Norwich and Peterborough Building Society v Steed (No 2)

[1993] 1 All ER 330

Categories:        LAND; Sale of Land        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        PURCHAS, BUTLER-SLOSS AND SCOTT LJJ        

Hearing Date(s):        4, 5, 6 FEBRUARY, 5 MARCH 1992        

Document – Non est factum – Power of attorney – Donee unaware of power of attorney – Donee tricked into signing transfer of house – Whether plea of non est factum established – Whether transfer of house ultra vires power of attorney.

Land registration – Rectification of register – Circumstances justifying rectification – Registered owner executing power of attorney – Donee of power of attorney tricked into signing transfer of property – Building society granting mortgage on property – Whether court having power to order rectification of register by removal of building society’s charge – Land Registration Act 1925, s 82(1).

The appellant, the freehold owner of a house which was subject to a local authority mortgage, permitted his mother, his sister and her husband to live in the house while he was living in the United States. His sister and her husband persuaded the appellant to execute a power of attorney in favour of his mother, and then either tricked the mother into executing a transfer of the house in their favour under the power of attorney or forged her signature on the transfer, although she subsequently denied that the signature on the transfer was hers or that she knew anything about the power of attorney. On the same day the sister and her

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husband borrowed £15,000 from the respondent building society on the security of the property, supposedly to enable them to purchase it for £24,500 from the appellant. In fact they paid off the local authority charge, amounting to £1,800, and kept the balance. The building society was registered as the holder of a charge on the property. The sister and her husband defaulted on the mortgage repayments and the building society obtained a possession order, which, on appeal by the appellant, who had applied to be joined as a party in the proceedings and sought a stay of the order, was set aside by the Court of Appeal on the ground that, on the assumption that the transfer to the sister and her husband was a forgery, the court had power under s 82(1)a of the Land Registration Act 1925 to rectify the register not only as against the sister and her husband but also as against the building society. The Court of Appeal ordered a new trial to determine the facts regarding the execution of the transfer. The building society then brought an action for possession of the property and the appellant counterclaimed for rectification of the proprietorship register by substituting himself as owner for his sister and her husband and rectification of the charges register by removal of the building society’s charge. Before the trial a handwriting expert concluded that there was a high probability that the mother had signed the transfer and accordingly the forgery allegation was abandoned. However, the appellant claimed that he was entitled to rely (i) on a plea of non est factum on the ground that the mother did not know that she had been appointed attorney and did not know that she was signing a transfer of the property and (ii) on a plea that the transaction fell outside the authority conferred on the mother under the power of attorney. The judge rejected those pleas but concluded that the transfer was not void but merely voidable, by reason of the fraud perpetrated by the sister and her husband, and ordered that the proprietorship register be rectified by the removal of their names and the substitution of the appellant’s name but he refused to order rectification of the charges register by the removal of the building society’s charge. The appellant appealed to the Court of Appeal.

Held – (1) The plea of non est factum which would render the transfer void against the innocent building society had not been established notwithstanding the fact that the mother had been tricked into signing the transfer since either the mother, as donee of the power of attorney, had possessed sufficient general understanding and capability and had failed to inform herself of the purport and effect of the transfer before signing it or, if she had lacked ordinary competence and capacity, the appellant as donor of the power of attorney was not entitled to repudiate the transfer on the ground of the mother’s lack of understanding. Furthermore, the appellant’s failure to inform his mother of her appointment showed such a want of care as to preclude him from relying on her ignorance of the power in support of his plea of non est factum (see p 339 d to h and p 348 e f; post).

(2) The execution of a transfer on completion of sale fell within the power conferred by the power of attorney. As between the appellant and his sister and her husband, therefore, the transfer was not a nullity but merely voidable and therefore could not be against the building society (see p 340 e to g and p 348 e f; post).

(3) On the true construction of s 82 of the 1925 Act the court’s power to order rectification of the register was limited to the grounds specified in paras (a) to (h) of sub-s (1) and the court had no gneral discretion to grant rectification merely because it might be thought just to do so. Since the appellant’s case for rectification could not be brought under any of the grounds specified in s 82(1) and since his

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plea of non est factum had failed the court had no power to order rectification against the building society. The appeal would therefore be dismissed (see p 343 c, p 345 c, p 347 j and p 348 b to g, post); Argyle Building Society v Hammond (1984) 49 P & CR 148 considered.

Notes

For the plea of non est factum, see 9 Halsbury’s Laws (4th edn) para 284 and 12 Halsbury’s Laws (4th edn) paras 1365–1369, and for cases on the subject, see 17 Digest (Reissue) 284–285, 511–517.

For rectification of the land register, see 26 Halsbury’s Laws (4th edn) paras 1054–1058, and for cases on the subject, see 39(1) Digest (Reissue) 155–157, 1629–1641.

For the Land Registration Act 1925, s 82, see 37 Halsbury’s Statutes (4th edn) 588.

Cases referred to in judgments

Argyle Building Society v Hammond (1984) 49 P & CR 148, CA.

Calgary and Edmonton Land Co Ltd v Discount Bank (Overseas) Ltd [1971] 1 All ER 551, [1971] 1 WLR 81.

Chowood Ltd v Lyall (No 2) [1930] 2 Ch 156, [1930] All ER Rep 402, CA.

Foster v Mackinnon (1869) LR 4 CP 704.

Hunter v Walters, Curling v Walters, Darnell v Hunter (1871) LR 7 Ch App 75.

King v Smith [1900] 2 Ch 425.

Leighton’s Conveyance, Re [1936] 1 All ER 667; rvsd [1936] 3 All ER 1033, CA.

National Provincial Bank of England v Jackson (1886) 33 ChD 1, CA.

Saunders v Anglia Building Society [1970] 3 All ER 961, [1971] AC 1004, [1970] 3 WLR 1078, HL.

Cases also cited or referred to in skeleton arguments

Burchell v Thompson [1920] 2 KB 80, CA.

Doyle v East [1972] 2 All ER 1013, [1972] 1 WLR 1080.

London and Cheshire Insurance Co Ltd v Laplagrene Property Co Ltd [1971] 1 All ER 766, [1971] Ch 499.

Midland Bank Trust Co Ltd v Green [1981] 1 All ER 153, [1981] AC 513, HL.

Appeal

Michael Derek Steed appealed from the decision of Knox J given on 15 December 1989 whereby, inter alia, he granted a declaration that the interest of the respondent, Norwich and Peterborough Building Society, formerly Argyle Building Society, under its first legal charge dated 4 September 1979 took priority to any interest of the appellant in the property, 2 Arlow Road, Winchmore Hill, London N21. The facts are set out in the judgment of Scott LJ.

Timothy Lloyd QC and Stephen Acton (instructed by Chambers Rutland & Crauford) for the appellant.

J Rayner James QC and C H Jones (instructed by Warrens Boyes & Archer, Huntingdon) for the respondent.

5 March 1992. The following judgments were delivered.

SCOTT LJ (giving the first judgment at the invitation of Purchas LJ). This is an appeal from the judgment of Knox J given on 15 December 1989. The appeal concerns a freehold property, 2 Arlow Road, Winchmore Hill, London. Title to the property is and has at all material times been registered at HM Land Registry.

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In October 1964 the appellant, Mr Michael Derek Steed, purchased the property for the sum of £3,300. He did so with the aid of a loan from the local authority. The loan was secured by a mortgage of the property. Mr Steed was duly registered at HM Land Registry as the proprietor of the property. The local authority’s mortgage was duly registered in the charges register.

After the purchase the property became the home of Mr Steed and his family. Various members of his family have resided there from time to time. The important ones, for the purpose of these proceedings, are his mother, his sister, Mrs Claire Hammond, and her husband, David Hammond.

In 1976 MrSteed emigrated to California. While he was in California his mother, Mrs Steed, and his sister and brother-in-law, Mr and Mrs Hammond, continued to live in the property. Under an informal family arrangement they paid the mortgage instalments falling due under the local authority mortgage.

On 14 April 1979 Mr Steed executed in California a power of attorney naming his mother, Mrs Steed, as his attorney. The document had been prepared in England by a solicitor, Mr Lawrence, of Messrs W H Hopkins & Co, acting on the instructions of Mrs Hammond. Mrs Hammond had taken the document out to California for Mr Steed to execute. When he had done so she brought it back to England.

The power of attorney gave Mrs Steed power—

‘(1) To buy, sell or exchange lands of any tenure whether by private contract or by public auction for such consideration and subject to such covenants, conditions and restrictions as the Attorney shall think fit … (3) Generally to execute any deed or sign any document which may be required and to do any other act matter or thing which the Attorney shall consider necessary or expedient for carrying out any of the purposes or acts hereby authorised …’

It is accepted that this power of attorney was valid and effective to vest in Mrs Steed power on Mr Steed’s behalf to sell the property and to execute a transfer for that purpose.

There was no evidence that Mrs Steed was ever informed either by Mr Steed or by Mrs Hammond of this power of attorney or of her power to sell the property. There was some evidence that she was in complete ignorance of the power of attorney and of her power of sale.

In August or September 1979 a transfer of the property bearing, or appearing to bear, Mrs Steed’s signature came into existence. The transfer was in the usual Land Registry form and bears the date 4 September 1979. It provided as follows:

‘In consideration of TWENTY-FOUR THOUSAND FIVE HUNDRED pounds (£24,500) the receipt whereof is hereby acknowledged I MICHAEL DEREK STEED of 2 Arlow Road Winchmore Hill London N21 by his Attorney MARY STEED of 2 Arlow Road aforesaid as beneficial owner hereby transfer to: DAVID HAMMOND and CLAIRE MADELEINE HAMMOND his wife both of 2 Arlow Road Winchmore Hill London N21, the land comprised in the title above mentioned …’

In the testatum the transfer was expressed to be—

‘Signed, sealed and delivered by the said MARY STEED as the Attorney of MICHAEL DEREK STEED and on behalf of the above named MICHAEL DEREK STEED.’

A signature purporting to be that of Mrs Steed appears opposite.

During the summer of 1979 Mr and Mrs Hammond had made arrangements with Argyle Building Society, now known as Norwich and Peterborough Building Society and the respondent on this appeal, to borrow £15,000 on the security of

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the property in order to enable them to purchase the property for £24,500 from Mr Steed. The usual conveyancing arrangements were made between the building society’s solicitors, Messrs Warrens, and the Hammonds’ solicitors, W H Hopkins & Co. These arrangements led in due course to the building society sending the £15,000, less a sum in respect of its conveyancing costs, to W H Hopkins & Co, pending completion of the purchase and mortgage. The Hammonds executed a legal charge of the property in what was, presumably, the building society’s usual form of charge. This document, too, bears the date 4 September 1979. The executed legal charge was sent to Warrens to be held, in escrow, pending completion.

Following completion W H Hopkins & Co released to the Hammonds the balance of the £15,000, after deduction of £1,800-odd needed to discharge the local authority’s registered charge and of a sum in respect of their own costs, and on 17 September 1979 sent to Warrens the transfer, apparently executed by Mrs Steed as attorney for Mr Steed, together with the discharge of the local authority’s charge and various other conveyancing documents.

On 9 October 1979 the building society submitted the transfer, the legal charge and the discharge to the Land Registry for registration. Registration was completed on 17 December 1979. The Hammonds’ names were entered in the proprietorship register as owners of the property in place of Mr Steed. The legal charge in favour of the building society was entered in the charges register. The entry in the charges register relating to the local authority’s charge was deleted.

It subsequently transpired that the conveyancing arrangements I have described were part of a fraudulent scheme of the Hammonds to obtain money for themselves using the property as security. Mr Steed knew nothing of the sale. He received no part of the purported consideration of £24,500 nor any benefit there from save that £1,800 or thereabouts had been expended in discharging his liability under the local authority mortgage.

Mrs Steed, too, insisted that she knew nothing of the sale. She died before the case came to trial but a written statement signed by her on 16 December 1985 was received into evidence under the Civil Evidence Act 1968. In this statement she denied that the signature on the transfer was hers. She said: ‘… I did not sign the Transfer which has been shown to me. The signature on this document is not my signature.’ She denied that she knew anything about the power of attorney. She said: ‘Claire did not show me the power of attorney … nor did she tell me that I had been made Michael’s Attorney.’ It is implicit from her statement that, according to her, Mr Steed, too, had not told her that he had appointed her to be his attorney.

The building society was, of course, an innocent third party. It had lent money on mortgage for the purpose of an apparently genuine sale. The transfer to its mortgagors, the Hammonds, and its own legal charge had been registered at HM Land Registry. Everything appeared to be in order.

In addition to borrowing money from the building society on the security of the property, the Hammonds raised money from other sources on the same security. We have not seen the details but it appears that Provident Mutual Life Assurance Association, Barclays Bank plc and Lloyds Bank plc obtained registered charges. They were made parties to these proceedings but, since the debt owing to the building society now exceeds the value of the property and since they can be in no better position than the building society, they have taken no part in the proceedings.

For the sake of completeness I would add that the Hammonds have been convicted of offences of dishonesty arising out of their financial arrangements

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with the building society and that a bankruptcy order has been made against Mr Hammond.

Following the completion of the transaction with the building society, Mrs Steed, Mrs Hammond and Mr Hammond continued to live in the property. But the Hammonds fell into arrears in payment of the mortgage instalments due to the building society. So the building society commenced possession proceedings. This was in February 1982, ten years ago. The Hammonds, of course, had no defence and the building society obtained a possession order against them. But at about this time Mr Steed returned from the United States of America and resumed residence in the property. He applied to be joined in the proceedings as a defendant and for a stay of the possession order. He contended, among other things, that his mother’s signature on the transfer of 4 September 1979 was a forgery. He claimed to be entitled to rectification of the register both as against the Hammonds and as against the building society. The county court judge before whom the action came concluded that the building society was entitled to possession as against Mr Steed even if the transfer to the Hammonds were a forgery. So he confirmed the order for possession. Mr Steed appealed. The judgment of the Court of Appeal is reported: see Argyle Building Society v Hammond (1984) 49 P & CR 148. The judgment of the court was given by Slade LJ. He held that, on the assumption that the transfer to the Hammonds was a forgery, the court would have power under s 82(1) of the Land Registration Act 1925 to rectify the register not only as against the Hammonds but also as against the building society. He also expressed the opinion, obiter, that the court would have the like power if the transfer were merely voidable, as opposed to void. So the appeal was allowed, the order for possession was set aside as against Mr Steed and the case was transferred to the Chancery Division for a new trial at which the facts regarding the execution or non-execution of the transfer and Mr Steed’s entitlement to rectification of the register would be determined.

On 12 December 1985 the building society commenced in the High Court the action that in due course came before Knox J. It sued only Mr Steed as defendant and claimed possession of the property. Mr Steed’s defence served on 16 April 1987 pleaded that the transfer was forged. He counterclaimed, joining the other chargees whom I have mentioned as well as Mr Hammond’s trustees in bankruptcy and Mrs Hammond as defendants to the counterclaim, for rectification of the proprietorship register, by the removal of the Hammonds’ names and the insertion of his own name, and of the charges register, by the deletion of the entries relating to the building society’s charge and the charges of the other chargees. The counterclaim, like the defence, was based on the allegation that the transfer was forged. There was no other relevant allegation. Forgery of the transfer had constituted the ‘assumed facts’ on the basis of which the Court of Appeal had found in Mr Steed’s favour.

Mrs Steed died not long after she signed her statement on 16 December 1985. She had, it will be recalled, expressly denied that the signature on the transfer was hers. A handwriting expert was instructed. The expert’s report dated 26 April 1989 concluded that there was a high probability that Mrs Steed did sign the transfer. The trial had been fixed to commence on 5 May 1989. The expert’s report was somewhat of a bombshell and an adjournment was granted to enable Mr Steed to consider his position.

The upshot of this was that the forgery allegation was abandoned and wholly new lines of defence were added by amendment to Mr Steed’s counterclaim for rectification. The new pleading, so far as relevant to the claim against the building society, constituted (i) a plea of non est factum based on the proposition that

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Mrs Steed did not know she had been appointed attorney and did not know she was signing a transfer of the property and (ii) a plea that the transaction effected by the transfer was not a sale and was not within the power conferred by the power of attorney.

These two pleas took the place of the forgery plea as justifying the conclusion that the building society’s charge was ‘void’ and that Mr Steed was ‘entitled to an order for rectification’.

Knox J found against Mr Steed, both on the non est factum issue and also on the ultra vires issue. He concluded that the transfer was not void but was, by reason of the fraud perpetrated by the Hammonds, voidable. He, therefore, ordered that the proprietorship register be rectified by the removal of their names and the substitution of Mr Steed’s name. It would seem from the pleadings to which I have referred that that should have been the end of the case. But the contention was put forward on Mr Steed’s behalf that, even if the transfer were only voidable and notwithstanding that the building society was not implicated in and had had no notice of the Hammonds’ fraud, none the less the court had a discretionary power under s 82 of the Land Registration Act 1925 to order that the building society’s charge be deleted from the register, leaving Mr Steed with an unencumbered title and the building society to claim an indemnity under s 83. It was contended that in the circumstances of the case the discretion should be exercised in Mr Steed’s favour and the charges register rectified accordingly.

I have some doubt whether these contentions were open to Mr Steed on the pleadings. But no pleading point was taken and the learned judge entertained them. He accepted that the court did, under s 82, have the wide discretionary power of rectification contended for. Indeed the contrary does not seem to have been argued. Certain dicta of Slade LJ in Argyle Building Society v Hammond (1984) 49 P & CR 148 were taken as establishing the point. But the learned judge, as a matter of discretion, declined to order the rectification sought.

So the upshot of the trial was that Mr Steed was restored to the position of registered proprietor but had failed to upset the building society’s charge. He has appealed. There are three issues to be decided. The first issue is whether, it being accepted that the signature on the transfer is that of Mrs Steed, the appellant can repudiate the transfer under the doctrine of non est factum. If he can, then the transfer is void, no better than if Mrs Steed’s signature had been forged. The second issue is whether, assuming he fails on non est factum, the appellant can repudiate the transfer as being ultra vires the power of attorney. This is put forward as an alternative basis on which the transfer should be held to be void. If the appellant succeeds on either of these issues, there would, strictly, be an issue as to whether or not an order for rectification of the register, as against the building society, ought to be made. But, for reasons which I will later mention, it seemed to us that there would be no serious answer to the appellant’s rectification claim and Mr Rayner James QC for the building society did not contend otherwise. The third issue, which arises if the appellant fails to establish that the transfer was void, is, first, whether the court has power under s 82 to order rectification as against the building society and, second, if it does, whether the power should be exercised.

Non est factum

Taken literally, the doctrine of non est factum applies when the person sought to be held liable has not, in fact, signed the document (see Lord Reid in Saunders v Anglia Building Society [1970] 3 All ER 961 at 963, [1971] AC 1004 at 1015). But it also covers cases in which a person who has signed a document is none the less

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allowed to repudiate the document. The authorities all concern cases of the latter sort.

We have been referred to Hunter v Walters, Curling v Walters, Darnell v Hunter (1871) LR 7 Ch App 75, National Provincial Bank of England v Jackson (1886) 33 Ch D 1, King v Smith [1900] 2 Ch 425 and Saunders v Anglia Building Society [1970] 3 All ER 961, [1971] AC 1004. In each of these cases the victim of a fraud had signed a document not understanding what he or she was doing. In each case an innocent third party had for value acquired rights under the document. In each of these cases the existence of the doctrine of non est factum was affirmed, in each the acceptable limits of the plea was discussed, in none was the plea allowed to prevail. It is easy to understand why the plea is likely to be unsuccessful. A person who signs a document at the request of another puts into circulation a document on which, depending on its contents, others may rely. Where a fraudster has tricked, first, the signer of the document, in order to induce the signature, and then some third party, who is induced to rely on the signed document, which of the two victims is the law to prefer? The authorities indicate that the answer is, almost invariably, the latter. The signer of the document has, by signing, enabled the fraud to be carried out, enabled the false document to go into circulation.

In Saunders v Anglia Building Society [1970] 3 All ER 961 at 963, [1971] AC 1004 at 1015–1016 Lord Reid said that the doctrine of non est factum—

‘… must be kept within narrow limits if it is not to shake the confidence of those who habitually and rightly rely on signatures when there is no obvious reason to doubt their validity … there must be a heavy burden of proof on the person who seeks to invoke this remedy.’

In the same case Lord Wilberforce said ([1970] 3 All ER 961 at 973, [1971] AC 1004 at 1027):

‘… a person who signs a document, and parts with it so that it may come into other hands, has a responsibility, that of the normal man of prudence, to take care what he signs, which, if neglected, prevents him from denying his liability under the document according to its tenor.’

