000

Practice – Preliminary point of law – Application for trial of preliminary issue on point of law – Libel action – Newspaper defendants in libel action
relying on defences of justification and qualified privilege – Judge ordering issues of privilege and malice to be determined before justification – Whether
order inconsistent with test for qualified privilege – CPR 3.1(2), 32.

Following the publication of a newspaper article, G Ltd brought libel proceedings against its author, the publishers of the newspaper and P, a person
whose statements had been quoted in the article. In their defence, the author and the publisher (the newspaper defendants) pleaded justification and also
relied on the defence of fair comment on a matter of public interest, published on an occasion of qualified privilege. At the pre-trial review, the judge
ordered that the issues of privilege and malice in the proceedings against the newspaper defendants were to be determined before the issue of justification.
It was estimated that the trial of those issues would last approximately three days, whereas a full trial which included the issue of justification would take
some four to six weeks. G Ltd appealed, contending that all the circumstances of the publication, including whether it was true, had to be investigated in
order to decide whether the article attracted qualified privilege, and that the judge’s order made such an investigation impossible. G Ltd further
contended that it should be entitled to cross-examine P in order to test the reliability of the journalist’s source.

Held – CPR 3.1(2)a empowered the court to direct a separate trial of any issue, to exclude an issue from consideration and to take any other step or make
any other order for the purpose of managing the case and furthering the overriding objective of enabling the court to deal with cases justly. That included
saving expense and dealing with the case proportionately, expeditiously and fairly. Furthermore, CPR 32.1b meant that the parties no longer had any
absolute right to insist on the calling of any evidence they chose, provided only that it was admissible and arguably relevant. The court might exclude
admissible and relevant evidence which was disproportionately expensive or time-consuming. In the instant case, it was fair, sensible and economic to
determe the issues of privilege and malice first in the proceedings against the newspaper defendants and in advance of the issue of justification. The truth
or falsity of the publication was not relevant to those issues, nor was any present determination of P’s reliability in the light of the evidence he might give
in those proceedings.
________________________________________
a Rule 3.1(2), so far as material, provides: ‘Except where these Rules provide otherwise, the court may … (e) direct that part of any proceedings (such as a counterclaim)
be dealt with as separate proceedings … (k) exclude an issue from consideration … (m) take any other step or make any other order for the purpose of managing the
case and furthering the overriding objective … ’
b Rule 32.1, so far as material, is set out at p 937 c d, post
________________________________________
­ 931

Accordingly, the judge’s order was entirely consonant with the CPR and the appeal would be dismissed (see p 936 j to p 937 a e and p 940 e to g, post).
Reynolds v Times Newspapers Ltd [1999] 4 All ER 609 considered.

Notes
For the trial of preliminary points of law, see 37 Halsbury’s Laws (4th edn) para 484, and for the defence of qualified privilege, see 28 Halsbury’s Laws
(4th edn reissue) para 109.

Cases referred to in judgments

Davies v Snead (1870) LR 5 QB 608.
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Horrocks v Lowe [1974] 1 All ER 662, [1975] AC 135, [1974] 2 WLR 282, HL.
London Association for Protection of Trade v Greenlands Ltd [1916] 2 AC 15, [1916–17] All ER Rep 452, HL.
Lucas-Box v News Group Newspapers Ltd, Lucas-Box v Associated Newspapers Group plc [1986] 1 All ER 177, [1986] 1 WLR 147, CA.
Reynolds v Times Newspapers Ltd [1999] 4 All ER 609, [1999] 3 WLR 1010, HL.

Cases also cited or referred to in skeleton arguments

Ashmore v Corp of Lloyd’s [1992] 2 All ER 486, [1992] 1 WLR 446, HL.
Blackshaw v Lord [1983] 2 All ER 311, [1984] QB 1, CA.
Broadway Approvals Ltd v Odhams Press Ltd [1965] 2 All ER 523, [1965] 1 WLR 805, CA.
Egger v Chelmsford (Viscount) [1964] 3 All ER 406, [1965] 1 QB 248, CA.
G v G [1985] 2 All ER 225, [1985] 1 WLR 647, HL.
Tilling v Whiteman [1979] 1 All ER 737, [1980] AC 1, HL.

Appeal
GKR Karate (UK) Ltd, the claimants in proceedings for libel brought against Yorkshire Post Newspapers Ltd, Brian Porch and Sheila Holmes concerning
a newspaper article published by the first defendant and written by the third defendant (the newspaper defendants), appealed with permission of Laws LJ
granted on 22 December 1999 from the order of Sir Oliver Popplewell, sitting as a judge of the High Court on 15 December 1999, that two issues in the
action should be heard and determined at the outset of the trial before the hearing and determination of the other issues, namely (i) whether the article was
published on an occasion of qualified privilege, and (ii) if so, whether in publishing the article the newspaper defendants or either of them were motivated
by express malice. The second defendant took no part in the appeal. The facts are set out in the judgment of May LJ.

George Carman QC and Mark Warby (instructed by Farrer & Co) for the claimants.
Patrick Moloney QC (instructed by Dibb Lupton Alsop, Leeds) for the newspaper defendants.
­ 932

On 5 January 2000 the court announced that the appeal would be dismissed for reasons to be given later.

11 January 2000. The following judgments were delivered.

MAY LJ.

Introduction
1. The claimants, GKR Karate (UK) Ltd, promote and teach Go Kan Ryu karate. They operate, among other places, in the Leeds area. The first
defendants publish the Leeds Weekly News in whose issue of 14 August 1997 appeared an article written by the third defendant, Mrs Holmes, under the
headline ‘GIVE ‘EM THE CHOP’. The article was critical of the claimants. It quoted statements made to Mrs Holmes by the second defendant, Mr
Porch, who is general administrator of the English Karate governing body.
2. In these libel proceedings, the claimants say that the article was defamatory of them. They claim damages for libel against each of the three
defendants. They say that the natural and ordinary meaning of the publication was (in summary) that the claimants rip people off by taking money for
karate club membership and then just disappearing; carry out no checks on the standard or background of their instructors; overcharge for karate lessons;
teach karate through instructors who are not properly qualified; falsely claim that they have full insurance cover; and in consequence give karate teaching
a bad name and should be shut down.
3. The first and third defendants (the newspaper defendants) have a common interest in the proceedings. By their defence they plead a Lucas-Box
meaning (see Lucas-Box v News Group Newspapers Ltd, Lucas-Box v Associated Newspapers Group plc [1986] 1 All ER 177, [1986] 1 WLR 147) for the
publication:

‘… that because of its unacceptable business practices … the [claimants are] not a fit and proper body to instruct people in karate, but a
disreputable and unethical body which puts its own profits ahead of the safety of its students or the interests of the sport of karate.’

4. The newspaper defendants plead justification of this meaning and they give particulars extending to 25 detailed paragraphs. They also plead that
the words were fair comment on a matter of public interest. They say that the words were published on an occasion of qualified privilege, of which they
give particulars. By their amended reply, the claimants plead extensively to the particulars of justification. They say that the words complained of do not
constitute comment or that, if they do, they were not fair comment. They deny that the occasion of publication was privileged. They say alternatively
that the newspaper defendants were actuated by express malice, of which they give particulars. They say that the newspaper defendants have not pleaded
any justification of meanings of the publication alleged by the claimants and it is to be inferred that they knew that they were false or were reckless as to
their truth or falsity. They say in substance that, if the newspaper defendants had carried out proper inquiries, they would have found out that the
publication was untrue. They say that the newspaper defendants should have made close inquiries before making the publication. Instead they relied on
Mr Porch whose purpose was to drive the claimants out of business and who was a manifestly tainted source. The newspaper defendants knew or ought to
have known this. If they did not know that this was Mr Porch’s ­ 933 purpose, the newspaper defendants were reckless as to the truth or falsity of the
published allegations.
5. Mr Porch’s defence and the reply to it are similar to those in the case of the newspaper defendants, but the particulars of malice alleged against
him are substantially more extensive. The claimants have also brought separate libel proceedings against Mr Porch alone arising out of a letter written by
him dated 5 June 1997. Common issues arise in the two actions which are to be heard together.
6. On 15 December 1999, Sir Oliver Popplewell, sitting as a judge of the High Court, held a pre-trial review in anticipation of the trial which is fixed
to begin on 11 January 2000. Among other decisions, he ordered, at the request of the newspaper defendants and against the opposition of the claimants,
that two issues should be heard and determined at the outset of the trial by the judge and jury before the hearing and determination of the other issues.
The two issues are (a) whether the article in the Leeds Weekly News was published on an occasion of qualified privilege and, if so, (b) whether in
publishing the article the newspaper defendants or either of them were actuated by express malice. The important effect of the order is that the issues of
privilege and malice in the action against the newspaper defendants are to be heard and determined before the issue of justification. The advantages of the
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judge’s order are obvious. It is reckoned that the trial of the preliminary issues will take three days or so, whereas a full trial which included the issue of
justification would take four to six weeks. The order does not affect the cases against Mr Porch which are to proceed in full whatever the outcome of the
preliminary issues. To that extent, the order does not mean that the claimants may be denied an opportunity of vindication.
7. The claimants appeal against the judge’s order of preliminary issues. The judge refused them permission to appeal saying that the order was
made in the exercise of his discretion and that he did not believe that there was any prospect of a successful appeal. He pointed out that the potential
saving of time and cost would be enormous. Laws LJ gave permission to appeal on 22 December 1999. This court heard submissions on the appeal on 5
January 2000. At the end of the hearing, the court dismissed the appeal but reserved its reasons. These are my reasons for having concluded that the
appeal should be dismissed.

The judge’s judgment

8. The judge said that it would be his responsibility at some stage in the trial to decide whether a claim to privilege was available to the newspaper
defendants and to rule whether there was evidence capable of amounting to malice and, if so, for the jury then to consider the issue of malice. On the
issue of privilege, he quoted from the opinion of Lord Nicholls of Birkenhead in Reynolds v Times Newspapers Ltd [1999] 4 All ER 609 at 625–626,
[1999] 3 WLR 1010 at 1027. He referred to the proposed evidence of Mrs Holmes in which she stated that, before publishing the article, she had spoken
to and received information from Mrs Pauline Green, who had complained about the activities of the claimants, and from Mr Burnand, an instructor. Mr
Burnand suggested that Mrs Holmes spoke to Mr Porch, which she did and he made statements to her which she included in the article. She stated that
she tried to contact the claimants but was unsuccessful (the claimants deny that she tried to contact them). The judge said that the newspaper defendants
would have to rely on the evidence of Mrs Holmes. She would have to accept that she made no further inquiries, but the judge considered that there was
an arguable case of privilege.
­ 934
As to malice, the judge considered the particulars in the amended reply. He referred in particular to the contention that there were parts of the
claimants’ meaning of the publication which the newspaper defendants had not met with any plea of justification.
9. The judge said that the court had ample powers, apart from those introduced by the Civil Procedure Rules 1998 (the CPR), to control the way in
which litigation is conducted to save cost and time. He had to balance the advantage to the newspaper defendants of having an opportunity, if their claim
of privilege is upheld, to establish this relatively quickly against any risk of unfairness to the claimants. The claimants said that, if the order was made,
they would not be able to deploy all the material available to them. Their case was that an investigation into what inquiries the newspaper should have
made before publishing the article could not fairly be separated from the question whether the article in its natural and ordinary meaning was true. The
newspaper defendants did not intend to call as witnesses on the proposed preliminary issues either Mr Porch or the other two people to whom Mrs Holmes
spoke. It would in particular be unfair if the jury did not have the opportunity of judging what sort of a person Mr Porch was, since it was relevant to the
issues of privilege and malice to judge whether he was apparently reliable or manifestly unreliable.
10. The judge said that the jury would have to consider the state of mind of Mrs Holmes when the article was published. She made no further
inquires beyond those referred to in her statement. Her state of mind had to be tested at the end of her conversation with Mr Porch. She had not seen Mr
Porch and the jury’s view of him would be no different from hers, if he is not to be called on the preliminary issues. Whether he may be manifestly
unreliable was not relevant to whether she had an improper motive. The judge considered that it would cloud the waters. The jury would be inclined to
attribute malice in Mr Porch, if they so found, to Mrs Holmes. Evidence (other than that available to her at the time) designed to establish that Mr Porch
was unreliable would be irrelevant to her state of mind at the time of the publication. There was a great deal to be said for dealing with Mrs Holmes’ state
of mind as a discrete issue. The jury would simply get confused if all matters relevant to justification were fully canvassed. But the judge considered that
the short and discrete issue could be dealt with simply and easily and without unfairness to the claimants.

Parties’ submissions
11. Mr Carman QC submits on behalf of the claimants that the judge’s novel approach was unsound, artificial and unfair to the claimants. The
effect of the order was to depart from the test of qualified privilege to be found in Reynolds’ case and to substitute a different test. All the circumstances
of the publication, including whether it was true, have to be investigated to decide whether the publication of the article was in the public interest so that
the occasion was privileged. The practical effect of the judge’s judgment and order was that all that would be considered would be what the journalist
knew and what inquiries the journalist should have made. What the journalist would have discovered if she had made further inquiries would be left out.
The reliability of the journalist’s source, objectively determined, is relevant to the issue of privilege. The claimants should therefore be entitled to
cross-examine Mr Porch, if he is to be called in the action as a whole. The questions whether objectively Mr Porch was a reliable source and what Mrs
Holmes would have discovered if she had made further inquiries could not fairly be disentangled from the facts relevant to the defence of justification.
­ 935
As to malice, the claimant’s case is that Mrs Holmes was recklessly indifferent. Her actions after the publication are capable of being relevant to her
state of mind at the time of the publication. For example, defendants are often asked whether, in the light of evidence that has been given on the issue of
justification, they are prepared to withdraw what they published. Their answers to these and similar questions are capable of bearing on the question
whether they were actuated by malice at the time of publication. It would be artificial if the issues of privilege and malice are to be determined
separately. What are the jury to be told about the undetermined issue of justification? Are they to assume that the publication was true or untrue? It
would be difficult for the jury to decide the issue of Mrs Holmes’ alleged recklessness if they are to suppose that the publication may be true. In a
conventional full trial, they will have rejected the defence of justification before considering the question of malice. Where is the evidential line to be
drawn? Mr Carman submits that there is no fair solution, unless the issue of justification is to be determined in full at the same time. The judge’s order
fundamentally restricts the claimants’ proper ability to deal with qualified privilege and malice.
12. Mr Moloney QC submits on behalf of the newspaper defendants that the judge’s order was a discretionary case management decision which this
court should not lightly disturb. He submits that the decision was empowered by and accorded with the CPR and modern litigation culture. The issue of
privilege is not concerned with the truth or falsity of the publication, since a publication may be privileged irrespective of whether it is true or not.
Privilege exists not only to protect certain classes of publication which are in fact untrue, but also to protect those whose publications are true from
harassing libel actions. The question of a journalist’s privilege is to be determined by the judge in the light of all the circumstances at the time of
publication as they were or should have been apparent to the journalist. The circumstances do not extend to later events. The apparent reliability of a
journalist’s source of information is to be judged objectively by reference to what the journalist knew or in the light of inquiries which the journalist
should have made. If the inquiries are judged to have been inadequate at the time of publication that could go to defeat privilege, but information which
the inquiries might have revealed is not relevant. As to malice, what the claimants have to prove in this case is that at the time of publication the
journalist was recklessly indifferent to the truth. That is a subjective question to which neither after events nor a jury’s determination of whether the
publication was true or not are relevant. The jury should be directed to proceed on the basis that it has not been established whether the publication was
true or false and that they should make no assumption. Their task is different and does not require that question to be determined. The evidence should
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be limited to that which is relevant to the two issues. That does not include (a) events after the publication, (b) the question whether the publication was
true or not, or (c) what Mrs Holmes might have found out if she had made further inquiries.

Discussion
13. Although the judge was able to decide the question under appeal by reference to the law and procedure as it was before the introduction of the
CPR, the CPR apply to these cases and to the judge’s decision. They introduce a new procedural code which enlarges the court’s management powers.
CPR 3.1(2) empowers the court to direct a separate trial of any issue, to exclude an issue from ­ 936 consideration and to take any other step or make
any other order for the purpose of managing the case and furthering the overriding objective. The overriding objective is to enable the court to deal with
cases justly. That includes saving expense and dealing with the case proportionately, expeditiously and fairly. In my view therefore, the claimants’
submission that the judge’s order was a novel way of dealing with a libel case is, by itself, quite unpersuasive. Libel cases generally have historically
been notoriously long drawn out and expensive and are especially amenable to the culture of the new procedural code. They need novel and imaginative
case management to achieve what has hitherto often not been achieved. I consider that, subject to questions of substantive law and fairness to which I
shall come, the judge’s order was entirely in accordance with the CPR. A fair means of determining privilege and malice expeditiously in this case
without having to trudge expensively through the mire of justification achieves the overriding objective. Further, under CPR 32.1 the court may:

‘(1) … control the evidence by giving directions as to—(a) the issues on which it requires evidence; (b) the nature of the evidence which it
requires to decide those issues …
(2) The court may use its power under this rule to exclude evidence that would otherwise be admissible.
(3) The court may limit cross-examination.’

14. This means, in my judgment, that the parties no longer have any absolute right to insist on the calling of any evidence they choose provided only
that it is admissible and arguably relevant. The court may exclude admissible and relevant evidence or cross-examination which is disproportionately
expensive or time-consuming, provided that to do so accords with the overriding objective. This could aptly apply in the present case to potential
questions asking Mrs Holmes whether in the light of several weeks of evidence relevant to justification she would withdraw the sting of her publication.
This may have been a well-worn forensic technique in libel cases. But whatever answers she might give in the year 2000 to questions of this kind would
throw little, if any, light on her state of mind in August 1997. It would be wholly disproportionate to refuse to make the order simply to enable this kind
of evidence to be adduced.
15. The opinions of the House of Lords in Reynolds’ case analyse extensively the circumstances in which a publication may, subject to malice, be
privileged. The classic analysis considers whether in all the circumstances the publisher had a duty to make the publication and the recipient an interest to
receive it. There are occasions where publication to the world at large may be privileged. Lord Nicholls expressed the law thus:

‘… in deciding whether an occasion is privileged the court considers, among other matters, the nature, status and source of the material
published and the circumstances of the publication … These factors are to be taken into account in determining whether the duty-interest test is
satisfied or, as I would prefer to say in a simpler and more direct way, whether the public was entitled to know the particular information … A
claim to privilege stands or falls according to whether the claim passes or fails this test.’ (See [1999] 4 All ER 609 at 619, [1999] 3 WLR 1010 at
1020.)

16. This justifies Mr Carman’s submission that the test is whether the public is entitled to know the information and not, as Mr Moloney had
submitted and in so far as there is any difference, what a responsible journalist would do. It does ­ 937 not, however, support Mr Carman’s submission
that after events, including the subsequently determined truth or falsity of the publication, are relevant. The court considers ‘the circumstances of the
publication’ which, in its context, are the circumstances at the time of the publication. That this is so appears also from Lord Nicholls’ quotation ([1999]
4 All ER 609 at 615, [1999] 3 WLR 1010 at 1016) from the judgment of Blackburn J in Davies v Snead (1870) LR 5 QB 608 at 611 where he spoke of
circumstances where a person is so situated that it ‘becomes right in the interests of society’ that he should tell certain facts to another; and his quotation
([1999] 4 All ER 609 at 616–617, [1999] 3 WLR 1010 at 1017) of the statement of Lord Buckmaster LC in London Association for Protection of Trade v
Greenlands Ltd [1916] 2 AC 15 at 23, [1916–17] All ER Rep 452 at 456 of ‘every circumstance associated with the origin and publication of the
defamatory matter’.
17. Part of Lord Nicholls’ conclusion was in these terms:

‘Depending on the circumstances, the matters to be taken into account include the following. The comments are illustrative only. (1) The
seriousness of the allegation. The more serious the charge, the more the public is misinformed and the individual harmed, if the allegation is not
true. (2) The nature of the information, and the extent to which the subject matter is a matter of public concern. (3) The source of the information.
Some informants have no direct knowledge of the events. Some have their own axes to grind, or are being paid for their stories. (4) The steps
taken to verify the information. (5) The status of the information. The allegation may have already been the subject of an investigation which
commands respect. (6) The urgency of the matter. News is often a perishable commodity. (7) Whether comment was sought from the plaintiff.
He may have information others do not possess or have not disclosed. An approach to the plaintiff will not always be necessary. (8) Whether the
article contained the gist of the plaintiff’s side of the story. (9) The tone of the article. A newspaper can raise queries or call for an investigation.
It need not adopt allegations as statements of fact. (10) The circumstances of the publication, including the timing. The list is not exhaustive. The
weight to be given to these and any other relevant factors will vary from case to case … The decision on whether, having regard to the admitted or
proved facts, the publication was subject to qualified privilege is a matter for the judge … Further, it should always be remembered that journalists
act without the benefit of the clear light of hindsight. Matters which are obvious in retrospect may have been far from clear in the heat of the
moment.’ (See [1999] 4 All ER 609 at 626, [1999] 3 WLR 1010 at 1027.)

18. This passage, in my judgment, clearly supports Mr Moloney’s submission that the existence or otherwise of qualified privilege is to be judged in
all the circumstances at the time of the publication. It is not necessary or relevant to determine whether the publication was true or not. None of Lord
Nicholls’ ten considerations require such a determination and some of them (for example number 8) positively suggest otherwise. Nor is it necessary or
relevant to speculate (for the purposes, for instance, of considerations 3, 4 or 7) what further information the publisher might have received if he had made
more extensive inquiries. The question is rather whether in all the circumstances the public was entitled to know the particular information without the
publisher making further such inquiries. The reliability of the source of the information is a relevant consideration, but that, in my view, is to be judged
by how objectively it should ­ 938 have appeared to the defendant at the time. It is to be considered in conjunction with the inquiries which the
defendant made at the time relevant to the reliability of the source. If the defendant made careful inquiries which, judged objectively, reasonably justified
a conclusion that the source was apparently reliable, that will be a positive (though not determinative) indication in favour of the occasion being
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privileged. If the defendant made no, or only perfunctory, inquiries, a conclusion that the source was apparently reliable will be less likely. In neither
instance is a subsequent investigation at trial into the actual reliability of the source relevant. The judge was, in my view, right so to conclude in the
present case. Mr Porch may or may not have had an axe to grind. But, if he did, what is relevant is whether Mrs Holmes knew it at the time or, if she did
not, whether she made proper inquiries on that subject.
19. Mr Carman referred to this further passage in Lord Nicholls’ conclusion:

‘Further, it is elementary fairness that, in the normal course, a serious charge should be accompanied by the gist of any explanation already
given. An article which fails to do so faces an uphill task in claiming privilege if the allegation proves to be false and the unreported explanation
proves to be true.’ (See [1999] 4 All ER 609 at 627, [1999] 3 WLR 1010 at 1028.)

20. I am not persuaded by Mr Carman’s submission that this implies that the question whether the allegation is true or false is relevant to the
question of privilege. In its context, this refers to the circumstances of Reynolds’ case, where Mr Reynolds had given his explanation but the article did
not report its gist; and assumes that the question of privilege is addressed after the defence of justification has been determined against the defendant. The
emphasis is on not reporting the gist of the explanation already given.
21. The issue of malice requires a determination of the subjective state of mind of Mrs Holmes at the time of the publication. As Lord Diplock said
in his opinion in Horrocks v Lowe [1974] 1 All ER 662 at 669, [1975] AC 135 at 149–150:

‘… the motive with which the defendant on a privileged occasion made a statement defamatory of the plaintiff becomes crucial … he is entitled
to be protected by the privilege unless some other dominant and improper motive on his part is proved. “Express malice” is the term of art
descriptive of such a motive. Broadly speaking, it means malice in the popular sense of a desire to injure the person who is defamed and this is
generally the motive which the plaintiff sets out to prove … The motive with which a person published defamatory matter can only be inferred from
what he did or said or knew … Apart from those exceptional cases, what is required on the part of the defamer to entitle him to the protection of the
privilege is positive belief in the truth of what he published or, as it is generally though tautologously termed, “honest belief”. If he publishes
untrue defamatory matter recklessly, without considering or caring whether it be true or not, he is in this, as in other branches of the law, treated as
if he knew it to be false.’

22. These passages confirm (what is logically obvious) that the defendant’s state of mind is to be determined at the time of publication. The
subsequently determined truth or falsity of the publication is not material. Where, as in the present case, the contention is that Mrs Holmes was reckless
and that she did not consider or care whether her publication was true or not, this is to be inferred (or not) ‘from what [s]he did or said or knew’. A failure
to make further or proper inquiries is capable of being an ingredient from which recklessness may ­ 939 be inferred. What the response to those
inquiries might have been is not capable of being such an ingredient.
23. It is evident that a central part of the consideration in the present case of both privilege and malice will be the inquires which Mrs Holmes did or
did not make of and about the claimants and of and about Mr Porch. They are not, of course, the only circumstances relevant to privilege, but they are
important. Equally for malice, it may be that a decision on recklessness or careless indifference would turn mainly on Mrs Holmes’ state of mind in
relation to the inquiries which she did make and her reasons for not making further inquiries. If the judge decides that the occasion was not privileged,
the issue of malice does not arise. If the judge decides that the occasion was privileged, he must have decided that in all the circumstances at the time of
the publication, including the extent of Mrs Holmes’ inquiries, the public was entitled to know the particular information available to Mrs Holmes without
her making further inquiries. It is a little difficult to see how the same inquiries which objectively sustained the occasion as privileged would be capable
of contributing to a conclusion that subjectively she was recklessly indifferent to the truth or falsity of her publication. I can well understand, therefore,
that Mr Moloney would be thinking of submitting that there was no evidence capable of amounting to malice, if, on the same evidence, the judge had
ruled that the occasion was privileged.

Conclusion
24. For these reasons, I consider that the judge’s order was entirely consonant with the CPR and that it is not amenable to appeal. Determining the
issues of privilege and malice first in the proceedings against the newspaper defendants and in advance of the issue of justification is fair, sensible and
economic. The truth or falsity of the publication is not relevant to those issues, nor is any present determination of Mr Porch’s reliability in the light of
any evidence he might give in these proceedings. It will be for the judge to determine the precise extent of the evidence which it is fair to admit in the
trial of the preliminary issues exercising, if necessary, his powers under CPR Pt 32 in accordance with the overriding objective.

TUCKEY LJ. I agree.

Appeal dismissed. Permission to appeal to the House of Lords refused.

Kate O’Hanlon Barrister.

[2000] 2 All ER 941

Murria (a firm) v Lord Chancellor

ADMINISTRATION OF JUSTICE; Legal Aid and Advice: CRIMINAL; Criminal Procedure

QUEEN’S BENCH DIVISION

BUCKLEY J SITTING WITH MASTER POLLARD AND MR M HASLAM AS ASSESSORS
12 NOVEMBER, 14 DECEMBER 1999
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Legal aid – Criminal cases – Solicitors’ fees – Uplift in fees for cases which ‘relate to’ serious or complex fraud – Meaning of ‘relate to’ – Legal Aid in
Criminal and Care Proceedings (Costs) Regulations 1989, Sch 1, Pt 1, para 3(5).

At the procurement of A, two men, including C, murdered W who had suspected A of being involved in a cigarette fraud. Following C’s conviction for
murder, his solicitors claimed to be entitled to the 200% uplift in fees permitted, in proceedings which ‘relate to serious or complex fraud’, by para 3(5)a
of Pt 1 of Sch 1 to the Legal Aid in Criminal and Care Proceedings (Costs) Regulations 1989. The determining officer concluded that para 3(5) applied
only to cases where fraud was charged in the indictment, and accordingly restricted the uplift to the 100% maximum otherwise permitted under the
regulations. That decision was upheld by the master, and the solicitors appealed.
________________________________________
a Para 3(5) is set out at p 942 e f, post
________________________________________

Held – Where proceedings, or part of them, could sensibly be said to be ‘about’ serious or complex fraud, they were capable of being proceedings which
related to such fraud for the purposes of para 3(5) of Pt 1 of Sch 1 to the 1989 regulations, irrespective of what had been charged in the indictment.
Moreover, proceedings or part of proceedings were ‘about’ serious or complex fraud if it had been necessary for the solicitors to investigate or prepare for
the proceedings, or part of them, as if they had involved such fraud, ie if it had been necessary for the solicitors to prepare the fraud issue in as much
detail and with as much expertise as if it were a fraud trial. In the instant case, C’s trial and/or the preparations for it could have related to serious or
complex fraud. Accordingly, the appeal would be allowed and the matter remitted to the master to determine on the evidence whether it was in fact so
related (see p 944 e, and p 945 c to g, post).

Notes
For solicitors’ legal aid fees in criminal cases, see 27(2) Halsbury’s Laws (4th edn reissue) paras 2048–2049.
For the Legal Aid in Criminal and Care Proceedings (Costs) Regulations 1989, Sch 1, Pt 1, para 3(5), see 11 Halsbury’s Statutory Instruments (1995
issue) 91.

Appeal
Murria, a firm of solicitors, appealed from the decision of Master Rogers on 18 May 1999 dismissing their appeal from the decision of a determining
officer (Mr David Swift) on 6 May 1998 allowing them, under the Legal Aid in Criminal and Care Proceedings (Costs) Regulations 1989, only a 100%
uplift in their fees rather than the 200% sought by the solicitors for work done in representing Michael Crossley, a defendant who had been charged with
murder and false imprisonment. The appeal was heard in private but judgment was given by Buckley J in open court. The facts are set out in the
judgment.
­ 941

Michael Hill QC and Balbir Singh (instructed by Murria, Birmingham) for the solicitors.
Edward Solomons (instructed by the Treasury Solicitor) for the Lord Chancellor.

Cur adv vult

14 December 1999. The following judgment was delivered.

BUCKLEY J. This is an appeal by way of originating summons from the decision of Master Rogers, who dismissed the appeal of the solicitors (Messrs
Murria) against the decision of the determining officer, Mr David Swift.
Master Rogers certified that a point of principle of general importance arose, pursuant to reg 16(3) of the Legal Aid in Criminal and Care
Proceedings (Costs) Regulations 1989, SI 1989/343, and the matter comes before me pursuant to reg 16(7). My powers are contained in reg 16(8) and
include the power to make ‘such other order as he [the judge] thinks fit’. I have had the benefit of assistance from Costs Judge Pollard and Mr Haslam,
who sat with me as assessors and to whom I am grateful.
The point certified by Master Rogers is:

‘Whether the proper construction of para 3(5) to Pt 1 of Sch 1 to the Legal Aid in Criminal and Care Proceedings (Costs) Regulations 1989,
which reads: “(5) Where the proceedings relate to serious or complex fraud, the percentage above the relevant prescribed rate by which fees for
work may be enhanced shall not exceed 200 per cent” should be that the defendant must be “charged with” an offence of serious or complex fraud
before a 200% uplift can be claimed by his solicitor or whether it is sufficient if the “proceedings” “relate to serious or complex fraud”. Put another
way do the regulations only apply to cases where serious or complex fraud is charged or can it be invoked in circumstances where the proceedings
“relate to serious or complex fraud”?’

The point is well illustrated by the facts of the present case. An accountant, David Wilson, was murdered in 1992 by two men who went to his
home, took him to the garage and shot him at point-blank range. The murder was procured by one Austin through a middleman, Schepke. The motive
was that David Wilson had become suspicious of a scheme which Austin had organised and in which he had become involved. The scheme involved the
alleged importation of large quantities of cheap cigarettes into the United States of America from Mexico. In fact the cigarettes did not exist. David
Wilson had spoken to the police. Both Austin and Schepke were convicted of the murder (Austin after a retrial) and finally the two ‘hit-men’ Playle and
Crossley were convicted.
The solicitors represented Crossley, pursuant to a legal aid certificate, and urged upon the determining officer and Master Rogers that the murder
trial related to a serious or complex fraud because not only was the cigarette fraud the background to and genesis of the murder, it was also necessary,
both in preparing for trial and to an extent at the trial, to investigate the fraud. The more so because in Crossley’s case, unlike that of his co-defendant
Playle, there was no direct evidence connecting him with the murder. The case against him was circumstantial.
No one disputes that the cigarette fraud was ‘serious or complex’. If the ‘proceedings’, namely those arising out of the murder charge, did not ‘relate
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to serious or complex fraud’, the solicitors’ uplift on charges will be limited to 100%.
­ 942
The determining officer and Master Rogers concluded that an uplift to 200% was only permissible where fraud is charged in the indictment. The
determining officer in his letter to the solicitors dated 6 May 1998 noted that the only issue in dispute was as to the rate of uplift to be applied to the case
and said:

‘It is the view of this determining officer (and it would appear, a consensus amongst determining officers generally) that for the proceedings to
relate to a serious or complex fraud, the substantive charge on the indictment must be one of fraud. In this case there is no doubt that the phantom
consignments of cigarettes formed the background to the murder of David Wilson, but the fact remains that the indictment against both Stephen
Playle and Michael Crossley contained one count of Murder and one count of False Imprisonment. At the end of the day the defendant was not
charged with fraud, but with murder. I cannot therefore go behind the clear wording of the Regulations, which limits my allowance to a maximum
of 100%.’

In his reasons dated 18 May 1999 Master Rogers stated:

‘Ingenious though the appellants’ various arguments are, at the end of the day I have come to the clear conclusion that none of them can prevail.
The word “proceedings”, although not defined in the definition section of the regulations, clearly must relate to criminal proceedings the subject
matter of the charges, and, as is pointed out, this defendant and his co-defendant Playle, were charged with “only” murder and false imprisonment.
Those were the “proceedings” which were before the court, and whilst no doubt evidence of the underlying fraud was adduced, this was not a case
where fraud was charged.’

Thus the determining officer and Master Rogers restricted the solicitors’ uplift to 100% under the regulations.
Mr Hill QC for the solicitors submitted that the words ‘relate to’ should be given their ordinary and natural meaning which, he submitted, was
‘connected with’. Mr Hill conceded that the connection must be a real one and invited me to remit the matter to the determining officer. He submitted
that was the proper course because a more detailed scrutiny of the documents relating to the solicitors’ preparatory work and the trial was called for in
order to determine whether the proceedings or a part of them were connected with serious or complex fraud. It was not necessary for there to be a charge
of fraud, whatever the determining officer and Master Rogers had meant by that.
Mr Solomons, for the Lord Chancellor, urged me to deal with the matter and not remit it to the determining officer. He submitted that ‘connected
with’ was not the same as ‘related to’ and that the draftsman had used the words ‘relate to’ in order to cover fraud cases in which the charge was one of
the many commonly found charges in fraud cases such as forgery, or false accounting. He submitted the test should be whether the case was ‘about’
fraud and that by no stretch of the imagination could Crossley’s murder trial be said to be ‘about’ fraud.
The first point to note is that there is no general offence of fraud in law. There can be no substantive charge of ‘fraud’. There may be a charge of
conspiracy to defraud or substantive charges of many other offences which can and do arise in cases which are referred to as fraud cases. For example,
forgery, false accounting or obtaining by deception. Less obviously, perhaps, arson, handling or a host of other offences under the Theft Act 1968.
­ 943
I also note that s 1 of the Criminal Justice Act 1987 which provides for the constitution of a Serious Fraud Office and its director refers, inevitably, to
the investigation of ‘any suspected offences which appears to him [the director] on reasonable grounds to involve serious or complex fraud’. (My
emphasis.) Section 1(5)(a) provides that the director may ‘institute and have the conduct of any criminal proceedings which appear to him to relate to
such fraud’. (My emphasis.)
It is clear that the words ‘where the proceedings relate to serious or complex fraud’ in Sch 1 to the regulations cannot mean ‘charged with an offence
of fraud’. At the very least the words must comprehend proceedings in which the charge may be conspiracy to defraud and/or the type of substantive
offence I have mentioned when serious or complex fraud is involved. It is not clear to me whether that is what the determining officer and Master Rogers
intended to convey, but since there is no substantive charge of ‘fraud’, it is the inevitable conclusion. I understood Mr Solomons, in his helpful
submissions, to accept as much.
There remains the problem of the proper construction of or limit to be placed on ‘relate to’ in the regulations or ‘involve’ in the cases I have
identified above.
When proceedings are brought or taken over by the Serious Fraud Office, almost by definition, they will relate to fraud. The problem arises in cases
which are not prosecuted by the Serious Fraud Office, and, of course, proceedings like the present murder trial.
I agree with Mr Hill that the ordinary or natural meaning of ‘relate to’, or at least one of them, is ‘connected with’, but I do not find that helpful. The
question remains what type of connection or relation. I prefer Mr Solomons’ suggestion that ‘relate to’, in context, is better understood as meaning that
the trial is ‘about fraud’. I think that is closer to a proper construction and will cover the variety of substantive charges that may appear in a fraud trial,
with or without a conspiracy charge.
However, I reject Mr Solomons’ submission that, in effect, the line should be drawn there. He was, however, right to point out that ‘serious or
complex fraud’ is the only case in which the 200% uplift is allowed. It does seem to follow from that that the draftsman had in mind the peculiar
complexities and expertise that serious fraud engenders and I would not therefore extend the ambit of ‘relate to’ further than is necessary to provide
reasonable remuneration to the solicitors and/or counsel within the overall objective of the 1987 Act and regulations whilst giving effect to the singular
treatment of serious or complex fraud.
I would, possibly, include cases in which the prosecution introduces the issue of serious fraud, albeit the charge or charges in the indictment may not
themselves obviously relate to fraud, or where the defendant reasonably does so. I say ‘possibly’ because inevitably a question of fact and degree arises.
The fraud issue may be self-contained and play only a small part in the proceedings. It may or may not be necessary to investigate it fully as opposed to
superficially in order to see if some fraud was afoot but where the nature or details of it do not matter.
Again, the present circumstances illustrate the point well. In Austin’s case, in which the charge was ‘murder’, I am told and accept that the fraud
played a very large part. It was his only connection with the murdered Mr Wilson. It explained his motive. I do not hold that Austin’s case related to
serious or complex fraud but I can see that it might have. A more detailed scrutiny of the evidence and manner in which the case was presented would be
necessary before reaching a conclusion.
­ 944
It is far less plain that Crossley’s case could sensibly be said to ‘relate to serious or complex fraud’. He was a hired killer. His motive was money.
He had no real connection with the fraud. On the other hand, as Mr Hill pointed out, the prosecution did introduce the fraud. It was part of the
‘Opening’, they had served many files of papers about it as ‘unused material’ and it was only at trial that the parties agreed a number of admissions in
respect of it. Paragraph 3 of Sch 1 can apply to an ‘item of work’ (see reg 5(4)(b) and para 3(2) of Sch 1) and Mr Hill submitted that even if the trial was
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held not to be ‘related to serious or complex fraud’, the preparatory work was, because of the way the prosecution was running the proceedings at that
stage.
Whether proceedings relate to serious or complex fraud in the end will be decided by the good sense and judgment of the determining officer. In my
judgment the phrase ‘relate to’ is not to be construed as narrowly as the determining officer and Master Rogers appear to have construed it. It is capable
of comprehending proceedings which, or part of which, can sensibly be said to be ‘about’ serious or complex fraud whatever may be charged in the
indictment. For guidance, I would suggest that proceedings or a part of proceedings are ‘about’ serious or complex fraud if it has been necessary for the
solicitors to investigate or prepare for the proceedings or part of them as if the proceedings did involve serious or complex fraud in the sense that the
phrase is used in s 1 of the 1987 Act. In other words it has been necessary for the solicitors to prepare the fraud issue in as much detail and with as much
expertise as if it was a fraud trial. That may be, for example, because the prosecution, for their own ends, set out to prove the serious or complex fraud as
if it was a fraud trial. That may have happened in Austin’s trial.
I hold as a matter of construction that Crossley’s trial and/or the preparations for it could ‘relate to serious or complex fraud’. I am bound to say, I
think it unlikely that the trial was so related, but Master Rogers will have to consider the material the solicitors choose to put before him and decide, as a
matter of good judgment, in light of the principles I have endeavoured to identify, whether it or the preparations for it actually did so. I am reluctant to
refer the matter back to Master Rogers but accept from Mr Hill that there is a considerable volume of material that may be relevant and which I think it is
more appropriate that the master should consider.
Subject to any further submissions on behalf of the parties I also refer the question of costs of this appeal to Master Rogers who can then deal with
them under reg 15(14).

Appeal allowed.

Gillian Daly Barrister.

[2000] 2 All ER 946

Nottingham City Council v Amin

CRIMINAL; Criminal Evidence

QUEEN’S BENCH DIVISION

LORD BINGHAM OF CORNHILL CJ AND HARRISON J
15 NOVEMBER 1999

Criminal evidence – Exclusion of evidence – Evidence obtained by undercover police operation – Police officers flagging down taxi in area where driver
not licensed – Driver being prosecuted for plying for hire without licence – Whether police officers evidence to be excluded as contrary to right to fair
hearing – Police and Criminal Evidence Act 1984, s 78.

The defendant taxi driver was flagged down in the street by two police officers in plain clothes. He carried the officers to their stated destination and
accepted payment of the fare for the journey. The driver was not licensed to ply for hire in the district in which he collected the police officers and the
local authority preferred an information against him under s 45 of the Town Police Clauses Act 1847. The stipendiary magistrate described the police
officers as agents provocateurs and ruled that their evidence against the driver fell to be excluded under s 78a of the Police and Criminal Evidence Act
1984 in the reasonable exercise of his discretion, having regard to decisions of the European Court of Human Rights and the Human Rights Act 1998. He
accordingly dismissed the information and the local authority appealed.
________________________________________
a Section 78, so far as material provides: ‘(1) In any proceedings the court may refuse to allow evidence on which the prosecution proposes to rely to be given if it
appears to the court that, having regard to all the circumstances, including the circumstances in which the evidence was obtained, the admission of the evidence would
have such an adverse effect on the fairness of the proceedings that the court ought not to admit it …’
________________________________________

Held – Neither the jurisprudence of the European Court of Human Rights nor the forthcoming implementation of the 1998 Act obliged the court to
exclude, under s 78 of the 1984 Act, evidence obtained by police officers who had participated in the commission of a crime when, as in the instant case,
there was no evidence of any pressure exerted by the constables or of any persuasion of the driver and there was no question of any misunderstanding. It
followed that the admission of the evidence of the police officers had not had such an adverse effect on the fairness of the proceedings that it should have
been excluded by the magistrate under s 78 of the 1984 Act. Accordingly, the appeal would be allowed (see p 948 j to p 949 a, p 950 f and p 953 j to p
954 b d e, post); Teixeira de Castro v Portugal (1998) 4 BHRC considered.
Per curiam. The question raised by a case stated should be as simple as possible and directed to the crucial question on which the case turns. It is also
desirable that the summary of the competing submissions is reasonably succinct (see p 954 c e, post).

Notes
For the right to a fair hearing under the European Convention on Human Rights, see 8(2) Halsbury’s Laws (4th edn reissue) para 137, and for the
discretion of the ­ 946 court to exclude relevant prosecution evidence, see 11(1) Halsbury’s Laws (4th edn reissue) para 1060.
For the Police and Criminal Evidence Act 1984, s 78, see 17 Halsbury’s Statutes (1999 reissue) 236.

Cases referred to in judgments

DPP v Marshall [1988] 3 All ER 683, DC.
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Ealing London Borough v Woolworths plc (1993) [1995] Crim LR 58, DC.
Lüdi v Switzerland (1992) 15 EHRR 173, ECt HR.
Nottingham City Council v Woodings [1994] RTR 72, DC.
R v Christou [1992] 4 All ER 559, [1992] QB 979, [1992] 3 WLR 228, HL.
R v Khan (Sultan) [1996] 3 All ER 289, [1997] AC 55, [1996] 3 WLR 162, HL.
R v Latif [1996] 1 All ER 353, [1996] 1 WLR 104, HL.
R v Sang [1979] 2 All ER 1222, [1980] AC 402, [1979] 3 WLR 263, HL.
R v Smurthwaite, R v Gill [1994] 1 All ER 898, CA.
Schenk v Switzerland (1988) 13 EHRR 242, ECt HR.
Taunton Deane BC v Brice (1997) 31 Licensing Rev 24, DC.
Teixeira de Castro v Portugal (1998) 4 BHRC 533, (1998) 28 EHRR 101, ECt HR.

Appeal
The appellant, Nottingham City Council, appealed by way of case stated from the decision of the stipendiary magistrate for Nottinghamshire (Peter
Nuttall) sitting in Nottingham on 8 July 1999, whereby he dismissed an information preferred against the respondent, Mr Mohammed Amin, alleging that
he had, as driver of a car, plied for hire without a licence contrary to s 45 of the Town Police Clauses Act 1847. The facts are set out in the judgment of
Lord Bingham of Cornhill CJ.

Clive Lewis (instructed by Anthony Austin, Nottingham) for the appellant.

Michael Beloff QC and Helen Mountfield (instructed by Nelsons, Nottingham) for the respondent.

LORD BINGHAM OF CORNHILL CJ. Section 37 of the Town Police Clauses Act 1847 empowers a local authority to license hackney carriages to
ply for hire within a specified area. By s 45 of that Act it is an offence for any person to ply for hire with any carriage within the specified area without a
licence applicable to that area. These are plainly measures to control and regulate the supply of taxi services to the public. The meaning of ‘plying for
hire’ was explained in Nottingham City Council v Woodings [1994] RTR 72, but is not in issue in this appeal.
An information was preferred by the Nottingham City Council against the respondent alleging that on 22 October 1998 he had as the driver of a car
registration number G312 BUY plied for hire in Lower Parliament Street, Nottingham, without a licence permitting him to do so, contrary to s 45 of the
1847 Act. That information came before the stipendiary magistrate for Nottinghamshire sitting in Nottingham on 8 July 1999. He dismissed the
information on the ground that the evidence against the respondent had to be excluded under s 78 of the Police and Criminal Evidence Act 1984 in the
reasonable exercise of his discretion, having regard to decisions of the European Court of Human Rights and the planned implementation of the Human
Rights ­ 947 Act 1998 in October 2000. The city council appeal against that decision by case stated.
It is to be observed that the proceedings before the stipendiary magistrate followed a somewhat strange course. Counsel now representing the
respective parties were not present at the hearing, but we understand that the solicitor then representing the driver, the present respondent, did at the outset
raise an issue with regard to exclusion of the evidence under s 78 of the 1984 Act and the Convention for the Protection of Fundamental Rights and
Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969) (the convention). The stipendiary magistrate, however, took the view that those questions
were better deferred until the end of the case with the result that the prosecution evidence was called and the witnesses cross-examined. The defendant
was called and he was cross-examined. The submission was then made that the evidence which had already been given on behalf of the prosecution
should be excluded. Reliance was placed on the convention and the matter was adjourned for written submissions, in the light of which the stipendiary
magistrate made the decision already mentioned.
The essential question as it seems to me for decision by this court is whether the stipendiary magistrate erred in law in reaching the conclusion which
he did. The facts of the case as admitted or found were clear and simple. The respondent was the driver of a licensed taxi from an area adjoining, but not
including, the area of the Nottingham City Council. That licensed vehicle was G312 BUY, the subject of the information. On 22 October 1998 the
respondent was driving this car in Lower Parliament Street, Nottingham, in the area of the Nottingham City Council in which the vehicle was not
licensed. The vehicle was fitted with a roof light which was capable of being lit, but which was not lit up at the time of the relevant encounter. Two
special constables in plain clothes flagged the car down and the respondent stopped. The two constables asked the respondent to take them to a specified
destination. He agreed and carried them to that destination in the car. On reaching the destination they paid him the fare for the journey, which he
accepted. Also at the destination the respondent spoke to two enforcement officers of the Nottingham City Council.
On the stipendiary magistrate’s findings there was no evidence to show that the respondent had offended on any earlier occasion or on this particular
evening until this event. The stipendiary magistrate described the special constables as ‘agents provocateurs’, but in my judgment that is to treat as a
primary fact a judgmental issue at the heart of the case.
The respondent gave evidence at the trial and said that he had been under a mistake when he picked up the passengers, but the stipendiary magistrate
rejected that evidence. He found that there was no conversation in which the respondent had asked the officers for identification and that he had not in the
course of that conversation suggested that he was in the city to collect a pre-arranged fare. The magistrate found that the respondent’s spoken English
was not good, but that his understanding was better, and that there had been no misunderstanding when he had accepted the passengers. The magistrate
rejected the evidence of the respondent when it conflicted with that of the constables.
Thus, in a nutshell, the respondent was driving in the middle of Nottingham a car which was licensed as a taxi, but not for that area. Two pedestrians
hailed him. He stopped, picked them up and carried them for a fare to their destination. The stipendiary magistrate was in the event left with no
explanation why the ­ 948 respondent was in the middle of Nottingham in the car, where he was coming from or where he was going, and there was no
explanation which the magistrate accepted as to why the respondent had picked up the passengers when he was not licensed to do so. There was,
however, no evidence of any pressure exerted by the constables or any persuasion of the respondent, and he was not wheedled into doing what he did.
In para 6 of the case stated the magistrate said:
‘I was of opinion that: (a) based on my findings of fact, there could be no question of the Respondent being in any misunderstanding as to the
circumstances in which he accepted the two fares as passengers. As his evidence was not believed, there was no basis of fact upon which he could
be acquitted.’
There are further expressions of opinion, culminating in:

‘(f) Accordingly, I concluded that the evidence of the special police constables must be excluded by Section 78 of the Police and Criminal
Evidence Act 1984 in my discretion reasonably exercised having regard to decisions of the European Court and the planned implementation of the
Human Rights Act in October 2000 …’
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In their approach to this case the parties have found significant common ground. It is, first, common ground between them that entrapment is not a
defence to a criminal charge in England and Wales. The authority for that is the well-known decision of the House of Lords in R v Sang [1979] 2 All ER
1222, [1980] AC 402. It is furthermore, however, common ground that the court has a discretion under s 78 of the 1984 Act to refuse to allow evidence to
be given on which the prosecution proposes to rely if it appears to the court that, having regard to all the circumstances including the circumstances in
which the evidence was obtained, the admission of the evidence would have such an adverse effect on the fairness of the proceedings that the court ought
not to admit it. It is plain from that provision that, in exercising its discretion, the court has to make a judgment whether the admission of the evidence
would render the trial unfair. If the court concludes that the admission of the evidence will render the trial unfair, it will exclude it. If it concludes that it
will not have that adverse effect, then it is likely to allow the evidence to be admitted. If the case is near the borderline then the court has to exercise a
judgment, taking account of all the relevant circumstances of the case. Although at the time when R v Sang was decided s 78 of the 1984 Act had not
been passed, it is important to note nevertheless that all members of the House of Lords, as one would expect, accepted that a trial judge was empowered
to rule against the admission of evidence if the effect of admitting it would be to render a trial unfair.
Our attention has been crucially drawn to art 6 of the convention. It is unnecessary in my judgment to cite the terms of that familiar article. It is
directed to ensuring that a defendant has the benefit of a fair trial and the European Court has on more than one occasion emphasised that it is the fairness
of the whole proceedings which must be looked at and not the fairness of any subordinate procedure in isolation.
There have been a series of cases in this country where the commission of a crime has involved the participation not only of the party charged as a
defendant but also of the person acting in a law enforcement role. Such a situation can give ­ 949 rise to difficult questions concerning the reception of
evidence, in particular questions as to whether it would be fair or unfair to the defendant if such evidence were admitted. It seems to me that the court has
adopted a fairly consistent line. On the one hand, it has been recognised as deeply offensive to ordinary notions of fairness if a defendant were to be
convicted and punished for committing a crime which he only committed because he had been incited, instigated, persuaded, pressurised or wheedled into
committing it by a law enforcement officer. On the other hand, it has been recognised that law enforcement agencies have a general duty to the public to
enforce the law and it has been regarded as unobjectionable if a law enforcement officer gives a defendant an opportunity to break the law, of which the
defendant freely takes advantage, in circumstances where it appears that the defendant would have behaved in the same way if the opportunity had been
offered by anyone else.
It is in my judgment unnecessary to recite in detail the facts and findings in cases giving rise to that distinction, but they include DPP v Marshall
[1988] 3 All ER 683, R v Christou [1992] 4 All ER 559, [1992] QB 979, R v Smurthwaite, R v Gill [1994] 1 All ER 898, Ealing London Borough v
Woolworths plc (1993) [1995] Crim LR 58, R v Latif [1996] 1 All ER 353, [1996] 1 WLR 104 and Taunton Deane BC v Brice (1997) 31 Licensing Rev
24.
Those are all cases in which, on their individual facts, the evidence in question has been held to have been properly admitted or it has been held that
the evidence should have been admitted. In other words, they were all cases in which the evidence in question was held to fall on the permissible and not
the impermissible side of the line which I have indicated.
The present case, it is submitted, raises a new question in the light of the developing jurisprudence of the European Court of Human Rights in
Strasbourg. It should be made plain that, in exercising the judicial discretion conferred by s 78 of the 1984 Act, judges may and should have regard to the
international obligations of the United Kingdom expressed in the convention. If authority is needed for that proposition it is to be found in R v Khan
(Sultan) [1996] 3 All ER 289 particularly at 291–292, 300, 302–303, [1997] AC 558 particularly at 571–572, 580 and 583.
The crucial question is whether, as the stipendiary magistrate held, the jurisprudence of the European Court obliged the stipendiary magistrate to rule
that evidence should be excluded. That submission has been supported by reference to three cases in the European Court of Human Rights. The first is
Schenk v Switzerland (1988) 13 EHRR 242. That case was on its facts very different from the present, but it is relevant to draw attention to where the
court said (at 265 (para 46)):

‘While article 6 of the Convention guarantees the right to a fair trial, it does not lay down any rules on the admissibility of evidence as such,
which is therefore primarily a matter for regulation under national law. The Court therefore cannot exclude as a matter of principle and in the
abstract that unlawfully obtained evidence of the present kind may be admissible. It has only to ascertain whether Mr. Schenk’s trial as a whole
was fair.’

The second in the trilogy of cases is Lüdi v Switzerland (1992) 15 EHRR 173. As appears from the report of that case (at 177 (para 20)), the
applicant was complaining of an incitement of him by an undercover agent to take part in drug trafficking. It is recorded (at 199 (para 42)) that the
applicant complained that he had not had a fair trial. The main thrust of that complaint appears to have been ­ 950 that he was not confronted by his
accuser, who never gave evidence in court since his identity as an informer was withheld. The court held (at 200 (para 43)):
‘The admissibility of evidence is primarily governed by the rules of domestic law and as a general rule it is for the national courts to assess the
evidence before them. The Court’s task is to ascertain whether the proceedings, considered as a whole, including the way in which the evidence was
submitted, were fair.’
In the absence of any opportunity for the applicant to confront and question his accusers the court, not surprisingly, concluded that he did not have a fair
trial.
The linchpin, however, of the argument addressed by Mr Beloff QC on behalf of the respondent is Teixeira de Castro v Portugal (1998) 4 BHRC
533, (1998) 28 EHRR 101. It will be necessary to look at that case in more detail in a moment. It suffices at this point to record that Mr Beloff does, as I
understand him, submit that the effect of that authority is such as to oblige the stipendiary magistrate, giving effect to European jurisprudence in
exercising his discretion under s 78, to rule against the admission of the two constables’ evidence in this case. He accepts the implications of that
submission by accepting that the cases of DPP v Marshall, Ealing London Borough v Woolworths plc and Taunton Deane BC v Brice would have in the
light of that decision to be decided differently. He acknowledges that statutory provisions which permit the test purchase of goods believed to infringe the
statutory provision or regulation may be incompatible with the convention in so far as they permit reliance to be placed on the fact of that purchase for
purposes of prosecution.
It remains therefore to see whether Teixeira de Castro v Portugal does indeed provide authority for the proposition to which Mr Beloff commits
himself. The facts of the case speak for themselves (see (1998) 4 BHRC 533 at 535–536, (1998) 28 EHRR 101 at 104–105). It is plain that the public
security police initially approached a suspected drug dealer named VS in order to obtain hashish from him. He having, despite a number of approaches,
failed to put them in touch with a hashish supplier, they approached him again to see if he could put them in touch with a supplier of heroin. At this stage
he mentioned the name of the applicant, as a result of which an approach was made to the applicant which led to a deal on the strength of which the
applicant was prosecuted, convicted and sentenced.
The court summarised the domestic law of Portugal and also the progress of the proceedings in Portugal. They drew attention to a distinction in
Portuguese law between an undercover agent and an agent provocateur:
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‘The former is someone who confines himself to gathering information, whereas the latter is someone who actually incites people to commit a
criminal offence.’ (See (1998) 4 BHRC 533 at 538, (1998) 28 EHRR 101 at 108 (para 27).)

The court then summarised the proceedings before the Commission and it is plain from para 28 that the complaint made by the applicant was that police
officers had incited him to commit the offence (see (1998) 4 BHRC 533 at 539, (1998) 28 EHRR 101 at 108). The Commission in their opinion (see
(1998) 28 EHRR 101 at 109) recorded him as complaining that he did not have a fair trial in so far as the police officers acting as actual agents
provocateurs incited him to commit an offence of which he was subsequently convicted. He submitted, they recorded, that he would never have
committed the offence if the police had not ­ 951 incited him to do so. The applicant emphasised that the officers acted on their own initiative and were
not subject to any judicial supervision. He submitted that their conduct was therefore that of agents provocateurs. He denied the allegation that he was
already predisposed to commit the offence.
The government, on the other hand, whose submissions to the Commission are reported ((1998) 28 EHRR 101 at 110 (para 40)), submitted that the
police officers in question could not be regarded as agents provocateurs. A distinction was to be drawn, the government argued, between cases where an
undercover agent actually creates a previously non-existent criminal intention from those where the suspect is already predisposed to commit an offence.
The Commission considered that the case must be examined as a whole and repeated yet again that the conduct of prosecuting authorities in the
prevention and investigation of criminal offences was primarily a matter for regulation by domestic law. The Commission, however, recognised that it
had a duty to ascertain whether the proceedings considered as a whole were fair.
In para 47 the Commission noted a number of aspects which it considered to be important (see (1998) 28 EHRR 101 at 111). These included such
matters as the fact that the police officers in question were not carrying out an anti-drug-trafficking operation under the supervision of a judge, but rather
acting on their own initiative. They further placed reliance on language used by the Supreme Court. All these matters led the Commission to consider
that the police officers’ actions were ‘essentially if not exclusively the cause of the offence being committed and the applicant being sentenced to a fairly
heavy penalty’.
The matter came before the court and essentially the same arguments were repeated. It is recorded in the judgment that the applicant—

‘maintained that he had no previous convictions and would never have committed the offence had it not been for the intervention of those
“agents provocateurs”. In addition, the police officers had acted on their own initiative without any supervision by the courts and without there
having been any preliminary investigation.’ (See (1998) 4 BHRC 533 at 539, (1998) 28 EHRR 101 at 114 (para 31).)

The government repeated its argument and continued to contend that:

‘A distinction had to be drawn between cases where the undercover agent’s action created a criminal intent that had previously been absent and
those in which the offender had already been predisposed to commit the offence.’ (See (1998) 4 BHRC 533 at 540, (1998) 28 EHRR 101 at 114
(para 32).)

Reference is made to the Commission’s decision and the court reiterated that the admissibility of evidence was primarily a matter for regulation by
national law. The court’s task under the convention was not to give a ruling as to whether statements of witnesses were properly admitted as evidence,
but rather to ascertain whether the proceedings as a whole, including the way in which evidence was taken, were fair. The court observed ((1998) 4
BHRC 533 at 540, (1998) 28 EHRR 101 at 115 (para 36)) that the public interest could not justify the use of evidence obtained as a result of police
incitement and continued:

‘38. In the instant case it is necessary to determine whether or not the two police officers’ activity went beyond that of undercover agents. The
court notes that the government have not contended that the officers’ intervention ­ 952 took place as part of an anti-drug trafficking operation
ordered and supervised by a judge. It does not appear either that the competent authorities had good reason to suspect that Mr Teixeira de Castro
was a drug trafficker; on the contrary, he had no criminal record and no preliminary investigation concerning him had been opened. Indeed, he was
not known to the police officers, who only came into contact with him through the intermediary of VS and FO … Furthermore, the drugs were not
at the applicant’s home; he obtained them from a third party who had in turn obtained them from another person. Nor does the Supreme Court’s
judgment of 5 May 1994 indicate that, at the time of his arrest, the applicant had more drugs in his possession than the quantity the police officers
had requested thereby going beyond what he had been incited to do by the police. There is no evidence to support the government’s argument that
the applicant was predisposed to commit offences. The necessary inference from these circumstances is that the two police officers did not confine
themselves to investigating Mr Teixeira de Castro’s criminal activity in an essentially passive manner, but exercised an influence such as to incite
the commission of the offence. Lastly, the court notes that in their decisions the domestic courts said that the applicant had been convicted mainly
on the basis of the statements of the two police officers.
39. In the light of all these considerations, the court concludes that the two police officers’ actions went beyond those of undercover agents
because they instigated the offence and there is nothing to suggest that without their intervention it would have been committed. That intervention
and its use in the impugned criminal proceedings meant that, right from the outset, the applicant was definitively deprived of a fair trial.
Consequently, there has been a violation of art 6(1).’ (See (1998) 4 BHRC 533 at 541, (1998) 28 EHRR 101 at 115–116.)
It is in my judgment apparent that there are various matters to which the court attached significance in the passage quoted, which would not be
readily applicable in English proceedings: for example (and obviously) no anti- drug-trafficking operation would be ordered or supervised by a judge.
Similarly, if there were evidence pointing to the propensity of a given defendant to commit an offence of a certain kind, that would not be adduced in
evidence before the trial court. Nor in the ordinary course would there be evidence of whatever report or suspicion had given rise to the presence of the
two police officers who were in Nottingham on the occasion in question.
None the less, Mr Beloff is entitled to, and does, attach significance to the precise language which the court uses in para 38 of the judgment. He
submits that the two police constables in Nottingham did not confine themselves to investigating the respondent’s criminal activity and did not do so in an
‘essentially passive manner’. Accordingly he submits that they are to be regarded, in the light of that authority, as having instigated the offence or incited
it and so as having acted as agents provocateurs so as to render the proceedings as a whole unfair, there being no other significant evidence against the
respondent.
While I for my part am willing to accept that, on a precise and literal reading of the court’s language, Mr Beloff is entitled to make that submission, I
am wholly unwilling to accept the far-reaching proposition which he bases on it. It seems to me that that conclusion has to be understood in the context
of the whole argument before the court on that occasion and on the special facts of that case.
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­ 953
It is true that in the present case the criminal activity alleged was much more minor. It is also true that the facts are much simpler and that they
simply cannot lend themselves to the construction that this respondent was in any way prevailed upon or overborne or persuaded or pressured or
instigated or incited to commit the offence. The question for the stipendiary magistrate was whether, on the facts which he found, the admission of this
evidence had such an adverse effect on the fairness of the proceedings that he should exclude it, or whether (to put the test in a different way) the effect of
admitting it was to deny the respondent a fair trial.
In my opinion the only possible answer to both questions was No. If an affirmative answer had been possible then the question became one for the
judgment of the stipendiary magistrate and for his exercise of discretion. In my judgment, however, an affirmative answer was not possible and it follows
that the stipendiary erred in law in ruling as he did.
I add that the case stated posed a series of six questions for the opinion of the court following an unusually lengthy summary of the submissions
made by the parties. Although the magistrate is not to be criticised, since the questions were very largely those submitted to him, it is in my judgment
important that the question raised by a case stated should be as simple as possible and directed to the crucial question on which the case turns. It is also
desirable that the summary of the competing submissions should be reasonably succinct.
In my judgment, for reasons already given, the stipendiary magistrate did reach the wrong decision. I shall invite submissions as to what
consequence follows from that.