In each of the authorities to which were referred, and in particular in Saunders v Anglia Building Society, the doctrine of non est factum is explained in different words by different judges, but with a striking uniformity of concept and of emphasis. Knox J in his judgment cited a passage from the speech of Lord Wilberforce (see [1970] 3 All ER 961 at 971, [1971] AC 1004 at 1025). I would add the passage immediately following, where Lord Wilberforce said ([1970] 3 All ER 961 at 972, [1971] AC 1004 at 1026):

‘How, then, ought the principle, on which a plea of non est factum is admissible, to be stated? In my opinion, a document should be held to be void (as opposed to voidable) only when the element of consent to it is totally lacking, ie more concretely, when the transaction which the document purports to effect is essentially different in substance or in kind from the transaction intended. Many other expressions, or adjectives, could be used— “basically” or “radically” or “fundamentally” … To this general test it is necessary to add certain amplifications. First, there is the case of fraud. The law as to this is best stated in the words of the judgment in Foster v Mackinnon (1869) LR 4 CP 704 at 711 where it is said that a signature obtained by fraud: “… is invalid not merely on the ground of fraud, where fraud exists, but on the ground that the mind of the signer did not accompany the signature; in other words, that he never intended to sign, and therefore in contemplation

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of law never did sign, the contract to which his name is appended.” In other words, it is the lack of consent that matters, not the means by which this result was brought about. Fraud by itself may do no more than make the contract voidable. Secondly, a man cannot escape from the consequences, as regards innocent third parties, of signing a document if, being a man of ordinary education and competence, he chooses to sign it without informing himself of its purport and effect. This principle is sometimes found expressed in the language that “he is doing something with his estate” … but it really reflects a rule of common sense on the exigency of busy lives. Thirdly, there is the case where the signer has been careless, in not taking ordinary precautions against being deceived.’

There then followed the passage which I have already cited in which Lord Wilberforce stressed the responsibility lying on persons who sign documents. He went on to add ([1970] 3 All ER 961 at 973, [1971] AC 1004 at 1027):

‘As to persons who are illiterate, or blind, or lacking in understanding, the law is in a dilemma. On the one hand, the law is traditionally, and rightly, ready to relieve them against hardship and imposition. On the other hand, regard has to be paid to the position of innocent third parties who cannot be expected, and often would have no means, to know the condition or status of the signer. I do not think that a defined solution can be provided for all cases. The law ought, in my opinion, to give relief if satisfied that consent was truly lacking but will require of signers even in this class that they act responsibly and carefully according to their circumstances in putting their signature to legal documents.’

In my judgment these passages from Lord Wilberforce’s speech express the approach and the principles that must be applied to a non est factum plea.

In the present case there was a glaring absence of any reliable evidence as to exactly what happened on the occasion on which Mrs Steed had placed her signature on the transfer. Mrs Hammond gave evidence about the occasion but the judge rejected her evidence. Mrs Steed’s statement, too, dealt with her lack of any recollection of the occasion or knowledge that she had been asked to sign a transfer of the property. But the reliability of Mrs Steed’s statement was seriously undermined by the circumstance that she had denied ever having seen the transfer and had denied that the signature was hers. Both these denials had been shown to be false. It is clearly established that the onus lies on the party repudiating the signed document to establish the necessary ingredients of non est factum and it would, in my opinion, have been open to the learned judge simply to have said that there was no evidence before him sufficient to establish Mrs Steed’s lack of understanding of what she had signed.

The judge did not, however, take that easy course but, instead, accepted at its face value Mrs Steed’s statement that she had not known what she was signing. This part of Mrs Steed’s statement had the merit of being believable. Neither Mr Lawrence of W H Hopkins & Co, nor anyone else from that firm had ever communicated with her regarding the sale of the property to the Hammonds. The form of the transfer had been prepared by W H Hopkins & Co, acting for the Hammonds, and submitted to Warrens, the building society’s solicitors, for approval. W H Hopkins & Co sent Warrens an authority to inspect the register. It has not been explained how they were able to do so without taking any instructions from Mrs Steed, but it has not been suggested that Mrs Steed authorised them to do so. The Hammonds, intent on fraud, certainly would not have explained the proposed sale transaction to Mrs Steed. So it is believable that,

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up to the moment when the time came for her to sign the transfer, she knew nothing of it. She was, it may be inferred, tricked into signing without reading the document.

Mrs Steed’s evidence was not, however, that she had thought she was signing a document of some different character from that which in fact she had signed. It was not that she had signed under some induced misapprehension as to the nature or character of what she was signing. Her evidence was that she had not known what she was signing and that, trusting her daughter, Claire, as she did, she would have signed anything her daughter had put before her. Knox J held that: ‘… Mrs Steed was tricked into signing what her daughter put before her because she trusted her…’ That, he held, was not sufficient to enable the plea of non est factum to succeed.

Mr Lloyd QC for the appellant has attacked this part of the judgment by relying heavily on the proposition that Mrs Steed did not know anything about the power of attorney and her status thereunder. In that state of ignorance she could not, when she signed the transfer, have known she was dealing with her son’s property. She must have supposed she was dealing, in some way, with her own affairs. So, it was argued, she was mistaken as to the essential character of the document she signed and of the transaction which it effected.

Submissions on these lines, as Butler-Sloss LJ pointed out during argument placed Mr Steed on a species of Morton’s fork. Let it be supposed that Mrs Steed was a lady of sufficient general understanding and capability to be a suitable donee of the power of appointment. Why then did she not inform herself of the purport and effect of the transfer before signing it ? Her failure to do so brings the case within the second of Lord Wilberforce’s amplifications. On the other hand, let it be supposed that she lacked ordinary competence and capacity. Lord Wilberforce referred to persons ‘illiterate, or blind, or lacking in understanding’. If Mrs Steed falls into this category, what was Mr Steed about when he appointed her his attorney? The donor of a power of attorney who appoints as his attorney a person incapable of understanding the import of a simple transfer can hardly be allowed, if the donee signs a transfer without any understanding of what he or she is doing, to repudiate the transfer on the ground of a lack of understanding on the part of the donee.

As to Mrs Steed’s ignorance of the power of attorney, if she was ignorant of it, the ignorance was attributable to Mr Steed’s incomprehensible failure to tell her either that he was about to or that he had made the appointment. It is known that he and she spoke on the telephone at about the time the power of attorney was executed. If it was really the case that he did not mention the power of attorney when speaking to her on that occasion and left her in ignorance of her responsibilities and status, his failure shows, in my opinion, such a want of care as to preclude him from relying, in support of his non est factum plea, on her ignorance of the power. As between an innocent third party purchaser such as the building society on the one hand and Mr Steed on the other hand, his failure to take the ordinary precautionary and prudent step of informing his mother of her appointment as his attorney requires, in my judgment, that the building society be preferred. In my judgment, and for substantially the same reasons as those given by the learned judge, the non est factum plea fails.

Ultra vires

The submission that the transfer fell outside the authority conferred on Mrs Steed under the power of attorney must be approached on the footing that, the non est factum plea having failed, the transfer was validly executed by Mrs Steed. The transfer purported to transfer the property in consideration of the

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payment of the sum of £24,500. A transfer of property for a price is a sale. Mr Lloyd’s submission was that the reference to the price was a sham. No price was in fact paid or ever intended to be paid. The £1,800-odd paid on discharge of the local authority mortgage may be ignored for the purposes of the argument. The transaction effected by the transfer was, whatever the transfer may have said, a transfer for no, or if the £1,800 is taken into account a derisory, consideration and was not a sale.

The building society in its defence to counterclaim pleaded estoppel by deed. But, submitted Mr Lloyd, the Hammonds, the other parties to the transfer, could not, by reason of their own fraud, raise an estoppel by deed. That being so, the building society, which claimed through the Hammonds could not rely on estoppel by deed. Mr Lloyd may be right in his answer to the estoppel by deed point. If estoppel was to be relied on, it ought, I think, to have been estoppel by representation. The transfer records a transaction of sale. If, in reliance on the transfer, the building society accepted the legal charge executed by the Hammonds and parted with the £15,000, an estoppel by representation would, as it seems to me, bar Mr Steed from denying that the transaction completed by the transfer was a sale. I think Mr Lloyd accepted, in principle, that that would be so. But he pointed out that estoppel by representation was not pleaded, and that no evidence had been led to establish that the building society in advancing the £15,000 had relied in any relevant sense on the contents of the transfer.

I am, for two reasons, unable to accept Mr Lloyd’s submissions on this ultra vires point.

First, the transfer purports to be executed in completion of a sale. The execution of a transfer on completion of sale is unquestionably within the power conferred by the power of attorney. The transfer was executed by the donee of the power of attorney. Prima facie, therefore, the transfer was, in my opinion, valid and effective according to its tenor. No question of ultra vires arises. True the £24,500 was never paid (bar the £1,800-odd) but, despite the receipt clause, Mr Steed would have been entitled to sue for the outstanding sum. The Hammonds would have had no defence to an action for the price. As between Mr Steed and the Hammonds, therefore, the transfer was not a nullity. It was merely voidable. If it was merely voidable vis-à-vis the Hammonds, it cannot have been void as against the building society. As a matter of principle, if a deed has been executed by a donee of a power of attorney apparently acting within the terms of the power, a purchaser does not, in my judgment, have to inquire further into the substance of the transaction.

But, secondly, it seems to me plain as a pikestaff that the building society, in parting with its money, relied on the transfer. The £15,000 was advanced in order to enable the Hammonds to complete a purchase from Mr Steed at a price of £24,500. The form of the proposed transfer had been approved by the building society. The £15,000 was held by W H Hopkins & Co pending completion of the sale. Not until the transfer in the form approved by the building society had been executed by Mrs Steed was W H Hopkins & Co free to release the £15,000. To say that there was no evidence that the building society relied on the transfer being, as it purported to be, a transfer on sale, flies in the face of reality. It is true that estoppel by representation was not pleaded, but estoppel by deed was pleaded and the evidence was sufficient to support the former plea. If it had been necessary I would have unhesitatingly given leave for an amendment to be made.

The learned judge dealt very shortly with the ultra vires point. He said:

‘… the transfer on its face was a perfectly regular sale and as against third parties taking a legal estate for value and in good faith it was within the

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ostensible authority of Mrs Steed and cannot now be repudiated against such third parties. Nothing short of non est factum rendering the transfer void, or forgery which has the same legal effect but is not now alleged, will suffice to defeat the building society’s innocent reliance upon the transfer.’

Save that I would not describe Mrs Steed’s authority to execute the transfer as ‘ostensible’ authority, I am in complete and respectful agreement with the judge.

Rectification of the register

The transfer of 4 September 1979 was induced by the fraud of Mr and Mrs Hammond. It was voidable but not void. The building society advanced £15,000 to the Hammonds on the security of the charge which they executed and which was subsequently registered. The question is whether the court has power under s 82 of the Land Registration Act 1925 to order the register to be rectified by deletion of the entry of the building society’s registered charge in the charges register. The question is primarily one of construction of the statutory language used in s 82.

Section 82, as amended, provides as follows:

‘(1) The register may be rectified pursuant to an order of the court or by the registrar, subject to appeal to the court, in any of the following cases, but subject to the following provisions of this section:—(a) Subject to any express provisions of this Act to the contrary, where a court of competent jurisdiction has decided that any person is entitled to any estate right or interest in or to any registered land or charge, and as a consequence of such decision such court is of opinion that a rectification of the register is required, and makes an order to that effect; (b) Subject to any express provision of this Act to the contrary, where the court, on the application in the prescribed manner of any person who is aggrieved by any entry made in, or by the omission of any entry from, the register, or by any default being made, or unnecessary delay taking place, in the making of any entry in the register, makes an order for the rectification of the register; (c) In any case and at any time with the consent of all persons interested; (d) Where the court or the registrar is satisfied that any entry in the register has been obtained by fraud; (e) Where two or more persons are, by mistake, registered as proprietors of the same registered estate or of the same charge; (f) Where a mortgagee has been registered as proprietor of the land instead of as proprietor of a charge and a right of redemption is subsisting; (g) Where a legal estate has been registered in the name of a person who if the land had not been registered would not have been the estate owner; and (h) In any other case where, by reason of any error or omission in the register, or by reason of any entry made under a mistake, it may be deemed just to rectify the register.

(2) The register may be rectified under this section, notwithstanding that the rectification may affect any estates, rights, charges, or interests acquired or protected by registration, or by any entry on the register, or otherwise.

(3) The register shall not be rectified, except for the purpose of giving effect to an overriding interest or an order of the court, so as to affect the title of the proprietor who is in possession—(a) unless the praprietor has caused or substantially contributed to the error or omission by fraud or lack of proper care; or (c) unless for any other reason, in any particular case, it is considered that it would be unjust not to rectify the register against him …

(5) The registrar shall obey the order of any competent court in relation to any registered land on being served with the order or an official copy thereof …’

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It is convenient to refer at this point to s 83 of the 1925 Act, which makes provision for an indemnity to be given to those suffering loss by reason of the rectification of the register and, in certain circumstances, to those suffering loss where rectification is refused. Section 83, as amended, provides so far as relevant, as follows:

‘(1) Subject to the provisions of this Act to the contrary, any person suffering loss by reason of any rectification of the register under this Act shall be entitled to be indemnified.

(2) Where an error or omission has occurred in the register, but the register is not rectified, any person suffering loss by reason of such error or omission, shall, subject to the provisions of this Act, be entitled to be indemnified …

(4) Subject as hereinafter provided, a proprietor of any registered land or charge claiming in good faith under a forged disposition shall, where the register is rectified, be deemed to have suffered loss by reason of such rectification and shall be entitled to be indemnified under this Act.

(5) No indemnity shall be payable under this Act in any of the following cases:—(a) Where the applicant or a person from whom he derives title (otherwise than under a disposition for valuable consideration which is registered or protected on the register) has caused or substantially contributed to the loss by fraud or lack of proper care …

(6) Where an indemnity is paid in respect of the loss of an estate or interest in or charge on land the amount so paid shall not exceed—(a) Where the register is not rectified, the value of the estate, interest or charge at the time when the error or omission which caused the loss was made; (b) Where the register is rectified, the value (if there had been no rectification) of the estate, interest or charge, immediately before the time of rectification …’

If an order of rectification is to be made the case must be brought within at least one of paras (a) to (h) of s 82(1). The dispute in the present case is as to the breadth of the power conferred by paras (a) and (b) and, to a lesser extent, paras (d) and (h). There is no doubt but that, if Mrs Steed’s signature had been forged or if the non est factum plea had been made good, the case would have fallen squarely within para (g). In neither case, if the land had been unregistered, would the Hammonds or the building society have obtained a legal estate. I cannot see any reasonable basis on which an order of rectification could have been withheld. If, however, as is the case, the transfer is only voidable, para (g) does not apply. It is plain that, if title to the property had been unregistered, Mr Steed would have had no remedy against the building society. He would have recovered the property from the Hammonds but the property would have remained subject to the charge. It is submitted, however, that para (a), (b), (d) or (h) can, since title is registered, be prayed in aid. This submission is made on the footing that, under one or more of these paragraphs, the court is given a general discretion to order rectification in any case in which it may be thought just to do so. If the submission is right, then s 82, or its statutory predecessors, achieved a remarkable and unnoticed change in the substantive law. If the discretion can be exercised where there has been a fraudulent misrepresentation, as in the present case, it must be exercisable also where a merely innocent misrepresentation has been made. It would, as Mr Lloyd conceded, be exercisable also in a case where no misrepresentation inducing the transaction could be pointed to but where a registered proprietor had entered into a transaction under a misapprehension for which the other party to the transaction was not responsible, a misapprehension as to the value of the property, for example. Mr Lloyd said that in such a case the

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discretion to order rectification against a bona fide purchaser, such as the building society in the present case, would be very unlikely ever to be exercised. But the proposition that the discretionary power contended for can be spelt out of the statutory language is, to me, so startling as to require the premise of the proposition to be very carefully examined.

There is a sense in which the power to rectify under s 82 is undoubtedly discretionary. The words in sub-s (1) are ‘may be rectified’. Section 83(2) shows that rectification is not automatic. The power to rectify may, in a particular case, be present but, none the less, there is a general discretion to refuse rectification. It does not follow, however, that there is, in every case, a general discretion to grant rectification. The power to grant rectification is limited in sub-s (1) to ‘any of the following cases’. The power to order rectification must, therefore, be found within one or other of the sub-s (1) paragraphs and cannot be spelt out of the words ‘may be rectified’.

Paragraphs (a) and (b) provide a power to rectify that can only be exercised by the court. The power conferred by the other paragraphs can be exercised either by the registrar or by the court. Paragraph (a) enables an order of rectification to be made where the court ‘has decided that any person is entitled to any estate right or interest in or to any registered land or charge …’ This, in my judgment, is a clear reference to an entitlement under the substantive law. An example would be a case, such as Mr Steed’s case against the Hammonds, for the setting aside of a transaction on the ground of misrepresentation or some other sufficient cause. Another example would be the successful assertion of a possessory title. A third example might be the assertion of a right by a beneficiary under a trust who had become absolutely entitled to the land. In each of these cases, once the entitlement had been established, the court would have power under para (a) to order the register to be rectified so as to reflect the entitlement. But para (a) does not, in my judgment, give any substantive cause of action where none before existed. It does not enable a voidable transaction to be set aside as against a bona fide purchaser who has acquired by registration a legal estate. And, if no entitlement as against such a purchaser can be established, para (a) does not, in my judgment, enable the register to be rectified as against such a purchaser. Paragraph (a) does not assist Mr Steed in his rectification claim against the building society. Paragraph (b) is the paragraph on which Mr Lloyd pinned his main hopes. It applies, he submitted, whenever any person is ‘aggrieved’ by an entry on the register. Paragraph (b) is something of a puzzle, not least because the form of the ‘application’ is not ‘prescribed’ by any rules made under the 1925 Act. The same language was used in s 96 of the Land Transfer Act 1875, but there, too, no form of application was ‘prescribed’. The legislative intention underlying para (b) and its statutory predecessor is difficult to identify with clarity. The reference to ‘the application in the prescribed manner’ makes me believe that it was contemplated that some form of summary process would be prescribed in order to enable relief to be given in clear cases. Be that as it may, the real question at issue is whether the provision was intended simply to provide a remedy in respect of proprietary rights that either entitled the proprietor to have some entry made on the register or entitled the proprietor to have some entry removed from the register or whether the provision should be construed as creating a new cause of action entitling the court to make rectification orders as it might in its discretion think fit in favour of persons who would not under substantive law (apart from para (b)) have any proprietary rights which they could assert against the registered proprietor or chargee. In my judgment, the question has only to be put for the answer to be apparent. Parliament could not have intended para (b) to produce new substantive rights in respect of registered land, enabling registered dispositions

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to be set aside and removed from the register in circumstances where, if the land had not been registered, no cause of action would have existed. In my judgment, para (b), like para (a), provides a remedy but does not create any new substantive rights or causes of action. The scope of para (c) is self evident and not relevant in the present case.

Paragraph (d) too was relied on by Mr Lloyd. He contended that, since the transfer had been induced by the Hammonds’ fraud, both the registration of the Hammonds as proprietors and the registration of the building society’s legal charge could be described as having been ‘obtained by fraud’. In my judgment, this is a misreading of the paragraph. The paragraph is directed, in my opinion, to fraud practised upon the Land Registry in order to obtain the entry in question. No fraud was used to obtain the entry on the charges register of the building society’s legal charge.

This construction of para (d) derives support from the language used in s 174(1)(c) of the Law of Property Act 1922, the statutory predecessor of para (d). Section 174(1)(c) enabled the register to be rectified—

‘Where the court or the registrar is satisfied that the registration of … a charge, mortgage, or other entry in the register … has been obtained by fraud, by annulling the registration, notice or other entry …’

This provision was reduced to its present succinct form in the Law of Property (Amendment) Act 1924 (see s 8 and Sch 8, para 16). It is the registration that must be obtained by fraud.

The registration of a forged transfer could, in my opinion, at least if the application for registration had been made by the forger, be annulled under para (d). The entry would have been obtained by fraud in the presenting of a forged transfer for registration. But, if a voidable disposition were registered before being avoided, I would doubt whether the register could be rectified under para (d), even if the disposition were voidable on account of fraud. In such a case the entry on the register would not, it seems to me, have been obtained by fraud. Rectification could, of course, in such a case be obtained under para (a) or para (b). Whether or not that is right, and it need not be decided in this case, a registered disposition made by the fraudster to a bona fide purchaser cannot in my judgment be removed from the register under para (d). The registration would not have been obtained by fraud. So para (d) cannot in my judgment assist Mr Steed as against the building society.

Paragraphs (e) and (f) are self explanatory and are of no relevance to this case.

Paragraph (g) does not, in the event that the transfer is voidable, assist Mr Steed as against the building society. It is, however, an important paragraph so far as an understanding of the scheme of s 82(1) is concerned.

In my opinion the scheme is reasonably clear. Paragraphs (a) and (b) give power h to the court to make orders of rectification in order to give effect to property rights which have been established in an action or which are clear. Paragraph (c) enables orders to be made by consent. The remaining paragraphs, paras (d) to (h), are intended to enable errors to be corrected. Paragraphs (d), (e), (f) and (g) each deal with an error of a particular character. But, since these paragraphs might not cover comprehensively all errors, para (h) was added as a catch-all provision to cover any other errors. The breadth of the catch-all provision was, I imagine, the reason why it was thought appropriate to make the power exercisable ‘where … it may be deemed just to rectify the register’. There are no comparable words in any of the other paragraphs.

Paragraph (h) is relied on by Mr Lloyd. But in order for the paragraph to be

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applicable some ‘error or omission in the register’ or some ‘entry made under a mistake’ must be shown. The entry in the charges register of the building society’s legal charge was not an error and was not made under a mistake. The legal charge was executed by the Hammonds, who were at the time transferees under a transfer executed by Mrs Steed as attorney for the registered proprietor. The voidable transfer had not been set aside. The registration of the Hammonds as proprietors took place at the same time as the registration of the legal charge. Neither registration was an error. Neither entry was made under a mistake. So the case for rectification cannot be brought under para (h).

As a matter of principle, if, as I think, the appellant’s case for rectification as against the building society cannot be brought under any of the paragraphs of s 82(1), I would conclude that that must be an end to the rectification claim. Mr Lloyd, however, has relied strongly on passages in the judgment of Slade LJ in Argyle Building Society v Hammond (1984) 49 P & CR 148 .

Before I come to those passages, it is convenient to refer to such earlier authority as there is.

Chowood Ltd v Lyall (No 2) [1930] 2 Ch 156, [1930] All ER Rep 402 concerned a strip of land which had, on first registration, been included in a registered title notwithstanding that it was in the possession of an adjoining owner. The register was rectified under para (h) on an application made by the adjoining owner, the defendant. In the Court of Appeal Lawrence LJ said ([1930] 2 Ch 156 at 168–169, [1930] All ER Rep 402 at 406):

‘I see no reason to limit the word “mistake” in that section to any particular kind of mistake … I further agree … that … the rectification might also be made under clauses (a) and (g) of sub-s. 1. Moreover I am not satisfied that the defendant’s application for rectification would not come under cl. (b) as being made by a person who is aggrieved by an entry in the register. Mr. Armitage [junior counsel for the plaintiff] suggested that cl. (b) applies only to a mistake made by the officials in the Registry and not to a mistake made or induced by one or other of the parties. I prefer not to express any concluded opinion on this point …’

Underlying this passage, as it seems to me, is Lawrence LJ’s acceptance of the importance of bringing the rectification case within one or other of the paragraphs of s 82(1).

Calgary and Edmonton Land Co Ltd v Discount Bank (Overseas) Ltd [1971] 1 All ER 551, [1971] 1 WLR 81 concerned cautions which had been entered on the register in order to protect interests claimed in a pending action. The action had been struck out at first instance, an appeal to the Court of Appeal had failed but a petition for leave to appeal to the House of Lords was still pending. On an interlocutory notice of motion Brightman J ordered that the register be rectified by vacating the cautions. He held that he had power to make the order either under para (a) or under para (b) and that ‘… it matters not whether the order is expressly made under para (a) or para (b)’ (see [1971] 1 All ER 551 at 553, [1971] 1 WLR 81 at 85). I would respectfully accept that the order was justified under para (a) but would regard the case as a classic example of the sort of case for which para (b) was designed.

In Re Leighton’s conveyance [1936] 1 All ER 667 a non est factum case was raised. The plaintiff sought rectification, first, against her daughter, who had fraudulently induced the plaintiff to sign a transfer leading to the daughter’s registration as proprietor, and, secondly, against chargees who, without any notice of the daughter’s fraud, had advanced money to the daughter on the security of registered charges. The case was, therefore, very similar to the present case.

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Luxmoore J ordered rectification as against the daughter but, having concluded that the non est factum plea failed, he dismissed the rectification claim against the chargees. He said (at 673):

‘I am satisfied that there are no grounds on which I can say that these charges are bad, but with regard to the equity of redemption I am satisfied on the evidence that what Mrs. Wardman did was at the request of and in reliance on her daughter, and under her influence … It follows that the conveyance to Mrs. Bergin can have no effect as against Mrs. Wardman, and she is still entitled to the equity of redemption in the property … With regard to the charges register, there is no ground for interfering with it and directing any rectification. They are good charges and remain enforceable against the property.’

It was not stated in the judgment which paragraph or paragraphs of s 82(1) Luxmoore J regarded as applicable, but the report of the argument of counsel and an editorial note suggest that the judge was invited to act under para (d) (at 667). It appears also from the report of argument that rectification as against the daughter was conceded and that the only issue in the case against the chargees was the non est factum issue. In my opinion, para (a), rather than para (d), provided the power to rectify as against the daughter. If the non est factum case had succeeded, para (g) also would have been in point, both against the daughter and against the chargees. It was not suggested by counsel for the mother that, if the non est factum plea failed, she might none the less be entitled to rectification against the chargees. And there is nothing in the judgment of Luxmoore J to indicate that, having rejected the non est factum plea, he thought that he had any discretionary power to order rectification of the charges register.

I now come to the judgment of Slade LJ in Argyle Building Society v Hammond (1984) 49 P & CR 148. For the purposes of his judgment Slade LJ assumed that the allegation of forgery would succeed. He assumed nothing else. References to the ‘assumed facts’ are references to the facts regarding the forgery. Having set out the text of s 82(1), he said (at 157):

‘First, registers of title made pursuant to the 1925 Act consist of three parts, namely the property register, the proprietorship register and the charges register. The jurisdiction to rectify under the subsection plainly extends to all or any of these parts. Secondly, on the assumed facts in the present case, the court would, in our judgment, have clear jurisdiction to rectify the proprietorship register of the house by substituting the name of the appellant for that of Mr. and Mrs. Hammond, since the case would fall within all or any of sub-paragraphs (a), (b), (d), (g) and (h) of section 82(1). The present argument relates to the possibility or otherwise of rectification of the charges register.’

He made clear the opinion of the court that, on the assumed facts, the court would have power to rectify the charges register against the mortgagees as well as the proprietorship register against the Hammonds (at 158). I would respectfully agree, save that, for the reasons I have given, I do not think the case would come within para (d). It would come, in my opinion, within paras (a), (b), (g) and, perhaps, (h).

Slade LJ then referred to Re Leighton’s Conveyance, cited the passage from the judgment of Luxmoore J that I have cited and continued (at 160):

‘Reverting to the decision at first instance in the Leighton case, the report of the argument shows that the provisions of section 82(1) and (2) of the 1925

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Act were drawn to the attention of Luxmoore J. We feel no doubt that he would have appreciated that, even in the absence of a successful plea of forgery or non est factum, the section would in terms have conferred a discretion on the court to rectify the charges register, even as against the innocent chargees. Nevertheless, it is readily intelligible that Luxmoore J. should have considered that, when the discretion fell to be exercised, the equities were all on one side—that is to say in favour of the chargees, who had acted on the faith of a document of transfer which the mother had herself executed after having failed to make inquiries which would have revealed that the document related to the property. If the title to the land had not been registered, the title of the daughter would, at worst, have been voidable, not void; and under general principles of equity, mortgagees from the daughter in good faith and for value, without notice of the facts giving rise to the voidability, would have acquired a good title to their mortgages. We can see no reason why the court in the Leighton case should have regarded the equities as being any different, as between the mother and the chargees, merely because the land happened to be registered land.’

In my respectful opinion, this analysis of Re Leighton’s Conveyance is not justified by Luxmoore J’s judgment. There is nothing in the judgment or in the report of counsel’s argument to suggest that the possibility of rectification against the chargees, in the absence of a successful plea of forgery or non est factum, was ever considered. Slade LJ commented (at 162):

‘… in a case where one or more of the conditions of section 82(1) are fulfilled, the court has at least theoretical discretion to rectify any part of the register, even as against innocent third parties …’

I would respectfully agree with this comment, based as it is on the premise that the case can be brought within one or other of the paragraphs of s 82(1). But Slade LJ then went on to distinguish the case of a party ‘deprived of his title as a result of a forged document which he did not execute’ from the case where the party ‘has been deprived as a result of a document which he himself executed, albeit under a mistake induced by fraud’ and commented that ‘when the court comes to exercise its discretion, different considerations may well apply’. The paragraph of s 82(1) under which the latter case could be brought was not identified. On the true construction of s 82(1) there is not, in my opinion, any paragraph under which the latter case could be brought.

Mr Lloyd’s argument that the court has a general discretionary power to order rectification of the register was based on the passages from Slade LJ’s judgment to which I have referred. The passages were not part of the ratio of the decision, by which we are bound and with which I respectfully agree. A voidable transfer was not part of the ‘assumed facts’ on which the ratio was based. In my judgment, the obiter passages, regarding voidable transfers and innocent third parties claiming thereunder, were based on an incorrect construction of s 82(1) and should not be followed.

In my opinion, if the appellant’s non est factum case is rejected, the court has no power under s 82(1) to order rectification as against the building society. It is strictly unnecessary for me to deal with the issue of discretion, which only arises if the court has power to rectify. Knox J refused rectification as a matter of discretion. He held that as between the appellant and the building society ‘all the equities are on the building society’s side’. This would certainly be so if the land were unregistered. But under s 83(1) the building society, if rectification were ordered, would have what seems to me to be an unimpeachable statutory right to

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an indemnity against the loss it would thereby suffer. On the other hand, if rectification were refused, the appellant would not be able to claim an indemnity under s 83(2). Mr Lloyd accepted, rightly, that, since the registration of the building society’s charge was not an ‘error or omission’, the case would not come within s 83(2). The financial consequences to the parties of ordering or refusing rectification make it difficult to weigh the ‘equities’. If rectification were ordered, the loss would fall not upon the building society but upon the public purse. If rectification were refused, the public purse would be saved the burden of paying an indemnity. I mention these matters not in order to indicate any disagreement with Knox J’s conclusions on discretion but because the indemnity provisions in s 83 seem to me to underline that the legislature did not contemplate the power of rectification being exercisable under s 82 except in cases either where an error or omission had occurred in the register (ie paras (d) to (h)) or where a substantive cause of action against the registered proprietor required the register to be rectified (ie paras (a) and (b)).

In ‘error or omission’ cases, ie in cases coming.within paras (d) to (h), an indemnity would, if rectification were refused, be available under s 83(2) (subject always to s 83(5)(a)). In cases within paras (a) and (b) but not within any of paras (d) to (h), eg cases in which voidable transactions are set aside and, as a consequence, rectification of the register is required, it is difficult to construct any scenario in which rectification could be withheld. The construction of s 82(1) that I have suggested seems to me to mesh with and to explain the scheme of indemnity contained in s 83. The ‘general discretion’ approach to s 82(1) does not.

For the reasons I have given I would dismiss this appeal.

BUTLER-SLOSS LJ. I agree.

PURCHAS LJ. I also agree that for the reasons given in the judgment of Scott LJ this appeal should be dismissed. I wish only to add that in my judgment I have, after some hesitation, come to the conclusion that it is impossible to extract a general discretion to rectify the register from s 82(1)(h) of the Land Registration Act 1925 beyond that necessary to cover some unusual error which did not fall under paras (d) to (g). It is under paras (a) and (b) that rectification depending upon the prior determination of disputed rights by the court should be effected. With some diffidence, I find myself in agreement with Scott LJ in coming to the conclusion that the analysis of the judgment of Luxmoore J in Re Leighton’s Conveyance [1936] 1 All ER 667 in the judgment of the court delivered by Slade LJ in the passage from the judgment already cited by Scott LJ is not justified on a general reading of that case. At the time when the present case was first before this court sub nom Argyle Building Society v Hammond (1984) 49 P & CR 148 the plaintiff’s case was based on the alleged forgery of Mrs Steed’s signature upon the transfer. This would have rendered the transfer void. The case would then fall squarely within s 82(1)(g) and therefore the conclusion (at 162) referred to by Scott LJ was perfectly correct in the context. I am, I regret, unable to agree that the judgment of the court beyond this or that, in so far as it was obiter in the context in which it was delivered, can be supported or that it binds this court.

Appeal dismissed.

Celia Fox   Barrister.

Dixons Stores Group Ltd v Thames Television plc

[1993] 1 All ER 349

Categories:        CIVIL PROCEDURE        

Court:        QUEEN’S BENCH DIVISION        

Lord(s):        DRAKE J        

Hearing Date(s):        15 JULY 1992        

Evidence – Without prejudice correspondence – Correspondence not forming part of negotiations – Privilege from admission in evidence – Letters written after termination of bona fide negotiations – Letters from defendant to plaintiff suggesting parties negotiate compromise – Letters not marked without prejudice – Whether letters admissible in defendant’s cross-examination of plaintiff’s witness.

On 3 July 1991 the plaintiffs’ solicitor wrote a letter before action to the defendants alleging that a television programme broadcast by the defendants was defamatory of the plaintiffs. A writ was issued on 11 July. Between 5 February and 10 June 1992 there was without prejudice correspondence between the parties with a view to settling the action but that was inconclusive. On 1 and 9 July 1992 the defendants’ solicitors wrote to the plaintiffs’ solicitors almost identical letters stating that the defendants wished to negotiate a compromise and suggesting that the defendant make an apology and statement in open court. The first letter was not headed, and made no reference to its being, without prejudice, while the second was headed ‘open letter’, and both were clearly intended to be referred to by the defendants at trial. The offer was not accepted by the plaintiffs and the matter came to trial, in the course of which counsel for the defendants sought to refer to the letters in cross-examination of one of the plaintiffs’ witnesses. The plaintiffs’ counsel objected to the letters being admitted in evidence on the ground that they were clearly written without prejudice as an offer to negotiate a settlement and were therefore subject to privilege and were inadmissible without the consent of both parties.

Notes

For communications written without prejudice, see 17 Halsbury’s Laws (4th edn) paras 212–213, and for cases on the subject, see 22(2) Digest (2nd reissue) 99–104, 6770–6815.

Cases referred to in judgment

Rush & Tomkins Ltd v Greater London Council [1988] 3 All ER 737, [1989] AC 1280, [1988] 3 WLR 939, HL.

Page 350 of [1993] 1 All ER 349

Application

The defendants, Thames Television plc, applied in the course of the trial of a libel action brought against them by the plaintiffs, Dixons Stores Group Ltd, claiming damages for defamation, to put in evidence two letters written by their solicitors to the plaintiffs’ solicitors offering to settle the plaintiffs’ claim on terms set out in the letters. The facts are set out in the judgment.

Richard Rampton QC and Thomas Shields (instructed by Barlow Lyde & Gilbert) for the plaintiffs.

Michael Corkery QC and Heather Rogers (instructed by D J Freeman) for the defendants.

15 July 1992. The following judgment was delivered.

Held – A party to an action could write a letter containing an offer to settle the action without ipso facto attracting to that letter any privilege which could be claimed by the opposing party, provided the letter was not part of continuing negotiations. However, if the letter was a reply to a letter written without prejudice or was part of a continuing sequence of negotiations, whether by correspondence or orally, then it would be privileged and could not be admitted in evidence without the consent of both parties. It followed that since the letters were written after the negotiations and without prejudice correspondence had finished and come to nothing, they were not subject to privilege and could be used by the defendants in the course of the action without the consent of the plaintiffs (see p 351 g h and p 352 d f g, post).

DRAKE J. I am asked to rule on the admissibility of two letters, both from the defendants’ solicitors to the plaintiffs’ solicitors, one dated 1 July 1992 and the other, in almost, although not quite, identical terms, dated 9 July 1992.

The first of those letters, dated 1 July 1992, had no heading ‘without prejudice’, nor was there any reference in the body of the letter to it being written without prejudice. The second one, in almost identical terms, dated 9 July 1992 was headed ‘open letter’. Both of these letters, it is clear, were written by the defendants’ solicitors with the intention that they should be referred to at the trial of the action.

The relevant history, so far as dates are concerned, is as follows. The broadcast of a programme by the defendants which gives rise to this action for libel was on 27 June 1991. On 3 July 1991 the plaintiffs’ solicitors wrote a letter before action, complaining of the alleged defamation in the course of that programme and calling upon the defendants to make an apology in a stated form, to make a payment to a charity to be nominated and to pay the plaintiffs’ costs. There being no immediate response, the writ was issued on 11 July. On 16 July the defendants’ solicitors responded to the plaintiffs’ solicitors’ letter of 1 July and to the fact that the writ had been issued. In that letter the defendants’ solicitors stated their wish to negotiate a settlement of the action. They wrote:

‘However, our clients have no quarrel with yours and wish, if possible, to resolve this matter amicably. To that end, the programme editor … is prepared to broadcast a further Cityfile item. We enclose for your consideration a draft, which we would be happy to discuss with you.’

The draft proposed broadcast was not acceptable to the plaintiffs and the action proceeded. Then I am told that on 5 February 1992, and continuing until 10 June 1992, there was correspondence between the parties without prejudice, and clearly marked as such, with a view to a settlement of the action. It came to nothing. Then on 1 July 1992 the defendants’ solicitors wrote to the plaintiffs’ solicitors stating, in what was intended to be an open letter, but not marked as such, that they wished to negotiate a compromise of the action and suggested that an apology and a statement in open court should be made. A draft apology was included with the letter.

I understand that some query arose at that stage as to whether or not that letter was covered by ‘without prejudice’ privilege and accordingly on 9 July 1992 the defendants’ solicitors repeated the letter in very nearly identical terms, but headed it ‘open letter’. They now wish to put the terms of that letter to one or more witnesses to be called for the plaintiffs, and Mr Rampton QC for the plaintiff has objected on the grounds that the letter is privileged as being without prejudice.

Page 351 of [1993] 1 All ER 349

It is quite clear and is trite law that, where an offer of compromise is made without prejudice, it is subject to privilege and cannot be referred to in evidence without the consent of both parties. I take it, although I do not think I was told this expressly, that the letter of 16 July 1991, made in response to the letter before action and following the issue of writ, which did expressly offer to negotiate a settlement of the action, was the subject of an agreement for waiver of privilege, since all that Mr Rampton claims as attracting privilege to the present letters of July 1992 would apply with equal force to that letter of 16 July 1991. Be that as it may, the policy of the law is clearly to encourage settlements of actions and I think it is quite clear that the modern tendency has been to enlarge the cloak under which negotiations may be conducted without prejudice. I take that from a consideration of the modern cases in which without prejudice privilege has been considered, and it is in fact stated in those terms in Cross On Evidence (7th edn, 1990) p 452.

The mere fact of heading a letter ‘without prejudice’ is not in the least decisive as to whether or not the letter is in fact privileged. The privilege exists in order to encourage bona fide attempts to negotiate a settlement of an action and if the letter is not written to initiate or continue such a bona fide attempt to effect a settlement it will not be protected by privilege. But, conversely, if it is written in the course of such a bona fide attempt, it will be covered by privilege, and the absence of any heading or reference in the letter to show it is written without prejudice will not be fatal.

I have merely stated some general principles. But in the present case the position is somewhat different. The letter itself contains no reference to a claim that it is written without prejudice; on the contrary, the second of the two letters is headed ‘open letter’, and the defendants, whose letter it is, written by their solicitors, expressly do not claim privilege, they want to refer to the letter in cross-examination of the plaintiffs’ witness. Mr Rampton says they cannot do so. It is the plaintiffs who claim privilege for the defendants’ letter, and Mr Rampton submits that the very fact that it is clearly written with an offer to negotiate a settlement of the action means that the defendants cannot refer to it without the plaintiffs’ consent, which in the instant case is not given.

In my judgment, a party may write a letter containing an offer to settle an action without ipso facto attracting to that letter a privilege which the opposing party may then claim. If the letter is in reply to a letter written without prejudice or is part of a continuing sequence of negotiations, whether by correspondence or orally, then it will be privileged and cannot be given in evidence without the consent of both parties. But in the present case I am dealing with a letter which was not part of continuing without prejudice negotiations. It was written after certain negotiations and correspondence without prejudice had finished and come to nothing. In my judgment, a letter containing an offer to settle an action may be written, and written as an open letter, and used by the party writing it in the course of the action, provided it has relevance to the issues in the action and, as I have already made clear, is not part of continuing negotiations.

In an action for defamation it is clear that such a letter may be highly relevant. The damages are likely to be very much affected by the willingness or refusal of the defendant to make an apology. True there is nothing to stop a defendant making an apology without first obtaining the agreement of the plaintiff, but equally I see nothing to prevent a defendant making an offer openly to publish an apology on terms and then referring to the letter at the trial. If, as in this case, the offer is not accepted, it is then open to the plaintiff to say why it was not accepted; it is open to the plaintiffs to invite the jury to take into account that the offered

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apology was only made upon terms, and therefore was conditional; and it is open to the plaintiffs to point out that, the terms not having been accepted, the defendants did not see fit to go and broadcast or publish the apology without the conditions that they had asked for being met.

But, if the defendants are not permitted to refer to what they wish to treat as an open letter, it seems to me that the jury will have to assess damages, if they find for the plaintiffs on libel, on an entirely false basis. The plaintiffs’ case was opened on the basis that, following the letter before action on 3 July 1991 and the issue of the writ, the defendants replied with their offer to settle the action, including the proposal that they should broadcast or publish an apology of a sort, or a statement, in terms which Mr Rampton described to the jury as ‘very mean’ terms. The terms were read to the jury and they were told that no apology has been made since. I think that, as the defendants have now in July offered an apology, it would be right for the jury to know the nature of the apology offered, together of course with the terms upon which they offered to make it.

It seems to me that this whole subject of without prejudice letters is clearly a form of privilege which may be waived by the party claiming the privilege but, where negotiations take place, it cannot be waived without both parties consenting to the publication of the terms of the negotiations which have gone on. But in this case, where one party writes an open letter, I can see nothing at all to justify privilege being attached.