HARRISON J. I agree.

Appeal allowed. Permission to appeal to the House of Lords granted.

Dilys Tausz Barrister.

[2000] 2 All ER 955

R v Secretary of State for the Home Department, ex parte Oshin

PRISONS

QUEEN’S BENCH DIVISION

TUCKEY LJ AND MOSES J
3 NOVEMBER 1999

Prison – Repatriation of prisoner – Transfer into United Kingdom – Calculation of release date – Prisoner transferred to England to serve balance of
sentence – Secretary of State applying early release provisions to balance of sentence rather than whole sentence – Whether Secretary of State’s method
for calculating release date lawful – Convention on the Transfer of Sentenced Persons 1983 – Repatriation of Prisoners Act 1984.

In February 1996 O, who had been in custody since 5 October 1995, was convicted by an Italian court of drug trafficking and sentenced to six years
imprisonment. On 7 June 1999, under the provisions of the Convention on the Transfer of Sentenced Persons 1983 and the Repatriation of Prisoners Act
1984, O was transferred to England to serve the balance of his sentence, some 536 days. In calculating O’s release date, the Secretary of State applied the
statutory regime governing automatic early release of prisoners not to the whole period spent in custody, as would have occurred if O had been convicted
and sentenced in England, but to the balance of the sentence. Consequently, the warrant under which O was detained in England had the effect of
providing for his release on 29 May 2000, when he would have served two-thirds of the balance, rather than 4 October 1999, when he would have served
two-thirds of the sentence. O applied for judicial review and habeas corpus, contending that the Secretary of State’s method for fixing the release date
was irrational and unfair because it meant that O had to serve more than a person sentenced to six years in England and because it rendered the time to be
served in England dependent upon the time of transfer.

Held – Neither the convention nor the 1984 Act were designed to equate a repatriated prisoner’s position with that of someone convicted and sentenced
by the English courts. Rather, they were merely designed to ameliorate the effect of a person being convicted and sentenced abroad by allowing for part
of the sentence to be served in England. It was therefore unsurprising that the relevant provisions did not have the same effect as an English sentence or
that the time served might depend upon the date that the prisoner was transferred. On repatriation, the Secretary of State was required only to enforce the
balance of the sentence. It was to that stage alone that domestic law applied in accordance with the convention, and the Schedule to the 1984 Act treated
that balance as an English sentence to which domestic release provisions applied. The scheme of the convention and the 1984 act was entirely consistent
with the way in which the Secretary of State had fixed the term to be served in the warrant in the instant case, and accordingly O’s applications would be
dismissed (see p 960 a to c e g, post).
­ 955

Notes
For transfers of prisoners into the United Kingdom and for the automatic early release of long term prisoners, see 36(2) Halsbury’s Laws (4th edn reissue)
paras 557, 617.
For the Repatriation of Prisoners Act 1984, see 34 Halsbury’s Statutes (4th edn) (1997 reissue) 758.

Applications for judicial review and habeas corpus

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The applicant prisoner, John Oshin, applied (i) for judicial review of his continued imprisonment under a warrant issued by the respondent, the Secretary
of State for the Home Department, under the Repatriation of Prisoners Act 1984, and (ii) for a writ of habeas corpus. The facts are set out in the judgment
of Tuckey LJ.

Flo Krause (instructed by Woollcombe Beer Watts, Exeter) for the applicant.
Steven Kovats (instructed by the Treasury Solicitor) for the respondent.

TUCKEY LJ. By these applications for judicial review and habeas corpus the applicant, John Oshin, challenges his continued imprisonment under a
warrant issued by the Secretary of State pursuant to the provisions of the Repatriation of Prisoners Act 1984.
Put shortly, the applicant was sentenced to six years’ imprisonment in Italy in 1996. He was transferred to and imprisoned in this country under the
provisions of the 1984 Act and the Convention on the Transfer of Sentenced Persons (Strasbourg, 21 March 1983; TS 51 (1985), Cmnd 9617) (the
convention) on 7 June 1999. The warrant under which he is detained has the effect that he will be automatically released on 29 May 2000. The applicant
says it should have provided for his release on 4 October 1999. Hence the application for habeas corpus.
The facts require little elaboration. The conviction was for drug trafficking in Turin on 29 February 1996. Six years is 2,192 days. By the date of
his transfer, with remission and time served on remand, the applicant was treated as having served 1,666 days in Italy and so 536 days remained to be
served. This is the term to be served specified in the warrant.
The effect of s 33(2) of the Criminal Justice Act 1991 is that the applicant is entitled to automatic release when he has served two-thirds of that term,
that is to say on 29 May 2000. The applicant says, that in fixing the term to be served under the warrant, the Secretary of State was required to specify a
term which ensured that he served no more than two-thirds of the total sentence of six years. As he was arrested and in custody in Italy from 5 October
1995, this meant that the term specified in the warrant should have ensured his automatic release on 4 October 1999.
Miss Krause, counsel for the applicant, submits that in fixing the term to be served, the Secretary of State has a discretion. Fixing the term in the
way the applicant contends for was, she says, consistent with the terms of the convention and the terms of the 1984 Act. Fixing it in the way the
Secretary of State did was irrational and unfair because it means that the applicant will have to serve more than someone sentenced to six years’ in this
country and by not applying the two-third rule to the whole sentence the amount to be served in England depends upon the time of transfer. This again,
she submits, produces inconsistency.
­ 956
To examine these submissions, it is necessary to look at the convention and the 1984 Act in a little detail.
As its name implies, the Repatriation of Prisoners Act 1984 makes provision for arrangements to be made to enable a prisoner sentenced abroad to
serve the remainder of his sentence in the United Kingdom.
The references in that Act to international arrangements are to the convention to which I have referred. Both the United Kingdom and Italy are
signatories to this convention. Its preamble (which Miss Krause relies on) recites that:

‘Considering that the aim of the Council of Europe is to achieve a greater unity between its Members … Considering that such co-operation
should further the ends of justice and the social rehabilitation of sentenced persons; Considering that these objectives require that foreigners who are
deprived of their liberty as a result of their commission of a criminal offence should be given the opportunity to serve their sentences within their
own society; and Considering that this aim can best be achieved by having them transferred to their own countries, [the parties] Have agreed as
follows …’

I can see nothing in the preamble to this convention (which emphasises the need for co-operation between member states and the social rehabilitation of
sentenced persons) which impacts in any way upon the issues which arise in this case.
The relevant provisions of the convention, however, are art 9 which provides that an administering state (that is the state to which the prisoner is
transferred) shall administer the sentence in one of two ways: either by continuing its enforcement or by converting it into a decision of the administering
state. The United Kingdom has chosen the former method. The convention distinguishes between the administering state and the sentencing state, which
is the state in which the sentence was originally imposed.
Article 9(3) of the convention says:

‘The enforcement of the sentence shall be governed by the law of the administering State and that State alone shall be competent to take all
appropriate decisions.’

Article 10(1) says:

‘In the case of continued enforcement, the administering State shall be bound by the legal nature and duration of the sentence as determined by
the sentencing State.’

Those are the relevant provisions of the convention which I will come back to consider later in this judgment.
Turning then to the 1984 Act, repatriation or transfer as it is called takes place under a warrant issued by the Secretary of State (s 1(1)). Section 3
deals with what the warrant may or may not provide for and its effects.
Section 3(1)(c) says:

‘The effect of a warrant providing for the transfer of the prisoner into the United Kingdom shall be to authorise … (c) the detention of the
prisoner in any part of the United Kingdom in accordance with such provisions as may be contained in the warrant, being provisions appearing to
the Secretary of State to be appropriate for giving effect to the international arrangements in accordance with which the prisoner is transferred.’
­ 957
Subsection (3) says:
‘In determining for the purposes of paragraph (c) of subsection (1) above what provisions are appropriate for giving effect to the international
arrangements mentioned in that paragraph, the Secretary of State shall, to the extent that it appears to him consistent with those arrangements to do
so, have regard to the inappropriateness of the warrant’s containing provisions which … (b) are framed without reference to the length—(i) of the
period during which the prisoner is, but for the transfer, required to be detained in that country or territory; and (ii) of so much of that period as will
have been, or be treated as having been, served by the prisoner when the said provisions take effect.’
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Subject to the Schedule to the 1984 Act, a provision in a warrant has the same effect as if it had been contained in a sentence of imprisonment imposed by
an English criminal court (s 3(4)). The warrant takes effect with the delivery of the prisoner to the place specified in the warrant (s 3(5)).
Section 3(7) says:

‘The Schedule to this Act shall have effect … with respect to the operation of certain enactments in relation to provisions contained by virtue of
sub- section (1)(c) above in a warrant under this Act.’

The Schedule to the 1984 Act has been amended at least twice. In its amended form, brought in by the Crime (Sentences) Act 1997, it reads as
follows:

‘2.—(1) In determining for the purposes of any of the enactments relating to release on licence whether the prisoner has at any time served a
particular proportion or part of his sentence specified in that provision, the prisoner’s sentence shall, subject to sub-paragraph (2) below, be deemed
to begin with the day on which the relevant provisions take effect.’

In other words, the sentence is deemed to begin with the date upon which the warrant comes into effect.

‘ ... (2) If the warrant specifies a period to be taken into account for the purposes of sections 34(3) and (5) and 35(1) of the Criminal Justice Act
1991—(a) the amount of time the prisoner has served; and (b) where his sentence is a determinate one, his sentence, shall, so far only as the
question whether he has served any particular proportion or part of his sentence is concerned, be deemed to be increased by that period.’

One does not get much out of the language, but the effect of this provision, if one looks at the provisions referred to in the 1991 Act, is that for the
purpose of fixing the date upon which the transferred prisoner becomes eligible for parole, the Secretary of State looks at and fixes a date by reference to
the whole sentence, that is to say the sentence passed by the sentencing court.

‘ ... (3) The following questions, namely—(a) whether the prisoner is a long-term prisoner for the purposes of the enactments relating to release
on licence … shall be determined by reference to the length or, as the case may require, commencement of the sentence imposed in the country or
territory from which he is transferred.’
­ 958
In other words, for the purpose of deciding whether a sentence is a long-term or a short-term sentence under the Criminal Justice Act provisions, the
Secretary of State looks at the whole sentence passed by the sentencing court.

‘ ... (4) In this paragraph—“The enactments relating to release on licence” means sections 33(1)(b) and (2) … 35(1) … of the Criminal Justice
Act 1991 …’

The provisions which are relevant in this case are s 33(2) and 35(1) which provide that a long-term prisoner is eligible for parole after serving half his
sentence, but if he is not released on parole, he is automatically released on licence after serving two thirds of his sentence.
In support of her submissions, Miss Krause starts by saying that s 3(1)(c) and s 3(3) of the 1984 Act give the Secretary of State a wide discretion. A
number of provisions of the convention and the 1984 Act she says support her contention as to how the discretion should be exercised. She focuses first
on art 9(3). The explanatory report which accompanied the convention at para 47 says of art 9(3):
‘The reference to the law of the administering state is to be interpreted in a wide sense; it includes, for instance, the rules relating to eligibility
for conditional release. To make this clear, paragraph 3 states that the administering state alone shall be competent to take all appropriate decisions.’

I am afraid I can see nothing in the language of the article itself or in the explanatory note to support the applicant’s submissions. All the article is
saying is that once the sentence is transferred to the administering state its enforcement, that is how it is to be served etc, becomes as one would expect,
the sole responsibility of that state. It says nothing about duration or how the administering state should approach questions of early release.
Article 10(1), however, does say something about duration, in general terms. It says that the administering state is bound by the duration of the
sentence passed by the sentencing state. We were referred to the explanatory note in this article, but again I can see nothing in it either which helps Miss
Krause’s submissions.
Miss Krause then relies on the provisions of para 2 of the Schedule which require the Secretary of State to have regard to the whole sentence for the
purpose of eligibility for parole (sub-para (2)) and when considering the question as to whether the sentence is a long-term or short-term sentence
(sub-para (3)).
She asks rhetorically why should the whole sentence not be considered for the purpose of the automatic release date also? Such an approach, she
submits, has the merit of simplicity and uniformity under the legislation and eliminates the inconsistencies which the Secretary of State’s approach
produces.
The premise underlying Miss Krause’s submissions is that the applicant’s sentence should be treated as or converted into an English sentence, but I
do not think that that is what is contemplated by the convention or the 1984 Act. The sentence remains the sentence of the foreign sentencing court.
Under art 10, all we are doing is continuing it. What happens before transfer happens abroad and is governed by the law of the sentencing court. Section
3(3)(b) of the 1984 Act requires the Secretary of State to have regard to what has happened or would happen under that law. Thus he cannot frame the
warrant in such a way that the prisoner has to serve longer in this country than he would have had to serve if he had completed his sentence abroad and he
must also have regard to the time served or treated as having been served abroad. These provisions would be entirely superfluous if all the Secretary of
State had to do was look at the whole ­ 959 sentence as if it were an English sentence. All we are doing here is enforcing the balance of the sentence
and it is to this stage and this stage alone that our law applies as art 9(3) requires. The Schedule treats this balance as an English sentence to which our
release provisions apply subject to paras 2(2) and (3) of the Schedule where for the purpose of fixing the parole eligibility date and for determining
whether the sentence is short-term or long-term the whole sentence has to be considered. No such exception is made for the application of the provisions
relating to automatic early release dates—in this case one of a long-term prisoner under s 33(2) of the 1991 Act, or, in the case of a short-term prisoner,
under s 33(1) of that Act.
In my judgment, the scheme of the convention and the 1984 Act is entirely consistent with the way the Secretary of State has fixed the term to be
served in the warrant in this case. Conversely, and despite Miss Krause’s able arguments, I can see nothing in these provisions to support the applicant’s
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contention.
There is some doubt as to whether these provisions really do give the Secretary of State a discretion. His counsel, Mr Kovats, submitted that there are
circumstances in which he does although this is not such a case. But if he did have a discretion in this case, I am quite satisfied that the applicant has not
shown that it was exercised irrationality or unfairly.
It is not surprising that these provisions do not have the same effect as an English sentence or that the time served may depend upon the date the
prisoner is transferred. That is the consequence of his having been convicted and sentenced abroad. The convention and the 1984 Act are designed to
ameliorate the effects of this by allowing for part of the sentence to be served here. They were not designed to equate the prisoner’s position with that of
someone convicted and sentenced by the courts of this country. Furthermore, the convention and the 1984 Act make the prisoner’s informed consent a
precondition of transfer. Section 1(4)(c) of the 1984 Act says:

‘The Secretary of State shall not issue a warrant … unless he is satisfied that all reasonable steps have been taken to inform the prisoner in
writing in his own language … in the case of a transfer into the United Kingdom, of the effect in relation to the prisoner of the law relating to his
detention under that warrant (including the effect of any enactment or instrument under which he may be released earlier than provided for by the
terms of the warrants) …’

For those reasons, I would dismiss these applications.

MOSES J. I agree.

Applications dismissed.

Dilys Tausz Barrister.

[2000] 2 All ER 961

Chief Adjudication Officer v Faulds

SOCIAL SECURITY

HOUSE OF LORDS
LORD BROWNE-WILKINSON, LORD MACKAY OF CLASHFERN, LORD HOPE OF CRAIGHEAD, LORD CLYDE AND LORD HUTTON
7, 8 FEBRUARY, 11 MAY 2000

Industrial injury – Industrial injuries benefit – Personal injury caused by accident arising out of and in the course of employment – Fire officer
developing post-traumatic stress disorder after attending fatal accidents and claiming benefit for injury caused ‘by accident’ – Whether claimant having
to establish causative event separate from injury – Social Security Contributions and Benefits Act 1992, s 94(1).

F, a senior fire officer, was discharged from the service on medical grounds after being diagnosed as suffering from post-traumatic stress disorder. He
made a claim for industrial injuries benefit, claiming that he had suffered personal injury caused ‘by accident’ arising out of and in the course of his
employment within the meaning of s 94(1)a of the Social Security Contributions and Benefits Act 1992. In his claim form, F described his accident as ‘a
series of fatal accidents including aircraft crash, fires, road traffic accidents resulting in traumatic injury over a period from 1986–1993’. In each case, F
had attended the incident in the course of his normal duties. The benefits agency concluded that F had not suffered from an industrial accident on the
alleged dates, but the social security appeal tribunal allowed his appeal. The chief adjudication officer appealed to the social security commissioner who
held that the tribunal had erred in law but substituted a decision to the same effect. A further appeal by the chief adjudication officer was dismissed by
the Court of Session which held that the term ‘by accident’ meant ‘accidentally’ and that it was therefore unnecessary to find a causative event separate
from the injury. The chief adjudication officer appealed to the House of Lords.
________________________________________
a Section 94(1) is set out at p 967 e f, post
________________________________________

Held – (Lord Hutton dissenting) For the purposes of s 94 of the 1992 Act, it was not sufficient to show that a claimant’s condition had arisen ‘by
accident’ in the sense of ‘accidentally’. Rather, irrespective of whether the injury was physical or psychological, it was necessary to identify an accident,
suffered by the claimant, which had caused him such injury. Thus the mere fact of suffering stress or developing some illness or disorder through being
engaged in a stressful occupation would not bring the sufferer within the purview of the 1992 Act for the purposes of industrial injuries benefit. On the
other hand, it might well be possible in the context of stressful occupations to find that an accident or accidents had happened to the claimant, and that
might open the way to benefit for the injury which had been caused thereby. The word ‘accident’ itself was to be understood in its ordinary sense, and
neither expectation nor forseeability could provide an acid test of an accident, although some guidance might be provided by considering what was or was
not to be expected, or what was or was not foreseeable. Nor could an acid test be found in the circumstance that an incident was exceptional, although it
was proper to have regard to the nature of the claimant’s occupation. In the instant case the Court of Session had erred in ­ 961 concluding that it was
unnecessary to find a causative event that was separate from the injury. Accordingly, the appeal would be allowed and the matter remitted to the
commissioner for further investigation (see p 963 b c, p 969 f to j, 973 g to j, p 980 d to g and p 982 b, post).
Fenton v J Thorley & Co Ltd [1903] AC 443 and Clover, Clayton & Co Ltd v Hughes [1908–10] All ER Rep 220 considered.
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Notes
For the accident requirement for industrial injuries benefit, see 44(2) Halsbury’s Laws (4th edn reissue) paras 129, 131–132.
For the Social Security Contributions and Benefits Act 1992, s 94, see 40 Halsbury’s Statutes (4th edn) (1997 reissue) 374.

Cases referred to in opinions

Board of Management of Trim Joint District School v Kelly [1914] AC 667, HL.
Burrell and Sons Ltd v Selvage (1921) 126 LT 49, HL.
Clover, Clayton & Co Ltd v Hughes [1910] AC 242, [1908–10] All ER Rep 220, HL.
Connelly v New Hampshire Insurance Co 1997 SLT 1341, Ct of Sess.
Falmouth Docks and Engineering Co Ltd v Treloar [1933] AC 481, HL.
Fife Coal Co Ltd v Young [1940] 2 All ER 85, [1940] AC 479, HL.
Fenton v J Thorley & Co Ltd [1903] AC 443, HL.
Ismay, Imrie & Co v Williamson [1908] AC 437, HL.
Jones v Secretary of State for Social Services, Hudson v Secretary of State for Social Services [1972] 1 All ER 145, [1972] AC 944, [1972] 2 WLR 210,
HL.
Minister of Social Security v Amalgamated Engineering Union [1967] 1 All ER 210, [1967] 1 AC 725, [1967] 2 WLR 516, HL.
Pugh v The London, Brighton and South Coast Rly Co [1896] 2 QB 248, CA.
Roberts v Dorothea Slate Quarries Co Ltd [1948] 2 All ER 201, HL.
Stewart v Wilsons and Clyde Coal Co Ltd (1902) 5 F (Ct of Sess) 120, Ct of Sess.
Walker v Bairds & Dalmellington Ltd 1935 SC (HL) 28, HL.
Welsh v Glasgow Coal Co Ltd 1916 SC (HL) 141, HL.

Appeal
The chief adjudication officer appealed from the interlocutor of the Extra Division of the Court of Session (Lord McCluskey, Lord Caplan and Lord
Kingarth) on 3 June 1998 (1999 SLT 1203) dismissing his appeal from the decision of the social security commissioner (W M Walker QC) on 14 March
1997 allowing his appeal from, but substituting a decision to the same effect as, the decision of a social security appeal tribunal sitting at Glasgow on 11
May 1995 allowing an appeal by the respondent, Thomas Faulds, from the decision of an adjudication officer communicated to the respondent by letter
dated 29 November 1994 rejecting his claim for a declaration of entitlement to industrial injuries benefit. Following the implementation of the Social
Security Act 1998, the Secretary of State for Social Security took over responsibility for prosecuting the appeal. The facts are set out in the opinion of
Lord Hope of Craighead.

Matthew G Clarke QC and Gordon W M Liddle (both of the Scottish Bar) (instructed by the Treasury Solicitor as agents for the Office of the Solicitor to
the Advocate General for Scotland) for the appellant.
G J B Moynihan QC and A W D McLean (both of the Scottish Bar) (instructed by Lawford & Co as agents for Lawford Kidd, Edinburgh) for the
respondent.
­ 962

Their Lordships took time for consideration.

11 May 2000. The following opinions were delivered.

LORD BROWNE-WILKINSON. My Lords, I have had the benefit of reading in draft the speech prepared by my noble and learned friend Lord Clyde.
I agree with it and for the reasons which he gives would allow the appeal and remit the matter to the commissioner for further investigation.

LORD MACKAY OF CLASHFERN. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord
Clyde. For the reasons which he has given, I would allow the appeal but require the case to be remitted to the commissioner for further investigation.

LORD HOPE OF CRAIGHEAD. My Lords, I have had the advantage of reading in draft the speech which has been prepared by my noble and learned
friend Lord Clyde. For the like reasons I too would allow the appeal and remit the case to the commissioner. But I wish to add these observations as we
are differing from the views expressed both by the commissioner and the Inner House of the Court of Session and in the recognition of the quality of the
speeches which were addressed to us from both sides of the Bar during the hearing of the appeal.
The case is concerned with the right of the respondent to industrial injuries benefit. He is entitled to a declaration under s 44(2) of the Social
Security Administration Act 1992 (the Administration Act) of his entitlement to this benefit if he can prove, on a balance of probabilities, that he suffered
personal injury caused by accident arising out of and in the course of his employment: see s 94(1) of the Social Security Contributions and Benefits Act
1992 (the Benefits Act). The condition from which he has been suffering has been diagnosed as post-traumatic stress disorder. It is not disputed that a
psychiatric illness of this kind may constitute personal injury for the purposes of industrial injuries benefit. Nor is it disputed that there is sufficient
evidence to prove that his disorder is attributable to stress which he encountered arising out of and in the course of his employment as a senior fire officer.
The disputed question is whether he has proved that this was caused ‘by accident’ within the meaning of s 94(1) of the Benefits Act. The case raises a
question of general public importance about the requirements which persons in stressful occupations who develop stress-related illnesses have to meet in
order to qualify for industrial injuries benefit.
The use of the phrase ‘by accident’ in legislation for the provision of compensation or other benefits for personal injury sustained in the course of
employment has a long history. Section 1(1) of the Workmen’s Compensation Act 1897 provided that if in any employment to which the Act applied a
workman suffered ‘personal injury by accident arising out of and in the course of the employment’ he was to be entitled to compensation from his
employers. The same expression was used in s 1(1) of the Workmen’s Compensation Act 1906. It was repeated in s 1(1) of the Workmen’s
Compensation Act 1925, which remained in force until the system of workmen’s compensation was replaced by the system of national insurance for
industrial injuries which was introduced by the National Insurance (Industrial Injuries) Act 1946. The new legislation adopted the same phrase to define
the persons who were to be entitled to benefit. Section 7(1) of the 1946 Act provided that benefit was payable to an insured person who suffered
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‘personal injury caused [after 4 July 1948 the date when the ­ 963 new system was to come into force] by accident arising out of and in the course of
his employment’. This phrase has been preserved in all the subsequent enactments as the basis for entitlement to benefit (see s 5(1) of the National
Insurance (Industrial Injuries) Act 1965, s 50(1) of the Social Security Act 1975 and s 94(1) of the Benefits Act).
Our attention was drawn to a number of decisions in your Lordships’ House in which consideration has been given to the meaning of this phrase.
For the purposes of the Workmen’s Compensation Acts the word ‘accident’ was given a wide meaning according to its use in ordinary and popular
language. In Fenton v J Thorley & Co Ltd [1903] AC 443 at 448 Lord Macnaghten said that:
‘… the expression “accident” is used in the popular and ordinary sense of the word as denoting an unlooked-for mishap or an untoward event
which is not expected or designed.’
Lord Shand said (at 451):
‘I shall only add that, concurring as I fully do in holding that the word “accident” in the statute is to be taken in its popular and ordinary sense, I
think it denotes or includes any unexpected personal injury resulting to the workman in the course of his employment from any unlooked-for
mishap or occurrence.’
Lord Lindley said (at 453):
‘The word “accident” is not a technical legal term with a clearly defined meaning. Speaking generally, but with reference to legal liabilities, an
accident means any unintended and unexpected occurrence which produces hurt or loss. But it is often used to denote any unintended and
unexpected loss or hurt apart from its cause; and if the cause is not known the loss or hurt itself would certainly be called an accident. The word
“accident” is also often used to denote both the cause and the effect, no attempt being made to discriminate between them.’
In Fenton’s case a workman who ruptured himself by an act of over-exertion in trying to turn a wheel was held to have suffered an injury ‘by
accident’. That was what Lord Lindley had in mind when he referred to ‘any unintended and unexpected loss or hurt apart from its cause’ as being
something which fell within the ordinary meaning of ‘accident’. The act of turning the wheel was not in itself an accident. But the injury which the man
sustained while carrying out this task fell within the ordinary meaning of the word, looking to the effect rather than to the cause. The same view was
taken of the case of a man who died from heat stroke while raking ashes out of a boiler in the stokehole of a steamship (see Ismay, Imrie & Co v
Williamson [1908] AC 437).
In Clover, Clayton & Co Ltd v Hughes [1910] AC 242, [1908–10] All ER Rep 220 a man was tightening a nut by a spanner at his work when he
suddenly fell down dead from the rupture of aneurism. It was held that this was a case of personal injury by accident arising out of and in the course of
the employment within the meaning of the Workmen’s Compensation Acts. There was a division of opinion on the question whether the accident was
one ‘arising out of the employment’ as the man’s aneurism was at such an advanced state that it might have burst at any time. But it was agreed that the
rupture, which was unexpected and untoward ­ 964 event, was an ‘accident’. Lord Macnaghten said (see [1910] AC 242 at 249, [1908–10] All ER Rep
220 at 224) that Pugh v The London, Brighton and South Coast Rly Co [1896] 2 QB 248 was a very good example of the far-reaching application of that
word.
In Pugh’s case a signalman who saw that there was something wrong with one of the carriages of a train approaching at full speed so that the train
was in danger leant from the window of his signal-box and waved a red flag so that the driver might stop the train. The train was stopped and there was
no accident to it or to any of its passengers. But the excitement and fright produced a nervous shock in the signalman which incapacitated him from his
employment with the railway company. He was held to have been incapacitated by accident within the meaning of the company’s insurance policy. Lord
Esher MR said (at 251) that the fright which he underwent was the accident.
In Welsh v Glasgow Coal Co Ltd 1916 SC (HL) 141, a workman developed rheumatism caused by his immersion for several hours while baling out
water which had accumulated in a pit. It was held that he had met with an injury by accident within the meaning of s 1 of the 1906 Act. Viscount
Haldane (at 142) said that the definition of accident in Fenton v J Thorley & Co Ltd [1903] AC 443 covered the case, and that the miscalculated action of
entering the water must be taken to constitute a definite event which imported into that event the character of an accident. Lord Kinnear said (at 145):
‘… it must now be taken as settled that, while a disease is not in itself an accident, it may be incurred “by accident,” and that that is enough to
satisfy the statute. On this point, indeed, the statute is its own interpreter. For the section which enables certain industrial diseases to be treated as
accidents, although in fact they are not accidental, provides that this is not to affect the right of a workman to recover compensation in respect of a
disease to which the section does not apply “if the disease is a personal injury by accident in the sense of the Act.”’
In the light of these authorities it seems to me that there would have been no difficulty in the respondent’s case if he had led evidence to show that
his post-traumatic stress disorder was caused by the shock or distress which he suffered when attending a single incident, or each of a series of incidents,
in the course of his employment as a senior fire officer. The effect which the incident or series of incidents had on him would have been, in Lord
Lindley’s words, an ‘unintended and unexpected loss or hurt’, whatever view one might take as to whether the incident which produced that effect was or
was not an accident.
That, however, is not the way in which the evidence was presented in this case. In the form which he completed on 16 June 1994 when he was
claiming benefit, the respondent described his accident as ‘a series of fatal accidents including aircraft crash, fires, road traffic accidents resulting in
traumatic injury over a period of years from 1986–1993’. He produced a psychological report dated 19 May 1994 by Dr J G Greene, a chartered clinical
psychologist, who said of the respondent’s symptom picture:
‘These symptoms were of several years duration having developed insidiously in response to continuous and increasing pressures at work later
compounded by a series of serious fire incidents involving fatalities.’
­ 965
At the request of the Department of Social Security the respondent provided what he described as a rough list of some of the fatal incidents he had
attended between 1970/71 and 1992, adding that this was only an indication of the number of such incidents. This list mentioned 31 separate incidents in
which there had been a total of 40 fatalities. He also completed a number of forms setting out details of nine of the incidents on that list.
These forms were sent to Strathclyde Fire Brigade by the Benefits Agency for confirmation that the respondent was present at each of them and that
he was required to be so because of his employment with them. In their reply Strathclyde Fire Brigade confirmed that this was so in the case of six out of
the nine incidents from 1987 to 1991 including an air crash at Lochwinnoch on 4 June 1987 in which two persons had been killed. They also stated:
‘Mr Faulds’ attendance at fatal incidents was deemed as being part of his normal duties and his level of attendance at such incidents was on a
par with his peers who occupied similar posts and held like qualifications. During 1988 Mr Faulds accepted a nominated [sic] to attend a Fire
Investigation Officers Course at the Fire Service College, Moreton-in-Marsh, Gloucestershire, in the knowledge that the resultant “qualification”
would involve him in the detailed investigation of incidents and in particular with fatal fires.’
It is clear that none of these incidents were, in themselves, accidents to the respondent. He was in attendance at each of them in the course of his
normal duties as a senior fire officer. Attendance at tragic and distressing incidents for the purpose of carrying out detailed investigations there was a
necessary part of his employment. He was expected to attend the places where the incidents had taken place and to perform his duties there. The fact that
in the course of these duties he came face to face with fatalities was not, in his case, an unexpected or untoward event. As an event it was both expected
and planned for, as an inevitable part of the investigation process which he had been trained to carry out. There is no suggestion that anything untoward
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or unexpected took place while he was there which might be described as amounting in itself to an accident, such as a fall of debris from a building which
he had entered to investigate. The critical question is whether it can nevertheless be said that he developed his post-traumatic stress ‘by accident’ in the
sense of that expression as it is used in s 94(1) of the Benefits Act.
It is necessary at this point to look more closely at the scheme which Pt V of the Benefits Act prescribes for entitlement to benefit for industrial
injuries and to the relevant provisions of the Administration Act. Two aspects of the scheme are important in this context. The first is that, while s 94(1)
of the Benefits Act provides for the entitlement to benefit for personal injury caused ‘by accident’, benefit is also available to an employed earner in
respect of any ‘prescribed disease’ and ‘any prescribed personal injury (other than an injury caused by accident arising out of and in the course of his
employment)’ under s 108(1) of the Act. The second is that, while s 94(1) uses the phrase ‘by accident’, words are used elsewhere in the legislation
which suggest that the phrase is being used here to refer not just to what is untoward or unexpected but to something in the nature of an event or incident
which can be described in ordinary language as ‘an accident’.
In regard to the second aspect, s 95 of the Benefits Act, which deals with relevant employments, provides in sub-s (3) that an employment shall be an
employed earner’s employment in relation to ‘an accident’ if (and only if) it is, or is ­ 966 treated by regulations as being, such an employment when
‘the accident’ occurs. Section 97, which deals with accidents in the course of illegal employments, provides in sub-s (1) that sub-s (2), which enables the
Secretary of State to direct that the employment is covered by the industrial injuries scheme, has effect in any case where a claim is made for industrial
injuries benefit in respect of ‘an accident, or of a prescribed disease or injury’ or an application is made under s 44 of the Administration Act for a
declaration that ‘an accident was an industrial accident’. Section 8 of the Administration Act states that regulations may provide for requiring the
prescribed notice of ‘an accident’ in respect of which industrial injuries benefit may be payable to be given within the prescribed time by the employed
earner to the employer or other prescribed person. These and other references throughout the legislation to ‘an accident’ or ‘the accident’ point to the
occurrence of an incident as the occasion which gives rise to the entitlement to benefit for personal injury caused ‘by accident’ under the general
provision in s 94(1) of the Benefits Act.
In Jones v Secretary of State for Social Services, Hudson v Secretary of State for Social Services [1972] 1 All ER 145 at 184, [1972] AC 944 at 1008
Lord Diplock pointed out that the National Insurance (Industrial Injuries) Act 1946 created and regulated the entitlement of insured persons to three
separate and distinct kinds of benefit—injury benefit, disablement benefit and death benefit, the conditions of entitlement to which were different except
that successive rights to each of the three kinds of benefit may arise from the same accident. Then, under reference to provisions which are now to be
found or are mentioned in s 94(1) of the Benefits Act, he said:

‘Section 7, which contains the general description of and conditions of entitlement to each of the three benefits, avoids the use of the compound
phrase “personal injury by accident” which had appeared in successive Workmen’s Compensation Acts since 1897. It is reasonable to suppose that
the change in phraseology was deliberate—although there is an isolated lapse into the expression “personal injury by accident” in s 48(2) of the
statute.’ (See [1972] 1 All ER 145 at 184, [1972] AC 944 at 1008–1009.)