I have considered particularly the speech of Lord Griffiths in Rush & Tompkins Ltd v Greater London Council [1988] 3 All ER 737 at 740–744, [1989] AC 1280 at 1300–1305, to which my attention was drawn. But I do not find anything in that speech which leads me to take the view that where one party alone makes an open statement it is open to the other party to claim privilege merely on the grounds that the letter contains an offer to negotiate a settlement or, as in this case, to make an apology. It seems to me, although Mr Rampton has indicated he is not going to find fault with the distinction between the two letters, that the first letter is in exactly the same position as the second letter, that is the letter of 1 July. It was not part of the continuing correspondence or of the negotiations and the mere fact that it lacks the words ‘open letter’ does not make it privileged any more than the mere fact that the letter of 9 July is headed ‘open’ makes that unprivileged. It is the substance and context of the letters which, in my judgment, govern their admissibility. Therefore I rule that it is open to the defendants to put to the plaintiffs’ witnesses the terms of either or both of those letters.

Order accordingly.

K Mydeen Esq   Barrister.

Wilson v Best Travel Ltd

[1993] 1 All ER 353

Categories:        CONTRACT        

Court:        QUEEN’S BENCH DIVISION        

Lord(s):        PHILLIPS J        

Hearing Date(s):        16, 17, 18, 19 APRIL 1991        

Contract – Implied term – Contract of service – Duty to carry out service with reasonable care and skill – Holiday brochure – Plaintiff injured by falling through glass doors of Greek hotel while on holiday – Holiday booked through defendant tour operator – Glass doors complying with Greek but not British safety standards – Plaintiff suing defendants for breach of duty of care to provide services with reasonable care and skill – Nature of duty of care owed by tour operator to customers – Whether defendants discharging duty of care owed to plaintiff – Supply of Goods and Services Act 1982, s 13.

The plaintiff, while staying in a hotel in Greece on a holiday booked through the defendant tour operator, sustained serious injuries after tripping and falling through glass patio doors at the hotel. The hotel was featured in the defendants’ brochure, which stated that the defendants were not always able to exercise day-to-day control over holiday arrangements and that they would not accept liability for loss, damage or inconvenience unless caused by negligence on the part of their own employees but that they did ‘keep an eye on’ accommodation referred to in the brochure. The glass doors were fitted with ordinary 5-mm glass which complied with Greek but not British safety standards, which would have required the use of safety glass in such doors. The plaintiff claimed damages against the defendants, contending that the characteristics of the glass fitted to the patio doors were such that the hotel was not reasonably safe for use by the defendants’ customers and that the defendants were in breach of the duty of care arising out of the term implied by s 13a of the Supply of Goods and Services Act 1982 that in a contract for the supply of services the supplier of services would carry out the service with reasonable care and skill.

Held – The duty of care owed by a tour operator to its customers in accordance with s 13 of the 1982 Act was a duty to exercise reasonable care to exclude from the accommodation offered any hotel the characteristics of which were such that guests could not spend a holiday there in reasonable safety. The duty to ensure reasonable safety was discharged if the tour operator checked that local safety regulations had been complied with and the duty did not extend to excluding a hotel whose characteristics, so far as safety was concerned, failed to satisfy the current standards applying in England, provided always that the absence of the relevant safety feature was not such that a reasonable holiday-maker might decline to take a holiday at the hotel in question, eg if a hotel included in a brochure had no fire precautions at all. Accordingly, since the defendants had inspected the accommodation offered in their brochure as part of their services, since the patio doors complied with Greek safety regulations and since the degree of danger posed by the absence of safety glass in the patio doors was not such that the plaintiff would have declined to stay at the hotel, the defendants had discharged the duty of care owed to the plaintiff, whose claim therefore failed (see p 356 a g h and p 358 c to e g, post).

Notes

For implied terms in a contract, see 9 Halsbury’s Laws (4th edn) paras 351–362, and for cases on the subject, see 12(1) Digest (2nd reissue) 403–454, 3282–3546.

Page 354 of [1993] 1 All ER 353

For the Supply of Goods and Services Act 1982, s 13, see 39 Halsbury’s Statutes (4th edn) 172.

Cases referred to in judgment

Shirlaw v Southern Foundries (1926) Ltd and Federated Foundries Ltd [1939] 2 All ER 113, [1939] 2 KB 206, CA; affd [1940] 2 All ER 445, [1940] AC 701, HL.

Wall v Silver Wings Surface Arrangements Ltd (18 November 1981, unreported), QBD.

Action

The plaintiff, Richard Bernard Wilson, brought an action against the defendant, Best Travel Ltd, claiming damages for injuries suffered by him at the Vanninarchis Beach Hotel on the island of Kos in Greece when he tripped and fell through a glass patio door of the hotel on 14 August 1986. The facts are set out in the judgment.

Paul Norris (instructed by G L Hockfield & Co) for the plaintiff.

Frank Burton (instructed by Hextall Erskine & Co) for the defendants.

19 April 1991. The following judgment was delivered.

PHILLIPS J. In 1986 Mrs Cheryl Bromley made a booking on behalf of a party of five with the defendants for a two-week holiday at the Vanninarchis Beach Hotel on the island of Kos. The defendants’ brochure, from which Mrs Bromley selected the holiday, described the hotel as follows:

‘C Class. This friendly family-run hotel is located right on the sea shore. The informal Vanninarchis Beach is close to several shops and tavernas and a short walk from the Kardomina Harbour. It has a reception/rustic style lounge with adjoining snack bar opening on to a terrace and a souvenir shop. All rooms have private bath/WC or shower/WC and balcony. Bed and breakfast.’

Mrs Bromley’s party, in addition to herself, consisted of a gentleman friend, her 14-year-old daughter Cheryl, her elder daughter Yvonne, and Yvonne’s fiancé, the plaintiff. Four of the party had never been out of England before and looked forward to the holiday with keen excitement.

The party flew to Kos on 13 August 1986 and arrived at the hotel in the evening. Yvonne and the plaintiff were allocated a room on the ground floor of the hotel and the other three members of the party were given the room next door. This room had a sliding glass door that led on to a patio. At about 10.30 am on 14 August, after exploring the beach, breakfast, and a short presentation by the defendants’ local representative, the plaintiff and Yvonne joined the other three members of the party in the latter’s bedroom. There, in circumstances to which I shall return, the plaintiff tripped and fell against the glass patio door. The door shattered and the plaintiff fell through it, sustaining lacerations from the broken glass to the right shoulder, elbow, hand and, in particular, multiple lacerations of the right leg. The plaintiff now claims from the defendants damages in respect of the consequences of this accident. Before dealing with the issue of liability, I propose to describe those consequences.

The Injuries

[His Lordship then considered the nature of the plaintiff’s injuries and his consequential loss and concluded that if liability were to be established the plaintiff would be entitled to general damages of £12,500 for pain, suffering and loss of amenity and £30,000 for future loss of earnings. His Lordship continued:]

Page 355 of [1993] 1 All ER 353

Liability

How did the accident occur? The accident happened quickly with a devastating shock to the plaintiff and the other members of the party in the room at the time and it is not surprising that the picture painted by their evidence is not entirely clear. The essence of the story is not, however, in doubt. The plaintiff had just closed the sliding door on to the patio and was standing with his back to it. A heavy pair of curtains was drawn open, flanking the door, but the curtain behind and to the right of the plaintiff as he faced into the room had become detached in part from the curtain rail and was trailing a little on the ground. In order to allow Cheryl Bromley access to a table close to which he was standing, the plaintiff took one or two steps back. His right foot caught in the sagging curtain and caused him to trip backwards. I think he must have fallen against the glass with his full weight, albeit not from a great distance, in order to cause the glass to break. Mr Burton, counsel for the defendants, urged me to reject this account of the accident, with which all the eye-witnesses concurred. He submitted that it is more probable that the accident resulted from the plaintiff falling against the window with greater momentum as a result of some high-spirited horseplay. The evidence provides no foundation for this submission, and I reject it. I do not find that the plaintiff was in any way responsible for his own misfortune. The immediate cause of his falling was the obstruction which resulted from the sagging curtain. The gravity of the consequences was attributable to the fact that the glass fractured into fragments of razor-edged sharpness.

The plaintiff’s case

Mr Norris, counsel for the plaintiff, advanced his case in two alternative ways. The fundamental premise underlying each was that the characteristics of the glass fitted to the doors of the Vanninarchis Beach Hotel were such that the hotel was not reasonably safe for use by the defendants’ customers. This constituted a breach of contract on the part of the defendants for two reasons. First, it was an implied term of the defendants’ contract with the plaintiff that the structure of the hotel would be reasonably safe. Second, the defendants owed the plaintiff a duty to exercise reasonable skill and care to ensure that the hotel was reasonably safe. This duty required that the hotel should have been regularly and competently inspected. Such inspections should have disclosed the nature of the glass fitted in the sliding doors of the hotel and thus the fact that the hotel was not reasonably safe.

Implied warranty

In support of his first submission Mr Norris was able to point to no particular feature of the plaintiff’s contract that gave rise to the implication of the term. Rather he contended that such a term fell to be implied in every contract for a package holiday of the kind with which this case is concerned. He submitted that if any bystander were to ask the parties whether it was an implied term of their contract that the hotel would be reasonably safe, they would both answer, ‘Of course’ (see Shirlaw v Southern Foundries (1926) Ltd and Federated Foundries Ltd [1939] 2 All ER 113 at 124, [1939] 2 KB 206 at 227). I do not agree. The defendants would not have considered it either obvious or reasonable that they should give a warranty of this kind. Mr Burton referred me to the transcript of a decision of Hodgson J in Wall v Silver Wings Surface Arrangements Ltd (18 November 1981, unreported), in which, in a case of very different facts, the plaintiff sought to establish a similar implied term in a contract for a package holiday. After a careful analysis of the relevant law, the judge rejected the term alleged on the ground that the implication of such a term was neither necessary

Page 356 of [1993] 1 All ER 353

nor obvious nor reasonable. I share both his reasoning and his conclusion. Hodgson J observed:

‘I think quite clearly that situations could arise in which the tour operator would be liable in negligence to his customers. If, for instance, a hotel included in a brochure had no fire precautions at all or was known to fail to reach the standards required by the law of the country, then the tour operator would, I apprehend, be in breach of duty.’

This observation is germane to the alternative way in which Mr Norris advanced his case.

Duty of care

Section 13 of the Supply of Goods and Services Act 1982 provides:

‘In a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill.’

The nature of the services provided by a travel agent when arranging a holiday can vary enormously, depending on the nature of the holiday. I am satisfied, having read their brochure, that the service provided by the defendants included the inspection of the properties offered in their brochure. Such service is implicit from a number of passages in their brochure, including, under the heading ‘Important Information’:

‘Brochure descriptions

Every effort has been made to ensure the accuracy of descriptions and information contained in this brochure. However, we are not always able to exercise day-to-day control over all the component parts of the holiday arrangements and it is always possible that an advertised amenity may be withdrawn or changed due to various reasons, for the purpose of energy or water conservation, lack of demand or for maintenance, renovation etc. We will advise you if we become aware of a major change but we cannot accept liability for the loss of an advertised amenity in such circumstances. Similarly we cannot accept liability for loss, damage or inconvenience unless caused by negligence on the part of our own employees. We would add that we do keep an eye on the accommodation.’

In my judgment, one of the characteristics of accommodation that the defendants owed a duty to consider when inspecting properties included in their brochure was safety. The defendants owe their customers, including the plaintiff, a duty to exercise reasonable care to exclude from the accommodation offered any hotel whose characteristics were such that guests could not spend a holiday there in reasonable safety. I believe that this case is about the standard to be applied in assessing reasonable safety. It is necessary at this stage to turn to the evidence in relation to the glass fitted in the doors of the Vanninarchis Beach Hotel.

Glass

Mr Vanninarchis, the manager and, with other members of his family, the owner of the Vanninarchis Beach Hotel, came to England from Kos to give evidence. He told me that the construction of his hotel was completed in 1980. The hotel had to comply with two sets of regulations, those imposed by the building authority and those imposed by the Greek tourist organisation, EOT. These regulations covered the specifications of the building, including the glass to be fitted to doors and windows. The glass for the doors of the hotel was

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required to be 5 mm thick. The glass was also slightly tinted. At the time there was no one on the island of Kos who manufactured or supplied glass of that thickness so the aluminium frames for the doors had to be sent to Athens where a contractor made and fitted 5 mm thick glass. The doors were in due course inspected on behalf of the authorities and approved. Licences were duly issued and renewed by EOT, proving that the regulations were satisfied. Mr Vanninarchis brought three of the licences with him. Mr Norris for the plaintiff suggested to Mr Vanninarchis that the doors of his hotel should have been fitted with safety glass, which would fragment into innocuous small pieces if broken. Mr Vanninarchis’s reaction to this was surprise and bewilderment which impressed me as genuine. He said that he was aware of such glass being fitted to motor cars but in Greece it was not the practice to fit it in hotels. The regulations did not require it and such glass was not used in building hotels. He did not accept that it was dangerous to fit ordinary glass in his hotel, observing that they had not had an accident such as that which befell the plaintiff either before or after his casualty.

Expert evidence

Mr Geoffrey Tibbs, a chemist with long experience of the glass industry, was called to give expert evidence for the plaintiff. He told me of a number of different types of glass. For present purposes, two are relevant. The first is annealed glass. This is the glass that is normally used for glazing. It is generally used in panes of 4 mm thickness, with 5 mm or 6 mm being used for larger panes and where increased strength is required. Annealed glass breaks into sharp and jagged pieces. The second type is toughened glass, sometimes known as tempered glass. Individual pieces of glass, already cut to size, are heated in a furnace and then cooled by jets of air so that the outside surface cools before the inside, resulting in a high compression in the surface of the glass and tension in the centre. A greater force is required to break toughened glass compared with ordinary annealed glass of the same thickness. Once it is broken it will immediately break into a very large number of small pieces which are relatively harmless. Toughened glass is used in many car windscreens. If broken by a flying stone it is usually necessary to push the glass out with a hand to restore visability. The characteristic small broken pieces will have been seen at the site of many road accidents. It cannot be cut to size after toughening, so that each piece has to be ordered specially. It is a true safety glass.

Mr Tibbs told me that there has been a growing awareness over recent years of the dangers of glass, particularly in respect of large panes of glass in doors. The present situation in this country with respect to the type of door through which the plaintiff fell, particularly in a hotel or similar public place, is that safety glass, either toughened or laminated, would always be used. Mr Tibbs referred me to the relevant British Standards. In 1963 a supplement to BS 973 recommended:

‘Glazing generally

All glass so situated that there is a reasonably foreseeable risk of injury due to accidental breakage should be toughened glass unless otherwise required by fire regulations.

Doors

All glazing for doors, other than for small observation panels, should be toughened glass except where the fire regulations apply.’

Subsequent revisions to the relevant standards emphasise the desirability of fitting toughened glass wherever there is a risk of injury due to accidental breakage. In 1982 BS 6262 was introduced requiring the use of safety glass in doors and side

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panels where there is a large single pane. Despite these standards, the fitting of safety glass to doors has not yet been made a mandatory requirement under the building regulations. It is nonetheless the practice in England to comply with the relevant standards.

It is apparent from this evidence that the standards currently applied in England in the interests of safety have yet to be adopted in Greece. It is at least arguable that, if the plaintiff’s accident had occurred in England, the hotelier would be held to be in breach of the common duty of care imposed by s 2(2) of the Occupiers, Liability Act 1957.

What is the duty of a tour operator in a situation such as this? Must he refrain from sending holidaymakers to any hotel whose characteristics, in so far as safety is concerned, fail to satisfy the standards which apply in this country? I do not believe that his obligations in respect of the safety of his clients can extend this far. Save where uniform international regulations apply, there are bound to be differences in the safety standards applied in respect of the many hazards of modern life between one country and another. All civilised countries attempt to cater for these hazards by imposing mandatory regulations. The duty of care of a tour operator is likely to extend to checking that local safety regulations are complied with. Provided that they are, I do not consider that the tour operator owes a duty to boycott a hotel because of the absence of some safety feature which would be found in an English hotel unless the absence of such a feature might lead a reasonable holidaymaker to decline to take a holiday at the hotel in question. On the facts of this case I do not consider that the degree of danger posed by the absence of safety glass in the doors of the Vanninarchis Beach Hotel called for any action on the part of the defendants pursuant to their duty to exercise reasonable care to ensure the safety of their clients.

It is perhaps significant that Mr Norris did not expand on what action the defendants should have taken. It was not suggested that they had a duty to warn clients of this characteristic or that such a warning would have prevented the accident in this case. What was, I think, implicit in the plaintiff’s case was that the defendants should not have permitted the Vanninarchis Beach Hotel to feature in their brochure. If that contention were valid, it would, on the evidence of Mr Vanninarchis, apply to many, if not the majority, of the other hotels, pensions and villas featured in the defendants’ brochure and no doubt the brochures of the other tour operators who send their clients to Greece.

I have the greatest sympathy for the plaintiff for the horrifying accident he has suffered and its unhappy consequences but, for the reasons that I have given, it was an accident which involved no breach of contract or duty on the part of the defendants.

Judgment for the defendants.

K Mydeen Esq   Barrister.

Practice Direction

(Summary judgment)

[1993] 1 All ER 359

(Chancery 5/92)

Categories:        PRACTICE DIRECTIONS        

Court:        CHANCERY DIVISION        

Lord(s):        7 December 1992        

Hearing Date(s):        Practice – Summary judgment – Chancery Division – Application including claim for injunction – Summons – Return date – Adjournment where hearing likely to be more than 30 minutes – RSC Ord 14.        

Specific performance – Summary procedure – Summons – Summons normally returnable before master – RSC Ord 86.

1. Applications for summary judgment under RSC Ord 14 are made to the master save in cases where the relief sought includes an injunction which cannot be granted by the master. In those cases the application is made by summons directly to the judge in chambers. At present the return date for such summonses is chosen by the plaintiff’s solicitor. This practice is disrupting the efficient functioning of the court lists. These summonses often take many hours or even days to hear, the return date has no regard to existing listing commitments and estimates of the likely length of the hearing given on behalf of the plaintiff before the defendant’s evidence has been seen frequently prove to be wildly wrong.

2. In future the return date to be inserted in judges’ summonses under Ord 14 will be a Monday. On the return date the judge will normally adjourn the effective hearing of the summons to a date to be fixed if the hearing, whether opposed or unopposed, is likely to take longer than 30 minutes. The date will be fixed in the usual way through the Clerk of the Lists, and a certificate of counsel as to the estimated length of the hearing should be lodged with him.

3. In future the master may himself deal with all applications for summary judgment under Ord 86. Accordingly such summonses should normally be returnable before the master in the usual way.

4. To give effect to these changes, the following amendments are made to the Chancery Division Practice Directions.

(1) Chancery Practice Direction (12)(x)(ii), set out in The Supreme Court Practice vol 2, p 210, para 852, is amended by substituting a new para (ii):

‘Where an application under Order 14 includes an application for an injunction, it usually has to be adjourned to a judge because in most cases the master cannot grant an injunction save in terms agreed by the parties. In such cases the summons should be made returnable before the judge in chambers instead of the master. The return date to be inserted in the summonses will be a Monday which is at least 10 clear days (rule 2(3)) after the summons will be served. The summons should be issued in the Listing Office (room 812), when there must be lodged two copies of the summons, and the affidavits in support with the exhibits. On the return date the summons will normally be adjourned to a date to be fixed if the hearing, whether opposed or unopposed, is likely to take longer than 30 minutes. The adjourned date will be fixed in the usual way through the Clerk of the Lists, and a certificate signed by counsel as to the estimated length of the hearing must be lodged with him.’

Page 360 of [1993] 1 All ER 359

(2) Sub-paragraph (a) of para (A)(i) under the heading ‘B. Jurisdiction’ in Chancery Practice Direction (13) relating to masters (see The Supreme Court Practice vol 2, p 210, para 854) shall be amended to read as follows:

‘(a) making orders for specific performance which involve an injunction (such as specific performance of repairing covenants).’

5. The listing arrangements mentioned above do not affect applications for summary judgment under Ord 14 made to the master.

By direction of the Vice-Chancellor.

J M DYSON

7 December 1992        Chief Chancery Master.

Practice Direction

(Vacation business)

[1993] 1 All ER 360

(Chancery 6/92)

Categories:        PRACTICE DIRECTIONS        

Court:        CHANCERY DIVISION        

Lord(s):        7 December 1992        

Hearing Date(s):        Practice – Chancery Division – Masters – Business before Chancery masters – Abolition of distinction between term time and vacation business – Hearings in Companies Court and before judges unaffected – RSC Ord 64, r 3.        

1. As from 11 January 1993 (the first day of the Hilary Term) there will no longer be any distinction between term time and vacation so far as business before the Chancery masters is concerned. The list in The Supreme Court Practice 1993 vol 1, para 64/3/4, setting out the classes of application treated by the Chancery masters as vacation business, is hereby cancelled.

The masters will deal with all types of business throughout the year, and when a master is on holiday his list will normally be taken by a deputy master.