He then analysed the chain of causation which creates the entitlement to injury benefit as comprising: ‘Accident—personal injury—incapability of work’,
and went on to say:

‘In popular speech “accident”, the first event in each chain, is used in a variety of meanings of which the common characteristics are
unexpectedness and, generally, misfortune. As was pointed out by Lord Macnaghten in Fenton v J Thorley & Co Ltd [1903] AC 443 it embraces
both an event which was not intended by the person who suffers the misfortune and an event which, although intended by the person who caused it
to occur, resulted in a misfortune to him which he did not intend. An event which constitutes an “accident” with which the statute is concerned, has
two limiting characteristics: the misfortune which it causes must be “personal injury” to an insured person; and the event must be one which can be
identified as arising out of and in the course of that person’s employment. It cannot be the “personal injury” itself of which it is described as the
cause. It must be something external which has some physiological or psychological effect on that part of the sufferer’s anatomy which sustains the
actual trauma, or some bodily activity of the sufferer which would be ­ 967 perceptible to an observer if one were present when it occurred. It is
convenient to call this external event or bodily activity the causative incident.’ (See [1972] 1 All ER 145 at 184–185, [1972] AC 944 at 1009.)

In my opinion Lord Diplock’s observations in that case serve to underline the point that it is not enough for the purposes of the Benefits Act to show
that the condition in question arose ‘by accident’. Dicta such as that by Lord M’Laren in Stewart v Wilsons and Clyde Coal Co Ltd (1902) 5 F (Ct of Sess)
120 at 122 to the effect that ‘if a workman in the reasonable performance of his duties sustains a physiological injury as the result of the work he is
engaged in’ is an accidental injury in the sense of the statute, which was approved in Fenton’s case [1903] AC 443 at 449 by Lord Macnaghten and in the
Clover case [1910] AC 242 at 256, [1908–10] All ER Rep 220 at 228 by Lord Collins, are too widely expressed for the purposes of the requirements of
the Benefits Act. There must be a causative event or incident which can be described as ‘an accident’.
As for the concept of a prescribed disease, which was the subject of Lord Kinnear’s observations in Welsh’s case 1916 SC (HL) 141 at 143, this was
introduced by s 8 of the Workmen’s Compensation Act 1906 and was preserved by s 43 of the Workmen’s Compensation Act 1925. In Roberts v
Dorothea Slate Quarries Co Ltd [1948] 2 All ER 201 a slate worker who had contracted silicosis by the inhalation of dust in closed sheds over a long
period was unable to obtain benefit under s 43 of the 1925 Act as silicosis had not been prescribed as an industrial disease under that section. It was the
subject of special legislation under which numerous other schemes had been made, but he did not qualify for benefit under them as the rock on which he
had been working contained less than the required percentage of silica. His claim that his disease was within the category of ‘personal injury by
accident’ was also dismissed on the ground that there was in his case no injury by accident. Lord Simonds (at 206) described silicosis as a slow and
gradual process which may take many years to develop. Lord Porter (at 203) said that he could not think that the ordinary meaning of the phrase ‘injury
by accident’ would be thought to include the growth of incapacity by a continuing process over so long a period. After reviewing a series of cases in
which consideration had been given to the question whether a disease might in certain circumstances be the result of an accident, he added these words (at
205–206):

‘The distinction between accident and disease has been insisted on throughout the authorities and is, I think, well founded. Counsel for the
employers formulated the proposition on which he relied by suggesting that, where a physiological condition is produced progressively by a
cumulative process consisting of a series of occurrences operating over a period of time, and the miscroscopical character of the occurrences and the
period of time involved are such that in ordinary language that process would be called a continuous process, the condition is not produced by an
accident or accidents within the Acts. I do not know, however, that any explicit formula can be adopted with safety. There must, nevertheless,
come a time when the indefinite number of so-called accidents and the length of time over which they occur take away the element of accident and
substitute that of process. In my opinion, disability from silicosis is one of such instances.’

The fact that the scheme under the Benefits Act provides for the entitlement to benefit for prescribed diseases as well as for personal injury by
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accident does not ­ 968 mean that a disease can never come within the ambit of the phrase ‘injury by accident’. In that regard, as Lord Kinnear said in
Welsh’s case 1916 SC (HL) 141 at 145, the statute is its own interpreter. The question whether a particular condition should be prescribed for the purposes
of the industrial injuries scheme is normally referred to the Industrial Injuries Advisory Council (see s 171(3) of the Administration Act). The conditions
which must be satisfied before a disease can be prescribed for this purpose are set out in s 108(2) of the Benefits Act. The council has a specialist research
group whose task is to examine these matters and to keep the question whether diseases should be prescribed diseases under review. Its approach to these
issues is, no doubt for good reasons, a cautious one and post-traumatic stress disorder is not a prescribed disease. It may nevertheless, as Lord Porter
pointed out in Roberts v Dorothea Slate Quarries Co Ltd [1948] 2 All ER 201 at 204, be possible to show that it is within the category of personal injury
by accident.
In regard to diseases or conditions similar to a disease, it may not be possible to discern a sharp dividing line between ‘accident’ and ‘process’. In
such cases the mere fact that the condition may be said to be due to a process will not be sufficient to defeat the claim. But the distinction between
accident and process is nevertheless a useful one. It serves as a reminder that what one is looking for in every case is an event or incident, or a series of
events or incidents, to which the condition can be attributed. In the result, for a condition such a post-traumatic stress disorder to qualify under s 94(1) as
personal injury by accident, the claimant must show the following: (1) that an event or incident has occurred; (2) that the claimant has suffered personal
injury; and (3) that the event or incident caused the injury. It is the third requirement which is primarily in issue in this case, bearing in mind that the
sustaining of an unexpected personal injury caused by an expected event or incident may itself amount to an accident.
The reasons which the tribunal gave for their decision were unsatisfactory because they did not address the question whether the respondent’s
post-traumatic stress disorder was attributable to any particular incident or incidents in the series to which he had referred in his evidence. The
commissioner directed his attention to the question whether the incidents which the respondent attended could be regarded as accidents to him, rather than
to the critical question whether the development of the post-traumatic stress disorder was caused by any, and if so which, of these incidents. The judges
in the Extra Division (1998 SLT 1203) were concerned primarily with the argument for the chief adjudication officer that an injury could not be said to
have been sustained ‘by accident’ where the event or events causing it were foreseeable. They were right to reject this argument for the reasons which
they gave (see at 1209–1210). But I would hold that they fell into error when they said that it was unnecessary to find a causative event which was
separate from the injury (see at 1210). This led them to say that the injury and its cause might merge indistinguishably. In my opinion these observations
were erroneous in principle because they are inconsistent with the fundamental requirement that the claimant, on whom the onus lies, must show that an
event or a series of events caused the injury. On their approach there was sufficient evidence to support the claim. I would hold that there was
insufficient evidence, because the claimant’s evidence did not address itself to the fundamental issue as to which, if any, of the particular events to which
he referred caused his post-traumatic stress disorder.
For these reasons I too would allow the appeal. I would direct the judges of the Inner House of the Court of Session, when they apply the judgment,
to remit ­ 969 the case to the Social Security Commissioner. In that regard it is to be noted that the commissioner has power under s 16(6) of the Social
Security Act 1998, if the matter before him involves a question of fact of special difficulty, to direct that he shall have the assistance of one or more
experts. The relationship, if any, between the respondent’s post-traumatic stress disorder and the various incidents to which reference is made in the
documents has yet to be established. This may well be a case where the commissioner would be assisted by the obtaining of a medical report directed to
this issue from a recognised expert or experts.

LORD CLYDE. My Lords, the incidence of stress and stress-related disorders has recently become increasingly prominent. To some degree or other
stress may be a feature of many occupations. The conditions of the workplace, the nature of the work, and the degree of sensitivity or susceptibility of a
particular individual are among the factors which may contribute to it. The present appeal is concerned with the development of a stress-related disorder
in the context of a claim for industrial injury benefit. The law relating to that benefit, and to the compensation which preceded it under the Workmen’s
Compensation legislation, has developed very substantially in cases relating to what for convenience may be referred to as physical as distinct from
psychological injuries. The present appeal involves the application of these principles to a case which has been diagnosed as one of post-traumatic stress
disorder.
In June 1993 the respondent was discharged on medical grounds from his employment as a senior fire officer with the Strathclyde Fire Brigade. He
was diagnosed as suffering from post-traumatic stress disorder. He had served in the fire brigade for some 27 years. He made a claim for industrial
injuries benefit. The relevant statutory provision, s 94(1) of the Social Security Contributions and Benefits Act 1992, provided:

‘Industrial injuries benefit shall be payable where an employed earner suffers personal injury caused after 4th July 1948 by accident arising out
of and in the course of his employment, being employed earner’s employment.’

As I shall mention later there is some uncertainty about the factual basis for the respondent’s claim and in these circumstances it is appropriate to set
out the background material in some detail. In his application for benefit dated 16 June 1994 the respondent in relation to questions about the accident
referred to ‘a series of fatal accidents including aircraft crash, fires, road traffic accidents resulting in traumatic injury over a period of years from
1986–1993.’ In response to the question ‘how did the accident happen?’ he wrote ‘attending such accidents described overleaf as a senior officer or
officer in charge’ adding that ‘the trauma built up unnoticed’. A report by a chartered clinical psychologist, Dr J G Greene, dated 19 May 1994 disclosed
that the respondent had been referred to Dr Greene in May 1991 by the respondent’s general practitioner for what he considered to be ‘chronic stress
disorder arising from the nature of his work as a fire officer’. After seeing the respondent in July 1991 Dr Greene concluded that the respondent’s
symptoms were characteristic of a stress related condition and he stated in his report that:
‘These symptoms were of several years duration having developed insidiously in response to continuous and increasing pressures at work later
compounded by a series of serious fire incidents involving fatalities.’
­ 970
Dr Greene’s view was that the employers should have been aware of the respondent’s problems and the diagnosis at least by September 1990 when
his general practitioner had diagnosed the traumatic stress disorder relating to his work. He concluded:

‘That his employers continued to allow him to attend fatal incidents after the above date was, in my opinion, inadvisable. Attendance at these
incidents would not only carry some physical risk … but also in the longer term serve to exacerbate his condition.’

It seems as if the series of fire incidents to which Dr Greene referred as having ‘compounded’ the earlier symptoms comprised incidents after
September 1990.
In a letter to the Department of Social Security dated 24 July 1994 the respondent gave a rough list of some of the fatal incidents which he said he
had attended. Together with that letter he sent a number of application forms completed by him giving details of nine specific incidents involving
fatalities. The application which was made in terms of these forms was in each case for a declaration that the accident to which the form related was an
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industrial accident. Such a declaration, if granted, would obviously be of service towards any claim he might make for industrial injury benefit. These
incidents ranged in date from 1975 to 1992. Among them was an aircraft crash at Lochwinnoch which he attended in 1987. Of that incident he noted that
he had been instructed to photograph and take detailed notes of the badly mutilated bodies of those who had been on board, adding ‘The destruction to
their bodies has a lasting effect upon me’. In relation to each of these incidents he described his injuries as post-traumatic stress disorder and in relation to
a question in the forms asking to whom he had reported the accident he replied in each case that ‘the nature of the injury does not show till later’. The
Benefits Agency sought confirmation from the Strathclyde Fire Brigade regarding the respondent’s attendance at the incidents detailed by him on the
forms which he had completed. By letter dated 30 September 1994 the commander of the Fire Brigade replied explaining that their records did not extend
to the date of the two earliest incidents but that the records confirmed that the respondent had attended six of the other incidents in question. In the one
remaining case his attendance was not shown on the incident record. The commander also stated that:

‘Mr. Faulds attendance at fatal incidents was deemed as being part of his normal duties and his level of attendance at such incidents was on a
par with his peers who occupied similar posts and held like qualifications. During 1988 Mr. Faulds accepted a nominated [sic] to attend a Fire
Investigation Officers Course at the Fire Service College, Moreton-in-Marsh, Gloucestershire, in the knowledge that the resultant “qualification”
would involve him in the detailed investigation of incidents and in particular with fatal fires.’

By letter of 29 November 1994 the respondent was informed by the Benefits Agency that it had been decided that he did not suffer from an industrial
accident on the dates which were stated. By letter dated 2 December 1994 he sought to appeal from that decision, pointing out that he had confirmation
from his own general practitioner, and two consultant psychiatrists, as well as Dr Greene, that he had sustained injury from attending these incidents. His
appeal duly came before a social security appeal tribunal on 11 May 1995 and that tribunal intimated their decision on 23 May 1995. It is necessary to
give a full account of that decision.
­ 971
The record of the proceedings of the tribunal was made out in handwriting on a printed form, and subsequently reproduced in typescript. This
practice enables the tribunal to make a record of the proceedings and of their decision with the degree of expedition which is appropriate to their function.
The form serves to identify the critical matters which they are required to record and includes the details which are essential for a valid and effective
decision. It is necessary at this stage to quote the substance of the four numbered sections set out in the form.
The first is the chairman’s note of evidence. It reads:

‘PO: Facts as per AT2. Off work since 1992. It is accepted that at least 6 of 9 incidents referred to by claimant did occur and did involve the
claimant. It is also accepted that the claimant is incapable of work due to Post Traumatic Stress Disorder.
Mr Faulds: The worst incident was attendance at a crashed aircraft incident (1987). I have an action against the Fire Brigade based on PTSD
and both my and the defenders medical experts accept that this incident did initiate my PTSD. I was discharged on medical grounds on 03.06.93.
R(I)43/55 documents refer. I have attended many more fatal incidents than most other officers. Accident can result from several minor related
incidents.’

The reference to ‘AT2’ was a reference to the papers comprising the adjudication officer’s submission to the tribunal, part 4 of which set out the facts
found by him.
The second section calls for ‘Findings of Tribunal on questions of fact material to decision’. It was here recorded that:

‘As a Senior Fire Officer claimant has had to attend many fatal incidents. He was discharged on medical grounds on 03.06.93. He suffers from
PTSD and has been found incapable of all work on this ground by BAMS doctor.’

The third section comprises the full text of the decision. Here the tribunal stated:

‘To hold that claimant is incapable of all work due to a series of incidents resulting in industrial injury. The question of loss of faculty and
extent of disablement should be referred to the Adjudicating Medical Authorities.’
The fourth section requires a statement of the reasons for the decision. Here the tribunal recorded:

‘The Tribunal followed decision CI/554/1992 and R(I)43/55. We held that a series of incidents occurred (as given in AT2) and that the claimant
suffers from PTSD.’

Decision CI/554/1992 was one where in special circumstances the commissioner had been able to identify a moment of time at which in the case of an
abnormally sensitive man who had been suffering continuing stress at work a sudden and serious onset of mental illness had occurred constituting an
industrial injury. In decision R(I)43/55 it was held that the last of a succession of explosions each of which had had a cumulative effect was an industrial
accident precipitating a mental illness.
The adjudication officer then appealed to the commissioner on the grounds that the tribunal had failed to explain their reasoning for holding that a
series of incidents over a period of time had resulted in an industrial injury and also that the tribunal had erred in determining a ‘disablement question’,
which under s 45 of the Social Security Administration Act 1992 and the relevant regulations was a ­ 972 matter for medical practitioners or a medical
appeal tribunal and not a matter for them. The hearing before the tribunal had arisen immediately out of the applications for a declaration of an industrial
accident. It was on that issue that the tribunal should have concentrated.
The commissioner held that the tribunal had erred in both of these respects. Indeed there was only a formal opposition presented to the second of
them. But the commissioner went on, as he was entitled to do under s 23(7)(a)(ii) of the 1992 Act, to give a decision on the matter himself in light of the
findings made by the tribunal and findings contained in his own decision. It is not immediately easy to identify the specific further matters of fact on
which he proceeded. He concluded, however, that a decision to the effect intended by the tribunal should be substituted for their decision. It is not
altogether clear from the decision whether the intended declaration was to the effect that the series of incidents upon which the tribunal had proceeded
were each industrial accidents or whether it was to the effect that the series culminated in industrial accident. The commissioner stated in para 12 of his
decision that ‘The question before me is whether the series of disasters founded upon by the claimant fall to be regarded as accidents’. But at the end of
the same paragraph he referred to the difficulty of discerning a true series of incidents ‘and so an accident or series of accidents as against a process’.
Whether there was one accident or several may be of importance for the determination of the disablement question which may follow.
Before the commissioner the focus of the argument appears to have been upon the distinction between injury caused by accident and injury caused
by process, a distinction which I shall touch upon later. The adjudication officer, however, took the matter to appeal before the Court of Session. At that
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stage the focus, at least as the Extra Division (1998 SLT 1203) viewed the matter, moved more particularly to a consideration of the statutory expression
‘by accident’. Indeed they recorded in their opinion that the distinction between a series of accidents and a process formed no part of the submissions
before them. The Extra Division refused the appeal and the appellant then appealed to this House. Following on the coming into effect of the Social
Security Act 1998 the responsibility for prosecuting the appeal has been taken over by the Secretary of State in place of the adjudication officer and it is
on behalf of the Secretary of State that the appeal has now been presented. We are not otherwise concerned in this appeal with the structural changes in
the appeal process which have been effected by the 1998 Act.
I turn immediately to a consideration of the part of the decision of the Extra Division to which the appellant particularly directed his attack. In their
opinion they concentrate attention on the expression ‘by accident’ and by adopting the ordinary use of language treat the expression as adverbial and
equivalent to ‘accidentally’. This leads them not only to the view that the event which causes injury may be one which may be expected to be
encountered by a person carrying out normal, hazardous duties, but also to the view that the wording of the Act does not require the finding of a distinct
event separable from the injury; ‘the injury and its cause may merge indistinguishably, but the injury may still be properly said to be caused by accident.’
(See at 1210.)
A correct understanding of s 94(1) is not to be gleaned from a concentrated study of that section alone. Despite the absence of the indefinite article in
the subsection it seems plain from the scheme of the legislation that an accident requires to be identified. The point can be made by reference to s 94(3)
which allows ‘an accident’ arising in the course of the employment to be taken to have ­ 973 arisen out of the employment. Section 94(4) refers to
regulations providing for the identification in special cases of the day which, for the purposes of benefit, is to be taken as ‘the day of the accident’.
Section 94(5) deals with the case of ‘an accident happening while the earner is outside Great Britain’. Section 95(3) defines the circumstances under
which for the purposes of, among other sections, s 94, an employment may be an employed earner’s employment ‘in relation to an accident’. Section
97(1) provides that sub-s (2) of that section shall have effect where ‘(b) an application is made under section 44 of the Administration Act for a
declaration that an accident was an industrial accident’. It seems to me plain without going further that for the purposes of s 94 what has to be identified
is ‘an accident’ and that the expression ‘by accident’ is not to be taken so widely as to be equivalent to ‘accidentally’. The point is followed through in the
associated administrative provisions. Section 8 of the Social Security Administration Act 1992 allows for regulations providing a requirement for notice
to be given of an accident in respect of which industrial injury benefit may be payable and reg 24 of the Social Security (Claims and Payments)
Regulations 1979, SI 1979/628 (as amended) made under that section provides that:

‘Every employed earner who suffers personal injury by accident in respect of which benefit may be payable shall give notice of such accident
either in writing or orally as soon as is practicable after the happening thereof …’

The language of s 94(1) has clearly descended from the workmen’s compensation legislation which was superseded by the National Insurance
(Industrial Injuries) Act 1946 and carried through to the present social security legislation. The expression ‘by accident’ can be traced back to s 1(1) of
the Workmen’s Compensation Act 1897. But even in that Act the recognition of a distinct requirement for an accident can be found. Section 1(4) refers
to ‘injury caused by any accident’. Section 4 refers to a liability to pay compensation to workmen under the Act ‘in respect of any accident arising out of
and in the course of their employment’. Section 5 also refers to a liability to pay compensation ‘in respect of any accident’. More particularly s 2
requires ‘notice of the accident’ to be given as soon as practicable and the claim to be made within six months ‘from the occurrence of the accident
causing the injury’. As Lord Kinnear recognised in Welsh v Glasgow Coal Co Ltd 1916 SC (HL) 141 at 145 ‘accident must mean something of which
notice can be given’.
The very considerable body of case law which followed on the construction and application of the Workmen’s Compensation Acts has not
unreasonably been called in aid in the construction and application of the legislation which has succeeded them. But too ready a resort to that store of
accumulated wisdom may be dangerous. The language and the structure of the earlier legislation, intended to effect an alternative to civil claims, was
designed to be of considerable simplicity, easy to understand and straightforward in its operation. Experience proved the falsity of that hope. But the
brevity of its expression and the lack of elaboration allowed a considerable scope for construction by the courts. In sharp contrast the present social
security legislation is significantly more detailed in its provisions and sophisticated in its structure. Guidance can certainly be found in the earlier cases,
but it is primarily to the current legislation that one should look.
It seems to me, however, both from the earlier legislation and the more recent provisions to which I have referred, that one critical requirement for
the satisfaction of s 94(1) is the establishment of an accident. The accident must of course have caused personal injury to the claimant. And the accident
causing ­ 974 such injury must have arisen out of and in the course of the claimant’s employment. The proceedings which have led up to the present
appeal were proceedings for a declaration that the incidents on which the respondent was founding were industrial accidents. No issue was raised whether
or not the attendance by the respondent at these incidents had arisen out of or in the course of his employment. The disablement issue was not relevant to
the proceedings. The focus required to be essentially upon the accident which the claimant alleged had caused injury. What was sought was a declaration
that an industrial accident has occurred.
At least in the context of physical injuries there are cases where the elements of accident and injury overlap and there may be occasions in that
context where it is unnecessary in practice to draw any distinction between the two concepts. Lord Macnaghten expressed the position somewhat robustly
in, Clover, Clayton & Co Ltd v Hughes [1910] AC 242 at 248, [1908–10] All ER Rep 220 at 224 where he said in relation to the argument that there must
be an injury and an accident and the two are not to be confused that the judgment in Fenton v J Thorley & Co Ltd [1903] AC 443:

‘… swept away these niceties of subtle disquisition and the endless perplexities of causation. It was held that “injury by accident” meant
nothing more than “accidental injury” or “accident,” as the word is popularly used.’

The breadth of this approach may, however, now be open to question. Where injury is caused by an event external to the claimant, to the happening of
which he has played no part, such as his being hit by something falling upon him where he has done nothing to set it in motion, the event constituting the
accident can be readily distinguished from the injury which it caused. Where the accident comes about through the claimant’s own activity, the
distinction is more subtle, but still identifiable. In Fenton’s case the workman ruptured himself while endeavouring to turn the wheel of a machine which
was out of order. Lord Lindley observed (at 455):
‘It is not straining language but using it in its ordinary sense to describe the personal injury as caused by an accident. The personal injury was
the rupture; the cause of it was the unintended and unexpected resistance of the wheel to the force applied to it.’

In such a case the whole event might be referred to as an accident but the conceptual distinction is still there. Another example can be found in Welsh v
Glasgow Coal Co Ltd 1916 SC (HL) 141 where a workman became incapacitated by rheumatism caused by immersion in water which he was required to
bale out of a flooded coal pit. Viscount Haldane said (at 142):

‘This miscalculated action of entering the water … must be taken to have constituted a definite event which culminated in rheumatic affection.
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It was the miscalculation which imported into that event the character of an accident within the meaning of the Act.’

Whatever the position may have been in the early years of the development of this branch of the law it seems clear that the law continued to recognise the
distinct concepts of injury and accident. In Fife Coal Co Ltd v Young [1940] 2 All ER 85 at 91, [1940] AC 479 at 489 Lord Atkin stated:

­ 975
‘A man suffers from rupture, an aneurism bursts, the muscular action of the heart fails, while the man is doing his ordinary work, turning a
wheel or a screw, or lifting his hand. In such cases, it is hardly possible to distinguish in time between accident and injury. The rupture which is
accident is at the same time injury, from which follows at once, or after a lapse of time, death or incapacity. The distinction between the two must
be observed, however.’

In the performance of physical work the making of what may for others be an ordinary exertion but which, on account of some disease or weakness
or other predisposition is excessive for the individual undertaking it, may constitute an accident in his case. But here again the distinction between
accident and injury can be identified. Examples can be found in Ismay, Imrie & Co v Williamson [1908] AC 437, where the workman, already weakened
and emaciated, and more likely to suffer heat stroke than others, was held to have died by accident when heat stroke came upon him suddenly and
unexpectedly while he was attending a boiler in the stokehole of a steamship, or in the Clover case [1910] AC 242, [1908–10] All ER Rep 220, where a
workman suffering from a serious aneurism fell down dead while tightening a nut with a spanner, or in Falmouth Docks and Engineering Co Ltd v
Treloar [1933] AC 481, where a man suffering from heart disease lifted his hand above his head holding a hook in order to lay hold of a bag of china clay
in the course of loading such bags on board ship, fell forward and died. In Walker v Bairds & Dalmellington Ltd 1935 SC (HL) 28 at 32 Lord Tomlin
observed of the Clover case [1910] AC 242 that:

‘This case seems to me to establish that there may be personal injury by accident, even though the employee’s work has proceeded in the
normal way, and even though the injury is due to the presence of a special condition in the employee’s body.’

But it has not been suggested in the present case that the claimant suffered some weakness which predisposed him to the stress disorder.
The distinction between injury by accident and injury by process which was evidently a prominent feature in the case in its early stages was
discussed in Roberts v Dorothea Slate Quarries Co Ltd [1948] 2 All ER 201. It serves to distinguish one class of case, which may comprise either a
single accident or a series of specific and ascertainable accidents followed by an injury which may be caused by any or all of them, from another class of
case, where there is a continuous process going on from day to day which gradually over a considerable period produces injury. In Roberts’ case it was
held that the development by the claimant of silicosis fell in to the latter category and so did not qualify as an accident or as a series of accidents. In
Burrell and Sons Ltd v Selvage (1921) 126 LT 49 on the other hand the incapacity arose from the cumulative effect of a series of minor scratches
sustained during the claimant’s work and that was held to be injury caused by accident. The question as posed by Lord Buckmaster in that case and
answered in the negative (at 50):

‘… whether when the disease is due not to one specific and definite accident, but to a series of accidents, each one of which is specific and
ascertainable though its actual influence on the resulting illness cannot be precisely fixed, the workman is disentitled to the benefit of the statute.’

It is important to notice that in such a case the accidents must each be specific and ascertainable. It may be that, particularly after the interval of time
which has ­ 976 been taken up by the development of the condition, the date of each event cannot be precisely identified, but the occasion of the
specific accidents remains a necessary ingredient of the claim.
The distinction between accident and process is a useful and convenient one for assisting towards the solution of cases of a disorder which has
developed over a period of time. But the concept of injury by process simply serves to identify a certain kind of case which will not qualify under the Act
and it should not be allowed to grow into more than that. The question under the Act is not whether the case is one of injury by accident or injury by
process. The question is simply whether the case is one of ‘personal injury caused … by accident’ or not. There may be other kinds of cases than injury
by process which will not qualify under the Act.
In one sense of course the incidents to which the respondent referred were ‘accidents’. That is unquestionably an apt word to use in relation to an
aeroplane crash or a fire or a road traffic disaster. But these incidents themselves will not qualify as accidents for the purposes of the respondent’s claim.
He was not present when the incidents actually occurred and it was not, at least directly, the actual happening of a crash, or a fire, or a vehicle collision,
which caused him any injury. Nor did those actual events arise out of or in the course of his employment. What has to be identified is not the occurrence
of some or other accident in general, but an accident to the claimant, an accident suffered by him. This point was correctly identified by the
commissioner where he said ‘Of course they were in one sense accidents, otherwise the claimant would not have required to attend them’. But he went on
to say:
‘… I think it has to be borne in mind that they were also accidents to him because they were not part of his everyday professional duties; rather
they were exceptional incidents and were generally separated by some months if not longer.’
I shall have to return to that passage later but it is necessary first to say something about the word ‘accident’.
The word ‘accident’ is not defined in the statute. It has no special or technical meaning but is to be understood in its ordinary sense. In such
circumstances there seems to me to be nothing gained by resorting to dictionary definitions. Where a word is to be understood in its ordinary meaning it
is preferable to confine one’s attention to the application of the statutory expression and avoid the temptation to elaborate upon it by introducing other
words which may seem to be synonymous but which may simply lead in later cases to analysis not of the statutory words but of the gloss which has been
added to them. In Fenton’s case [1903] AC 443 at 448 Lord Macnaghten concluded:

‘… the expression “accident” is used in the popular and ordinary sense of the word as denoting an unlooked-for mishap or an untoward event
which is not expected or designed.’

But those final words may be open to misconstruction. The question arose in Board of Management of Trim Joint District School v Kelly [1914] AC 667
whether the word ‘designed’ excluded an injury inflicted by pre-meditated violence. It was held that what was meant was that the occurrence had to be
undesigned by the injured person, so that an injury deliberately inflicted by a third party could fall within the scope of the Act. As regards the reference
to the event being not expected a similar ­ 977 construction might be adopted. But in the Clover case [1910] AC 242 at 245–246, [1908–10] All ER
Rep 220 at 223 Lord Loreburn LC observed:
‘It was unexpected in what seems to me the relevant sense, namely, that a sensible man who knew the nature of the work would not have
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expected it.’

But while consideration of what was or was not to be expected, or what was or was not foreseeable, may be of some guidance, neither expectation nor
foreseeability can provide an acid test of an accident. Nor, as it seems to me, can an acid test be found in the circumstance that the incident was
exceptional. While accidents should not occur in the course of employment with frequency or regularity, it is not a necessary characteristic of an accident
that it be rare or exceptional. Lord Dunedin pointed out in the Trim case [1914] AC 667 at 684–685 that in Fenton’s case Lord Macnaghten was not
giving a definition. Lord Macnaghten himself in the Clover case demurred to the suggestion that a definition had been hazarded. Even descriptive
language can be dangerous.
The decision in the Trim case is important not only in stressing that Lord Macnaghten’s formulation is to be taken as descriptive and not definitive,
but also in pointing out that the question whether there has been an accident requires particular consideration to be paid to the victim. At the least the
accident cannot be something which he intended to happen. Where his injury came about through the operation of some external force, that operation
must have been something which he did not intend to happen. Where his injury has followed on some action or activity of his own, then the
consequences of his doing what he did cannot have been intended by him. The mischance or the mishap was something which was not in any way
wanted or intended. It was not meant to happen.
In considering the position of the victim one should also take into account the occupation in which he was engaged. In illustrating the various ways
in which the word ‘accident’ can be used Earl Loreburn in the Trim case [1914] AC 667 at 681 observed:

‘Again, the same thing, when occurring to a man in one kind of employment, would not be called accident, but would be so described if it
occurred to another not similarly employed. A soldier shot in battle is not killed by accident, in common parlance. An inhabitant trying to escape
from the field might be shot by accident. It makes all the difference that the occupation of the two was different.’

Earl Loreburn recognised that there may be some occupations in which the risk of injury or death may be so much part of the work that they would not
qualify as accidents. But in the normal course of a person’s work it is not generally intended that he should sustain injury. In the case of physical injuries
the incident which brought them about will normally qualify as accidents. Thus it was that in Stewart v Wilsons and Clyde Coal Co Ltd (1902) 5 F (Ct of
Sess) 120 at 122 Lord M’Laren made the observation which was approved by Lord Macnaghten in Fenton’s case [1903] AC 443 at 449 and noted by
Lord Collins in the Clover case [1910] AC 242 at 256, [1908–10] All ER Rep 220 at 228, all being cases of physical as opposed to psychological injury
that—

‘if a workman in the reasonable performance of his duties sustains a physiological injury as the result of the work he is engaged in, I consider
that this is accidental injury in the sense of the statute.’

­ 978
Indeed even where it may be foreseen that the person may possibly suffer physical injury in the ordinary course of his work when the incident occurs and
injury is sustained it is still proper to recognise that event as an accident. Lord Shaw of Dunfermline gave the examples in this context of prison warders,
police officers, lunatic asylum attendants and gamekeepers, and the same may hold true of their modern equivalents.
There are certainly occupations where there may be risks inherent in the workplace in the ordinary course of the work. Injuries may be suffered
which do not necessarily arise out of any accident but which are simply caused by the nature of the occupation itself. Parliament has recognised the
existence of such cases and has made special provision for them by the scheme of prescribed industrial diseases under ss 108 to 110 of the Social Security
Contributions and Benefits Act 1992 and the Social Security (Industrial Injuries) (Prescribed Diseases) Regulations 1985, SI 1985/967 (as amended). But
while those regulations specify a wide range of physical conditions which may qualify as prescribed diseases, no mention is made of stress disorder. The
claimant in the present case requires to base his claim on the proposition that he has sustained an industrial accident.
The present case is not one of physical injury but of stress, and the problem in the present case is to apply the Act to a case of psychological injury.
The question then arises how the principles which have been developed in relation to physical injury are to be applied to such a case. The approach in
principle should be the same. But in this more subtle, and perhaps more complex, area of injury, some care and delicacy is required in the application of
the principles. Cases of stress and psychological injury may call for particularly detailed examination.
Unquestionably shock or stress disorder can qualify for industrial injury benefit, and it was not suggested otherwise by the appellant. While Pugh v
The London, Brighton and South Coast Rly Co [1896] 2 QB 248 concerned the construction of an insurance policy, it was taken by Lord Macnaghten in
the Clover case [1910] AC 242 at 248, [1908–10] All ER Rep 220 at 224 as a very good application of the far-reaching application of the word ‘accident’.
The signalman in that case sustained a nervous shock which incapacitated him from work. The shock was occasioned by his attempts to prevent an
accident to a train by signalling to the driver. But I can find no reason for holding that in relation to shock or stress it should not be necessary to be able
to identify the accident, of which notice would require to be given, and the injury which was caused by it. The principle established in the cases of
physical injury should in that respect be applicable to cases of psychological injury. In cases of shock and stress the activity which triggers the accident
may only consist of the claimant confronting a horrific spectacle. It may involve some additional activity, such as the handling or the close examination
of something particularly gruesome or distressing. But in every case, although the concepts may overlap, it should be possible to identify an accident as
well as the consequent injury. But the identification of the accident and the establishment of the causal connection between the incident and the injury
may well call for a very careful investigation of the circumstances of the case and the nature of the condition.
As in the case of physical injury it is also proper to have regard to the nature of the occupation. There are a variety of occupations where one of the
risks of the employment is that in its ordinary course an employee may sustain some degree of stress and where a degree of stress may be regarded as an
ordinary concomitant of the occupation. The occupation of a fire officer is an obvious ­ 979 example. There may also be a risk of physical injury. But
such injury, even if it is predictable as something which may happen, is not intended to happen in the ordinary course of things and an accident may
readily be identified, if it occurs. But stress will be something which may well be expected to happen and which may well in fact happen at least to a
degree in many of those who are engaged in the work. The stress will be inevitably part and parcel of the ordinary course of the work. The mere fact of
suffering stress or developing some illness or disorder resulting from being engaged in a stressful occupation will not bring the sufferer within the purview
of the Act for the purposes of injury benefit. But on the other hand it may well be possible in the context of stressful occupations to find that an accident
or accidents have happened to the particular claimant and that may open the way to benefit for the injury which have been caused thereby. The task must
first be to identify an accident which the claimant has sustained and which has caused the illness in question. Thus it becomes necessary to study the
relevant incident to which the claimant points and to determine whether it qualifies as an ‘accident’.
It is essentially on that point that it seems to me that the Extra Division (1998 SLT 1203) went astray. It was not enough for the respondent simply to
show that he developed a stress disorder in the course of a stressful occupation. Contrary to the view taken by the Extra Division I consider that the Act
required in the present case the identification of an accident or accidents and it is that element which has dropped out of their consideration. The same
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criticism may be made of the commissioner’s approach where, although he was satisfied that it was not necessary to assign a date, he expressed the view
that September 1990 was the time when matters came to a head, that being the time ‘when traumatic stress disorder was diagnosed by the claimant’s
general practitioner and when, according to the psychologist, his employers should have become aware of his problems’. It was later that the respondent
went off work. But the date of the diagnosis of the condition cannot rank as the date of the relevant accident, nor of the accidents if there was a relevant
series. The error here is that of looking too much at the injury and too little at the question of accident. The view of the Extra Division that injury and
accident could merge indistinguishably and that the expected incidents of a hazardous occupation might themselves constitute industrial injuries opens the
way for industrial injury benefit to be available for any stress related disorder developed in the course of the employment and attributable to the
employment. I do not consider that that is what is intended by s 94(1) of the Act.
The Extra Division had before them the decision of Lord Coulsfield in Connelly v New Hampshire Insurance Co 1997 SLT 1341, which concerned a
fireman who had witnessed distressing scenes in the course of his employment and had developed a post-traumatic stress disorder. Lord Coulsfield held
that the particularly distressing circumstances of that case might be sufficiently unexpected and be followed by sufficiently unexpected consequences as
to justify the conclusion that the fireman had sustained accidental bodily injury within the meaning of an insurance policy under which he was making a
claim against the insurers. The Extra Division agreed with his reasoning. In Connelly’s case it was a matter of formal agreement between the parties that
the pursuer was suffering from post-traumatic stress disorder and that that disorder had been triggered by his exposure to the events of two specified dates.
Clearly in that case there were identified events involving an unexpected level of distress. It was held that they could qualify as accidents because in the
circumstances of the case they were ­ 980 fortuitous and unexpected. But in that case the accidents were precisely identified and furthermore it was
matter of agreement that they had triggered the injury. On the first of the two occasions the pursuer had experienced a sense of shock, disorientation,
helplessness and hopelessness at a horrific scene of multiple casualties occurring on a beautiful day. He had a tightness in his chest and physical fear. On
the second incident he experienced a sense of guilt and had the brief and shocking image that the lips of a dead child, over whose body he had to climb,
were moving. It is not difficult to accept that in circumstances detailed in such a way that the conclusion that an accident had occurred can readily be
drawn. The difficulty which to my mind remains in the present case is whether the incidents founded upon were or were not accidents, and in that
connection it is also unclear precisely how the respondent’s disorder arose.
Accordingly, while in my view the appeal should be allowed, there remains a considerable doubt whether the claimant’s case has been properly and
fully explored. This has come about initially because the facts were not fully set out at the initial stages of the case. The claimant presented his own case
before the tribunal and may well not have appreciated what was required of him. The report from Dr Greene was evidently produced before them but no
report from the general practitioner nor from the two psychiatrists whom the respondent mentioned when lodging his appeal to the tribunal. The issue
evidently became narrowed to a consideration of the distinction between accident and process and that may have distracted the tribunal from the need to
identify the incidents as accidents and to make a careful exploration of the facts. The true state of the claimant’s case remains obscure. There is an
indication in the tribunal’s note of the evidence that the episode of his experience at the aircraft crash initiated his condition. If that was the position then
any later incidents may not matter. Alternatively they may constitute aggravations. On the other hand the passage in his application for benefit which I
have already quoted and the reference in Dr Greene’s report to an insidious development might suggest that there was no accident at all. The problem is
not helped by the fact that the reasons which they give for their decision do not sufficiently identify the course of their thinking. Furthermore the
commissioner, in a passage which I have already quoted, stated that the disasters to which the claimant referred were ‘exceptional incidents’ and
‘exceptional happenings within the claimant’s working routine’. That kind of language might suggest that they might be of the nature of accidents, even
although by itself it may not be a sufficient criterion of an accident. But it is not easy to understand the basis upon which this factual finding was made.
Earlier in his decision he said that the claimant had had to attend ‘many fatal, and from the details elsewhere in the papers no doubt very distressing,
incidents’. But that does not go far enough to support the proposition that they were exceptional. Nor is that description immediately reconcilable with
the tribunal’s finding that ‘as a senior fire officer claimant has had to attend many fatal accidents’ nor with the commander’s letter of 30 September 1994
which suggested that his attendance was part of his normal duties. Again the impression given by the language used by the respondent in his application
for benefit and in the forms applying for the declaration suggest that he was not aware of anything untoward having occurred at the time. He is said to
have been nominated for a course in 1988 to gain further qualifications for investigation work and he remained at work until 1992.
Where the facts are in such a state of uncertainty I consider that it would be right to allow the appeal but to give the claimant the opportunity to
present the ­ 981 whole facts and circumstances so that a considered decision can be reached upon the respondent’s applications on a sound and secure
basis. As counsel for the respondent has reminded us in a supplementary submission lodged after the hearing of this appeal, the Court of Session in this
case was restricted to a question of law. It is the commissioner who should now be required to explore the facts more fully. I would accordingly allow
the appeal but require the case to be remitted to the commissioner for further investigation.

LORD HUTTON. My Lords, the facts relating to this appeal and the authorities relating to the issues of law which arise have been fully set out and
discussed by my noble and learned friend Lord Clyde, and the authorities have also been fully discussed by my noble and learned friend Lord Hope of
Craighead. I am in general agreement with the principles of law which they state in their speeches, but I would dismiss the appeal because I am of
opinion that the Extra Division (1998 SLT 1203), which was hearing an appeal from the social security commissioner on a point of law, did not err in law
in its judgment delivered by Lord McCluskey.
Whilst the reasoning of the social security appeal tribunal (the tribunal) was sparse I do not consider that the Extra Division went astray in law in
failing to consider and to identify the accident or accidents which the claimant had sustained or in failing to consider whether the stress disorder from
which he suffered could be attributed to a particular event or incident or series of particular events or incidents which constituted an accident or accidents.
In my opinion, although referred to in the submissions, these were not issues which constituted the principal legal ground on which the chief adjudication
officer appealed from the social security commissioner to that court. But I consider that despite no arguments of substance being advanced on these
points the Extra Division did address its mind to them, and I think that the court identified the incidents which were accidents and held that they caused
the claimant’s stress disorder, and that the court was entitled in law so to do.
In my opinion the Extra Division did appreciate that the claimant had to establish, first, that there had been accidents in the course of the claimant’s
employment and, secondly, that they had caused him stress disorder. Thus the court stated (at 1207–1208):

‘Counsel for the appellant described the findings of the tribunal on questions of fact material to the decision as being inadequate. He also
pointed out that, although the commissioner had in para 1 of his decision, signalled his intention to add to the findings of fact, he had not done so.
The real issue of law for this court to decide was whether or not there was any basis in fact for holding that the claimant’s personal injury was
caused by accident … Counsel expressly stated that, despite the emphasis placed on this feature of the argument both before the tribunal and before
the commissioner, the distinction between a series of accidents on the one hand and “process” on the other, was “a side issue”. What was
important, it was submitted, was to recognise that in this type of case the true starting point for ascertaining and evaluating the facts was to look
first to determine what the accident was, or the accidents were, and then to see if the personal injuries could be said to be caused by accident. It
was not enough to find it established that personal injury arose from the employment and simply to infer from that circumstance that it must have
been caused by accident. Both ­ 982 the commissioner, and the appeal tribunal—though it was rather difficult to tell because the tribunal’s
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reasoning process was not disclosed—appeared to have started with the claimant’s personal injury and inferred that it must have been caused by
accident in the course of the employment.’ (Lord McCluskey’s emphasis.)

Having stated the appellant’s submissions and the issue which it had to determine, the Extra Division then summarised the principal argument which
the chief adjudication officer advanced to it. This argument was that it was part of the normal employment experience of a senior fireman with special
training to see and deal with the tragic human consequences of a fire or crash; such circumstances fell within the normal and expected range of
circumstances for a person employed as a senior fire officer and therefore could not be termed an accident or accidents (see at 1208).
As this was the principal argument addressed to it by the chief adjudication officer it was appropriate for the Extra Division to devote a considerable
part of its judgment to consider this argument. It rejected the argument stating (at 1209–1210):

‘An argument that an occurrence was not an accident because it was foreseeable was rejected by the commissioner in CI/15589/1996, where the
claimant and other prison officers were sent to deal with the transfer of a prisoner who was known to be difficult, violent and immensely powerful;
the whole reason for their being there was that some violent behaviour was foreseeable. In that context the commissioner who decided that case
quoted with approval a passage from Ogus, Barendt and Wikeley’s Law of Social Security (4th ed), at p 303, including: “An event need not be
unforeseeable or exceptional to constitute an ‘accident’ [Clover, Clayton & Co Ltd v Hughes [1910] AC 242, [1908–10] All ER Rep 220]. To take
a frequently encountered example, claimants who incapacitate themselves by heavy exertions do not have to prove that the strain was violent or
exceptional for their job.” In these circumstances, we are not persuaded that there is no room for the concept of accident just because the happening
or event that causes injury (and even manifests itself only in the injury) is one that may be foreseeable or (and in this regard disagreeing with certain
of the later observations made by the commissioner in CI/15589/1996) one that may be expected to be encountered by a person carrying out normal,
hazardous duties.’

In my opinion the court was entitled so to hold because the authorities establish that an accident may happen in the ordinary course of the
employee’s work (see in addition to Clover, Clayton & Co Ltd v Hughes, Fenton v J Thorley & Co Ltd [1903] AC 443 and Ismay, Imrie & Co v
Williamson [1908] AC 437). The court concluded its judgment by stating (1998 SLT 1203 at 1210):

‘In a case like the present (just as in R(I)22/59, CI/15589/1996 and R(I)43/55, also quoted to us) the accidental cause is found in the exposure of
the employee on one or several—or even many—occasions to shocking sights or other such phenomena, resulting in his suffering a severe—and
unintended—nervous reaction. We do not consider that the wording of the Act requires that there be found a separable “accident” in the form of a
distinct event separate from the injury and preceding it in point of time. In circumstances in which the horror of the exposure triggers a response
which takes the form of nervous trauma, the injury and its cause may merge ­ 983 indistinguishably, but the injury may still be properly said to
be caused by accident. If a fellow employee faces exactly the same exposure but suffers no such injurious response it would be equally right to say
that he had not suffered injury by accident. We find nothing in the authorities to prevent us from concluding that the commissioner (following the
tribunal in this respect) was entitled to infer that the claimant’s personal injury was caused by accident in the course of his employment.’

I consider that the court was entitled to reach this conclusion because the authorities establish that although the accident and the injury are separate
concepts they may overlap and the accident need not constitute an event separate and distinct from the injury (see per Lord Hodson in Minister of Social
Security v Amalgamated Engineering Union [1967] 1 All ER 210 at 219, [1967] 1 AC 725 at 750, and Lord Simon of Glaisdale in Jones v Secretary of
State for Social Services, Hudson v Secretary of State for Social Services [1972] 1 All ER 145 at 192–193, [1972] AC 944 at 1019.
In his written case on the appeal to this House the claimant submitted:

‘If there be any deficiency in the findings of fact it is submitted that this is the product of the particular manner in which the appellant has
presented his case, which has been on the basis of interpretation of agreed or undisputed facts.’

I consider that that submission is correct and that the Extra Division was entitled to state (1998 SLT 1203 at 1209):

‘In our opinion, the primary facts in this case are and were sufficiently clear to enable the tribunal and the commissioner to draw the inferences
necessary to reach a conclusion as to whether or not the claimant’s personal injury was “caused by accident”. It would have been better if the full
facts had been spelt out in the tribunal’s record of proceedings; but the omission to do so is perfectly understandable given that the primary facts
were not in dispute and the live issues were as to the inference to be drawn and the application to the whole facts of the familiar distinction between
accident and process. We think it is quite clear that the tribunal and the commissioner proceeded upon the factual basis that the claimant in the
course of his work repeatedly encountered extremely distressing and horrifying human tragedies, that he reacted to them in a way that caused
nervous trauma and that the build up of stress consequent upon many such shocking experiences led him to suffer from debilitating nervous illness.’

In my opinion the court in two places in its judgment identified the claimant’s encounters with extremely distressing and horrifying sights as being the
accidents which caused the stress disorder, and I think it is clear that those encounters which occurred on specific and ascertainable occasions cannot be
termed a process. In a passage I have already cited the court said (at 1209):

‘We think it is quite clear that the tribunal and the commissioner proceeded upon the factual basis that the claimant in the course of his work
repeatedly encountered extremely distressing and horrifying human tragedies, that he reacted to them in a way that caused nervous trauma and that
the build up of stress consequent upon many such shocking experiences led him to suffer from debilitating nervous illness.’

And in a passage which I have also cited the court said (at 1210):

­ 984
‘In a case like the present … the accidental cause is found in the exposure of the employee on one or several—or even many—occasions to
shocking sights or other such phenomena, resulting in his suffering a severe—and unintended—nervous reaction.’

It would have been better if the tribunal’s findings of fact and reasoning had been more clearly and fully set out, and I appreciate that the chief
adjudication officer is concerned that those who suffer from stress disorder in the course of their work should not be entitled to recover industrial injury
benefit without establishing (the onus being on them) that they sustained accidents in the course of their employment which caused them injury. But in
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my opinion the judgment of the Extra Division did not hold to the contrary, and I consider that its decision does not provide a ground for an appeal to this
House to obtain a ruling to emphasise the principle which the chief adjudication officer wishes to uphold.
For the reasons which I have given I consider that the Extra Division did not err in law and I would dismiss this appeal.

Appeal allowed.

Celia Fox Barrister.

[2000] 2 All ER 986

Berezovsky v Michaels and others

Glouchkov v Michaels and others

CIVIL PROCEDURE: TORTS; Defamation

HOUSE OF LORDS
LORD STEYN, LORD NOLAN, LORD HOFFMANN, LORD HOPE OF CRAIGHEAD AND LORD HOBHOUSE OF WOODBOROUGH
13, 14 MARCH, 11 MAY 2000

Practice – Stay of proceedings – Appropriate forum – Libel – American magazine accusing Russian plaintiffs of misconduct in Russia – Plaintiffs
bringing libel actions in England in respect of publication in England – Whether actions should be stayed on grounds of forum non conveniens.

An American business magazine published an article accusing the plaintiffs, two prominent Russian citizens, of being involved in organised crime in
Russia. The article was published in North America, where the magazine had a circulation of over 785,000, Russia, where only 13 copies were
distributed, and England, where the magazine had a circulation of just under 2,000 and a total readership of about 6,000. The plaintiffs, who both claimed
to have significant connections with England, chose to bring libel actions against the publisher and editor of the magazine in England, rather than in the
United States or Russia. In those proceedings, they confined their claims for damages to the publication of the article within the jurisdiction, and sought
leave to serve the writs on the defendants out of the jurisdiction. The defendants applied to have the writs set aside and the actions dismissed or stayed,
contending that England was not the most appropriate jurisdiction for the trial of the claims. The judge held that Russia was the more appropriate forum
and accordingly granted the stay. His decision was reversed by the Court of Appeal, which concluded that both plaintiffs had a substantial complaint
about English torts. The defendants appealed, contending, inter alia, that in transnational libel cases the court should treat the entire publication as if it
gave rise to one cause of action and ask whether it had been clearly proved that that action was best tried in England. They further contended that the
Court of Appeal had erred in relying on a line of authority which held that the jurisdiction in which the tort had been committed was prima facie the
natural forum for determination of the dispute.

Held – (Lord Hoffmann and Lord Hope dissenting) The global theory was contrary to the well-established principles of libel law, namely that each
publication was a separate tort, and was inconsistent with the principles governing the question of the appropriate forum. Nor, in the instant case, was the
invocation of the global theory underpinned by considerations of justice. All the constituent elements of the tort had occurred in England, there had been a
significant distribution of the defamatory material in England and the plaintiffs had reputations in England to protect. In such a case, it was not unfair that
the foreign publisher should be sued in England. Furthermore, there was no advantage in requiring judges to embark on the complicated hypothetical
inquiry suggested by the defendants. Moreover, it was accepted that the place where the tort arose in substance was a weighty factor pointing to that
place as the ­ 986 appropriate jurisdiction, and there was a rather fine distinction between a prima facie position and treating the same factor as a
weighty circumstance pointing in the same direction. In the instant case, the Court of Appeal had been entitled to interfere with the judge’s exercise of
his discretion, had identified the appropriate principles and had applied them correctly. Accordingly, the appeals would be dismissed (see p 993 e to p
994 d, p 995 e f, p 996 c to e, p 998 h and p 1014 b, post).
Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey, The Albaforth [1984] 2 Lloyd’s Rep 91 and Spiliada Maritime Corp v
Cansulex Ltd, The Spiliada [1986] 3 All ER 843 considered.

Notes
For stay of proceedings on grounds of forum non conveniens, see 8(1) Halsbury’s Laws (4th edn reissue) para 1085.

Cases referred to in opinions

Airbus Industrie GIE v Patel [1998] 2 All ER 257, [1999] 1 AC 119, [1998] 1 WLR 686, HL.
Bata v Bata [1948] WN 366, CA.
Brunswick and Luneberg (Duke of) v Harmer (1849) 14 QB 185, 117 ER 75.
Chadha & Osicom Technologies Ltd v Dow Jones & Co Inc [1999] EMLR 724, CA.
Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey, The Albaforth [1984] 2 Lloyd’s Rep 91, CA.
Diamond v Sutton [1866] LR 1 Ex 130.
Distillers Co (Biochemicals) Ltd v Thompson [1971] 1 All ER 694, [1971] AC 458, [1971] 2 WLR 441, PC.
Eyre v Nationwide News Proprietary Ltd [1967] NZLR 851, NZ SC.
Hadmor Productions Ltd v Hamilton [1982] 1 All ER 1042, [1983] 1 AC 191, [1982] 2 WLR 322, HL.
Kroch v Rossell & Cie SPRL [1937] 1 All ER 725, CA.
Ladd v Marshall [1954] 3 All ER 745, [1954] 1 WLR 1489, CA.
Lee v Wilson & Mackinnon (1934) 51 CLR 276, Aust HC.
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Longworth v Hope (1865) 3 Macph (Ct of Sess) 1049.

Lonrho plc v Fayed [1991] 3 All ER 303, [1992] 1 AC 448, [1991] 3 WLR 188, HL.
McLean v David Syme & Co Ltd (1970) 92 WN (NSW) 611, NSW SC.
Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1989] 3 All ER 14, [1990] 1 QB 391, [1989] 3 WLR 563, CA.
New York Times Co v Sullivan (1964) 376 US 254, US SC.
Piglowska v Piglowski [1999] 3 All ER 632, [1999] 1 WLR 1360, HL.
Ratcliffe v Evans [1892] 2 QB 524, [1891–4] All ER Rep 699, CA.
Reynolds v Times Newspapers Ltd [1999] 4 All ER 609, [1999] 3 WLR 1010, HL.
Schapira v Ahronson [1999] EMLR 735, CA.
Shevill v Presse Alliance SA Case C-68/93 [1995] All ER (EC) 289, [1995] 2 AC 18, [1995] 2 WLR 499, [1995] ECR I-415, ECJ.
Shevill v Presse Alliance SA [1996] 3 All ER 929, [1996] AC 959, [1996] 3 WLR 420, HL.
Spiliada Maritime Corp v Cansulex Ltd, The Spiliada [1986] 3 All ER 843, [1987] AC 460, [1986] 3 WLR 972, HL.

Appeals
James W Michaels and Forbes Inc, the defendants in separate libel actions brought by the plaintiffs, Boris Berezovsky and Nikolai Glouchkov, appealed
­ 987 with leave of the Appeal Committee of the House of Lords given on 26 April 1999 from the order of the Court of Appeal (Hirst, May LJJ and Sir
John Knox) on 19 November 1998 ([1999] EMLR 278) allowing the plaintiffs’ appeals from the orders of Popplewell J on 22 October 1997 and 19
December 1997 staying their actions on the grounds of forum non conveniens. The facts are set out in the opinion of Lord Steyn.

Geoffrey Robertson QC and Heather Rogers (instructed by Biddle) for the defendants.
James Price QC and Justin Rushbrook (instructed by Peter Carter-Ruck & Partners) for the plaintiffs.

Their Lordships took time for consideration.

11 May 2000. The following opinions were delivered.

LORD STEYN. My Lords, in the wake of the collapse of the Soviet Union the transition of Russia from communism to a market-orientated economy
and society has been accompanied by a dramatic upsurge in organised crime and corruption. There has been great interest internationally in these
consequences of the transformation of Russian society. Newspapers and journals specialising in international news, political and economic, published
many reports on the criminalisation of Russian society. Forbes, an influential American fortnightly magazine, devoted considerable resources to the
investigation and reporting of the situation in the post-Soviet phase in Russia. In 1996 its reporting centred on the role of two considerable figures in the
new Russia. The first and most powerful was Mr Boris Berezovsky. He is a businessman and politician. He has extensive interests in Russian
businesses, including cars, oil, media and finance. In October 1996 he became deputy secretary of the Security Council of the Russian Federation which
is a senior post in the Russian government. His subsequent career is not directly relevant but I mention it for an understanding of the context. In
November 1997 President Yeltsin dismissed Mr Berezovsky. In April 1998 Mr Berezovsky was appointed as secretary of the Commonwealth of
Independent States, with responsibility for co-operation between the various parts of the Russian Federation. The second figure of interest to Forbes was
Mr Nikolai Glouchkov. In December 1996 he was the first deputy manager of Aeroflot, the Russian international airline. He is now the managing
director of Aeroflot.
In its issue of 30 December 1996 Forbes described the two men as ‘criminals on an outrageous scale’. On the contents page Mr Berezovsky was
introduced as follows: ‘Is he the Godfather of the Kremlin? Power, Politics, Murder. Boris Berezovsky can teach the guys in Sicily a thing or two.’

The flavour of the article, which together with a prominent photograph of Mr Berezovsky was spread over seven pages, is captured by an editorial
published by Mr James W Michaels, the editor of Forbes. It states:

‘… this is the true story of the brilliant, unscrupulous Boris Berezovsky, a close associate of President Boris Yeltsin and a man who parlayed an
auto dealership into Russia’s most formidable business empire. Berezovsky stands tall as one of the most powerful men in Russia. Behind him lies
a trail of corpses, uncollectible debts and competitors terrified for their lives. ­ 988 A number of FORBES editorial staffers were involved in the
reporting and picture-gathering over a period of many months. As one of them puts it: “In Moscow, asking questions about Berezovsky was like
being back there in pre-Gorbachev days. At the very mention of Berezovsky’s name, people would look around furtively, lower their voices and try
to change the subject.” Russians have good reason to be afraid of Berezovsky and people like him: Emulating the old communist bosses, the new
crime bosses use KGB-trained assassins and enforcers. In the prevalence of brutality and extralegal power grabs, Russia hasn’t finished paying the
price for those 70 years of communism. This is one of the finest pieces of reporting I have seen in my half-century in journalism.’

In the article Forbes described Mr Glouchkov as follows:

‘Now meet Aeroflot’s deputy director, Nikolai Glushkov This gentleman has an interesting background. He was convicted in 1982 under
Article 89 of the Russian criminal code (theft of state property). Later Glushkov served as head of finance for Avtovaz and was one of the founders
of Logovaz. In short, an associate of Berezovsky. Are Glushkov and Berezovsky in cahoots to siphon money from Aeroflot? The parallels with
Avtovaz are certainly striking.’

The circulation figures of the issue of Forbes of 30 December 1996 would have been of the following order:

Subscriptions News stands Total

United States and Canada 748,123 37,587 785,710
England and Wales 566 1,349 1,915
Russia 13 0 13

The magazine was also available to be read on the Internet in England and Wales and elsewhere. The readers of Forbes are predominantly people
involved in business. Typically, many of its readers would have come from those working in corporate finance departments of banks and financial
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institutions. There is an agreed estimate that the magazine would have been seen by about 6,000 readers in the jurisdiction.