2. This direction has no application to the Companies Court, or to hearings before the Chancery judges, which continue to be governed by RSC Ord 64, r 3.

By direction of the Vice-Chancellor.

J M DYSON

7 December 1992        Chief Chancery Master.

Re International Bulk Commodities Ltd

[1993] 1 All ER 361

Categories:        COMPANY; Insolvency        

Court:        CHANCERY DIVISION        

Lord(s):        MUMMERY J        

Hearing Date(s):        23, 24 MARCH, 15 APRIL 1992        

Company – Receiver – Administrative receiver – Unregistered company – Receivers appointed by debenture holder – Whether receivers of unregistered company appointed by debenture holder administrative receivers – Whether powers of receivers limited to powers under debenture – Companies Act 1985, s 735(1)(4) – Insolvency Act 1986, ss 29(2), 251.

A company which was incorporated in 1988 outside the United Kingdom for the purpose of worldwide trading in commodities was neither incorporated nor registered under the Companies Acts. Its sales operations in the United Kingdom were conducted by one director, and the other three directors were resident abroad. On 28 April 1989 the company granted a debenture to a bank giving the bank a first fixed charge over the company’s property and book debts and a first floating charge over all its assets past and future. The debenture gave the bank power to appoint a receiver and manager in the event of failure by the company to make payment on demand. The debenture provided that the receiver so appointed was to have various specified powers in addition to those conferred by s 109 of the Law of Property Act 1925 and if he was an administrative receiver within s 29a of the Insolvency Act 1986 his powers under Sch 1 to that Act were not limited by the specified powers. On 15 May 1990 the bank issued a facility letter up to a maximum of £2m. The company ceased trading on 26 October 1991 and on 4 February 1992 the bank terminated the facility and demanded payment of £879,026.73. No payment was made and on 7 February the bank appointed receivers. The company disputed the right of the bank to appoint receivers. The receivers applied for the determination of the court whether, in view of the fact that the company was a foreign company which was not incorporated or registered under the Companies Acts, they could act as administrative receivers under the 1986 Act or whether they were merely contractual receivers whose powers were limited to those specified in the debenture.

Held – Although under s 29(2) of the 1986 Act an administrative receiver was defined as the receiver or manager of a company’s property appointed by the debenture holder, the term ‘company’ was not defined for the purposes of s 29(2) and therefore by s 251b that term was to be construed in accordance with the definition of ‘company’ in s 735(1)c of the Companies Act 1985, viz ‘a company formed and registered under [the 1985] Act’. However, by s 735(4)d that definition was subject to no contrary intention being apparent in the legislation and, having regard to the provisions of the 1986 Act relating to administrative receivers generally, there was a contrary intention that those provisions applied both to companies formed and registered under the Companies Acts and to unregistered companies (including foreign companies conducting business in England) liable to be wound up under Pt V of the 1986 Act, since the general purpose and the nature of the statutory scheme relating to the qualifications, functions, powers

Page 362 of [1993] 1 All ER 361

and duties of administrative receivers were as appropriate to unregistered companies as to registered companies and it made no sense for the purpose and scheme of administrative receivership to be confined to appointments of receivers made over the property of registered companies. It followed that the applicants were administrative receivers within s 29(2) of the Insolvency Act 1986 (see p 366 a to e h to p 367 e h to p 368 d, post).

Notes

For administrative receivers, see 7(2) Halsbury’s Laws (4th edn reissue) paras 1386–1428.

For unregistered companies, see ibid paras 2363–2378, and for cases on the subject, see 10(2) Digest (2nd reissue) 475–484, 12892–12951.

For the Law of Property Act 1925, s 109, see 37 Halsbury’s Statutes (4th edn) 234.

For the Companies Act 1985, s 735, see 8 Halsbury’s Statutes (4th edn) (reissue) 597.

For the Insolvency Act 1986, s 29, Pt V (ss 220–229), s 251, Sch 1, see 4 Halsbury’s Statutes (4th edn) (1987 reissue) 753, 874, 896, 1054.

Cases referred to in judgment

Anchor Line (Henderson Bros) Ltd, Re [1937] 2 All ER 823, [1937] Ch 483.

Atlantic Computer Systems plc, Re [1992] 1 All ER 476, [1992] Ch 505, [1992] 2 WLR 367, CA.

Felixstowe Dock and Rly Co v US Lines Inc [1988] 2 All ER 77, [1989] QB 360, [1989] 2 WLR 109.

Law Society v United Service Bureau Ltd [1934] 1 KB 343, DC.

Cases also cited

Barrow Borough Transport Ltd, Re [1990] Ch 227.

International Westminster Bank plc v Okeanos Maritime Corp [1987] 3 All ER 137, sub nom Re a company (No 00359 of 1987) [1988] Ch 210.

Application

By application dated 26 February 1992 Philip Sykes and John Hill of Messrs Binder Hamlyn, the receivers of International Bulk Commodities Ltd (IBC) appointed by Swiss Bank Corp pursuant to a facility letter dated 15 May 1990 and a debenture dated 28 April 1989, sought the determination of the court on the question whether they were administrative receivers within the meaning of s 29(2) of the Insolvency Act 1986 or receivers whose powers were limited to those conferred by the debenture. The facts are set out in the judgment.

Gabriel Moss QC and Susan Prevezer (instructed by Simpson Curtis, Leeds) for the applicants.

Patrick Eccles QC (instructed by Colin Bomer & Co, Newbury) for IBC.

Cur adv vult

15 April 1992. The following judgment was delivered.

MUMMERY J. This application poses a difficult question of general importance on the scope of the provisions in the Insolvency Act 1986 concerned with administrative receivers. Do those provisions apply in the case of a foreign company? More precisely, do they apply to a receiver of the whole, or substantially the whole, of the property of a foreign company appointed by or on behalf of the

Page 363 of [1993] 1 All ER 361

holders of debentures of the company secured by a charge which, as created, was a floating charge?

The question has arisen in the following way. The respondent company, International Bulk Commodities Ltd (IBC), was not formed or registered under the Companies Acts. It was incorporated in 1988 in Liberia. Its registered office is in Monrovia. IBC trades worldwide buying and selling basic commodities such as timber, coal and cement. In the United Kingdom IBC’s sales operations were based in Newbury and were controlled by one of the directors, Mr Stuart Thornhill. The other three directors of IBC are resident abroad.

On 26 October 1991 IBC ceased trading in the United Kingdom. Its business assets and liabilities in the United Kingdom were transferred to the Portland Cement Co Ltd. While it was still trading in the United Kingdom IBC granted a debenture (dated 28 April 1989) to the Swiss Bank Corp (the bank). By way of continuing security for the payment and discharge of all moneys and liabilities owing by IBC to the bank, IBC granted a first fixed charge over its freehold and leasehold property and book debts, and a first floating charge over all its assets, undertaking and property, past and future. The debenture was in a form familiar to English lawyers, bankers and businessmen. It included a common form power in cl 12 to appoint a receiver and manager of the property charged in the event of failure to make payment of sums secured in accordance with the demand of the bank. The clause provided that the receiver so appointed should have various powers—

‘in addition to the powers conferred by section 109 of the Law of Property Act 1925, and in the case of a receiver who is an administrative receiver within the meaning of section 29 of the Insolvency Act 1986, without limiting the powers in Schedule 1 of that Act.’

On 15 May 1990 a facility letter was issued by the bank to IBC up to a maximum sum of £2m. On 4 February 1992 the bank terminated the facility and demanded payment of the sum of £879,026.73. No payment was made. On 7 February 1992 the bank purported to appoint Mr Philip Sykes and Mr John Hill of Messrs Binder Hamlyn as receivers pursuant to the debenture. IBC disputes the bank’s right to appoint receivers, but no step has been taken to challenge the validity of their appointment. Both parties have invited this court to proceed on the basis that the validity of the appointment is not and cannot be disputed or decided on this application.

The dispute on this application is whether the receivers, who are the applicants, are ‘administrative receivers’ within the meaning of the Insolvency Act 1986, or are simply contractual receivers appointed out of court with powers limited to those contractually conferred by the terms of the debenture. The applicants wish to know the nature and extent of their receivership powers as a matter of practical importance and pressing nature, because they have been unable so far to obtain any assistance from the directors of IBC as to the location of books and records of IBC, or as to the provision of information about its assets. The applicants contemplate use of the procedures in ss 234 to 236 of the 1986 Act for the purpose of obtaining information, but those powers are only available to the applicants if they are ‘office holders’, a term defined as including administrative receivers: see s 234(1) of the 1986 Act.

On 26 February 1992 an application was issued for the determination of that question. Paragraph 1 of the application seeks the following declaration, a declaration—

‘as to whether the applicants appointed pursuant to a facility letter dated 15th May 1990 and a debenture dated 28th April 1989 made between the respondent and the Swiss Bank Corporation are administrative receivers

Page 364 of [1993] 1 All ER 361

within the meaning of section 29(2) of the Insolvency Act 1986, or are receivers whose powers are limited to those conferred by the said debenture.’

I should mention other relevant matters before I refer to the statutory provisions.

(1) It is not argued that under English company law, or under the English law of mortgage, a foreign company, that is a company not formed and registered under the Companies Acts, lacks the requisite legal capacity to enter into a debenture secured by a floating charge on property both in England and abroad and conferring a power to appoint a receiver and manager over the whole, or substantially the whole, of its property. There is no evidence that the law of the place of incorporation of IBC, Liberia, impinges on these points so as to incapacitate IBC in any relevant way.

(2) It is not disputed that the debenture, and the fixed and floating charge created by it, are to be construed according to English law which draws no distinction, in the case of an English company at least, between property located within the property located outside the United Kingdom: see Re Anchor Line (Henderson Bros) Ltd [1937] 2 All ER 823 at 825–826, [1937] Ch 483 at 487–488. It is not argued that any system of law other than English law applies to determine the legal status of the receivers appointed by the bank pursuant to the debenture.

(3) As an ‘unregistered company’, IBC is amenable to the jurisdiction of the English court to wind up unregistered companies under Pt V of the 1986 Act, though it may not be wound up voluntarily under that Act: see s 221(4). In this judgment I shall use the expression ‘unregistered company’ to mean any company which is liable to be wound up under Pt V of the 1986 Act.

(4) The question for decision is one of construction of the 1986 Act and is not covered by any previous authority.

Before I refer to the particular provisions dealing with administrative receivers, I should also say something about the statutory background to the provisions and the evident purpose of the innovation of the concept of an administrative receiver.

In Re Atlantic Computer Systems plc [1992] 1 All ER 476 at 485, [1992] Ch 505 at 524 the Court of Appeal summarised the background to the provisions of the 1986 Act relating to receivers:

‘Typically, when lending money to a company, a bank will take as security a charge over all or most of the assets of the company, present and future, the charge being a fixed charge on land and certain other assets, and a floating charge over the remaining assets. The deed authorises the bank to appoint a receiver and manager of the company’s undertaking, with power to carry on the company’s business. Such a receiver is referred to in the 1986 Act as an “administrative receiver”.’

Subject of course to the wording of the particular statutory provisions, those general observations are as pertinent to the case of a security granted to a bank by an unregistered company as to a security granted by a company formed and registered under the Companies Acts.

It is also noted by the Court of Appeal in Re Atlantic Computer Systems plc [1992] 1 All ER 476 at 486–487, [1992] Ch 505 at 525 that the report of the Review Committee on Insolvency Law and Practice ((1982) Cmnd 8558) made in June under the chairmanship of Sir Kenneth Cork considered that the power, contained in any well-drawn floating charge, to appoint a receiver and manager of the property and undertaking of a company had been of outstanding public benefit. A significant number of companies had been forced into liquidation, and potentially viable businesses capable of being rescued had been closed down, for want of such a floating charge.

Page 365 of [1993] 1 All ER 361

The 1986 Act built on the foundations of the typical debenture by providing in Pt III for administrative receivers and in Pt II machinery for the making of administration orders intended to be used as a statutory alternative to an administrative receiver by filling ‘a lacuna perceived to exist in the case of insolvent companies where either there is no floating charge or the holder of the floating charge does not appoint an administrative receiver’ (see [1992] 1 All ER 476 at 487, [1992] Ch 505 at 525). Once appointed an administrative receiver has ‘all the powers normally conferred upon a receiver and manager appointed under a floating charge’ (see [1992] 1 All ER 476 at 487, [1992] Ch 505 at 525), though, as was recognised in that case, there are features distinguishing administration from administrative receivership.

It appears from these general observations, and from the detailed provisions of the 1986 Act, that Parliament intended to promote two purposes relevant to receivers appointed by debenture holders. First, Parliament gave statutory recognition and reinforcement to the existing regime of contractual receivers appointed by debenture holders which had operated for the public benefit. It conferred the statutory status of administrative receiver in those cases where the receiver had been appointed by or on behalf of the debenture holder over the whole, or substantially the whole, of the company’s property. The 1986 Act contains provisions relating to many different aspects of receivership, all designed to improve the efficacy of the contractual machinery and to protect the interests of those affected by the receivership. There are provisions relating to qualification for office, and to appointment and vacation of office; and to many express powers, duties, rights and liabilities additional to those expressed in the debenture. There are additional administrative functions, such as the submission of a statement of affairs and the making of reports on specified matters.

Reference was made in particular to ss 42 to 49 and 230 to 237, and to the powers of an administrator or administrative receiver as set out in Sch 1 to the 1986 Act.

Secondly, Parliament has provided for the situation where the power to appoint a receiver does not exist, or where the power does exist but has not been exercised, or where the power has been exercised, but the person by whom or on whose behalf the receiver has been appointed consents to an order being made. There is jurisdiction to make an order in the terms of an administration order, available as an alternative to administrative receivership, and also available as an alternative to liquidation; see the provisions of ss 9, 10 and 11 of the 1986 Act.

Administrative receivership has to be viewed in the context of the whole range of remedies now available in situations where a company is, or is likely to become, unable to pay its debts. The changes made by the 1986 Act provide both greater flexibility and increased protection for those affected by actual or potential insolvency situations.

Against that general background I now consider the detailed statutory provisions relating to administrative receivers. Section 251 is a definition section. It provides:

‘In this Group of Parts, except in so far as the context otherwise requires—“administrative receiver” means—(a) an administrative receiver as defined by section 29(2) in Chapter I of Part III … ’

Section 29(2) is another definition in these terms:

‘In this Chapter [which concerns receivers and managers in England and Wales] “administrative receiver” means—(a) a receiver or manager of the whole (or substantially the whole) of a company’s property appointed by or on behalf of the holders of any debentures of the company secured by a

Page 366 of [1993] 1 All ER 361

charge which, as created, was a floating charge, or by such a charge and one or more other securities …’

The crucial question is: what is a ‘company’ for the purposes of s 29(2)? There is no definition of a company for this purpose either in s 29 or in s 251. It is necessary to look at the words which appear at the foot of the defined expressions in s 251. Those words read:

‘… and any expression for whose interpretation provision is made by Part XXVI of the Companies Act, other than an expression defined above in this section, is to be construed in accordance with that provision.’

I turn to Pt XXVI of the Companies Act 1985. In s 735(1) the following definition appears:

‘In this Act—(a) “company” means a company formed and registered under this Act, or an existing company …’

The section defines an ‘existing company’ as meaning a company formed and registered under the former Companies Acts.

If that were the end of the matter, as IBC submits it is, the solution to the problem would be simple. IBC is not a company within that definition. The applicant receivers are not, therefore, administrative receivers within the meaning of s 29(2) of the 1986 Act and they do not have the powers of office holders which they wish to use. The matter does not, however, stop there because s 735 of the 1985 Act provides in sub-s (4): ‘The definitions in this section apply unless the contrary intention appears.’

An intention to displace the prime facie or primary meaning of the defined statutory term may appear in a number of ways. The intention may appear from an express definition in different terms made for the purpose of a particular section or group of sections: see, for example, the definition of a company in s 388(4) of the 1986 Act to which I shall return. There is no different express definition of ‘company’ for the purposes of administrative receivership provisions generally.

A contrary intention may also appear from the subject matter and manifest purpose of the relevant provisions when construed in the context of both the immediately relevant provisions and of the Act as a whole: see, for example, Law Society v United Service Bureau Ltd [1934] 1 KB 343 at 347–348.

The relevant question is therefore: is there any indication in the subject matter and statutory purpose of the provisions concerning administrative receivers generally, or in the 1986 Act considered as a whole, from which it appears that Parliament intended that the word ‘company’ in the context of s 29(2)(a) should not be confined to its prima facie meaning of a company formed and registered under the Companies Acts, but should also embrace unregistered companies liable to be wound up under Pt V of the 1986 Act.

In my judgment, there are indications that the provisions relating to administrative receivers generally apply both to companies formed and registered under the Companies Acts and to unregistered companies liable to be wound up under Pt V. The starting point is that the legislative concept of administrative receiver, and the statutory scheme of the provisions relating to his qualifications, functions, powers and duties, all rest on a contractual base, namely a receiver appointed by or on behalf of debenture holders under a debenture secured by a floating charge. Every administrative receiver is born in this way. As already noted, the underlying contractual regime is applicable both in the case of a

Page 367 of [1993] 1 All ER 361

debenture granted by a company formed and registered under the Companies Acts, and in the case of a debenture granted by an unregistered company. The general purpose and scheme of the statutory superstructure is to strengthen and build on the continuing contractual foundation for the greater benefit of all affected—the company, the contributories, the creditors, both secured and unsecured, and the preferential creditors, as well as the public generally. The attainment of that general purpose and the nature of the scheme are prima facie as appropriate to the case of an unregistered company as they are to the case of a registered company.

Why should the range of companies affected by the statutory scheme of administrative receivers not be coextensive with the range of companies affected by the underlying contractual receivership regime? Why should a receiver appointed over the property of a registered company and a receiver appointed over the property of an unregistered company under the same form of debenture and by the same debenture holder not both fall within the definition of an administrative receiver? It makes no sense to confine the purpose and scheme of administrative receivership to appointments of receivers made over the property of registered companies.

The foreign element is of no particular relevance where the company in question has granted a debenture secured by a floating charge in the English form. Both registered and unregistered companies may engage in activities both in England and abroad. Both may conduct business in England and abroad. Both may have creditors in England and abroad. Both may have assets located in England and abroad. Both may have directors resident in England and abroad. Both are liable to be wound up by the English court.

Why, for example, should the contributories and creditors of an unregistered company be denied the protection, enjoyed in the case of a registered company, of those provisions which require a receiver to be a licensed insolvency practitioner? In fact, Parliament recognised this particular problem and expressly dealt with it in s 388 of the 1986 Act in the definition of the expression ‘acting as an insolvency practitioner’ in relation to the need for qualifications and the consequences of acting without those qualifications.

Section 230(2) of the 1986 Act provides that, where an administrative receiver of a company is appointed, he must be a person who is qualified to act as an insolvency practitioner in relation to that company.

Section 388(1) then provides:

‘A person acts as an insolvency practitioner in relation to a company by acting—(a) as its liquidator, provisional liquidator, administrator or administrative receiver …’

Subsection (4) then provides:

‘In this section … “company” means a company within the meaning given by section 735(1) of the Companies Act or a company which may be wound up under Part V of this Act (unregistered companies) …’

In my view, that provision lends support to the view that a receiver appointed over the property of an unregistered company may be regarded as an administrative receiver within the meaning of the 1986 Act. In that capacity he would be acting as an insolvency practitioner and must be qualified so to act.

In my judgment, the court should construe the relevant provisions, where the wording so permits, to promote and not to frustrate the evident legislative purpose, in this case reinforcing the position of contractual receivers. The express

Page 368 of [1993] 1 All ER 361

statutory definition of ‘company’ is only its prima facie meaning, since it is expressly provided in s 735(4) of the Companies Act 1985 that the defined meaning may be displaced where a contrary intention appears. For the reasons I have stated above, a contrary intention does appear from the subject and the purpose of the provisions. The court should favour a construction which is consistent with and contributes to the smooth and efficient working of the contractual machinery recognised and reinforced by the legislation.

The position would, of course, have been plainer if Parliament had provided an expanded express definition of ‘company’ for the purposes of the group of sections which relate to administrative receivers, such as was done in the case of s 388(4), and was also done, for example, in s 22(2)(b) of the Company Directors Disqualification Act 1986, where company is defined as including ‘any company which may be wound up under Part V of the Insolvency Act’.

The absence of a different express definition of ‘company’ in Pt III of the 1986 Act does not, in my view, prevent the definition in s 735(1) of the Companies Act from yielding to a contrary intention. I rest my decision on this broad approach.

Mr Moss QC, for the applicants, went through all the provisions of the Insolvency Act 1986 relating to administrative receivers. He also referred to provisions in the Company Directors Disqualification Act 1986 relating to administrative receivers, and to many other provisions in the Insolvency Act 1986 and in the Companies Act 1985 which might conceivably have some bearing on this question. I do not think that it is necessary to refer to all those provisions because they really do not take the matter any further. It all comes back to the question of what meaning is to be given to the definition of ‘company’ in the context in which it is used?