The proceedings
Mr Berezovsky and Mr Glouchkov both speak English well. Mr Berezovsky claimed to have extensive personal and business connections with
England; Mr Glouchkov asserted that he had significant connections with England. Both men decided to sue in England rather than in Russia or the
United States. On 12 February 1997 they issued separate proceedings for damages for libel and injunctions against Forbes Inc (the publisher of the
magazine) and Mr Michaels (the editor). The plaintiffs confined their claims for damages to the publication of Forbes within the jurisdiction through
distribution of copies of the magazine and through publication on the Internet. They applied under RSC Ord 11, r 1(1)(f) for leave to serve the writs out
of the jurisdiction. The relevant part of the order makes it permissible to serve a writ out of the jurisdiction where ‘the claim is founded on a tort and the
damage was sustained, or resulted from an act committed, within the jurisdiction’: see also Ord 11, r 4 which provides that no leave shall be granted
unless the case is ‘a proper one for service out of the ­ 989 jurisdiction’. On 7 April 1997 the Forbes parties (to whom I will collectively refer as
Forbes) applied under Ord 12, r 8, to have the writs set aside and the actions dismissed or stayed, on the grounds that England is not the most appropriate
jurisdiction for trial of the plaintiffs’ claims. It was contended that Russia or the United States were jurisdictions where the action could more
appropriately be tried. A large number of affidavits were exchanged. Expert evidence on the law of Russia and the law of the United States was served.
Hundreds of pages of press cuttings and other documents were exhibited.
At first instance, and in the Court of Appeal ([1999] EMLR 278), the principal factual dispute was the extent of the connections of the plaintiffs with
England and their reputations here. The plaintiffs claimed to have substantial connections with the jurisdiction through visits, business relationships and,
in the case of Mr Berezovsky, personal and family ties. Forbes maintained that the connections were insignificant compared with their connections with
Russia, and were insufficient to make this jurisdiction the most appropriate for the trial of the action.
On 22 October 1997 Popplewell J heard the applications by Forbes. He gave two judgments. In the first he correctly held that, notwithstanding that
an English tort was established, he had jurisdiction to stay the action on the principles laid down by the House in Spiliada Maritime Corp v Cansulex Ltd,
The Spiliada [1986] 3 All ER 843, [1987] AC 460. In the second judgment Popplewell J considered the merits of the applications. He concluded that the
connections of the plaintiffs with the jurisdiction were tenuous. The judge clearly thought Russia was the more appropriate forum because in a judgment
given on 19 December 1997 he required Forbes to submit to the jurisdiction of the Russian courts and to abide by the judgment of the Russian courts.
The plaintiffs appealed to the Court of Appeal. About four weeks before the appeal was heard the plaintiffs served further evidence about the
detrimental effect which the Forbes article had on the reputation of the plaintiffs in London. Forbes also served a further affidavit. Notwithstanding the
objections of Forbes, the Court of Appeal in exercise of its discretion admitted the new evidence. On 19 November 1998 the Court of Appeal allowed the
appeal of both plaintiffs. Hirst LJ, who has vast experience of this class of work, gave the leading judgment and May LJ and Sir John Knox agreed. Hirst
LJ (at 300) held that Popplewell J had misdirected himself on the evidence and that the Court of Appeal was entitled to consider the matter afresh. Hirst
LJ concluded that there was a substantial complaint about English torts in the case of both plaintiffs. Accordingly, there was jurisdiction to try the action
in England and in all the circumstances England was the appropriate jurisdiction for the trial of the action. The judgment of the Court of Appeal is only
reported in [1999] EMLR 278 at present.

The shape of the appeal to the House

The shape of the case changed during the oral argument in the House. At the end of speeches the principal matters in issue were as follows. (1) Did
the Court of Appeal err in admitting the plaintiffs’ new evidence? (2) Should the House of Lords grant a petition by Forbes to produce new evidence on
the appeal to the House and, if so, should the House grant a counter-petition by the plaintiffs? (3) Depending on the answers to the first two issues, what is
objectively the realistic view on the primary issue of fact, viz the plaintiffs’ connections with England and reputation here? (4) Did the Court of Appeal
correctly apply ­ 990 the Spiliada test? (5) Was the Court of Appeal entitled to interfere with the exercise by Popplewell J of his discretion? (6) Even
if the decision of the Court of Appeal in respect of Mr Berezovsky’s action was correct, what is the position with regard to Mr Glouchkov? While I will
deal with all these issues, I propose to concentrate on the questions of legal principle arising under issue (4).

Issue (1): the admission of the new evidence by the Court of Appeal
Counsel for Forbes renewed a submission that the new evidence presented to the Court of Appeal did not satisfy the well-known criteria laid down in
Ladd v Marshall [1954] 3 All ER 745, [1954] 1 WLR 1489. That decision is inapplicable to the admission of new evidence on an appeal from a decision
to set aside leave to serve out of the jurisdiction. The Court of Appeal had a broader discretion. In the present case the evidence was in amplification of a
case already outlined in previous affidavits. But it added important colour to the picture before Popplewell J. The new evidence was served four weeks
before the hearing of the Court of Appeal. Forbes had an adequate opportunity to answer the evidence. In these circumstances the Court of Appeal was
acting well within its discretion in admitting the evidence. I would reject the submission to the contrary.

Issue (2): the petition by Forbes to introduce new evidence

The petition by Forbes is to introduce new evidence on the appeal to the House, particularly on the previously wholly unparticularised defence of
justification. The petition was served on 22 February 2000, ie shortly before the hearing in the House. The evidence should have been served before the
hearing in the Court of Appeal, notably because the trial judge had in October 1997 commented adversely on the failure of Forbes to produce any
evidence of the supposed plea of justification. There is no satisfactory explanation for the failure to produce this evidence before the hearing in the Court
of Appeal. Moreover, the Court of Appeal observed in November 1998 that in the absence of a particularised defence of justification the judge was right
to discount the justification defence for present purposes. Notwithstanding this observation it took more than 15 months for Forbes to serve their new
evidence. It was produced too late. The possibility of prejudice to the plaintiffs cannot be ignored. The admission of new evidence, depending on the
circumstances, tends to be an exceptional course in the House of Lords. Nothing warranting admission of the new evidence has been put before the
House. The petition should be rejected. In consequence the counter-petition falls away. It follows that the House must consider the issues on the
evidence as it stood before the Court of Appeal.

Issue (3): the primary issue of fact as to the plaintiffs’ connections with England and reputations here
Before the judge there was an affidavit by Mr Berezovsky in which he stated:
‘Over the past several years I have had extensive contacts with England, in business, in government service and personally. During the years in
which I pursued my career in international business and finance, I worked frequently in London and with persons and companies based in London.
This is entirely understandable, given London’s status as the international business and financial capital of Europe, where all of my business
interests have been based, and of which Russia is an increasingly important part.’
­ 991
Mr Berezovsky then gave concrete examples of fruitful negotiations in London on behalf of Russian enterprises as well as participation in joint
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enterprises. In 1994–1995 he visited London on 22 occasions and in 1996–1997 on nine occasions, the reduced rate being due to his involvement in
government. He kept an apartment in London. His wife from whom he has separated lives in London with their two children. He often visited them. He
also had two daughters from a previous marriage at Cambridge University. As Hirst LJ ([1999] EMLR 278 at 288) observed, it was surprising on this
evidence that the judge found that Mr Berezovsky’s connections with England were tenuous.
The new material admitted in the Court of Appeal included concrete evidence from three independent sources as to the effect of the Forbes article on
Mr Berezovsky’s business reputation. The three deponents were a commercial solicitor, the managing director of a Swiss company and the managing
director of a Russian oil company. It is not necessary to set out their evidence in detail. It is sufficient to say that the Forbes article was known to
executives of financial institutions and deterred them from entering or continuing London-based negotiations with Mr Berezovsky.
Hirst LJ (at 290) was right to conclude that on this evidence, together with the original evidence, Mr Berezovsky had ‘a substantial connection with
this country, and an important business reputation to protect here’.
Mr Glouchkov’s connections with England were of a lesser order. In his original affidavit he explained:
‘Over the past several years I have had extensive contacts with England … I frequently visit and work at Aeroflot’s offices in Piccadilly in
London. Among other projects, I worked with Mr Berezovsky and others to assist Aeroflot in obtaining adequate and cost effective insurance
coverage in the English insurance market. We succeeded in achieving this goal by obtaining new insurance policies for Aeroflot in England
through the London-based Alexander Howden insurance brokerage firm. 8. I have also travelled to London pursuant to my work for Aeroflot for
meetings with the SG Warburg investment banking firm in London. 9. I have also visited London pursuant to my work for Aeroflot for meetings at
the London headquarters of the European Bank for Reconstruction and Development, which is helping to structure financing for Aeroflot. I am
personally involved in extensive negotiations with the EBRD in London in connection with this matter. 10. In addition, I have travelled to London
pursuant to my work for Aeroflot to negotiate certain banking financing for the company. In particular, I have worked with the London offices of
the Chase Manhattan Bank, which is assisting Aeroflot in connection with its purchase of aircraft, the London office of Citibank, and the London
office of Kredietbank. 11. I have also maintained a flat in London since 1993.’
Mr Glouchkov’s affidavit was corroborated by an experienced international businessman. On the basis of this evidence Hirst LJ (at 291) observed
that the judge’s view that Mr Glouchkov only had tenuous connections with the jurisdiction did not do full justice to the evidence. In agreement with
Hirst LJ, I would also describe Mr Glouchkov’s connections as significant.

Issue (4): did the Court of Appeal apply the Spiliada test correctly?
In the Court of Appeal counsel for Forbes submitted (at 298) ‘that the correct approach is to treat multi-jurisdiction cases like the present as giving
rise to a single cause of action, and then to ascertain where the global cause of action ­ 992 arose’. In aid of this argument he relied by analogy on the
experience in the United States with the Uniform Single Publication Act which provides, in effect, that, in respect of a single publication only one action
for damages is maintainable. See also William L Prosser ‘Interstate Publication’ (1953) 51 Mich LR 959 and American Law Institute, Restatement of the
Law, Torts 2d (1977) § 577A, p 208. The Uniform Single Publication Act does not assist in selecting the most suitable court for the trial: it merely
prevents a multiplicity of suits. There is no support for this argument in English law. It is contrary to the long-established principle of English libel law
that each publication is a separate tort. Moreover, it is inconsistent with the policy underlying the acceptance by the Court of Justice of the European
Communities in Shevill v Presse Alliance SA Case C-68/93 [1995] All ER (EC) 289, [1995] ECR I-415, admittedly a convention case, that separate
actions in each relevant jurisdiction are in principle permissible. See also Shevill v Presse Alliance SA [1996] 3 All ER 929, [1996] AC 959 and A Reed
and T P Kennedy, ‘International torts and Shevill: the ghost of forum shopping yet to come’ (1996) LMCLQ 108. And, as Hirst LJ observed, the single
cause of action theory, if adopted by judicial decision in England, would disable a plaintiff from seeking an injunction in more than one jurisdiction. In
the context of the multiplicity of state jurisdictions in the United States there is no doubt much good sense in the Uniform Single Publication Act. But the
theory underpinning it cannot readily be transplanted to the consideration by English courts of transnational publications. Rightly, the Court of Appeal
rejected this submission. In oral argument counsel for Forbes made clear that he was not pursuing such an argument before the House.
On appeal to the House counsel for Forbes approached the matter differently. The English law of libel has three distinctive features, viz (1) that each
communication is a separate libel (Duke of Brunswick and Luneberg v Harmer (1849) 14 QB 185, 117 ER 75, McLean v David Syme & Co Ltd (1970) 92
WN (NSW) 611), (2) that publication takes place where the words are heard or read (Bata v Bata [1948] WN 366, Lee v Wilson & Mackinnon (1934) 51
CLR 276), and (3) that it is not necessary for the plaintiff to prove that publication of defamatory words caused him damage because damage is presumed
(Ratcliffe v Evans [1892] 2 QB 524 at 529, [1891–4] All ER Rep 699 at 702–703, per Bowen LJ). The rigour of the application of these rules is mitigated
by the requirement that in order to establish jurisdiction a tort committed in the jurisdiction must be a real and substantial one (Kroch v Rossell & Cie
SPRL [1937] 1 All ER 725). On the findings of fact of the Court of Appeal, which I have accepted, it is clear that jurisdiction under Ord 11, r 1(1)(f) is
established and counsel accepted that this is so. But counsel put forward the global theory on a reformulated basis. He said that when the court, having
been satisfied that it has jurisdiction, has to decide under Ord 11 whether England is the most appropriate forum:
‘… the correct approach is to treat the entire publication—whether by international newspaper circulation, transborder or satellite broadcast or
Internet posting—as if it gives rise to one cause of action and to ask whether it has been clearly proved that this action is best tried in England.’
If counsel was simply submitting that in respect of transnational libels the court exercising its discretion must consider the global picture, his
proposition would be uncontroversial. Counsel was, however, advancing a more ambitious pro- position. He submitted that in respect of transnational
libels the principles enunciated by the House in The Spiliada should be recast to proceed on assumption that there is in truth one cause of action. The
result of such a ­ 993 principle, if adopted, will usually be to favour a trial in the home courts of the foreign publisher because the bulk of the
publication will have taken place there. Counsel argued that it is artificial for the plaintiffs to confine their claim to publication within the jurisdiction.
This argument ignores the rule laid down in Diamond v Sutton [1866] LR 1 Ex 130 at 132 that a plaintiff who seeks leave to serve out of the jurisdiction
in respect of publication within the jurisdiction is guilty of an abuse if he seeks to include in the same action matters occurring elsewhere. See also Eyre v
Nationwide News Proprietary Ltd [1967] NZLR 851. In any event, the new variant of the global theory runs counter to well-established principles of
libel law. It does not fit into the principles so carefully enunciated in The Spiliada. The invocation of the global theory in the present case is also not
underpinned by considerations of justice. The present case is a relatively simple one. It is not a multi-party case: it is, however, a multi-jurisdictional case.
It is also a case in which all the constituent elements of the torts occurred in England. The distribution in England of the defamatory material was
significant. And the plaintiffs have reputations in England to protect. In such cases it is not unfair that the foreign publisher should be sued here.
Pragmatically, I can also conceive of no advantage in requiring judges to embark on the complicated hypothetical enquiry suggested by counsel. I would
reject this argument.
Counsel next put forward a more orthodox argument. He acknowledged that the Court of Appeal invoked the well-known principles laid down in
The Spiliada ([1986] 3 All ER 843 at 853, 861, [1987] AC 460 at 474, 484). Hirst LJ correctly stated that the court must identify the jurisdiction in which
the case may be tried most suitably or appropriately for the interests of all the parties and the ends of justice. Hirst LJ ([1999] EMLR 278 at 293) also
emphasised that in an Ord 11 case the burden of proof rests upon the plaintiff to establish that the English jurisdiction clearly satisfies this test. So far
there can be no criticism of the approach of the Court of Appeal. But counsel submitted that Hirst LJ fell into error by relying on a line of authority which
holds that the jurisdiction in which a tort has been committed is prima facie the natural forum for the determination of the dispute. The best example is
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Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey, The Albaforth [1984] 2 Lloyd’s Rep 91 where the Court of Appeal considered a
claim founded on a negligent mistatement in a status report by a bank relating to the credit of a guarantor of a company’s obligations under a charterparty.
The statement was contained in a telex sent by the bank from New York to shipowners in London. At first instance the judge set aside leave to serve out
of the jurisdiction. The Court of Appeal allowed the appeal. Ackner LJ (sub- sequently Lord Ackner) observed (at 94): ‘… the jurisdiction in which a tort
has been committed is prima facie the natural forum for the determination of the dispute. England is thus the natural forum for the resolution of this
dispute.’
Robert Goff LJ (who became Lord Goff of Chieveley) observed (at 96):
‘Now it follows from those decisions that, where it is held that a Court has jurisdiction on the basis that an alleged tort has been committed
within the jurisdiction of the Court, the test which has been satisfied in order to reach that conclusion is one founded on the basis that the Court, so
having jurisdiction, is the most appropriate Court to try the claim, where it is manifestly just and reasonable that the defendant should answer for his
wrongdoing. This being so, it must usually be difficult in any particular case to resist the conclusion that a Court which has jurisdiction on that
basis must also be the natural forum for the trial of the action. If the substance of an alleged tort is committed within a certain jurisdiction, it is not
easy to ­ 994 imagine what other facts could displace the conclusion that the Courts of that jurisdiction are the natural forum.’
There is also direct support for this approach before and after The Albaforth. See Distillers Co (Biochemicals) Ltd v Thompson [1971] 1 All ER 694
at 700, [1971] AC 458 at 468, per Lord Pearson, Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1989] 3 All ER 14, [1990] 1 QB 391, a
Court of Appeal decision subsequently overruled in Lonrho plc v Fayed [1991] 3 All ER 303, [1992] 1 AC 448 on other aspects, Schapira v Ahronson
[1999] EMLR 735. The express or implied supposition in all these decided cases is that the substance of the tort arose within the jurisdiction. In other
words the test of substantiality as required by Kroch v Rossell & Cie SPRL [1937] 1 All ER 725 was in each case satisfied. Counsel for Forbes argued
that a prima facie rule that the appropriate jurisdiction is where the tort was committed is inconsistent with The Spiliada. He said that The Spiliada admits
of no presumptions. The context of the two lines of authority must be borne in mind. In The Spiliada the House examined the relevant questions at a high
legal of generality. The leading judgment of Lord Goff is an essay in synthesis: he explored and explained the coherence of legal principles and provided
guidance. Lord Goff did not attempt to examine exhaustively the classes of cases which may arise in practice, notably he did not consider the practical
problems associated with libels which cross national borders. On the other hand, the line of authority of which The Albaforth is an example was concerned
with practical problems at a much lower level of generality. Those decisions were concerned with the bread and butter issue of the weight of evidence.
There is therefore no conflict. Counsel accepted that he could not object to a proposition that the place where in substance the tort arises is a weighty
factor pointing to that jurisdiction being the appropriate one. This illustrates the weakness of the argument. The distinction between a prima facie position
and treating the same factor as a weighty circumstance pointing in the same direction is a rather fine one. For my part The Albaforth line of authority is
well established, tried and tested, and unobjectionable in principle. I would hold that Hirst LJ correctly relied on these decisions.
Next counsel for Forbes argued that, in any event, on conventional Spiliada principles Russia, or the United States, are more appropriate jurisdictions
for the trial of the action. This submission must be approached on the basis that the plaintiffs have significant connections with England and reputations
to protect here. It is, of course, true that the background to the case is events which took place in Russia. Counsel for Forbes argued that evidence in
support of a defence of justification is to be found in Russia. Popplewell J and Hirst LJ concluded that in the absence of a particularised plea of
justification to give no or little weight to this factor. Despite the valiant attempts by counsel for Forbes to argue that there is an evidential basis for a plea
of justification, I remain unpersuaded. A full examination of the merits and demerits of the charges and counter-charges must, however, await the trial of
the action. It is true that Forbes may also be able to plead qualified privilege on the basis of the law as stated by the House of Lords in Reynolds v Times
Newspapers Ltd [1999] 4 All ER 609, [1999] 3 WLR 1010. But the evidence of such a plea would presumably largely be in the United States where the
reporters are based and where the documents are. In any event, there is nothing to indicate the contrary. Moreover, there are two substantial indications
pointing to Russia not being the appropriate jurisdiction to try the action. The first is that only 13 copies were distributed in Russia. Secondly, and most
importantly, on the evidence adduced by Forbes about the judicial system in ­ 995 Russia, it is clear that a judgment in favour of the plaintiffs in Russia
will not be seen to redress the damage to the reputations of the plaintiffs in England. Russia cannot therefore realistically be treated as an appropriate
forum where the ends of justice can be achieved. In the alternative counsel for Forbes argued that the United States is a more appropriate jurisdiction for
the trial of the action. There was a large distribution of the magazine in the United States. It is a jurisdiction where libel actions can be effectively and
justly tried. On the other hand, the connections of both plaintiffs with the United States are minimal. They cannot realistically claim to have reputations
which need protection in the United States. It is therefore not an appropriate forum.
In agreement with Hirst LJ I am satisfied that England is the most appropriate jurisdiction for the trial of the actions.

Issue (5): was the Court of Appeal entitled to interfere with the exercise of discretion by Popplewell J?
Counsel for Forbes submitted that the Court of Appeal was not entitled to interfere with the exercise by Popplewell J of his discretion. Popplewell J
certainly observed that if a plaintiff is libelled in this country, he should prima facie be allowed to bring his claim here. But Popplewell J also said that
the case ‘involves nothing but Russia’. He also described the connections of the plaintiffs with England as ‘tenuous’. He therefore by necessary
implication took the view that in substance the plaintiff did not have reputations to protect in England. In the result he misdirected himself as to a
significant English dimension of the case. I am satisfied that the exercise of discretion by the judge was flawed. The Court of Appeal was entitled to
intervene.

Issue (6): Mr Glouchkov

Counsel for Forbes finally submitted that, even if his appeal in respect of the action brought by Mr Berezovsky fails, the appeal in respect of Mr
Glouchkov must succeed. He did not suggest such a possible outcome to the Court of Appeal. The Court of Appeal was entitled to assume, and did
assume, that the two appeals ought to be decided in the same way. If alerted to the possibility of a differential result the Court of Appeal might have dealt
with the matter differently. In my view this argument is not open to Forbes. But I am also unpersuaded that it has any merit.

Postscript on the Internet

In their statements of claim the plaintiffs relied on the fact that the Forbes article is also available to be read online on the Internet within the
jurisdiction. The Court of Appeal referred to this aspect only in passing. During the course of interesting arguments it became clear that there is not the
necessary evidence before the House to consider this important issue satisfactorily. Having come to a clear conclusion without reference to the
availability of the article on the Internet it is unnecessary to discuss it in this case.

Conclusion
I would dismiss both the petition and counter-petitions presently before the House. For reasons which are substantially the same as those given by
Hirst LJ in his careful and impressive judgment, I would also dismiss both appeals.
­ 996
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LORD NOLAN. My Lords, I agree with the views expressed by my noble and learned friend Lord Steyn. I too would dismiss this appeal.
The central question raised by the appeal is whether the Court of Appeal were justified in reversing the decision of Popplewell J that the plaintiffs’
actions could be stayed. The learned judge held that the plaintiffs had not made out their case for seeking leave to serve process out of the jurisdiction;
they had failed to establish that the English courts were the most appropriate forum for the trial of their actions.
The essence of both plaintiffs’ claims is that their reputations in this country have been severely damaged by the article complained of, and that it is
vital for the successful continuation of their personal, business and, in the case of Mr Berezovsky, official activities in this country that they should be
able to defend and vindicate their integrity in an English court. The claims are confined to damage sustained within the jurisdiction.
Popplewell J granted the stay because he took the view that: ‘… the two plaintiffs’ connection with this country is tenuous. There is some, but it is
tenuous.’ He added:
‘It is clear from reading the article that there is no English connection in the article at all. It is in an American magazine, written in American
style (if that is the right way of putting it) and it is wholly connected with matters in Russia. There is no connection with anything which has
occurred in this country in the article.’
In the Court of Appeal ([1999] EMLR 278) Hirst LJ, with whom May LJ and Sir John Knox agreed, said (at 283):
‘It is elementary, and was rightly stressed by Mr Robertson, that these were decisions within the scope of the judge’s discretion, so that the
Court of Appeal should only interfere if the judge erred in principle, or seriously misapprehended relevant matters, or took into account irrelevant
ones. Mr Price submitted that his case meets these criteria on two main grounds: 1. The judge in his second judgment disregarded the important
line of authority canvassed in his first judgment, and gave little or no weight to the key fact that the torts sued on were committed in England. 2. He
misapprehended the extent of the plaintiffs’ connections with and reputation in England on the evidence then before him, which has, of course, been
significantly supplemented by the further evidence.’
Dealing generally with these grounds, Hirst LJ said that he found it somewhat surprising that the judge had concluded, on the evidence before him,
that Mr Berezovsky’s connections with England were tenuous. However, in addition to that evidence, the Court of Appeal had the advantage of further
evidence which, to Hirst LJ’s mind, placed the strength of his connections beyond doubt.
Hirst LJ recited the further evidence in some detail. I would refer briefly to the affidavit of Mr Eugene Shvidler, who is vice-president of Sibneft,
one of the largest oil companies in Russia. Mr Berezovsky served on its board of directors until 1996 and, according to Mr Shvidler, still tends to be
publicly identified with it. Mr Shvidler states among other things that he has been personally involved in the company’s efforts to raise capital, and has
had frequent dealings with people in London, because of the City’s importance as a major financial centre. The Forbes article had frequently been
mentioned to him. He had received ‘a great ­ 997 deal of negative feedback from investors, including those in the UK who have expressed concern
about Mr Berezovsky’s role in the company’. He was left in no doubt about ‘the detrimental effect of the Forbes article upon Mr Berezovsky’s reputation
and upon the reputation of the companies with which his name is associated amongst the financial community of London’.
Further evidence to the same effect is contained in the affidavit of Mr Kuppers, the managing director of Forus Services SA, whose business consists
in the provision of financial services to leading corporations in Russia and elsewhere. Mr Berezovsky was a co-founder of the company, and Mr
Glouchkov was a non-executive director of other companies in the Forus group until 1997. The gist of the evidence put forward by Mr Kuppers is that the
reputations and credit of both plaintiffs, and thus the fund-raising ability in London of the companies with which they are associated, were seriously
damaged by the Forbes article.
Bearing in mind the colourful and explicit terms of the article—it quotes one American businessman as saying: ‘These guys are criminals on an
outrageous scale. It’s as if Lucky Luciano were Chairman of the board of Chrysler’—it would be hardly surprising if it had a detrimental effect upon the
reputations of the plaintiffs and the credit of the companies concerned. But in the international business and political world it is by no means unknown
for scoundrels, and even major criminals, to survive, to be accepted, and to prosper. Standards of conduct and of tolerance in such matters vary widely
from country to country. This case is solely concerned with the plaintiffs’ reputations in England. They seek to have their reputations judged by English
standards. The Court of Appeal thought that for this purpose England was the natural forum, and I agree with them. I do not follow the relevance of the
judge’s remark that the article has ‘no connection with anything which has occurred in this country’. A businessman or politician takes his reputation
with him wherever he goes, irrespective of the place where he has acquired it.
Mr Robertson QC, for the appellants, criticised Hirst LJ for saying that the judge had erred in principle in failing to take into account the decisions in
Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey, The Albaforth [1984] 2 Lloyd’s Rep 91, and Schapira v Ahronson [1999] EMLR
735 in his second judgment although, as Hirst LJ acknowledged, the judge had given careful consideration to these cases in his first judgment. But as the
judge himself had said in his second judgment: ‘As to the law on the subject, the principles are not in dispute. Like all these principles their application is
not always very easy.’
The Court of Appeal plainly considered that the judge had erred in his application of the governing principles to the evidence before him, and that
they were accordingly entitled to consider the matter afresh. In the light of the evidence before the judge they were in my judgment fully justified in
doing so and in concluding, with the assistance of the additional evidence, that his decision should be reversed.

LORD HOFFMANN. My Lords, the plaintiffs are Russian businessmen who claim that they have been defamed by an article published in an American
business magazine and distributed almost entirely in the United States but also in limited numbers in other countries including England. The article is
concerned with their activities in Russia. The plaintiffs seek to invoke the extra-territorial jurisdiction of the English court to require the American editor
and publishers to answer for the injury which they say has been done to them in this country. Their claim is limited to the effects of publication in
England and they say that England is clearly the appropriate forum in which such an action should be tried.
­ 998
The question of whether leave should be granted to serve the defendants in the United States came before Popplewell J on 22 October 1997. RSC
Ord 11, r 1(1)(f) confers jurisdiction when ‘the claim is founded on a tort and the damage was sustained, or resulted from an act committed within the
jurisdiction’. The plaintiffs adduced evidence that, as Russian businessmen, they made frequent visits to this country and were known to people here.
One of them had a divorced wife and children living here. Their activities in Russia had attracted a certain amount of publicity, not all favourable, in
English newspapers. So they had a reputation in this country and had therefore suffered ‘significant damage’ here. That was enough to found jurisdiction
under Ord 11, r (1)(f).
It is not sufficient, however, to bring one’s case within one of the paragraphs of Ord 11, r 1. The plaintiff is also required by Ord 11, r 4(2) to show
that ‘the case is a proper one for service out of the jurisdiction under this Order’. A decision on this question involves an exercise of the court’s discretion,
taking into account all the circumstances of the case. The principles upon which the discretion should be exercised are definitively stated in the speech of
Lord Goff of Chieveley in Spiliada Maritime Corp v Cansulex Ltd, The Spiliada [1986] 3 All ER 843 at 858–859, [1987] AC 460 at 481, 482. The
burden is upon the plaintiff to show that England is clearly the appropriate forum in which the case should be tried in the interests of all the parties and the
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ends of justice. The various paragraphs of Ord 11, r 1 include some where ‘one would have thought [that] the discretion would normally be exercised in
favour of granting leave’ and this was a matter to be taken into account but ‘the court should give to such factors the weight which, in all the
circumstances of the case, it considers to be appropriate’. Lord Templeman ([1986] 3 All ER 843 at 846–847, [1987] AC 460 at 465), in the same case,
said, that the decision was ‘pre-eminently a matter for the trial judge … An appeal should be rare and the appellate court should be slow to interfere’.
Popplewell J dealt with the application with commendable expedition. Submissions and judgment were concluded within a single day. He dealt first
with a preliminary point as to whether in the special case of a libel published within the jurisdiction, he had any discretion to refuse leave. He was
referred to the decision of the Court of Justice of the European Communities in Shevill v Presse Alliance SA Case C-68/93 [1995] All ER (EC) 289,
[1995] ECR I-415. This case concerned the application to libel proceedings of art 5(3) of the Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters 1968 (as set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982) (the Brussels Convention), which
confers jurisdiction in tort actions upon ‘the courts of the place where the harmful event occurred’. The Court of Justice decided that in the case of an
international libel through the press, the courts of each contracting state in which the defamatory publication was distributed and in which the victim was
known had jurisdiction to award damages for the injury to his reputation in that state. This was a jurisdiction which, in accordance with the fundamental
principles of the Brussels Convention, could not be declined on the ground of forum non conveniens.
Popplewell J rightly pointed out that the existence of jurisdiction under the Brussels Convention as against a person domiciled in a contracting state
was not necessarily a reason for exercising an extra-territorial jurisdiction under Ord 11 against a person not so domiciled. He did not develop the point,
but the differences which he no doubt had in mind were fully articulated by Lord Goff in the later case of Airbus Industrie GIE v Patel [1998] 2 All ER
257 at 263, [1999] 1 AC 119 at 132. He said that the purpose of the Brussels Convention was to parcel out jurisdiction according to clear rules:
­ 999
‘This system achieves its purpose, but at a price. The price is rigidity, and rigidity can be productive of injustice. The judges of this country,
who loyally enforce this system, not only between United Kingdom jurisdictions and the jurisdictions of other member states, but also as between
the three jurisdictions within the United Kingdom itself, have to accept the fact that the practical results are from time to time unwelcome. This is
essentially because the primary purpose of the Convention is to ensure that there shall be no clash between the jurisdictions of member states of the
Community.’

The common law approach to conflicts of jurisdiction was altogether different:

‘There is, so to speak, a jungle of separate, broadly based, jurisdictions all over the world. In England, for example, jurisdiction is founded on
the presence of the defendant within the jurisdiction, and in certain specified (but widely drawn) circumstances on a power to serve the defendant
with process outside the jurisdiction. But the potential excesses of common law jurisdictions are generally curtailed by the adoption of the principle
of forum non conveniens—a self-denying ordinance under which the court will stay (or dismiss) proceedings in favour of another clearly more
appropriate forum.’

Counsel nevertheless submitted that English case law showed that even outside the Brussels Convention, a plaintiff with a reputation in this country
who complained of a libel published in this country by a foreign resident had an unqualified right to bring proceedings against him here. He referred first
to the well-known decision in Cordoba Shipping Co Ltd v National State Bank, Elizabeth, New Jersey, The Albaforth [1984] 2 Lloyd’s Rep 91 which
decided that a negligent misrepresentation in a telex sent from the United States but received and acted upon in England was a tort committed within the
jurisdiction within the meaning of Ord 11, r 1(1)(h) as it then stood. Ackner LJ (at 94), following a dictum of Lord Pearson in Distillers Co
(Biochemicals) Ltd v Thompson [1971] 1 All ER 694 at 700, [1971] AC 458 at 468, said that ‘the jurisdiction in which a tort has been committed is prima
facie the natural forum for the determination of the dispute’. Robert Goff LJ said (at 96):
‘… where it is held that a Court has jurisdiction on the basis that an alleged tort has been committed within the jurisdiction of the Court, the test
which has been satisfied in order to reach that conclusion is one founded on the basis that the Court, so having jurisdiction, is the most appropriate
Court to try the claim, where it is manifestly just and reasonable that the defendant should answer for his wrongdoing. This being so, it must
usually be difficult in any particular case to resist the conclusion that a Court which has jurisdiction on that basis must also be the natural forum for
the trial of the action.’
The Albaforth was alluded to by Peter Gibson LJ in Schapira v Ahronson [1999] EMLR 735, in which the Court of Appeal refused to stay
proceedings brought by a British national, long resident in England, against an Israeli newspaper which had a very small circulation in this country. The
defendants had accepted service within the jurisdiction. The burden of showing that Israel was clearly the more appropriate forum was therefore upon the
defendants. Phillips LJ (at 749), described it as an ‘uphill task’. Peter Gibson LJ (at 745) said that the fact that the tort had been committed in the
jurisdiction was a factor which he said should be ­ 1000 taken into account, but he went on to say: ‘It is common ground that the court must conduct a
balancing exercise, weighing the factors which tell in favour of a trial in England against the factors which tell in favour of a foreign trial.’
Popplewell J considered these cases and decided that they did not constitute an exception to the general principle, laid down in The Spiliada, that the
question of whether England was clearly the appropriate forum should be decided on a consideration of all the facts of the case. He referred to Kroch v
Rossell & Cie SPRL [1937] 1 All ER 725, in which the Court of Appeal set aside an order for service of libel proceedings upon a French and Belgian
newspaper, notwithstanding the fact that some copies had been distributed in England, and concluded: ‘I therefore do not accept Mr Price’s view that his
clients have a right, an unchallengeable right, to bring proceedings here and that it is not open to the defendants to argue on the merits about it.’ This
conclusion has not been disputed.
The judge then proceeded immediately to hear argument on the merits and gave another ex tempore judgment. A large number of cases were cited to
him but he referred to no authority except the general principles stated by Lord Goff in The Spiliada. He explained his restraint as follows:

‘Each case depends upon its own particular facts, and one element in a particular case which is absent from another case may in fact be the
factor which persuaded the judge to decide the case one way rather than the other.’