I will refer briefly to two particular aspects of his submissions. Extensive reference was made to the provisions in the Insolvency Act 1986 concerning administration orders and to the question whether they apply to the case of unregistered companies. Under s 8 of the 1986 Act the court has power to make an administration order in relation to a company if the court (a) is satisfied that the company is, or is likely to become, unable to pay its debts (within the meaning given to that expression by s 123 of the 1986 Act), and (b) considers that the making of an order under the section would be likely to achieve one or more of the specified purposes. An administration order is defined in s 8(2) as:

‘… an order directing that, during the period for which the order is in force, the affairs, business and property of the company shall be managed by a person (“the administrator”) appointed for the purpose by the court.’

Is ‘company’ in that context confined to a company formed and registered under the Companies Acts? Or does it extend to an unregistered company? If the court has power to make an administration order in relation to an unregistered company, that might strengthen the case for arguing that the provisions relating to administrative receivers should also apply to unregistered companies. Notice of a petition for an administration order must be served on any person who has appointed, or is or may be entitled to appoint, an administrative receiver of the company: see s 9(2)(a) of the 1986 Act. Where the court is satisfied that there is an administrative receiver of the company, the court shall dismiss the petition unless it is also satisfied as to certain other matters which are referred to in s 9(3) of the 1986 Act.

The position regarding administration orders over unregistered companies has not been finally settled by judicial decision. I was referred to the judgment of Hirst J in Felixstowe Dock and Rly Co v US Lines Inc [1988] 2 All ER 77 at 91, [1989] QB 360 at 376, where the judge stated:

Page 369 of [1993] 1 All ER 361

‘It is not in dispute that … (ii) Pt II of the Insolvency Act 1986 does not give the English court jurisdiction to make an administration order in respect of a foreign company.’

I also note that Picarda Law Relating to Receivers, Managers and Administrators (2nd edn, 1990) p 501 expresses the editor’s opinion as follows:

‘An administrator is a creature of statute and is appointed over the affairs, business and property of a company falling within the definition of company in section 735 of the Companies Act 1985. This means that the company in question must be formed and registered under the Companies Act 1985 or under the former Companies Acts … What this means, in effect, therefore, in the context of private international law is that an administrator cannot be appointed over the affairs, business or property of an overseas company.’

On the facts of this case it is not necessary for me to decide whether that view is right or wrong, and I should not decide it; the point should be left open for full argument in a case where it is necessary to the decision. I am unable to derive any assistance from the provisions relating to administrators on the question of administrative receivership. My only comment is that, if the position is that the court’s power to appoint an administrator is in fact confined to companies formed and registered under the Companies Acts, it does not necessarily follow that an administrative receiver is similarly confined.

It is clear that not all the insolvency procedures are applicable to unregistered companies. As already noted, voluntary liquidation is not: see s 221(4) of the 1986 Act. Further, the two remedies of administrative receiver and administrators are different in nature, though they may be similar in purpose. As already noted, the administrative receiver starts his life as a contractual appointee, though he occupies the position recognised and reinforced by statute and may not be removed save by order of the court, s 45(1) of the 1986 Act.

Administrators, on the other hand, are entirely the creatures of statute and it is quite possible that different considerations apply to administrators than apply to administrative receivers on the question of unregistered companies.

The second point on which there was considerable discussion concerns the provisions of the Company Directors Disqualification Act 1986. That makes use in a number of sections of the concept of administrative receiver, eg in the definition of when a company becomes insolvent for the purposes of disqualification of unfit directors of insolvent companies: see s 6(2)(b); and the application of the reporting provisions affecting administrative receivers as office holders in s 7(3)(d) and (4).

The definition of ‘company’ in s 22(2)(b) of that Act includes any company which may be wound up under Pt V of the Insolvency Act. Those companies are unregistered companies. That definition differs from that contained in s 735 of the Companies Act 1985, as applied to the provisions of the Insolvency Act 1986.

My only comment on the relevance of the Company Directors Disqualification Act 1986 is that a decision that a receiver appointed over the property of an unregistered company is an administrative receiver for the purposes of the 1986 Act is consistent with, and does not create any particular difficulties in the operation of, the provisions of the Company Directors Disqualification Act 1986.

Mr Eccles QC, for IBC, in addition to his emphasis on the definition in s 735(1) of the 1985 Act, referred me to other specific provisions in the Insolvency Act 1986 in support of his submission that ‘company’ should be given its prima facie and primary meaning in relation to the provisions governing administrative receivers. I single out three sections for special mention. He referred me to s 70(1)

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which is the interpretation provision for a group of sections concerning receivers in Scotland. The definition of ‘company’ for the purpose of those provisions is ‘an incorporated company (whether or not a company within the meaning of the Companies Act) which the Court of Session has jurisdiction to wind up’.

Mr Eccles sought to contrast the presence of that definition in that group of sections with the absence of any such definition in relation to the administrative receivership group of sections in Pt III of that Act.

He also referred me to s 229(2) of the Insolvency Act 1986 in the group of sections concerned with the winding up of unregistered companies. That reads:

‘However, an unregistered company is not, except in the event of its being wound up, deemed to be a company under the Companies Act, and then only to the extent provided by this Part of this Act.’

The third section of the Insolvency Act 1986 to which he referred me was s 441(2), which reads:

‘Subject as above, [and sub-s (1) deals with the fact that certain provisions extend to Northern Ireland] and to any provision expressly relating to companies incorporated elsewhere than in Great Britain, nothing in this Act extends to Northern Ireland or applies to or in relation to companies registered or incorporated in Northern Ireland.’

I am unconvinced that these provisions, taken singly or cumulatively, show that there is a legislative intention to confine the status of an administrative receiver to a receiver appointed by debenture holders over property of a company formed and registered under the Companies Acts.

I conclude that I should grant a declaration as in the terms of para 1 of the application, that is that the applicants appointed pursuant to a facility letter dated 15 May 1990 and a debenture dated 28 April 1989 made between the respondent and the Swiss Bank Corp are administrative receivers within the meaning of s 29(2) of the Insolvency Act 1986.

I have already, before delivering this judgment, heard argument about the precise form of the order. I have dealt with questions of costs and appeal and stay of the effect of the order pending appeal.

Order accordingly. Leave to appeal to the Court of Appeal granted.

Hazel Hartman   Barrister.

Republic of Somalia v Woodhouse Drake & Carey (Suisse) SA and others The Mary

[1993] 1 All ER 371

Categories:        CONFLICT OF LAWS: CIVIL PROCEDURE        

Court:        QUEEN’S BENCH DIVISION (COMMERCIAL COURT)        

Lord(s):        HOBHOUSE J        

Hearing Date(s):        26 FEBRUARY, 9, 13 MARCH 1992        

Practice – Funds in court – Payment out – Funds belonging to foreign state – Application for payment out by person claiming to represent government of foreign state – Application opposed by former diplomatic representative of legitimate government overthrown in civil war – Whether former diplomatic representative having locus standi to be joined as party to proceedings.

Practice – Funds in court – Payment out – Funds belonging to foreign state – Application by solicitors representing person claiming to represent government of foreign state – Duty of solicitors to obtain properly constituted authority to receive money – Court requiring confirmation that solicitors on record had properly constituted authority to receive money and that government instructing them was in fact government of foreign state.

Conflict of laws – Foreign government – Recognition – Locus standi to sue and be sued in English court – Interim government of Republic of Somalia – Money in court belonging to Republic of Somalia – Interim government appointed after international conference to resolve civil war in Somalia following overthrow of legitimate government – Interim government not having constitutional authority or stable administrative control over territory of Somalia – Interim government not recognised by British government – Whether interim government having locus standi to claim money in court belonging to republic.

In January 1991 the Republic of Somalia bought and paid for a cargo of rice which was shipped on board a vessel chartered by the defendants to be discharged at the capital of the republic, Mogadishu. By the time the vessel arrived at Mogadishu the ruling president of the republic had been overthrown following an uprising and the country was in a state of civil war between various factions of tribal groups with no group gaining overall control of the country or Mogadishu. The ship’s captain refused to enter the port of Mogadishu as he considered it unsafe because of the fighting between rival forces there. Disputes arose as to the disposal of the cargo, as a result of which on an originating summons issued by the shipowners against the charterers the Commercial Court ordered on 12 March 1991 that the cargo be sold and the proceeds deposited in court and that the bills of lading be placed at the disposal of the court. The bills of lading for the cargo were held by B, an ambassador of Somalia accredited to the United Nations Organisations in Geneva, but her status became uncertain after the fall of the former president. Following the sale of the cargo there was some $2.5m in court, of which $500,000 would be sufficient to satisfy the claims of the shipowners, the charterers and other commercial parties. In July 1991, following an international conference held in Djibouti to resolve the civil war, M, the leader of one of the warring factions in Somalia, was nominated as the provisional president and he appointed Q, the leader of another faction, as the prime minister to lead an ‘interim government’. However, the interim government was unable to function in Mogadishu because the faction in control of the capital was not a party to the

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international agreement. In January 1992 Q, describing himself as the ‘prime minister’ of the republic, appointed a firm of London solicitors to act for the ‘interim government’ of Somalia and to apply for the release of the money from the court to the interim government. On 7 February the Commercial Court judge ordered that, unless any party showed cause on or before 19 February why $2m should not be paid out of the fund in court, that sum would be paid to the solicitors for the interim government. B applied to be joined as a party to the proceedings and opposed any payment being made to the solicitors pursuant to the February order on the ground that there was no government in Somalia. There was evidence before the court from the Foreign and Commonwealth Office (i) that the British government’s policy was not to accord recognition to governments but only to states, (ii) that where a regime came to power in a foreign state by unconstitutional means the British government would assess whether that regime could exercise effective control of the state and that it was to be inferred from the nature of the British government’s dealings with the new regime whether it qualified to be treated as a government and whether the British government was dealing with it on a government to government basis and (iii) that in relation to Somalia the British government did not consider that there was any effective government of Somalia because of the continuing civil war. It was argued on behalf of the interim government that the February order for payment of the money was conclusive, that B had no locus standi to intervene and that the interim government was the only legal government, because it had international recognition from those countries and bodies which had attended the Djibouti conference.

Held – (1) Since B had no personal interest in the money in court and had no locus standi to represent the Republic of Somalia before the court, as she had received no accreditation or authority from any current government in that country and in fact claimed that there was currently no government in Somalia, and since she had no diplomatic status in the United Kingdom and no recognition from the British government as representative of the Republic of Somalia, her application to be joined as a party to the proceedings would be refused (see p 377 d to f, post).

(2) Where the issue before the court was whether money in court which was the property of a foreign state should be paid to a firm of solicitors whose authority to act on behalf of that state was in question, the court had to be satisfied that the solicitors on the record had properly constituted authority to receive the money and that the government instructing them was in fact the government of the foreign state and if the court was for any reason satisfied that the solicitors did not have the requisite authority it would, of its own motion if necessary, require the solicitors to obtain that authority and would ensure that in the meantime the money remained under the control of the court (see p 378 b to d, post).

(3) The factors to be taken into account in deciding whether a government existed as the government of a state were (i) whether it was the constitutional government of the state, (ii) the degree, nature and stability of administrative control, if any, which it exercised over the territory of the state, (iii) whether the British government had any dealings with that government and, if so, the nature of those dealings and (iv) in marginal cases the extent of international recognition that it had as the government of that state. On the evidence before it the court was not satisfied that the interim government had any constitutional authority or stable administrative control over the territory of Somalia or that it was recognised by the British government. Furthermore, the argument based on the Djibouti conference or the recognition by foreign states and international bodies did not

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assist the interim government, which was a regime of one faction seeking to achieve a position of de jure government displacing a former government without having effective administrative control over all people of that country. It followed that the application on behalf of the interim government for payment out of the money in court would be refused (see p 381 h and p 384 d to g, post).

Per curiam. Although loss of control by a constitutional government may not immediately deprive it of its status, an insurgent regime will require to establish control before it can exist as a government (see p 383 c, post).

Notes

For the recognition of states and governments generally, see 18 Halsbury’s Laws (4th edn) paras 1425–1435.

For payment out of funds in court, see 37 Halsbury’s Laws (4th edn) para 627, and for a case on the subject, see 37(3) Digest (Reissue) 139, 3670.

Cases referred to in judgment

Adams v Adams (A-G intervening) [1970] 3 All ER 572, [1971] P 188, [1970] 3 WLR 934, DC.

Arantzazu Mendi, The [1939] 1 All ER 719, [1939] AC 256, HL.

Carl-Zeiss-Stiftung v Rayner & Keeler Ltd (No 2) [1966] 2 All ER 536, [1967] 1 AC 853, [1966] 3 WLR 125, HL.

Ford-Hunt v Raghbir Singh [1973] 2 All ER 700, [1973] 1 WLR 738.

GUR Corp v Trust Bank of Africa Ltd (Government of the Republic of Ciskei, third party) [1986] 3 All ER 449, [1987] QB 599, [1986] 3 WLR 583, QBD and CA.

Application

By an originating summons issued on 12 March 1991 Woodhouse Drake & Carey (Suisse) SA, the owners of the vessel Mary, sought and on the same day were granted by Hirst J an order for the sale of a cargo of rice on board the Mary and the proceeds thereof to be deposited in court. The vessel’s charterers, Aleko Maritime Co Ltd, were named as the defendants to the summons. Legal representatives for the government of the Republic of Somalia and Madame Bihi, a diplomat of the former legitimate government of Somalia which had been overthrown, also appeared before Hirst J on that day, when Hirst J further ordered that Madame Bihi, the holder of the original bills of lading, place the bills of lading at the disposal of the court to enable his order to be carried out. By a summons issued on 16 January 1992 solicitors claiming to act for the Republic of Somalia applied for the republic and the buyers of the rice, Madigan Associates SA, to be joined as parties to the action and for directions for the future conduct of the action concerning the claim over the money in court. On 7 February 1992 Saville J made an order joining the republic as the plaintiff in substitution for the shipowners and added the shipowners and the buyers as the first and third defendants respectively to the action. Saville J further ordered that unless any party appeared before the court on or before 19 March and showed cause why the sum of $US2m should not be paid out of the fund in court to the solicitors acting for the republic that sum should be paid to the solicitors acting for the republic on 20 February. The order also included liberty to all parties to apply. Madame Bihi then applied to the court for leave to be joined as a party to the action to resist the payment of the money to the interim government and requested the court to invite the Attorney General to appoint an amicus curiae. The application was heard in chambers but judgment was given by Hobhouse J in open court. The facts are set out in the judgment.

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Geraldine Andrews (instructed by Crossman Block) for the Republic of Somalia.

Gavin Kealey (instructed by More Fisher Brown) for Madame Bihi.

Stephen Richards (instructed by the Treasury Solicitor) as amicus curiae.

Cur adv vult

13 March 1992. The following judgment was delivered.

HOBHOUSE J. In January 1991 the Republic of Somalia bought and paid for a cargo of rice, which was shipped on the Mary to be discharged at Mogadishu. When the Mary arrived off Mogadishu the master refused to enter the port because he considered it unsafe on account of the fighting that was going on there. The bills of lading covering the cargo were in the hands of a Madame Bihi, who was the accredited ambassador of the Republic of Somalia to the United Nations Organisations in Geneva. Disputes arose as to what should be done with the cargo and the shipowners issued an originating summons on 12 March 1991 in this court naming as the defendants the charterers of the vessel. On the same day Hirst J ordered that the cargo be sold and that the net proceeds of sale be paid into court. He ordered that the proceeds of sale be treated as if they were the cargo for all purposes. He ordered Madame Bihi, through her solicitors, Messrs More Fisher Brown, to place the original bills of lading at the disposal of the court in order to facilitate the carrying out of the order. The order recited that the court had heard ‘Counsel for the plaintiffs and for the defendants and … Messrs More Fisher Brown and Lloyd & Co for the competing interests in the cargo’.

The background to the situation which I have described is that in December 1990 and January 1991 there had been an uprising in Somalia in the course of which the President, Siad Barre, had been overthrown. Somalia consists of a number of areas each of which is dominated by a different tribal group or clan. Following the uprising and the overthrow of the legitimate government, whatever common interest that had been between these groups ceased and they began to fight each other. The central government ceased to exist. Various groups put themselves forward as entitled to control or govern either parts or the whole of Somalia. In the north west the Somali National Movement (SNM) attempted to set up a separate state. The north east was under the control of the Somali Salvation Democratic Front (SSDF). The area around and to the north of the capital, Mogadishu, was controlled by the United Somali Congress (USC) group; but this soon split into two factions, one led by General Aidid and the other by Mr Ali Mahdi Mohammed. Some of the bitterest fighting during the last nine months has been taking place between these two factions in and around Mogadishu, particularly since November 1991, with neither yet gaining control. Further south, different areas were under the control of the Somali Democratic Movement (SDM) and Somali Patriotic Movement (SPM) and the followers of Siad Barre. No one group has established control over the country. The capital has remained an area of open fighting between armed bands under the control of no one faction. The USC remains split.

Madame Bihi was a long-standing diplomatic representative, who had been appointed by the government of President Barre. Initially she was supportive of the continuing claim to office of President Barre whose overthrow she did not at that stage recognise. More recently, it appears, she has accepted that his government has ceased to exist but she remains deeply hostile to the USC, and in particular Mr Mahdi, who are equally hostile to her, and contends that there is at present no government of the Republic of Somalia.

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Messrs Lloyd & Co had received their instructions from a member of Mr Mahdi’s group who apparently described himself as the ‘foreign minister’ of the Somali Republic. In about February 1991 Mr Mahdi had been proclaimed President of Somalia by the USC. It was not clear upon what basis such an assumption of office could be made and it was not accepted by the other clans. It appears that he appointed as his prime minister, Mr Omer Arteh Qalib. In July 1991 after a continuous period of widespread fighting between the various groups including the two USC factions, a conference was called at Djibouti under the chairmanship of the President of the Republic of Djibouti. It was attended by the Presidents of Kenya and Uganda and representatives of the governments of Germany, the United States of America, France, Italy, Saudi Arabia, Egypt, Libya, Yemen, Nigeria, Ethiopia, Sudan, Oman, the Union of Soviet Socialist Republics, and China and of the Arab League, the Organisation of African Unity and the European Economic Community. From within Somalia six of the groupings were represented. The SNM declined to attend and it seems that General Aidid did not do so either. After a number of days the conference was able to reach an agreement, which was set out in a communiqué dated 21 July 1991. It included:

‘Organisation of the State (A) The Conference had decided to adopt the 1960 constitution for a period of not more than two years from the date of signature of the present Agreement, the formation of the Government shall be agreed between the various movements. (B) The Conference had decided to set up a National Assembly composed of 123 members based on the number of constituencies existing before 1969 with a Speaker and two Deputy Speakers. (C) The Conference had agreed to introduce regional autonomy in the country which entails an amendment to the constitution … (E) The Conference nominates his Excellency, Ali Mahdi Mohammed, as provisional President of the Somali Republic for a period of two years from the day on which he takes the oath. (F) Two Vice Presidents of the Republic shall be nominated, the first put forward by the SDM and the second by the SSDF and SPF. [The SDM, SSDF and SPF were three of the groupings.] (G) The Prime Minister shall be a native of the North West of the Country … (J) The provisional Government is charged with preparing a draft electoral law for the organisation of [a] free and democratic election of the president of the National Assembly, with forwarding a policy of respect for human rights and public liberties on the basis of the universal declaration of human rights and to introduce into the country an organisation based on regional autonomy …’

The agreement was signed by representatives of the six groups attending who also undertook to carry out the resolutions of the conference.

Accordingly, under the Djibouti Agreement Mr Mahdi became the interim president and on 6 August he appointed Mr Qalib as his prime minister (apparently, in the absence of a nomination by the SNM). Mr Qalib then appointed ministers to serve under him. I will refer to these persons as the ‘interim government’. It appears that in practice the interim government has been unable to operate in Mogadishu and Mr Qalib has based himself in a hotel in Riyadh in Saudi Arabia.

Prior to the Djibouti Agreement, on 12 May 1991 Mr Qalib, describing himself as the ‘Prime Minister of the Somali Republic’ and writing from Riyadh, instructed Messrs Crossman Block to act on behalf of ‘the Interim Government of the Somali Republic’. By a further letter, also sent from Riyadh, dated 14 January 1992, Mr Qalib reconfirmed his earlier instructions on behalf of ‘my Government’

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and gave his written consent, pursuant to RSC Ord 15, r 6(4), for ‘the Interim Government of the Republic of Somalia’ to be joined as the plaintiff in these proceedings. Crossman Block have wholly taken over from Lloyd & Co and are now the sole solicitors instructed by the interim government.

Following the sale of the cargo and the payment of the net proceeds, $US2,353,991.95, into court, nothing further was done in the action until 16 January 1992, when Crossman Block issued a summons as ‘solicitors for the Republic of Somalia’ applying that the Republic of Somalia be joined as a party to the action, that the buyers of the cargo be also joined (presumably so that they could be bound by any decision of the court), and that:

‘Directions be given in respect of the future proceedings of this action particularly concerning the trial of the claims of all concerned parties to the monies paid into Court pursuant to the Order herein of Mr Justice Hirst dated 13th March 1991.’

Notice of this summons was given by Crossman Block to More Fisher Brown, who, seeing that they were content that directions should be given and, perhaps surprisingly, did not wish to oppose the joinder of the additional parties, did not consider it necessary to attend the hearing, which took place before Saville J on Friday, 7 February 1992. Mr Clements, a partner in Crossman Block, swore two affidavits, dated respectively 16 January and 6 February, which set out the case of their clients.

The summons was heard as an ordinary Friday summons in the Commercial Court and occupied about 20 minutes. Crossman Block were represented by counsel, Miss Andrews, and solicitors appeared on behalf of the shipowners, the charterers and the buyers of the cargo. Saville J ordered the joinder of the Republic of Somalia as plaintiffs in substitution for the shipowners, who together with the buyers of the cargo were joined as additional defendants. He further ordered:

‘3. Unless any party appears before this Court on or before Wednesday 19th February 1992 and shows cause why the sum of US$2,000,000 should not be paid out of the fund which was paid into Court pursuant to the Order of Mr Justice Hirst herein dated 13th March 1991 (“the fund”) to the solicitors for the Republic of Somalia (Messrs Crossman Block), the said sum shall be paid out of the fund to Messrs Crossman Block on 20th February 1992 or forthwith thereafter.’

The reason for selecting the figure of $US2m was that by the end of January 1992 the sum in court together with accrued interest had grown to $US2.5m and $US0.5m would be fully sufficient to satisfy any claims of the shipowners, charterers and other commercial parties. He gave directions for the resolution of any dispute as to how the balance of the fund should be dealt with. He reserved the costs and gave liberty to apply. He also took an undertaking from ‘the Republic of Somalia by their counsel… to give notice of this order to all the existing and intending parties to this action and to Messrs More Fisher Brown the former representatives of Madame Fatuma Isak Bihi’.

More Fisher Brown, on the instructions of Madame Bihi, took advantage of the liberty to apply. They swore affidavits and put further material before the court. Their application eventually came on before the court on the afternoon of 26 February. The initial application was: (i) that Madame Bihi be joined as a party to these proceedings as a representative of the Democratic Republic of Somalia; (ii) that para 3 of the order of Saville J should not be brought into effect; (iii) that the court should direct letters to be written to the Foreign and Commonwealth Office asking what state in Somalia is recognised by Her Majesty’s government as a

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foreign sovereign state and with what entity, if any, therein Her Majesty’s government has any dealings of a governmental nature; and (iv) that the court should request the Attorney General to appoint an amicus curiae. In a further affidavit they put her case more clearly in the following terms:

‘… Mrs Bihi and the party that she represents do not call for payment out to them of the sum presently in court. They say that the Court should appoint or direct the appointment of an amicus curiae to assist the Court when—as here—there is a serious problem of locus standi in view of the confusions that exist in their native Somalia. They also say that, until the Court is able to determine what, if any, is the government of Somalia with which HM Government has appropriate dealings of a governmental nature, the money in court should remain there.’

I have not acceded to the application of Madame Bihi to be joined as a representative or other party in this action but I have acceded to her application that I should invite the Attorney General to appoint an amicus curiae and Mr Richards has appeared instructed by the Treasury Solicitor. The court is grateful for his assistance.

Madame Bihi claims no personal interest in the money in court and accordingly the only locus standi that she can have is as a person who is entitled to represent the Republic of Somalia in this court. It is not suggested that the money belongs to the former regime of Siad Barre, nor that it is the property of a government or governmental agency rather than state property belonging to the republic. It is clear from the evidence that both More Fisher Brown and Crossman Block have placed before the court that Madame Bihi has no right to represent the republic in this court. Her evidence is that there is currently no government of Somalia. The former government of President Siad Barre has ceased to exist and she has received no accreditation or authority from any other government. It is not clear that she currently has any diplomatic status although there is some evidence that the United Nations may still for some purposes recognise her ambassadorship. But it is clear that she has no diplomatic status in the United Kingdom and has no recognition from Her Majesty’s government as a representative of the Republic of Somalia in this country. Accordingly I refuse her application to be joined as a party to this action.

The essential matter which has been argued before me is whether or not the order for payment out to Crossman Block should now be confirmed. At one stage I felt some doubt whether it was open to the court to make any further order which would postpone the payment out of the $US2m. Indeed, Miss Andrews argued that that matter was concluded by the order of Saville J and there was no party properly before the court on whose application the court could make any different order. Madame Bihi had no locus standi and the Attorney General had not sought to intervene: cf Adams v Adams (A-G intervening) [1970] 3 All ER 572, [1971] P 188.

However, having heard argument, I am satisfied that the order of Saville J was provisional only and was subject to any further order that might be made on further material being placed before the court. The summons upon which he made the order was merely a summons which asked for directions and the form in which his order was couched was that of an order nisi, which, subject to the time limits laid down in the order, gave an unqualified liberty to apply. His order was not seeking to determine the rights of those represented by Crossman Block should there be any challenge to them. Further, it is always open to a court, upon proof of new facts, to make an order supplemental to an original order: see Ford-Hunt v Raghbir Singh [1973] 2 All ER 700 at 702, [1973] 1 WLR 738 at 740 per

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Brightman J. The affidavit evidence before Saville J gave him an incomplete picture of the actual situation in Somalia and the current attitude of Her Majesty’s government; there is now additional relevant evidence before the court. It is said that assumptions upon which he was apparently prepared to proceed have now been shown to be unsound.

In a case involving a sum of money the property of a foreign state and whether it is proper that it should be paid to a firm of solicitors whose authority to act on behalf of that state is in question, the court should, with the assistance of an amicus if necessary, decline to make an order for the payment out of a sum in court to a firm of solicitors without being satisfied of the authority of that firm of solicitors. This is not a case of competing claims to the $US2m; there is no dispute that it is the property of the republic. The question is one of confirming that the legal agent on the record has a properly constituted authority to receive the sum on behalf of the republic. A solicitor is an officer of the court and under the control of the court. If the court comes to the conclusion for any reason that the solicitor does not have the requisite authority it should, of its own motion if necessary, require the solicitor to obtain that authority and ensure that the relevant fund remains under the control of the court meanwhile. That is the position here if I come to the conclusion that those presently instructing Crossman Block are not entitled to act as the government of the republic. Miss Andrews did not invite me to order that the sum should be paid out to Crossman Block on terms that they should not part with it without a further order of the court; in such an event she accepted that it would be better that the sum should remain in court. No criticism whatsoever of Crossman Block is involved. Their authority is contained in the letter of 14 January 1992 which is expressly the consent of the interim government to being joined as plaintiffs. It can be questioned whether this consent is sufficient to comply with RSC Ord 15, r 6(4).

The case of the interim government has been succinctly summarised in one of the affidavits sworn by Mr Clements:

‘The Republic can only pursue legal action through its duly appointed executive, namely the Interim Government which instructs me … The fund in Court represents assets belonging to the Republic of Somalia. Somalia is for the time being represented by its Interim Government. That Government is the only institution now in a position to take possession of the funds and employ the money as it sees fit for the best interest of the State. The money is urgently required to combat the effects of famine in the country.’

The question therefore is whether the interim government is the government of the Republic of Somalia. If it is not then Crossman Block do not have the authority to act on behalf of the republic: see the similar question of the authority of a solicitor in Carl-Zeiss-Stiftung v Rayner & Keeler Ltd (No 2) [1966] 2 All ER 536, [1967] 1 AC 853.

Mr Richards supports the argument of counsel for Madame Bihi on this question. He has submitted that the money in court should not be paid out unless the court is satisfied that the interim government is indeed the government of Somalia and that, as the court should not be satisfied that this is the case, the money should meanwhile be left in court.

The policy of the United Kingdom is now not to confer recognition upon governments as opposed to upon states. The new policy of Her Majesty’s government was stated in two parliamentary answers in April and May 1980:

‘… we have conducted a re-examination of British policy and practice concerning the recognition of Governments. This has included a comparison

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with the practice of our partners and allies. On the basis of this review we have decided that we shall no longer accord recognition to Governments. The British Government recognise States in accordance with common international doctrine. Where an unconstitutional change of regime takes place in a recognised State, Governments of other States must necessarily consider what dealings, if any, they should have with the new regime, and whether and to what extent it qualifies to be treated as the Government of the State concerned. Many of our partners and allies take the position that they do not recognise Governments and that therefore no question of recognition arises in such cases. By contrast, the policy of successive British Governments has been that we should make and announce a decision formally “recognising” the new Government. This practice has sometimes been misunderstood, and, despite explanations to the contrary, our “recognition” interpreted as implying approval. For example, in circumstances where there may be legitimate public concern about the violation of human rights by the new regime, or the manner in which it achieved power, it has not sufficed to say that an announcement of “recognition” is simply a neutral formality. We have therefore concluded that there are practical advantages in following the policy of many other countries in not according recognition to Governments. Like them, we shall continue to decide the nature of our dealings with regimes which come to power unconstitutionally in the light of our assessment of whether they are able of themselves to exercise effective control of the territory of the State concerned, and seem likely to continue to do so.’ (See 983 HC Official Report (5th series) written answers cols 278–279.)

‘In future cases where a new régime comes to power unconstitutionally our attitude on the question whether it qualifies to be treated as a Government will be left to be inferred from the nature of the dealings, if any, which we may have with it, and in particular on whether we are dealing with it on a normal Government to Government basis.’ (See 985 HC Official Report (5th series) written answers col 385.)

The position in English law before 1980 is conveniently set out in 18 Halsbury’s Laws (4th edn) para 1431:

‘A foreign government which has not been recognised by the United Kingdom government as either de jure or de facto government has no locus standi in the English courts. Thus it cannot institute an action in the courts … The English courts will not give effect to the acts of an unrecognised government …’

Thus, recognition by Her Majesty’s government was the decisive matter and the courts had no role save to inquire of the executive whether or not it had recognised the government in question.

Some writers appear still to feel that the criterion remains one of recognition by the government of this country, the difference being that, whereas before 1980 the government would say expressly whether it recognised the foreign government, now it is to be left to be ascertained as a matter of inference: see Crawford ‘Decisions of British courts during 1985–86 involving questions of public or private international law’ (1986) 57 BYIL 405 and the continuing references in Brownlie Principles of Public International Law (4th edn, 1990) and in ‘Recognition in theory and practice’ (1982) 53 BYIL 197 at 209 to the recognition of governments. Mr Richards did not seek to support that view and it is clearly

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contrary to or not adopted in other writings: see eg Mann Foreign Affairs in English Courts (1986) and Warbrick ‘The new British policy on recognition of Governments’ (1981) 30 ICLQ 568; and indeed the general tenor of Professor Brownlie’s work itself. The impracticality of the ‘inferred recognition’ theory as a legal concept for forensic use is obvious and it cannot be thought that that was the intention of Her Majesty’s government in giving the Parliamentary answers. The use of the phrase ‘left to be inferred’ is designed to fulfil a need for information in an international or political, not a judicial, context.

If recognition by Her Majesty’s government is no longer the criterion of the locus standi of a foreign ‘government’ in the English courts and the possession of a legal persona in English law, what criteria is the court to apply? The answers do confirm one applicable criterion, namely whether the relevant regime is able of itself to ‘exercise effective control of the territory of the State concerned’ and is ‘likely to continue to do so’; and the statement as to what is to be the evidence of the attitude of Her Majesty’s government provides another—to be inferred from the nature of the dealings, if any, that Her Majesty’s government has with it and whether they are on a normal government to government basis. The nonexistence of such dealings cannot however be conclusive because their absence may be explained by some extraneous consideration—for example lack of occasion, the attitude of the regime to human rights, its relationship to another state. As the answers themselves acknowledge, the conduct of governments in their relations with each other may be affected by considerations of policy as well as by considerations of legal characterisation. The courts of this country are now only concerned with the latter consideration. How much weight in this connection the courts should give to the attitude of Her Majesty’s government was one of the issues before me.

In relation to Somalia and the present litigation, the Foreign and Commonwealth Office has on three occasions responded to inquiries by solicitors and Mr Richards has also conveyed to the court a further communication. In the first letter, dated 4 March 1991, reference was made to the fluid and confused situation that had followed upon the successful coup:

‘Now that opposition forces have overthrown Siad Barre, the single objective which united them has gone. Each movement has its own clan objectives to champion. The United Somali Congress (USC), drawn from the Hawiye Clan and its sub clans, was responsible for the fighting in Mogadishu. It is they who have appointed a new Caretaker President and a Government which they claim are interim measures. A separate USC faction under General Mohammed Farrah Hassan “Aidid”, who have the support of the Somali National Movement (SNM), do not recognise the new President or Government. Neither do the Somali Patriotic Movement (SPM) or SNM. They argue that the appointments run counter to the USC, SNM and SPM Agreement of 2nd October 1990. But the faction now in control in Mogadishu was not a party to that Agreement.’

They also referred to the different factions in control in different parts of the country and said: ‘The general situation in Somalia continues to be insecure and confused’.

On 5 August 1991 the Foreign and Commonwealth Office wrote to Crossman Block confirming that the practice of Her Majesty’s government was to recognise states not governments and accordingly ‘the question of whether to recognise the purported Interim Government in Mogadishu thus does not arise for us’. They also confirmed that the purported secession of the north western part of the

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country had not been recognised. They commented that ‘the Interim Government does not command nationwide acceptance. We support efforts to establish one that does’. They concluded: ‘In these circumstances, it is very difficult to judge, for the purposes of your case, who is the Government of Somalia.' This letter was written after the Djibouti Conference and notwithstanding the communiqué that had been issued at the conclusion of that conference. It is clear that the writer of that letter did not consider that the conference had changed the situation or that any legitimate or other recognisable government had come into existence as a result. This letter was the only letter which was before Saville J.

On 20 February 1992 the Foreign and Commonwealth Office wrote again to More Fisher Brown. It reconfirmed that Her Majesty’s government was not concerned with the recognition of governments and had not recognised the purported secession. It continued:

‘The comment in [the letter of 5 August 1991] has been somewhat overtaken by subsequent events, in particular fighting between rival elements of the United Somali Congress which broke out in November 1991 and in which thousands of people have been killed and injured. On 23 January the United Nations Security Council adopted Resolution 733 requesting the Secretary-General to increase UN humanitarian assistance to Somalia and to co-operate with regional organisations (OAU and Arab League named; OIC later co-opted) in seeking the Mogadishu factions’ agreement to a ceasefire, the distribution of humanitarian aid and the promotion of a political settlement. The UN and regional organisations met representatives of the Somali factions in New York on 14 February. A cessation of hostilities was agreed in principle. A further round of talks is due in Mogadishu later in February to conclude the ceasefire, and to discuss the means to achieve national reconciliation. All factions have been invited. However, fighting in Mogadishu has continued since the New York meeting. The United Kingdom maintains informal contact with all the factions involved, but there have been no dealings on a government to government basis.’

It is clear from this letter that Her Majesty’s government does not consider that there is at present any effective government in Somalia. It refers to ‘factions’ and treats the interim government as merely one among a number of factions.

The further letter, dated 9 March 1992, adds little to that of 20 February. It confirms that the attitude of Her Majesty’s government has not changed and that there is still no single body exercising administrative authority in Somalia.

Accordingly, if the question before the court is to be decided upon the basis of the attitude adopted by Her Majesty’s government, an order cannot be made in favour of the interim government or Crossman Block. The basis for its attitude is clearly not any disapproval of an established regime but rather that there is no regime which has control, let alone any administrative control which has the requisite element of stable continuity.

Mr Richards submitted that particular weight should be given to these communications. I have difficulty in accepting that submission without some qualification. Once the question for the court becomes one of making its own assessment of the evidence, making findings of fact on all the relevant evidence placed before it and drawing the appropriate legal conclusion, and is no longer a question of simply reflecting government policy, letters from the Foreign and Commonwealth Office become merely part of the evidence in the case. In the present case no problem of admissibility of evidence arises. In so far as the letters make statements about what is happening in the territory of some foreign state,

Page 382 of [1993] 1 All ER 371

such letters may not be the best evidence; but as regards the question whether Her Majesty’s government has dealings with the foreign government it will almost certainly be the best and only conclusive evidence of that fact. Where Her Majesty’s government is dealing with the foreign government on a normal government to government basis as the government of the relevant foreign state, it is unlikely in the extreme that the inference that the foreign government is the government of that state will be capable of being rebutted and questions of public policy and considerations of the interrelationship of the judicial and executive arms of Government may be paramount: see The Arantzazu Mendi [1939] 1 All ER 719 at 722, [1939] AC 256 at 264 and GUR Corp v Trust Bank of Africa Ltd (Government of the Republic of Ciskei, third party) [1986]3 All ER 449 at 466, [1987] QB 599 at 625. But now that the question has ceased to be one of recognition, the theoretical possibility of rebuttal must exist.

There is no decided English authority upon the effect of the 1980 answers. GUR Corp v Trust Bank of Africa Ltd was concerned with a question of the recognition of a state and the competence of a subordinate body within the recognised territory of that state under the laws of that state. The 1980 answers were referred to but were not the basis of the decision. Here no question of the recognition of a state is involved. Nor does this case involve any accredited representative of a foreign state in this country. Different considerations would arise if it did, since it would be contrary to public policy for the court not to recognise as a qualified representative of the head of state of the foreign state the diplomatic representative recognised by Her Majesty’s government. There is no recognised diplomatic representative of the Republic of Somalia to the United Kingdom.

The statements of fact in the letters from the Foreign and Commonwealth Office are confirmed by the other evidence that is before the court concerning the actual situation in Somalia. The interim government is not governing that country and does not exercise administrative or any control over its territory and population. In Situation Report No 7 of the Agency for International Development in Washington the position as at 30 January 1992 and previously was said to be:

‘At present, there is no functioning government in Somalia and the political future of the Country remains uncertain. Although various clan-based rebel groups collaborated in the effort to oust Siad Barre, they have since been unable to agree upon a national leadership. There is still tremendous distrust and infighting between and even among clans, with each claiming hold over a particular region of the country … Heavy intra-clan fighting erupted in Mogadishu on Nov. 17 between two rival factions of the USC and control of the city is still being contested.’

This report, like the letter from the Foreign and Commonwealth Office, refers to the various ‘factions’.

The criteria of effective control referred to in the Parliamentary answers are clearly not satisfied. In The Arantzazu Mendi [1939] 1 All ER 719 at 722, [1939] AC 256 at 264–265 Lord Atkin said:

‘By “exercising de facto administrative control” or “exercising effective administrative control,” I understand exercising all the functions of a sovereign government, in maintaining law and order, instituting and maintaining courts of justice and adopting or imposing laws regulating the relations of the inhabitants of the territory with one another and with the government.’

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The interim government clearly does not satisfy these criteria; the republic currently has no government.

However there are two other aspects upon which counsel for the interim government has relied. These are the recognition of the interim government by some other states and international bodies, and the fact that the interim government was set up by the Djibouti Agreement, which resulted from an international conference attended by many international states and bodies.

In evaluating these arguments it is relevant to distinguish between regimes that have been the constitutional and established government of a state and a regime which is seeking to achieve that position either displacing a former government or to fill a vacuum. Since the question is now whether a government exists, there is no room for more than one government at a time nor for separate de jure and de facto governments in respect of the same state. But a loss of control by a constitutional government may not immediately deprive it of its status, whereas an insurgent regime will require to establish control before it can exist as a government.

The argument based on the Djibouti Agreement does not assist the interim government. The Djibouti Agreement was not constitutional. It did not create a de jure status for the interim government in Somalia. The interim government was not and did not become the constitutional successor of the government of President Siad Barre. Accordingly, if the interim government is to be treated as the government of Somalia, it must be able to show that it is exercising administrative control over the territory of the republic. That it is not able to do. Accordingly that argument must fail.

As regards the argument of international recognition and recognition by the United Nations, although this does not as such involve control of territory or a population, it does correspond to one aspect of statehood. A classic definition of a state is that contained in art 1 of the Inter-American Convention on the Rights and Duties of States (Montevideo, 26 December 1933; 137 BFSP 282) as having—‘(a) a permanent population; (b) a defined territory; (c) Government; and (d) capacity to enter into relations with other States.' Whilst illustrating that it is difficult to separate the recognition of a state from the recognition of a government of that state, this definition also shows that part of the function of a government of a state is to have relations with other states. This is also implicit in the reference in the 1980 parliamentary answers to dealings on a government to government basis.

Accordingly I consider that the degree of international recognition of an alleged government is a relevant factor in assessing whether it exists as the government of a state. But where, as here, the regime exercises virtually no administrative control at all in the territory of the state, international recognition of an unconstitutional regime should not suffice and would, indeed, have to be accounted for by policy considerations rather than legal characterisation; and it is, of course, possible for states to have relations with bodies which are not states or governments of states.

There is evidence from which it appears that the United Nations Organisation considers that there are persons whom it may treat as the representatives of the Republic of Somalia. Resolution 733 started with the words: ‘Considering the request by Somalia for the Security Council to consider the situation in Somalia’. It appears that this request was contained in a letter from Mr Qalib dated 15 December 1991 addressed to the Secretary General to the United Nations and the President of the Security Council. Mr Qalib signed himself as the ‘Prime Minister of Somalia’. That letter was forwarded to the President of the Security Council by

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Mr Fattoun Mohammed Hassan ‘Chargé d’affaire ai.' Mr Hassan’s letter included the sentence:

‘As you know Mr Arteh [Qalib] was appointed as the interim Prime Minister for Somalia within the context of arrangements agreed upon by all the Somali political parties that participated in the Somali National Reconciliation Conference held at Djibouti in July 1991.’