This seems to me entirely right and in accordance with the wish expressed by Lord Templeman in The Spiliada that ‘I hope that in future the judge
… will not be referred to other decisions on other facts’. (See [1986] 3 All ER 843 at 846–847, [1987] AC 460 at 465.)
The judge considered the evidence of the plaintiffs’ links with this country. He summed it up by saying: ‘I take the view that the two plaintiffs’
connection with this country is tenuous. There is some but it is tenuous.’ He went on to comment on the article: ‘[T]here is no English connection in the
article at all … [I]t is wholly connected with matters in Russia.’ He said that he was satisfied on the expert evidence that substantial justice could be
done if the plaintiffs sued in Russia. The same would be true if they sued in the United States, despite differences in the libel laws of the three countries.
He said:
‘The argument in favour of the case being tried in Russia is that this is a peculiarly Russian case. It involves nothing but Russia. It involves
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Russian witnesses, it involves Russian companies, it involves Russian personalities and it involves a period of time with which the Russian courts
are more familiar than the English courts or those of the United States, with which they have no connection … I come back to look at the matter as
a whole. I do not have to decide whether Russia or America is more appropriate inter se. I merely have to decide whether there is some other forum
where substantial justice can be done. This case, to my mind, has almost no connection at all with this country. The fact that the plaintiffs want to
bring their action here is, I suppose, a matter that I should properly take into account. If a plaintiff is libelled in this country, prima facie he should
be allowed to bring his claim here where the publication is. But that is subject to the various matters to which I have already made reference and, in
my judgment, it seems to me unarguable that this case should … be tried in this country.’
­ 1001
The plaintiffs appealed against the exercise of the judge’s discretion. The function of an appellate court in such a case was stated by Lord Diplock in
Hadmor Productions Ltd v Hamilton [1982] 1 All ER 1042 at 1046, [1983] 1 AC 191 at 220:

‘The function of the appellate court is initially one of review only. It may set aside the judge’s exercise of his discretion on the ground that it
was based on a misunderstanding of the law or of the evidence before him …’

The Court of Appeal ([1999] EMLR 278), in a judgment given by Hirst LJ, said that the judge had misunderstood the law. After examining a large
number of other cases, Hirst LJ (at 299–300), accepted the submission of Mr Price QC for the appellants that where the English circulation of a foreign
publication gives rise to a ‘substantial complaint’, the question of the more appropriate forum is ‘governed’ by The Albaforth and Schapira’s case. He
concluded:
‘The judge gave careful consideration to these cases in his first judgment, but unfortunately erred in principle in failing to take them into
account in his second judgment, thus entitling us to exercise our discretion afresh.’
My Lords, there seems to me absolutely no basis for thinking that the judge failed to take those cases into account. He had, as Hirst LJ said,
analysed them in his earlier judgment. He had explained why he did not think it necessary to refer to them or any other cases again in his second
judgment. He had summarised the gist of them in the passage I have already quoted when he said: ‘If a plaintiff is libelled in this country, prima facie he
should be allowed to bring his claim here where the publication is.’ All that can be said is that he did not give the factor of publication in England the
overwhelming weight that the Court of Appeal thought he should have done. But the fact that an appellate court would have given more weight than the
trial judge to one of the many factors to be taken into account in exercising the discretion (‘The factors … are legion’ said Lord Templeman in The
Spiliada [1986] 3 All ER 843 at 846, [1987] AC 460 at 465) is not a ground for interfering with the exercise of his discretion.
Your Lordships were invited to examine a large number of cases, both at first instance and in the Court of Appeal. I have already referred to Kroch’s
case, in which the plaintiff proved no reputation in this country. On the other hand, in Schapira’s case the plaintiff had lived here for many years and
acquired British nationality. The decision of the Court of Appeal in this case has since been distinguished in Chadha & Osicom Technologies Ltd v Dow
Jones & Co Inc [1999] EMLR 724, in which the plaintiff and the defendants were both resident in the United States. The respondents say that that case is
likewise distinguishable. So it is. All the cases cited are in some respects similar and in some respects different. But, my Lords, I protest against the
whole exercise of comparing the facts of one case with those of another. It is exactly what Lord Templeman in The Spiliada said should not be done and
what the judge rightly refused to do.
A second ground upon which it was suggested in argument that the Court of Appeal were entitled to review the judge’s decision was that fresh
evidence had been admitted. The function of an appellate court which has admitted fresh evidence in a case such as this was also considered by Lord
Diplock in the Hadmor Productions Ltd case. He said:
‘… I cannot agree that the production of additional evidence before the Court of Appeal, all of which related to events that had taken place
earlier than the hearing before [the judge], is of itself sufficient to entitle the Court ­ 1002 of Appeal to ignore the judge’s exercise of his
discretion and to exercise an original discretion of its own. The right approach by an appellate court is to examine the fresh evidence in order to see
to what extent, if any, the facts disclosed by it invalidate the reasons given by the judge for his decision.’ (See [1982] 1 All ER 1042 at 1046,
[1983] 1 AC 191 at 220.)
Hirst LJ ([1999] EMLR 278 at 288) described the fresh evidence as falling into two categories. The first category consisted of affidavits by three
persons. First, a solicitor said that after the publication of the article, members of Deloitte & Touche in Manchester and executives of Nomura Bank and
Lehmann Bros in London had ‘harboured reservations’ about dealing with a company having links with Mr Berezovsky. Secondly, the managing director
of a Swiss company with whom Mr Berezovsky was associated said that in his dealings with financial institutions in London, he found that many
(unnamed) individuals expressed concern about Mr Berezovsky’s connections with the company. Thirdly, a Russian businessman on the board of a
Russian oil company associated with Mr Berezovsky said that it was apparent from his dealings in London that Mr Berezovsky’s name was well-known
there and that he had had ‘negative feedback’ from various unnamed individuals.
The second category of fresh evidence was a number of press cuttings from English newspapers published after the article appeared which referred to
Mr Berezovsky. Hirst LJ (at 290) said that this evidence showed that he was a ‘well known figure here’.
Popplewell J had recorded that Mr Berezovsky was a frequent visitor to this country on business. It was obvious that the people here with whom he
did business must have known him. He and his agent Lord Reading had deposed in some detail to the extent of his business activities. He was a
substantial figure in Aeroflot and vice-chairman of a television network which had extensive business contacts in England. I do not think that the judge
would have regarded the fresh evidence as adding anything of substance to what he already knew about Mr Berezovsky’s business links with England.
Nor would he have been surprised that his activities in Russia had given rise to newspaper publicity in this country. On any view, he was a person close
to the centre of power in Russia. In any case, for the reasons I shall give later, I do not think that the judge’s decision turned upon whether Mr
Berezovsky could be said to have a reputation in this country or not. The judge said that the plaintiffs’ connections with England were tenuous, but that is
a different matter. He meant that they were Russians who came here only on business. Their reputation in this country was based entirely on their
activities in Russia. One might equally say that President Yeltsin’s connections with this country were tenuous or non-existent. But no one would deny
that he was, to quote Hirst LJ, ‘a well known figure’ in this country. Like Mr Yeltsin, Mr Berezovsky has a truly international reputation. He has
lectured at Princeton, dined with George Soros and attended Rupert Murdoch’s wedding. He is in the newspapers and no doubt has media contacts all
over the world. His reputation in England is merely an inseparable segment of his reputation worldwide.
So when Popplewell J said that the plaintiffs’ connections with this country were tenuous, I do not think that he should be construed as having failed
to notice what was obvious upon the evidence before him, namely that the plaintiffs must have enjoyed a reputation among their circle of business
contacts in England, to say nothing of people who read the newspapers. The judge must ­ 1003 have meant what he said; that their connections, their
ties, with this country, were tenuous. If I may quote what I said in Piglowska v Piglowski [1999] 3 All ER 632 at 643–644, [1999] 1 WLR 1360 at 1372:

‘The exigencies of daily court room life are such that reasons for judgment will always be capable of having been better expressed. This is
particularly true of an unreserved judgment such as the judge gave in this case … These reasons should be read on the assumption that, unless he
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has demonstrated the contrary, the judge knew how he should perform his functions and which matters he should take into account … An appellate
court should resist the temptation to subvert the principle that they should not substitute their own discretion for that of the judge by a narrow
textual analysis which enables them to claim that he misdirected himself.’

If, as I think, the judge did not misdirect himself on the law and the fresh evidence would have made no difference, then the appellate court cannot
interfere with his discretion unless it is so perverse as to lead to the conclusion that although he recited the law correctly, he could not have adhered to the
principles he was purporting to apply. But without an absolute rule, as in Shevill’s case, that the courts of this country are obliged to take jurisdiction in
every case in which there is publication here of a libel on a plaintiff who is known in this country, I do not see why the judge was not entitled to decide
that England was not clearly the most appropriate forum for this action between Russian plaintiffs and an American defendant about activities in Russia.
The respondents say that what makes England the most appropriate forum is that the plaintiffs are claiming damages only for the injury to their
English reputations. What better tribunal could there be than an English judge or jury to assess the proper compensation? And they rely on the
justification which the Court of Justice gave in Shevill v Presse Alliance SA Case C-68/93 [1995] All ER (EC) 289 at 317, [1995] ECR I-415 at 462 (para
31) for the rule of jurisdiction which it laid down:
‘… the courts of each contracting state … in which the victim claims to have suffered injury to his reputation are territorially the best placed to
assess the libel committed in that state and to determine the extent of the corresponding damage.’
My Lords, there may be cases in which this is a relevant consideration and perhaps even an important one, although the decision in Shevill’s case has
attracted some adverse comment: see Mr Peter Carter QC in ‘Private International Law’ (1992) 63 BYIL 519. But the notion that Mr Berezovsky, a man
of enormous wealth, wants to sue in England in order to secure the most precise determination of the damages appropriate to compensate him for being
lowered in the esteem of persons in this country who have heard of him is something which would be taken seriously only by a lawyer. An English award
of damages would probably not even be enforceable against the defendants in the United States: see Kyu Ho Youm ‘The Interaction between American
and Foreign Libel Law: US Courts refuse to enforce English Libel Judgments’ (2000) 49 ICLQ 131. The common sense of the matter is that he wants the
verdict of an English court that he has been acquitted of the allegations in the article, for use wherever in the world his business may take him. He does
not want to sue in the United States because he considers that New York Times Co v Sullivan (1964) 376 US 254 makes it too likely ­ 1004 that he will
lose. He does not want to sue in Russia for the unusual reason that other people might think it was too likely that he would win. He says that success in
the Russian courts would not be adequate to vindicate his reputation because it might be attributed to his corrupt influence over the Russian judiciary.
My Lords, this in itself is enough to show that Mr Berezovsky is not particularly concerned with damages. The defendants were willing to undertake
to abide by any order of the Russian court as to damages and to accept the jurisdiction of that court to award damages for injury to the plaintiffs’
reputation in England as well as anywhere else. But the plaintiffs required and obtained from Popplewell J a further undertaking by the defendants that
they would not ‘denigrate the integrity competence or justice of the Russian court’. The real issue in this case is not about the plaintiffs’ reputation in one
country rather than another but the general question of whether the defendant’s article was actionable defamation. It is this issue which the plaintiffs want
tried in England.
That is why I said earlier that I did not think that the fresh evidence directed to showing that the article had had the effect of lowering the plaintiffs in
the esteem of various bankers and accountants in London and Manchester would have affected the judge’s decision. Whatever the reputation of the
plaintiffs in this country, it was a reputation based on their activities in Russia. Once it is appreciated that the real object of this litigation is to show that
they were defamed in respect of those activities rather than to calculate the compensation for damage to their reputations in England, the existence of
those reputations is no longer a factor of overwhelming importance.
The plaintiffs are forum shoppers in the most literal sense. They have weighed up the advantages to them of the various jurisdictions that might be
available and decided that England is the best place in which to vindicate their international reputations. They want English law, English judicial integrity
and the inter- national publicity which would attend success in an English libel action.
There was a good deal of interesting discussion at the Bar about whether an internationally disseminated libel constituted a number of separate torts
in each country of publication or whether it should, at least for some purposes, be viewed as a ‘global tort’. In this country the point is settled in the
former sense by the decision in Duke of Brunswick and Luneberg v Harmer (1849) 14 QB 185, 117 ER 75. Dean Prosser has described the rule, which
may lead to a multiplicity of suits, as possibly appropriate to ‘small communities and limited circulations’ but ‘potentially disastrous today’: ‘Interstate
Publication’ (1953) 51 Mich LR 959 at 961. In the context of the present case, this discussion is entirely academic. There is no question here of a
multiplicity of suits. It is the plaintiffs who are for practical purposes treating the publication as a ‘global tort’ by calling upon the English court and only
the English court to vindicate their reputations.
My Lords, I would not deny that in some respects an English court would be admirably suitable for this purpose. But that does not mean that we
should always put ourselves forward as the most appropriate forum in which any foreign publisher who has distributed copies in this country, or whose
publications have been downloaded here from the Internet, can be required to answer the complaint of any public figure with an international reputation,
however little the dispute has to do with England. In Airbus Industrie GIE v Patel [1998] 2 All ER 257, [1999] 1 AC 119 your Lordships’ House declined
the role of ‘international policeman’ in adjudicating upon jurisdictional disputes between foreign countries. Likewise in this case, the judge was in my
view entitled to decide that ­ 1005 the English court should not be an international libel tribunal for a dispute between foreigners which had no
connection with this country. Speaking for myself, I would have come to the same conclusion. Another judge may have taken a different view but in my
opinion it is impossible to say that Popplewell J’s decision was erroneous in law.
Finally I must mention that Mr Robertson QC, who appeared for the defendants, invited your Lordships to vary the order of Popplewell J to delete
the undertaking not to denigrate the Russian court. He said that this was too great a restraint on freedom of expression. In my opinion this too was a
matter for the judge’s discretion. Speaking for myself, I do not think that I would have imposed such an undertaking. But I cannot say that the judge was
not entitled to do so. There may never be a trial in Russia, in which case the question will be hypothetical. Or there may be a change of circumstances
which entitles the defendants to be discharged from their undertaking. But I would not be inclined now to vary the judge’s order.
I would allow the appeal and restore the order of Popplewell J.

LORD HOPE OF CRAIGHEAD. My Lords, my noble and learned friend Lord Steyn has identified the principal matters at issue in these appeals. I am
in full agreement with the views which he has expressed on issues (1), (2) and (6), and there is nothing which I would wish to add to what he has said
about them. Of the three remaining issues, the most important one and the one on which I propose to concentrate is issue (5): were the Court of Appeal
entitled to interfere with the exercise by Popplewell J of his discretion? In considering that matter I shall have to deal with issues (3) and (4), in so far as
they are directed to the reasons which the Court of Appeal gave for allowing the appeals and lifting the stay which the judge imposed. But the central and
underlying question is that which is raised by issue (5).
The reason why I regard issue (5) as the central and underlying question is that the decision as to whether or not a stay should be granted is
pre-eminently a matter for the exercise of the discretion conferred by RSC Ord 11, r 4(2) on the judge of first instance. As in the case of all other matters
which are committed to the discretion of the trial judge, it is a decision with which the appellate court should be slow to interfere. If authority is needed
for the application of that principle in the present context, it is to be found in the observations in Spiliada Maritime Corp v Cansulex Ltd, The Spiliada
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[1986] 3 All ER 843 at 846, [1987] AC 460 at 465 by Lord Templeman. For this reason I believe that an accurate appreciation of the grounds which
Popplewell J gave for his decision to impose a stay is an essential preliminary to a consideration of the question whether the Court of Appeal were entitled
to interfere with that decision. The Court of Appeal were not presented in this case with a clean sheet. So the question whether they correctly applied
The Spiliada test is not the primary question. Notwithstanding their experience of litigation in this field and the respect which is due to their careful
judgment, the fact remains that they were not at liberty to substitute their own views for those of the judge unless it could be demonstrated that he
misunderstood the facts or that he failed to exercise his discretion in the right way because of an error in principle.
At the heart of the dispute in this case there lie two questions. The first is whether the English courts have jurisdiction to try the actions which the
plaintiffs have raised in this country against the American publisher. The second is ­ 1006 whether the plaintiffs should be allowed to pursue their
actions here. These questions must be considered in the light of the following factual background.
The plaintiffs are Russian citizens who are resident in Russia, not in England. They have no permanent ties of any kind with this country. They are
typical of a group of wealthy and powerful Russian businessmen who have made very substantial fortunes as a result of the collapse of communism. Mr
Berezovsky is probably the best known and the best connected member of that group. Their prosperity is due largely to the fact that they have access to
financial institutions and major trading companies in Western Europe and in America. They have used these contacts to develop their business interests
in Russia. They do business in London with these institutions and companies through the Russian companies with which they are associated. They say
that they have reputations in this country as a result of their business activities here. But there is no evidence their reputation as Russian businessmen
depends to any material extent on things that they have said or done in London. It is a reputation which they have built up for themselves in Russia. And
the defamatory material in the magazine article about which they complain contains allegations about their activities in Russia only, not about anything
said or done by them in this country.
The defendants are the editor and the publishers of the Forbes magazine. They reside and have their registered office in the United States of
America. The magazine for which they are responsible is a business magazine. It is well-known and influential both in the United States, where it is
widely published, and abroad. We have been told that about 2,000 copies are sold here and that about 13 copies are sold in Russia. The magazine is also
published worldwide on the Internet. It can be assumed that the figures which we have been given understate the hard copies which are in circulation in
each country as they are passed from hand to hand or are brought from America in the course of their travels by American and European businessmen.
The first of the two questions that I have mentioned is not in dispute. Put more precisely, it is whether the English courts have jurisdiction under Ord
11, r 1(1)(f) on the ground that the claim is founded on a tort and the damage which is complained of was sustained in this country. It is plain that the tort
of libel is committed in England when defamatory material is published here. The plaintiffs say that the effect of the publication was to damage their
reputations in the eyes of people with whom they do business in this country. It is also plain that separate causes of action arose in respect of the
publication of each copy of the magazine. This principle was established by Duke of Brunswick and Luneberg v Harmer (1849) 14 QB 185, 117 ER 75.
And it is immaterial for the purpose of establishing jurisdiction in this country that the principal place of its publication was in the United States of
America. The principle that each communication is a separate libel, and the application of that principle to issues of jurisdiction within the United
Kingdom, has long been recognised. In Longworth v Hope (1865) 3 Macph (Ct of Sess) 1049, in which jurisdiction against the defenders who had no
other connection with Scotland was founded solely upon the artificial ground of an arrestment, a woman who was domiciled in England but resident in
Scotland sued the proprietors of a London newspaper in the Court of Session for damages for an allegedly libellous article in their newspaper. The
newspaper was published in London, but copies were circulated throughout Great Britain including Scotland. As Lord Deas said (at 1057):
­ 1007
‘According to our law, the sending of a single copy to any individual in Scotland, even if it were only to the lady herself, would be publication
sufficient to found an action for libel, if there were otherwise good grounds of action.’
It is the second question, whether the plaintiffs should be allowed to pursue their actions here, that is the subject of this appeal. To put the matter
more precisely in terms of Ord 11, r 4(2), the question is whether this is a proper case for service out of the jurisdiction. It is common ground that the
principles which must be applied in the determination of that matter are those which were identified by Lord Goff of Chieveley in The Spiliada. For the
reasons which I have already given, I take as my starting point the fact that the issues that had to be resolved in order to answer the second question were
primarily for consideration and decision by Popplewell J as the judge of first instance.
In the Court of Appeal ([1999] EMLR 278) Hirst LJ criticised the judge’s decision on two grounds. The first was that he found it surprising that he
had concluded on the evidence before him that the plaintiffs’ connections with England were ‘tenuous’, to which he added that the Court of Appeal had
had the advantage of further evidence which to his mind placed the strength of their connections beyond doubt. The second was that, while the judge had
given careful consideration to the relevant authorities in his first judgment as to whether it was open to the defendants to apply for a stay, he ‘erred in
principle’ in failing to take them into account in his second judgment as to the merits of the application. My initial impression was that it was doubtful
whether the Court of Appeal were right on either of these two points and thus whether they ought to have interfered with Popplewell J’s judgment, as his
decision to impose a stay seemed to me to be one which was open to him on the facts upon a correct application of The Spiliada principles. Further
consideration of the case has strengthened that impression. I am persuaded that that there is no merit in either of the two points which the Court of Appeal
made and that they were wrong to disturb Popplewell J’s judgment.

The evidence
The judge had before him evidence in the form of affidavits which described the plaintiffs’ connections with this country. Having considered that
evidence, he concluded that their connection with this country was tenuous. In order to understand this conclusion, which in the Court of Appeal attracted
adverse criticism, it is necessary to identify the matters which the judge said he took into account when he was analysing the evidence.
Of Mr Berezovsky the judge said that he was a frequent visitor on business to this country, which he had visited on some 31 occasions during the
previous three and a half years. He noted that he had kept an apartment in London since 1993 and that he had a wife and children living here, from whom
he was divorced. As to the extent of his business activities here, he noted that he was a substantial figure in Aeroflot and had helped to establish a
working relationship between that company and a merchant bank based in London. He also noted that he was vice-chairman of a Russian television
network which had extensive business contacts in England and that he was involved in a joint venture between an English group and a Russian company
in relation to a retail fashion house in St Petersburg. He quoted a passage from his affidavit in which he said that he also had contacts in England in
carrying out his government service and that he had ­ 1008 extensive contacts with England in his personal life. As for Mr Glouchkov, the judge noted
that he was currently in a senior position in the management of Aeroflot on whose behalf he had travelled to London to negotiate financing arrangements
with various banks. He referred to the fact that he also said that he had maintained a flat in London since 1993 and that he travelled to England and
particularly to London frequently.
For the defendants it was pointed out that the extent of the plaintiffs’ business activities in this country was limited to a number of visits relating
particularly to Aeroflot, and that their connection with England did not compare with that which other plaintiffs had had such as the fact of being resident
here. Their argument was that there really was no reputation which the plaintiffs had which could properly be described as a reputation in this country.
Having set out the competing arguments the judge said: ‘I take the view that the two plaintiffs’ connection with this country is tenuous. There is some but
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it is tenuous.’
What did the judge mean by saying that their connection was tenuous? I think that it is reasonably clear that when he used this expression he had in
mind the contrast in outcomes between Kroch v Rossell & Cie SPRL [1937] 1 All ER 725, where the plaintiff who was domiciled in Germany had come
to England only temporarily and recently and had no associations with this country at all, and Schapira v Ahronson [1999] EMLR 735, where the
proceedings were brought by a resident in London who was also a United Kingdom citizen. He had referred to these two cases in the preliminary
judgment which he had delivered earlier on the same day. What he was looking for was a sufficiently strong connection to which he could attach
significant weight when it came to balancing the competing interests on each side. Clearly there were no permanent connections or ties with this country,
such as that provided by residence. Nor were the businesses with which the plaintiffs were connected located in this country. They came here from time
to time to advance their business interests in Russia and those of the Russian companies for whom they were acting when they came to do business here.
It could be said that their position was really no different from that of the many thousands of businessmen and women from all over Europe and North
America who are to be found in the executive lounges in our airports every week of the year as they travel to or from London in the course of their
ordinary business activities. They are attracted to London because it is one of the world’s great financial and business centres, and they come to this
country because many of the people or institutions with whom they wish to make contact are located here. But their connection with this country is
ephemeral, and it is not unreasonable to describe it as tenuous.
What of the further evidence which was admitted by the Court of Appeal? This evidence fell into two categories. There were affidavits from three
new witnesses, and there was a further affidavit from Mr Berezovsky. The three new witnesses were Mr Langford-Curtis, Mr Kuppers and Mr Shvidler.
Mr Langford- Curtis, who was senior partner of a firm of solicitors in London, referred to his experience when advising Mr Berezovsky about the tax
implications of a merger between two Russian oil companies. He mentioned the fact that a firm of accountants in Manchester had had reservations about
being involved with a company which had links with Mr Berezovsky, as had the London branch executives of Nomura Bank and Lehman Bros. Mr
Kuppers, who was the managing director of a company within a group based in Switzerland with which both Mr Berezovsky and Mr Glouchkov were
associated, described the role ­ 1009 played by the company in identifying sources of funding in the west and negotiating with banks and other
financial institutions, many of which are based in or have offices in the United Kingdom. He had had regular dealings with United Kingdom banks but, as
many of the deals involved syndication, he also conducted negotiations here with foreign banks and other financial institutions through their London
branch personnel. He referred to problems which he had encountered after the publication of the article in his dealings with those who knew about it.
They had expressed concerns about the plaintiffs’ connections with his company. Mr Shvidler was the vice-president of one of the largest oil companies
in Russia on whose board Mr Berezovsky had served until October 1996 and with which he tended still to be publicly identified. He also referred to
concerns expressed by financial analysts and others connected with banks and financial institutions in London which he said had had a detrimental effect
on Mr Berezovsky’s reputation and the reputation of the companies with which he was associated. Mr Berezovsky referred in his affidavit to a large
number of articles published about him after the publication of the defendant’s article which tended to bear out his claim that he is a well-known figure in
this country.
It is plain that this additional evidence provided further support for the plaintiffs’ claim that they have a reputation among those who work for banks
and other financial institutions in this country which was damaged by the publication of the defendants’ article. But the feature which strikes me most
forcibly about this evidence, so far as the question whether the plaintiffs have connections with this country is concerned, is that it tends to show that the
plaintiffs’ connections with this country were even more tenuous than that suggested by the evidence which was before the judge. The transactions which
are mentioned were said to have been conducted in London with institutions many of which, like companies with which the plaintiffs were associated,
have their head offices elsewhere. But neither of the plaintiffs is said to have been involved in any way in any of these transactions. The problems which
were encountered were all due to the plaintiffs’ links, real or imagined, with the companies on whose behalf the witnesses were attempting to do business.
And they were due to the allegations which the article contained about the plaintiffs’ activities in Russia, not anything done by them in this country.
There is nothing in any of these affidavits to suggest that the problems which were encountered would have been any different if the plaintiffs had never
set foot in this country at all.
I would hold therefore that the Court of Appeal did not have a sound basis for interfering with the judge’s assessment of the weight which was to be
attached to the evidence about the plaintiffs’ connections with this country.

The relevant authorities

The judge dealt in his first judgment with each of the cases which, in the Court of Appeal’s view, provided the appropriate guidance as to the
approach which he should adopt. The criticism which the Court of Appeal have made of his decision is directed to the fact that, in his second judgment
which he delivered later the same day, he made no mention of these cases apart from Spiliada Maritime Corp v Cansulex Ltd, The Spiliada [1986] 3 All
ER 843, [1987] AC 460. From this it was concluded that, in Hirst LJ’s words ([1999] EMLR 278 at 300), the judge ‘unfortunately erred in principle in
failing to take account of them in his second judgment, thus entitling us to exercise our discretion afresh’.
­ 1010
It seems to me, with respect, that this is based on a misunderstanding of the approach which the judge took to the authorities. What Popplewell J
said at the outset of his second judgment was:
‘As to the law on the subject, the principles are not in dispute. Like all these principles their application is not always very easy. Counsel have
been very helpful in bringing to my attention a large number of cases which are illustrations of the court’s approach. If I do not refer to all of them
but refer to the principle, it is not out of discourtesy but because each case depends on its own particular facts, and one element in a particular case
which is absent from another case may in fact be the factor which persuaded the judge to decide the case one way rather than the other.’
He then referred to The Spiliada, from which he quoted the relevant passages that are to be found in Lord Goff’s judgment. In the light of these
opening remarks I do not think that it can be assumed that the judge overlooked any of the authorities to which he had just made reference when he was
delivering his first judgment. On the contrary, what he appears to have done was to conclude from them that, as each case turns on its own facts, the
important thing for him to do was to identify the principles which had been described by Lord Goff and to apply those principles to the evidence. It can
be assumed that in adopting this approach he had in mind the advice which Lord Templeman gave in The Spiliada ([1986] 3 All ER 843 at 847, [1987]
AC 460 at 465) that the judge should be allowed to study the evidence and that he should not be referred to decisions on other facts.
But there is a more substantial point which underlies this criticism. This is the Court of Appeal’s view that the appropriate guidance for a decision in
this case was to be found in Distillers Co (Biochemicals) Ltd v Thompson [1971] 1 All ER 694, [1971] AC 458, in Cordoba Shipping Co Ltd v National
State Bank, Elizabeth, New Jersey, The Albaforth [1984] 2 Lloyd’s Rep 91 and especially in Schapira v Ahronson [1999] EMLR 735, in which the
doctrine to be found in the Distillers Co case and The Albaforth was applied to a defamation case. It is therefore necessary to examine the doctrine which
was explained in these cases and to consider, having regard to its bearing on the issues which are in dispute in this case, whether the judge is open to the
criticism that he failed to follow the guidance which is to be found in that doctrine.
The Distillers Co case concerned a challenge on the ground of forum non conveniens to a writ issued in New South Wales by a victim of thalidomide
whose mother was in that jurisdiction when the damage occurred. The Albaforth was about a claim in tort for a negligent misstatement in a telex which
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had been despatched from New York to London. In The Albaforth, Ackner LJ (at 94) quoted from Lord Pearson’s speech ([1971] 1 All ER 694 at 700,
[1971] AC 458 at 468) in the Distillers Co case, where he said that the right approach when the tort was complete was to look back over the series of
events constituting it and to ask where in substance did the cause of action arise, and said: ‘These quotations make it clear that the jurisdiction in which a
tort has been committed is prima facie the natural forum for the determination of the dispute.’
In Schapira’s case the two articles which were complained of had been published in an Israeli newspaper circulating mainly in Israel, but a few
copies had been circulated in England where the plaintiff was resident and carried on business. The principles that the tort of libel was committed
wherever the defamatory ­ 1011 material was published and that prima facie the place of publication was the natural forum for the determination of the
dispute were applied. The Court of Appeal ([1999] EMLR 278 at 300) held that England was the appropriate forum for the actions as the English resident
had limited his claim to the effects of its publication in England, even though the circulation was extremely limited there and there was a much larger
publication elsewhere.
Hirst LJ said that he was satisfied that the appropriate guidance to be applied to a case where there is a substantial complaint about an English tort is
that which is to be found in the Distillers Co case and The Albaforth. He rejected the argument that they were of no assistance in a case of defamation
where publication had occurred in several jurisdictions as they involved different torts which by their nature were confined to a single jurisdiction, since
the hypothesis was that a substantial tort had been committed within the jurisdiction. I agree with my noble and learned friend Lord Steyn, for the reasons
which he has explained, that Hirst LJ was right to rely on The Albaforth line of authority. Like him, I would reject the argument which counsel for the
appellants advanced that the application of The Spiliada test did not admit of the application in this case of the principle that the jurisdiction in which the
tort is committed is prima facie the natural forum for the dispute.
But it is not enough for the resolution of the question whether the Court of Appeal were entitled to interfere with the exercise by Popplewell J of his
discretion to say that Hirst LJ was right on this point. The central and underlying question, as I have said, is whether he was well founded when he said
that Popplewell J erred in principle in failing to take this line of authority into account. I have already given my reasons for doubting the soundness of
this proposition in the light of the words which I have already quoted with which Popplewell J began his second judgment. As for the question of
principle, I would regard the following passage which is taken from his concluding paragraph as directly relevant:

‘I come back to look at the matter as a whole. I do not have to decide whether Russia or America is more appropriate inter se. I merely have to
decide whether there is some other forum where substantial justice can be done. This case, to my mind, has almost no connection at all with this
country. The fact that the plaintiffs want to bring their action here is, I suppose, a matter that I should properly take into account. If a plaintiff is
libelled in this country, prima facie he should be allowed to bring his claim here where the publication is. But that is subject to the various matters
to which I have already made reference …’ (My emphasis.)

My Lords, I am quite unable to understand how it can be said that Popplewell J erred in principle when he set out with complete accuracy in his
judgment the very principle which he is said to have failed to take into account. If the suggestion is that the principle must prevail over the application of
the further principles identified by Lord Goff in The Spiliada, I would reject it. But I do not understand this to be the position which Hirst LJ wished to
adopt. On the contrary, he introduced his discussion of the authorities by stating that The Spiliada principles are so well known as to require only the
briefest reminder and that they are very deeply rooted in our jurisprudence. If the suggestion is that the judge failed to apply the principles correctly to
the facts, I would respond by saying, first, that this not what Hirst LJ said in the relevant part of his judgment ­ 1012 and, secondly, that questions as to
the weight to be attached to the various matters to which the judge made reference were for him to decide and with which—unless an error of principle
was demonstrated—the Court of Appeal was not entitled to interfere.
I should like to add these comments. The principle which Ackner LJ articulated in The Albaforth [1984] 2 Lloyd’s Rep 91 at 94 provides the starting
point, but no more than the starting point, for a correct application of The Spiliada principles to the question whether the case is a proper one for service
out of the jurisdiction under Ord 11, r 4(2). In a defamation case the judge is not required to disregard evidence that publication has taken place
elsewhere as well as in England. On the contrary, this feature of the case, if present, will always be a relevant factor. The weight to be given to it will
vary from case to case, having regard to the plaintiff’s connection with this country in which he wishes to raise his action. The rule which applies to these
cases is that the plaintiff must limit his claim to the effects of the publication in England (see Diamond v Sutton [1866] LR 1 Ex 130, Schapira v Ahronson
[1999] EMLR 735, see also Eyre v Nationwide News Proprietary Ltd [1967] NZLR 851). Common sense suggests that the more tenuous the connection
with this country the harder it will be for the claim to survive the application of this rule.
One of the features of this case which I find most troublesome on the facts is the plaintiffs’ apparent lack of attention to detail as to the application to
it of this rule. When challenged as to the relevance of a reference to the fact that Lockheed, a United States corporation, had pulled out of a prospective
deal with a Russian company with which Mr Berezovsky was associated because of the Forbes article, counsel for the plaintiffs readily conceded that it
would be an abuse for the plaintiffs to sue on matters which had occurred elsewhere and on the effects of any extra-territorial publication of the article.
But many of the transactions referred to in the affidavits appear to be of this character. How is one to tell, in a case where the connections with England
are so heavily dependent on the plaintiffs’ reputation in the minds of those representing foreign banks and institutions in their dealings with the Russian
companies, that the loss of reputation in this country of which they complain is due to the effects of publication here as compared with the effects of the
publication of the magazine in the countries where these banks and institutions have their principal offices? How is one, in such a case, to separate out
the plaintiffs’ international reputation and the effects of the article on the transacting of business by the Russian companies internationally from the effects
of the article on such reputation, if any, as they can claim to have in England? It would be a matter for regret if orders for service on publishers out of the
jurisdiction were to be regarded as available on demand to those who have established international reputations by things said or done elsewhere, who
have formed no long-standing or durable connections with this country by residence or by locating any of their businesses here and who are unable to
demonstrate that the publication has had a material effect upon business or other transactions by them located only in this country. The interests of all the
parties and the ends of justice would suggest that the case should be tried elsewhere.

Conclusion
I consider that the judge was entitled to conclude, on the evidence before him and upon a correct application of the principles described in The
Spiliada, that the ­ 1013 plaintiffs had not been able to show that England was the most appropriate forum to try their actions. I do not think that the
further evidence which was before the Court of Appeal justified a departure from the decision which he reached, and I also think that the Court of Appeal
were in error when they said that the judge had erred in principle. I would allow the appeal and restore the orders which were made by Popplewell J.

LORD HOBHOUSE OF WOODBOROUGH. My Lords, I agree that this appeal should be dismissed for the reasons given by my noble and learned
friend Lord Steyn.

Appeals dismissed.
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Celia Fox Barrister.

[2000] 2 All ER 1015

P & O Property Holdings Ltd v International Computers Ltd

LANDLORD AND TENANT; Rent

CHANCERY DIVISION
NEUBERGER J
7 DECEMBER 1998

Landlord and tenant – Rent – Rent reserved – Suspension of payment of rent – Lease providing for rack rent and ‘additional rents’ in respect of service
charge and insurance – Clause providing for suspension of ‘rent hereby reserved’ during period in which premises rendered unfit for occupation by
insured event – Whether rent suspension extending to additional rents.

The defendant was the tenant of premises under a lease granted by the plaintiff landlord’s predecessor in title. The reddendum set out the ‘rents’ payable
for the premises and associated car parking spaces, and described the combined sum (the rack rent) as the first reviewed ‘rent’. It also set out the
‘additional rents’ payable in respect of service charge, insurance, repairs or otherwise, which were to be recoverable by, and subject to, all the remedies of
the landlord for the recovery of ‘rent’. Under cl 6, ‘the rent hereby reserved or a fair proportion thereof’ was to be suspended for any period in which the
demised premises, or any part of them, were destroyed or damaged by an insured risk rendering them unfit for occupation (the damage period). In the
course of the term, the premises were rendered unfit for occupation by an insured risk, thereby triggering the rent suspension in cl 6. However, during the
damage period, the landlord sought payment by way of service charge for the cost of refurbishing the air conditioning system. In subsequent proceedings,
the court was asked to determine whether the rent suspension was confined to the rack rent, as the landlord contended, or whether it also extended to the
payment of service charge and insurance, as the tenant contended.

Held – On the true construction of cl 6 of the lease, the provision for the suspension of rent did not extend to the amount payable by the tenant as
additional rents. Such a construction was supported by the wording of the reddendum which distinguished between ‘rent’ and ‘rents’ (meaning the rack
rent not including insurance or service charges), on the one hand, and ‘additional rents’ (which did extend to such charges) on the other hand.
Furthermore, it resulted in a system that was commercially fairer and easier to implement than the alternative construction. Since the landlord was
obliged to keep the premises fully insured during the damage period, it was to be expected that the tenant would be obliged to reimburse the landlord for
the cost of that insurance. Similarly, it would be odd if the tenant could avoid liability for service charge of the sort contemplated in the instant case
simply because the dates on which he would otherwise have been liable to pay such charges fell during the damage period. Accordingly, the landlord’s
construction was to be preferred to the tenant’s (see p 1020 g to 1021 e and p 1023 f, post).
­ 1015

Notes
For provisions for suspension of rent in the event of premises becoming uninhabitable, see 27(1) Halsbury’s Laws (4th edn reissue) para 243.

Application for summary determination of a point of law

The plaintiff landlord, P & O Property Holdings Ltd, applied pursuant to RSC Ord 14A for summary determination of a point of law in proceedings
against the defendant tenant, International Computers Ltd, namely whether or not the expression ‘the rent’ in cl 6 of a lease of premises in Arndale House,
Manchester, granted to the tenant by the landlord’s predecessor in title on 7 March 1988, included the amounts payable by the tenant from time to time
under the lease as additional rents in respect of insurance, service charge, repairs or otherwise. The case was heard and judgment given in chambers and
is reported with permission of Neuberger J. The facts are set out in the judgment.

Michael Driscoll QC and Timothy Harry (instructed by Hammond Suddards, Manchester) for the landlord.
Paul Morgan QC (instructed by Masons) for the tenant.

NEUBERGER J. On 15 June 1996 many parts of the Arndale Centre in Manchester were destroyed or severely damaged by a bomb. Part of the centre
included a multi-storey office building called Arndale House. The tenth and twelfth to nineteenth floors of Arndale House together with 200 car parking
spaces (the demised premises) were let by the predecessor in title of the plaintiff to the defendant under an underlease (the lease) dated 7 March 1988 for a
term of 25 years from 25 March 1980. The initial rent under the lease was £324,500 pa, rising to £339,000 pa (plus a further rent in respect of 170 car
parking spaces) subject to review every five years, plus an insurance rent and service charge rent. The initial rent of £339,000 pa plus the initial rents in
respect of the 170 car park spaces was reviewed to £930,000 pa, and I shall refer to this as ‘the rack rent’.
Clause 6 of the lease provides:

‘If during the said term the Demised Premises or any part thereof shall be destroyed or damaged by any Insured Risk so as to be unfit for
occupation or use and the policy or policies of insurance effected by the Landlord shall not have been vitiated or payment of the policy monies
withheld or refused in whole or in part in consequence of any act neglect or default of the Tenant its servants, agents or licensees …’

Then come words which are of central importance to this case—

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‘the rent hereby reserved or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the
Demised Premises shall have again been rendered fit for occupation or use by the Tenant.’

While there is an issue as to whether, and if so when, the demised premises have become fit for occupation and use, there is no dispute as to (1) the
fact that the bomb damage was an insured risk and (2) the whole of the demised premises were thereby rendered unfit for occupation and use from 15
June 1996 until at least 23 December 1997, which I shall call ‘the damage period’.
­ 1016
The issue between the parties today is raised in a summons pursuant to RSC Ord 14A issued by the plaintiff on 19 October 1998. This summons
seeks:

‘An Order under RSC Order 14A determining whether the expression “the rent” where it appears in Clause 6 of the Underlease … includes or
does not include the amounts payable by the Tenant from time to time under the Lease as additional rents in respect of the insurance, service
charge, repairs or otherwise.’

The plaintiff’s case is that it does not include those amounts, whereas the defendant’s case is that it does. That is a question of construction and
therefore involves consideration of the terms of the lease considered as a whole. Before turning to the provision of the lease, I should mention two points.
The first is that the point at issue has been identified as the potential area of dispute of principle so far as the drafting of leases is concerned. There is
a relevant discussion in 22(1) Forms & Precedents (5th edn) (1996 reissue). As Mr Paul Morgan QC, who appears on behalf of the defendant, points out,
under the heading of ‘Suspension of Rent’ at 171–172, para 316 one finds this:

‘The payments to be covered

Landlords inevitably seek to provide that only the rent is suspended. Any other payments due to the landlord under the lease (such as service
charge payments and contributions to the insurance premiums) therefore continue to be payable. If there has been total destruction of the entire
building, the point is of no practical concern to tenants because in the absence of a property there would be no services or insurance. It will be
important, however, where, for example, a fire renders unfit for use several suites of offices in an office building or one or two units in a shopping
centre, while life carries on as usual in the remainder of the premises. The landlord will then be providing much the same services and effecting the
same insurance as he would have done if all the units had been in use, and in fact the landlord may incur greater expenditure under both of these
heads until the damaged part has been reinstated. Nevertheless it is equally hard for the tenant to pay for services from which he derives no benefit
and he should, therefore, argue for the suspension of rent proviso to apply to all sums due from the tenant under the lease.’

Secondly, it is right to explain briefly the background to the present issue, at least so far as the plaintiff landlord sees it. In this connection I refer to
the affidavit of Mr Jeffrey Green, a financial controller with the plaintiff with day-to-day responsibility for running Arndale House. Having accepted that
the plaintiff is not entitled to the rack rent for the period of damage, he goes on to say as follows:

‘However … the Plaintiff does seek payment by way of service charge and insurance contribution for that period … during that period no
account is taken in the service charge of the cost of providing services such as security (known as basic costs) they would not have benefited the
Defendant who was not in occupation. However, the overall level of service charge sought to be recovered from the Defendant for this period
actually increased due to the incurrance of exceptional charges such as the cost of refurbishment of the air conditioning system (known as
exceptional costs). 7. The Defendant was ­ 1017 notified in 1992 that exceptional costs were to be incurred over the following 5 year period and
on 2 October 1992 a letter was sent to the Defendant to provide more details of the proposed exceptional works.’

He exhibits a copy of the schedule and letter, which show that over a period of five years from 1993 to 1997 inclusive substantial sums were to be
charged each year to the defendant in respect of services varying between £400,000 and £450,000 pa. Most of those costs were attributed to the costs of
carrying out substantial work to the air conditioning system in Arndale House.
I turn to the terms of the lease. Clause 1 is an interpretation clause and includes the statement that ‘unless there is something in the context
inconsistent therewith … the singular includes the plural’.
The reddendum is the final and most substantial part of cl 2, and is in these terms so far as relevant: ‘YIELDING AND PAYING THEREFOR unto
the landlord yearly during the said term and so in proportion for any less period than a year the exclusive yearly rents follow …’ There are then set out in
sub-cls (a) to (c) the sums rising, as I have mentioned, from £324,500 (plus a sum for each of the 170 car parking spaces) to £339,000 pa (plus £450 for
each of the 170 car parking spaces). Paragraph (c) contains this final figure, which is payable with effect from 25 December 1986, and continues:
‘Together being the first reviewed rent in accordance with clause 3 hereof …’ Subclause (d) of the reddendum provides for such rent as may be payable
in accordance with cl 3, the rent review clause.
These rents are to be payable ‘by equal quarterly payments in advance on’ the usual quarter days. The reddendum continues with these centrally
important words:

‘… and paying also as additional rents the amounts payable by the Tenant from time to time under this Underlease … in respect of insurance,
service charge, repairs or otherwise such additional rents to be payable at the time and in manner hereinafter specified and to be recoverable by and
subject to all remedies of the Landlord for recovery of rent …’

Clause 3 contains provisions for review of the rent. The rent is to be reviewed on an upwards only basis with effect from every fifth year of the term
to the current market rent as there defined. Clause 3(2) provides that the initial rents or other rents payable by the tenant hereunder ‘shall be subject to
increase to the current market rent of the demised premises at each review date in accordance with the provisions of this clause’, subject to the proviso
that ‘in no circumstances shall the rent payable hereunder be less than the yearly rent payable by the tenant immediately prior to such a review date’.
Clause 4 contains the tenant’s covenants. Clause 4(1) is a covenant ‘to pay the reserved yearly rent or rents … without any deduction or abatement
whatsoever’. Clause 4(2) is a covenant:

‘To pay to the Landlord from time to time on demand by way of additional rent such sum or respective sums as shall from time to time be
certified by the Landlord’s surveyor to be the premium … or the fair proportion thereof applicable to the Demised Premises expended by the
Landlord in effecting or procuring to be effected insurances against any of the Insured Risks.’
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The ‘insured risks’ are defined in cl 1 as including various forms of damage, but also ‘three years loss of rent in respect of the demised premises’.
­ 1018
Clause 4(6) is a covenant to pay service charges in accordance with the provisions of the third schedule ‘whenever required by the landlord’. The
third schedule is divided into three parts. The first part sets out the various items to which the tenant is obliged to contribute. Part 2 of the third schedule
contains this: ‘The amount from time to time to be paid by the Tenant pursuant to clause 4(6) hereof shall be assessed and paid on demand therefor by the
Landlord …’; and there is then set out an alternative procedure whereby the landlord can send an estimate in advance of the relevant year for the likely
service charge expenditure in that year (which the tenant has to pay by four instalments quarterly in advance), and there is provision for payment of the
balance after the accounts for the service charge year have been prepared. That balance is to be payable by the tenant together with the rent due on the
next following quarter day.
Clause 4(12) is a provision whereby the landlord can inspect the demised premises and identify wants of repair and, in the event of the tenant not
repairing, the landlord is entitled to repair and the cost thereof is recoverable as ‘a debt immediately payable by the Tenant to the Landlord on demand
with interest at three per cent per annum above’ a specified rate of interest.
Clause 4(15) is a covenant by the tenant to pay (a) the costs incurred in connection with proceedings by the landlord under s 146 of the Law of
Property Act 1925, and (b) any costs in connection with an application for planning permission by the tenant.
Clause 4(20)(a) is a covenant against alterations without consent; it provides for the tenant to pay the landlord’s costs in connection with the
obtaining of any such consent. A similar provision in relation to paying the landlord’s costs of registering alienations is to be found in cl 4(29).
Clause 5 contains the landlord’s covenants, which include in sub-cl (1) a covenant for quiet enjoyment. Clause 5(2) is a covenant by the landlord to
insure the demised premises against the insured risks subject to reimbursement of the appropriate insurance premium as provided by cl 4(2).
I have already referred to cl 6, which is the suspension of rent provision which is centrally relevant for the purposes of the present application.
Clause 7 is a proviso for re-entry exercisable if, under sub-cl (1)(a), the rent or any part thereof is unpaid and under sub-cl (1)(b) if any covenant on the
tenant’s part is not observed.
In cl 8 of the lease there is a provision for arbitration:

‘If any dispute or difference shall arise between the Landlord and Tenant … touching any clause matter or thing whatsoever herein contained or
the operation or construction thereof or any matter or thing in any way connected with this Underlease …’

I return then to the issue between the parties as it is helpfully summarised in the summons. The defendant tenant’s argument is ultimately very
simple. The reference in cl 6 of the lease is a reference to ‘the rent hereby reserved’. That takes one back to the reddendum and it is clear from the
reddendum that ‘the rent hereby reserved’ extends not merely to the rack rent but also to all other amounts payable by the tenant and in particular the
insurance and service charge. There is no question of ambiguity. Therefore, any payment of the insurance premium ­ 1019 under cl 4(2) or the service
charge under cl 4(6) of the lease, which would otherwise fall to be paid during the damage period, would be suspended permanently and in full.
In my judgment, the reference in cl 6 to ‘the rent hereby reserved’ is not unambiguous, as is suggested on behalf of the defendant. First, it is by no
means clear that it refers to the various components of rent and additional rents referred to in the reddendum. One notes that in the reddendum itself the
draughtsman has distinguished between ‘rent’ and ‘rents’ (meaning the rack rent not including insurance or service charges) on the one hand and
‘additional rents’ (which does extend to such charges) on the other hand: within a comparatively short passage the payments other than the rack rent are
referred to twice as ‘additional rents’.
Secondly, one notes that in the reddendum itself there is reference to the additional rents being ‘recoverable by and subject to all remedies of the
Landlord for recovery of rent’. It seems to me that those words suggest, at least in the draughtsman’s mind, that he may not have been treating the sums
that he has described as additional rents as rent for all purposes of the lease at any rate. In other words, looking at the reddendum to which one is
directed, on Mr Morgan’s argument, by cl 6, one can see a distinction between ‘rents’ and ‘rent’ on the one hand and ‘additional rents’ on the other hand.
Some assistance is also to be found elsewhere in the lease, although it is fair to say that it does not appear that the draughtsman has had a consistent
approach. Turning to cl 3, it seems to me fairly clear that where, for instance in cl 3(2), the draughtsman refers to ‘rents payable hereunder’, ‘rent payable
hereunder’ or ‘yearly rent payable by the tenant’, he is intending to refer to the rack rent. On the other hand, within that subclause it is notable that he
uses slightly different expressions on three occasions, each of which mean the same thing. In cl 6, on the other hand, he refers to ‘the rent hereby
reserved’. In cl 4(1) he refers to ‘the yearly rent or rents’. Such inconsistency in language suggests that there has not been a clear and consistent policy.
Further, in part 2 of the third schedule, as Mr Michael Driscoll QC, who appears with Mr Timothy Harry for the plaintiff landlord, points out, there is the
reference to the service charge being payable together with the rent due on the next following quarter day, and ‘rent’ must be treated in that passage as
restricted to the rack rent.
It seems to me, therefore, that it is by no means clear from the lease, read as a whole, that a reference, as there is in cl 6, to ‘the rent hereby reserved’,
must mean all components of the rent as referred to in the reddendum, that is the rack rent and all those sums referred to as additional rent. The question
of construction of cl 6 must be judged according to well-established principles. The lease is intended to be a commercial agreement between two
substantial bodies, Town & City Properties Ltd (the original landlord) and International Computers Ltd (the original and present tenant), and one has to
construe it as such; the question of construction should not be approached as a dry academic exercise.
Based on this approach, I have reached the conclusion that the plaintiff landlord’s construction is to be preferred. First, the features of the lease
which persuade me that the defendant’s construction is not clearly correct go further: they indicate to me that the plaintiff’s construction is more
consistent with the language of the lease in relation to ‘rent’ and ‘additional rents’.
Secondly, it appears to me that the plaintiff’s construction results in a system which is commercially fairer and easier to implement than that of the
defendant. Thus, it is common ground between the parties that cl 6 is to be construed in the ­ 1020 following way. If the whole of the demised
premises are destroyed or damaged, then the whole of ‘the rent hereby reserved’ is permanently irrecoverable in respect of the damage period and that, if
a part of the demised premises is so damaged, then ‘a fair proportion’, ‘of the rent hereby reserved … according to the nature and extent of the damage
sustained’, is to be permanently irrecoverable in respect of the damage period.
So far as the rack rent is concerned, that seems to me to be a logical and workable process. But I am not by any means persuaded that that is so in
relation to the insurance or service charge. So far as the insurance is concerned, it is clear that during the damage period the landlord is obliged to keep
the demised premises fully insured pursuant to cl 5(2). It would seem to me that, concomitant with that, one would have expected that the tenant would
be obliged to reimburse the landlord the cost of that insurance. On the defendant’s argument, that is not so. It is fair to say that Mr Morgan argued that it
might be that the landlord could recover the insurance rent in respect of the period on the basis that he would be insuring a damaged building, but it seems
to me that, reading cl 6 in the simple way for which both he and Mr Driscoll argue, makes that difficult to maintain.
As to the service charges, it would be a little odd, somewhat adventitious as I see it, if the tenant was able to avoid liability for service charge of the
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sort contemplated here (namely payments in respect of works, undoubtedly within the service charge provisions, and which will inure to the benefit of the
tenant for a long period, probably the duration of the lease) simply because it happens that the dates on which he would otherwise have been liable to pay
such charges fall during the damage period.
There is no question on either party’s case of an apportionment of the liability for the service charge payments on such items if the defendant’s
argument is correct. For instance, if the air conditioning was estimated to last for 15 years and the damage period was a year, both parties agree that, if
the defendant is right, cl 6 cannot be interpreted so as to excuse the defendant for one-fifteenth of his contribution in respect of the cost of that work. It
seems to me that that agreement is right. The proportion which cl 6 envisages being reduced is according to the nature and extent of the damage
sustained, not in respect of any temporal aspect; the temporal aspect is dealt with in the last part of the clause.
This highlights another point made by Mr Driscoll, which is that, in the case of partial damage to the demised premises, it is perfectly logical and
workable, particularly in the case of offices, for a fair proportion of the rent to be abated ‘according to the nature and extent of the damage sustained’,
whereas it is by no means quite so obvious that that is an appropriate means by which to reduce the insurance payment or the service charges in a case of
partial destruction or damage.
On the other hand, it can fairly be said that, if the defendant has to go on paying for services during the damage period, then it would seem unjust
that he should have to pay in full for recurring services such as the provision of security, electricity and gas and so on, in respect of a period when he is
excluded from the demised premises or part thereof. While there is force in that argument on the face of it, I consider that it is substantially answered by
para 2 of part 3 of the third schedule to the lease, which provides as follows:
‘Where it is shown to the reasonable satisfaction of the Landlord’s Surveyor that in respect of any specified service amenity or facility, neither
the Tenant nor the Demised Premises nor the occupiers or users derive any ­ 1021 benefit or advantage directly or indirectly from the provision
of such service amenity or facility by the Landlord or such benefit or advantage to the Demised Premises produces a manifestly inequitable charge
such adjustment shall be made in the proportion of the Service Cost attributed to the Demised Premises as the Landlord’s Surveyor shall consider to
be just and equitable.’

It seems to me that, in a case where the tenant is excluded completely from the whole or part of the demised premises for say, a year, then, if the
tenant would otherwise be liable for the cost of electricity or gas for heating or air conditioning, or for the cost of supervision of the centre as a whole, he
can contend that he gets no benefit from such prices, or a very much reduced benefit from them, whereupon the provisions of para 2 of the third schedule
could come into play.
Mr Morgan argues, first, that this paragraph was not included for this purpose and, secondly, that it is not a satisfactory provision because, in the
event of dispute under cl 6, the dispute is referred to arbitration under cl 8, whereas para 2 envisages determination by one party’s agent, namely the
landlord’s surveyor.
So far as the first point is concerned, it may well be that para 2 was not included with this purpose in mind. However, it seems to cover this situation
and to mitigate to a significant extent, although possibly not completely, the point that the defendant can otherwise make in relation to the plaintiff’s
construction of cl 6, and recurring services. As to the second point, it is for the parties to decide how an issue such as that raised by para 2 is to be
determined; they no doubt assumed that reference to the landlord’s surveyor would be a quick, expeditious way of dealing with the matter; presumably,
the tenant was prepared to assume that the landlord would employ a reputable and honest and experienced surveyor.
There is another point which assists the plaintiff’s case. The insurance payment under cl 4(2) is payable ‘on demand’ and, subject to the landlord
exercising his rights to have quarterly payments in advance, the balancing service charge is also payable ‘on demand’. It seems to me that the defendant’s
construction of cl 6 envisages the possibility of either a degree of manipulation on the part of a landlord or an extra degree of fortuitousness in relation to
whether or not the tenant avoids liability for service charge payments and insurance payments during the damage period. For instance, a landlord who has
to pay an insurance premium in accordance with cl 5(2) of the lease during the damage period may decide to wait until the damage period ends before he
demands the insurance payment pursuant to cl 4(2).
I accept, as Mr Morgan says, that there may well come a point where the landlord would be held not entitled to recover if he waited for a very
substantial time but, even so, it does appear to me that, if the landlord were to wait a short time, or to put off insuring or paying the insurance premium for
a short time, to enable the whole of the insurance premium to be demanded from the tenant once the damage period had ended, the tenant would normally
have no ground for avoiding payment. The adventitious aspect does not apply to the rack rent, but it seems to me that very different results could occur
depending on whether the fire or other insured risk took place just before or just after a day on which payment in respect of insurance or service charges
fell due.
A further point is made by Mr Driscoll in light of the fact that not merely the insurance and service charges but also all other amounts payable by the
tenant are within ‘the rent hereby reserved’ in cl 6 if the defendant’s argument is correct. The result of that would be that sums payable under clauses to
which I have ­ 1022 referred, such as sub-cls 4(12), (15), (20) and (29), would all be irrecoverable if they happen to fall due during a damage period. It
is not fanciful to imagine that the parties could have envisaged when entering into this lease that any of these sums could become payable during a
damage period. Under cl 4(12) one would have to imagine the landlord carrying out work in default shortly before the damage occurs by an insured risk
resulting in the landlord then either putting off his demand for payment if he is entitled to do so, or forgoing it. Even if he had made his demand for
payment, there is the further subtle point that interest at 3% pa would not run during the damage period on the defendant’s construction.
It is by no means inconceivable that sums would become due in accordance with cl 4(15) in relation to forfeiture proceedings during the damage
period. Nor is it improbable that the tenant would want to carry out alterations, taking advantage of the damage having been caused by the insured risk.
If the defendant’s argument is correct, the landlord could not recover that which the parties intended him to recover, namely his proper costs in dealing
with the application to carry out alterations under cl 4(20). Equally, it is not inconceivable that the tenant would wish to assign the premises during the
time that he is shut out from them; yet the registration fee for such assignment under cl 4(20) could not be recovered by the landlord if the defendant’s
argument is correct.
It can be said that these are small points not necessarily in the forefront of the parties’ minds when they entered into the lease, and I see the force of
that. However, while one must be careful about descending into what has been referred to in a number of cases as a ‘detailed and syntactical analysis’ of
the document concerned, it seems to me that one can, indeed should, consider the practical implications of one argument as against the other on an issue
of construction of a commercial contract, including a lease of business premises.
Standing back and not by any means with entire confidence, I have come to the conclusion, for the reasons I have sought to give, that the plaintiff’s
argument is correct and that ‘the rent hereby reserved’, where it appears in cl 6 of the lease, does not include the amount payable by the tenant from time
to time under the lease as additional rents in respect of insurance, service charge, repairs or otherwise and I propose so to order.
I would like to end by expressing my appreciation to both parties. The case has been succinctly and clearly argued both in skeleton argument form
and orally.

Order accordingly.
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All ER 2000 Volume 2
Preamble

Celia Fox Barrister.

[2000] 2 All ER 1024

Note
T v United Kingdom
HUMAN RIGHTS; Inhuman or Degrading Treatment, Fair Trial: CRIMINAL; Sentencing, Criminal Procedure

EUROPEAN COURT OF HUMAN RIGHTS

WILDHABER (PRESIDENT), PALM, ROZAKIS, PASTOR RIDRUEJO, RESS, MAKACZYK, KURIS, TüRMEN, COSTA, TULKENS, BÎRSAN, LORENZEN, FISCHBACH, BUTKEVYCH,
CASADEVALL, BAKA, LORD REED (AD HOC JUDGE) AND MAHONEY (DEPUTY REGISTRAR)
15 SEPTEMBER, 24 NOVEMBER, 16 DECEMBER 1999

Children and young persons – Trial of persons under 17 – Crown Court trial – Eleven-year-old boy tried in public in Crown Court for murder of
two-year old boy – Whether conduct of trial breaching defendant’s right to fair hearing – Whether defendant being subjected to inhuman or degrading
treatment – Convention for the Protection of Human Rights and Fundamental Freedoms 1950, arts 3, 6.

Sentence – Young person – Serious criminal offence – Tariff period – Eleven-year-old boy being convicted of murder and being sentenced to detention
during Her Majesty’s pleasure – Secretary of State fixing tariff period – Whether fixing of tariff by Secretary of State violating convention right – Whether
detention during Her Majesty’s pleasure breaching right to liberty – Convention for the Protection of Human Rights and Fundamental Freedoms 1950,
arts 5, 6.

In proceedings brought following the decision of the House of Lords in R v Secretary of State for the Home Department, ex p Venables, R v Secretary of
State for the Home Dept, ex p Thompson [1997] 3 All ER 97, [1998] AC 407, the European Court of Human Rights held that T, one of two ten-year-old
boys convicted of murdering a two-year-old boy, had not received a fair hearing contrary to art 6 of the Convention for the Protection of Human Rights
and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969). The court concluded that T had not been able to participate effectively
in the three-week trial which had taken place in public in the Crown Court when he was aged 11. In so concluding, the court held that where a young
child was charged with a grave offence attracting high levels of media and public interest, the hearing had to be conducted in a way which reduced, as far
as possible, the child’s feelings of intimidation and inhibition. The court further concluded that the tariff-setting procedure in respect of young offenders
detained during Her Majesty’s measure amounted to a sentencing process for the purposes of art 6, and that the fixing of T’s tariff by the Secretary of
State, rather than by an independent and impartial tribunal, constituted a breach of that provision. However, the court rejected T’s contention that he had
been subjected to inhuman or degrading treatment or punishment contrary to art 3 of the convention. It also rejected the contention that T’s sentence of
detention during Her Majesty’s pleasure amounted to a breach of his right to liberty under art 5(1).

End of Volume 2