The text of Resolution 733 was apparently communicated to Mr Mahdi by the Secretary General of the United Nations describing Mr Mahdi as ‘His Excellency Mr Ali Mahdi Interim President of Somalia’.

This evidence is not wholly satisfactory. The attitude of the United Nations to the interim government could be established in a more direct fashion and more authoritatively. The letter of Mr Hassan suggests something less than a fully recognised status. In any event, membership of an international organisation does not amount to recognition nor does a vote on credentials and representation issues: see Warbrick ‘The new British policy on recognition of governments’ (1981) 30 ICLQ 568 at 583, citing the Secretary General’s memorandum 1950 UN Doc S/1466. But any apparent acceptance of the interim government by the United Nations and other international organisations and states does not suffice in the present case to demonstrate that the interim government is the government of the Republic of Somalia. The evidence the other way is too strong.

Accordingly, the factors to be taken into account in deciding whether a government exists as the government of a state are: (a) whether it is the constitutional government of the state; (b) the degree, nature and stability of administrative control, if any, that it of itself exercises over the territory of the state; (c) whether Her Majesty’s government has any dealings with it and if so what is the nature of those dealings; and (d) in marginal cases, the extent of international recognition that it has as the government of the state.

On the evidence before the court the interim government certainly does not qualify having regard to any of the three important factors. Accordingly the court must conclude that Crossman Block does not at present have the authority of the Republic of Somalia to receive and deal with the property of the republic. The instructions and authority they have received from the interim government are not instructions and authority from the government of the Republic. I direct that no part of the sum in court should be paid out to Crossman Block without a further order of the court.

I will consider in chambers what consequential and other directions and orders I should make.

Order accordingly.

K Mydeen Esq   Barrister.

Lord Napier and Ettrick and another v Hunter and others

Lord Napier and Ettrick v R F Kershaw Ltd and others

[1993] 1 All ER 385

Categories:        INSURANCE        

Court:        HOUSE OF LORDS        

Lord(s):        LORD TEMPLEMAN, LORD GOFF OF CHIEVELEY, LORD JAUNCEY OF TULLICHETTLE, LORD BROWNE-WILKINSON AND LORD SLYNN OF HADLEY        

Hearing Date(s):        2, 3, 4, 5 NOVEMBER, 10 DECEMBER 1992        

Insurance – Subrogation – Stop-loss insurance – Assured insured by stop-loss insurers against underwriting losses – Assured sustaining losses through negligence of underwriter’s agent – Stop-loss insurers paying assured under policies – Assured bringing action against agent in respect of losses and recovering damages in settlement of claim – Whether stop-loss insurers having equitable proprietary right in settlement moneys – Policy providing excess to be borne by assured – Whether assured entitled to deduct from settlement moneys loss occurring below excess before reimbursing insurers by way of subrogation – Whether stop-loss insurers entitled to injunction restraining payment of settlement moneys to assured before stop-loss insurers reimbursed.

The first plaintiff was the representative of the assureds, who were 246 Lloyd’s names who were members of the same syndicate (the O syndicate) and who had insured themselves under personal stop-loss policies with 12 Lloyd’s syndicates (the stop-loss insurers), represented by the fifth to fourteenth defendants, against losses incurred as members of the O syndicate. The stop-loss policies provided indemnity to the names for losses in excess of a stated amount up to a specified limit. As a result of the negligence of the O syndicate’s managing agents, who wrote large numbers of policies on behalf of the names without adequate reinsurance cover, the names incurred losses as members of the O syndicate in 1982 and made claims under their stop-loss policies in respect of those losses. Those claims were met by the stop-loss insurers. Subsequently, members of the O syndicate, including the names, brought proceedings against the managing agents and more than 80 other members’ agents claiming damages for negligence and breach of duty in respect of, inter alia, the 1982 year of account. Those proceedings were settled on payment of £116m (the settlement moneys) to the second plaintiffs, the solicitors acting for the plaintiffs in the action, to be held on behalf of, inter alios, the names. The stop-loss insurers claimed that under the principle of subrogation they had an equitable proprietary interest in the names’ share of the settlement moneys to the extent of the claims they had met. In proceedings brought by the plaintiffs the issues arose (1) whether the stop-loss insurers had an equitable proprietary interest in any of the settlement moneys and/or whether any of the settlement moneys were impressed with a trust in their favour, and (2) whether, in any event, when determining the amount which the stop-loss insurers were entitled to claim in respect of the settlement moneys, the stop-loss insurers were entitled to be reimbursed any indemnity paid by them to a name before that name was fully indemnified by applying his share of the settlement moneys to a loss occurring below the excess in that name’s policy. The judge determined both issues against the stop-loss insurers, who appealed to the Court of Appeal, which dismissed their appeal on the first issue but allowed it on the second issue. The stop-loss insurers appealed to the House of Lords on the first issue and the names cross-appealed on the second issue.

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Held – (1) Where an insured person was paid out by an insurer for an insured loss in respect of which he also recovered damages from a wrongdoer the insured person was guilty of unconscionable conduct if he did not procure and direct that the sum due to the insurers by way of subrogation be paid out of those damages, and in order to protect the rights of the insurer under the doctrine of subrogation the damages recovered by the insured from the wrongdoer in respect of the insured loss were subject to an enforceable equitable proprietary lien or charge in favour of the insurer. Accordingly, since the damages of £116m were in an identifiable separate fund so that an equitable proprietary lien or charge in favour of the stop-loss insurers could be enforced, the stop-loss insurers were entitled to injunctions restraining the second plaintiff from paying and each assured from receiving any part of the settlement moneys without providing or paying out of the damages payable to the names the amounts which had been or should be found due from the names to the stop-loss insurers by way of subrogation. The stop-loss insurers’ appeal would therefore be allowed (see p 391 f to j, p 396 f to h, p 397 a to p 398 a d to h, p 399 a, p 400 c to e, p 401 g, p 402 j to p 403 b f g, p 406 e, p 407 c d, p 409 e to h and p 410 c d, post); White v Dobinson (1845) 5 LTOS 233 and Re Miller Gibb & Co Ltd [1957] 2 All ER 266 applied; Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1961] 2 All ER 487 and Hobbs v Marlowe [1977] 2 All ER 241 considered.

(2) Since the names had agreed to pay the losses represented by the excesses on their policies they were not entitled to any of the settlement moneys in respect of those losses before the stop-loss insurers had been fully indemnified pursuant to their right of subrogation. On the basis that the names were in effect their own insurers for initial losses up to the stated amount and for losses in excess of the specified limit, the settlement moneys were to be applied in subrogation successively to insurers of the losses commencing with the losses in excess of the specified limit, and therefore, although the names were entitled to be fully reimbursed in respect of the losses in excess of the specified limit before the stop-loss insurers were entitled to be indemnified, the stop-loss insurers were likewise entitled to be fully reimbursed in respect of the amounts paid out under the stop-loss policies before any of the settlement moneys could be paid out in respect of the names’ initial losses up to the stated amount. The names’ cross-appeal would therefore be dismissed (see p 390 a to f, p 391 d e, p 403 f g, p 405 h to p 406 e and p 410 c d, post).

Quaere. Whether the equitable proprietary interest of the insurer attaches only to the fund consisting of sums which come into the hands of the assured in reduction of the loss paid by the insurer or whether it also attaches to a right of action vested in the assured against the third party which, if enforced, would yield such a fund (see p 395 e to p 396 a, p 398 h j, p 403 b to g, p 406 e, p 409 j to p 410 d, post); Castellain v Preston [1881–5] All ER Rep 493 considered.

Notes

For the doctrine of subrogation and its application in insurance cases, see 16 Halsbury’s Laws (4th edn reissue) paras 888–889 and 25 Halsbury’s Laws (4th edn) paras 330–334, 523–533, and for cases on the subject, see 29 Digest (Reissue) 81–83, 500–501, 755–767, 4273–4281.

Cases referred to in opinions

Blaauwpot v Da Costa (1758) 1 Eden 130, 28 ER 633.

Page 387 of [1993] 1 All ER 385

Brooks v MacDonnell (1835) 1 Y & C Ex 500, 160 ER 204.

Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333, HL.

Castellain v Preston (1883) 11 QBD 380, [1881–5] All ER Rep 493, CA.

Commercial Union Assurance Co v Lister (1874) LR 9 Ch App 483, LJJ; affg LR 9 Ch App 848 n, MR.

Hobbs v Marlowe [1977] 2 All ER 241, [1978] AC 16, [1977] 2 WLR 777, HL.

King v Victoria Insurance Co Ltd [1896] AC 250, PC.

London Assurance Co v Sainsbury (1783) 3 Doug 245, 99 ER 636.

Mason v Sainsbury (1782) 3 Doug 61, 99 ER 538.

Miller Gibb & Co Ltd, Re [1957] 2 All ER 266, [1957] 1 WLR 703.

Morley v Moore [1936] 2 All ER 79, [1936] 2 KB 359, CA.

Randal v Cockran (1748) 1 Ves Sen 98, 27 ER 916, LC.

Simpson & Co v Thomson (1877) 3 App Cas 279, HL.

Stearns v Village Main Reef Gold Mining Co Ltd (1905) 10 Com Cas 89, CA.

White v Dobinson (1845) 5 LTOS 233, LC; affg (1844) 14 Sim 273, 60 ER 363.

Yates v White (1838) 1 Arn 85, sub nom Yates v Whyte 4 Bing NC 272, 132 ER 793.

Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1961] 2 All ER 487, [1962] 2 QB 330, [1961] 2 WLR 1043.

Consolidated appeals and cross-appeal

The appellants, the fifth to fourteenth defendants, Charles Hunter, Colin Mackinnon, William Deem, Michael Seaby, Mark Swinbank, Jeremy Guy Nelson, Ron Cleverly, David McElhiney, David Holman and Derek Walker, represented the members of 12 syndicates at Lloyd’s (the stop-loss insurers), each of which wrote a substantial number of personal stop-loss policies issued to Lloyd’s names, including 246 members of the Outhwaite Syndicate 317/661 for the 1982 year of account (the assureds) who were represented by the first respondent plaintiff, the Rt Hon Francis Nigel Baron Napier and Ettrick. Each of the policies provided for an excess to be borne by the assured with a layer of cover above that excess. The assureds made claims under the policies in respect of their underwriting losses, the majority of which arose as a result of losses on the underwriting of the Outhwaite Syndicate and such claims were met. In 1989 proceedings were commenced by 987 members of the Outhwaite Syndicate (the names), including the assureds, against the syndicate’s managing agents and over 80 other members’ agents at Lloyd’s claiming damages for negligence and breach of duty occasioning the losses of the Outhwaite Syndicate. The proceedings were settled in February and March 1992 by payment to the second respondent plaintiff, Richards Butler (a firm), solicitors to the names, on behalf of, inter alios, the assured of almost £116m (the settlement moneys), including moneys attributable to the losses in respect of which the assureds had received payment from the stop-loss insurers. Shortly before the settlement moneys were due to be distributed by the second plaintiff in accordance with the arrangements announced to the names, Lloyd’s asserted that the settlement moneys could not be distributed because they were subject to the premium trust deeds executed by each name. Accordingly, on 10 April 1992 the plaintiffs issued an originating summons (the Lloyd’s proceedings) against the first to fourth defendants, R F Kershaw Ltd, Lloyd’s, Simon Gillilan Weber-Brown and Christopher James Hodgson, seeking, inter alia, determination of the respective rights to and interests in the settlement moneys in the light of Lloyd’s contention. By an order of Saville J dated 12 May 1992 Bruce Cameron Douglas-Hamilton was substituted for Mr Hodgson as fourth defendant. On 14 May 1992 Saville J decided the question raised by Lloyd’s adversely to those four defendants, including Lloyd’s and there was no appeal therefrom. Following

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the commencement of the Lloyd’s proceedings the stop-loss insurers claimed an equitable proprietary interest in that part of the settlement moneys attributable to losses insured and paid by them and raising contentions as to the manner in which the settlement moneys should be applied as between themselves and their assureds. By consent the Lloyd’s proceedings were amended and the stop-loss insurers were added as defendants by an order of Saville J dated 14 May 1992 for the purpose of having determined, inter alia, the following issues; (1) whether the stop-loss insurers had an equitable proprietary interest in any settlement moneys and/or whether any of the settlement moneys were impressed with a trust in their favour; and (2) whether, in any event, in determining the amount which the stop-loss insurers were entitled to claim in respect of the settlement moneys, the stop-loss insurers were entitled to be reimbursed any indemnity paid by them to an assured before that assured was fully indemnified by applying his share of the settlement moneys to a loss occurring below the excess in that assured’s policy. On 12 June 1992 Saville J decided against the stop-loss insurers on both issues and they appealed. On 9 July 1992 the Court of Appeal (Dillon, Staughton and Nolan LJJ) (see (1992) Times, 17 July) allowed the appeal in part by deciding against the stop-loss insurers on the first issue and in their favour on the second issue. The stop-loss insurers appealed on the first issue and the assured’s cross-appealed on the second issue with the leave of the Appeal Committee of the House of Lords given provisionally on 22 July 1992. If the stop-loss insurers were successful in their appeal on the first issue, it was in issue whether an ancillary order should be made ordering the second plaintiff to pay the relevant moneys to the stop-loss insurers and/or restraining the second plaintiff from paying those moneys to the assureds. The facts are set out in the opinion of Lord Templeman.

David Donaldson QC and Michael Swainston (instructed by Clyde & Co) for the fifth to thirteenth defendants and (instructed by Waltons & Morse) for the fourteenth defendants.

Anthony Boswood QC and Stephen Moriarty (instructed by Richards Butler) for the assureds.

Their Lordships took time for consideration.

10 December. The following opinions were delivered.

LORD TEMPLEMAN. My Lords, when an insured person suffers a loss he will be entitled to the insurance money and may also be entitled to sue for damages anyone responsible for the loss. For example, if a house is insured for £100,000 against fire and is damaged by fire to an extent exceeding £100,000, the insurance company will pay £100,000. If the fire has been caused by a negligent builder or some other contractual or tortious wrongdoer, the insured person will sue the wrongdoer for damages. If the house has been damaged to the extent of £160,000, the insured person will receive damages from the wrongdoer of £160,000. At that stage the insured person will have made a profit since he will have only suffered a loss of £160,000 but will have collected a total of £260,000 from the insurance company and the wrongdoer. A policy of insurance is however a contract of indemnity and by the doctrine of subrogation the insured person must pay back to the insurer the sum of £100,000. The insured person will then have made neither a loss nor a profit. This appeal requires consideration of the principles and application of the doctrine of subrogation.

The persons insured are 246 members of the Outhwaite Syndicate 317/661 of

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Lloyd’s (the names). The wrongdoer was the managing agent of the syndicate (Outhwaite), who negligently wrote large numbers of policies on behalf of the names in respect of asbestosis claims without adequate reinsurance cover. The insurers are the appellants (the stop-loss insurers).

As members of the Outhwaite Syndicate the names were entitled to share the net premiums and personally liable to pay claims received under policies issued by Outhwaite on their behalf in the year of account 1982. The names were desirous of insuring themselves against part of any loss they might incur as members of the syndicate. Each name therefore paid a premium to stop-loss insurers for a policy whereby the stop-loss insurers agreed to—

‘indemnify the Assured for the amount by which the Assured’s overall ascertained net underwriting loss as hereinafter defined for the Underwriting Year(s) of Account shown in the schedule exceeds the amount stated as “Excess” in the schedule.’

The policy contained a definition of ‘net underwriting loss’ in the following terms:

‘The Underwriters liability hereunder shall not exceed the amount stated as “Limit” in the Schedule. The “Limit” and “Excess” shall apply separately to each Underwriting Year of Account covered hereunder. The term “overall ascertained net underwriting loss” shall mean:—(a) such sums with which the Assured shall be debited by any of his/her Underwriting Agents in respect of his/her Underwriting results being the disclosed loss as per the Underwriting Accounts as at the end of the 36th month of each separate Underwriting Year of Account: less (b) such sums as the Assured shall be credited from any of his/her Underwriting results as shown in the account as at the end of the 36th month of each separate Underwriting Year of Account …’

One of the underwriting years of account was 1982. The limit and the excess varied from policy to policy.

For purposes of illustration, the arguments in the courts below and in this House assume that for the 1982 year of account a particular hypothetical name suffered a net underwriting loss of £160,000, that the excess was £25,000, and that the limit was £100,000. On these figures the stop-loss insurers paid to the name £100,000 being the fixed amount of the limit (£100,000) which exceeded the excess (£25,000). The names together with other names sued Outhwaite for damages for negligence and breach of duty in respect of, inter alia, the 1982 year of account. Those proceedings were compromised on payment by Outhwaite of £116m to the respondents Messrs Richards Butler as solicitors for the plaintiffs in the action. For the purposes of the illustration it is assumed that included in the sum of £116m Richards Butler hold £130,000 attributable to the overall ascertained net loss of £160,000 suffered by the hypothetical name for the 1982 year of account.

On these assumptions two problems arise. First, how much is payable to the stop-loss insurers by way of subrogation? Secondly, are the stop-loss insurers entitled to be paid the amounts found due to them by way of subrogation out of the damages now held by Richards Butler?

At first instance Saville J decided that the hypothetical name would be entitled to be fully indemnified for his loss of £160,000. He received £100,000 from the stop-loss insurers. He will receive £130,000 from Outhwaite. He will keep £60,000 and pay £70,000 to the stop-loss insurers. In the result the name will

Page 390 of [1993] 1 All ER 385

have fully recouped his loss of £160,000. This analysis however ignores the fact that the name agreed to bear the first £25,000 excess of any loss.

The problem must, in my opinion, be solved by assuming that the name insured the first £25,000 of any loss and also insured the excess over £125,000 as well as insuring the £100,000 payable under his policy with the stop-loss insurers. There would then be three insurance policies as follows: (1) a policy for the payment of the first £25,000 of any loss; (2) a policy for payment of the next £100,000 of any loss; (3) a policy for payment of any loss in excess of £125,000.

When the name suffered a loss of £160,000 the name received £25,000 under the first policy, £100,000 under the second policy and £35,000 under the third policy. The damages payable by Outhwaite were £130,000. The third insurer is entitled to be the first to be subrogated because he only agreed to pay if the first two insurances did not cover the total loss; accordingly the third insurer must be paid £35,000. The second insurer is entitled to be the second to be subrogated because he only agreed to pay if the first insurance cover proved insufficient; accordingly, the second insurer must be paid £95,000. The sum of £35,000 payable by way of subrogation to the third insurer and the sum of £95,000 payable by way of subrogation to the second insurer exhausts the damages of £130,000 received by the name from Outhwaite. There is nothing left to recoup to the second insurer the balance of £5,000 out of the £100,000 he paid under his policy. There is nothing left by way of subrogation for the first insurer in respect of the first £25,000 which he agreed to bear.

Under the stop-loss insurance the name agreed to bear the first £25,000 loss and any loss in excess of £125,000. In my opinion the name is not entitled to be in a better position than he would have been if he had taken out the three insurances I have mentioned. The name in fact acts as his own insurer for the first £25,000 loss and acts as his own insurer for any loss in excess of £125,000. So the name must pay £95,000 to the stop-loss insurers just as he would have been liable to pay £95,000 to the second insurer if he had taken out three policies. In the result, out of the loss of £160,000, the name will have borne the first £25,000 because he agreed with the stop-loss insurers that he would bear that loss. The stop-loss insurers having paid £100,000 under the policy will receive back £95,000 by way of subrogation.

Saville J reached a different conclusion. He found that the name was entitled to retain from the damages he received the whole of the loss he had sustained before recouping the stop-loss insurers. Accordingly, the name who suffered a loss of, £160,000 and received £100,000 under the policy with the stop-loss insurers and a further £130,000 from Outhwaite was entitled to retain £60,000 and to recoup to the stop-loss insurers the sum of £70,000 and no more. Thus the name covered all his loss notwithstanding that he had agreed to bear the first £25,000 of the loss. For his conclusion Saville J relied on the following passage from the judgment of Brett LJ in Castellain & Preston (1883) 11 QBD 380 at 386, [1881–5], All ER Rep 493 at 495:

‘The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified. That is the fundamental principle of insurance, and if ever a proposition is brought forward which is at variance with it, that is to say, which either will prevent the assured from obtaining a full indemnity,

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or which will give to the assured more than a full indemnity, that proposition must certainly be wrong.’

Saville J therefore concluded that the name would be entitled to indemnify himself against the first £25,000 loss even though he had expressly contracted with the stop-loss insurers that he would bear that loss. I do not consider that Castellain v Preston is helpful in deciding whether a name who promised the stop-loss insurers to bear the first £25,000 loss is entitled to be put in the same position as an insured person who makes no such promise. When Brett LJ delivered his judgment upon which Saville J relied, he was not concerned with competing claims to subrogation or with any problem arising from underinsurance or partial insurance or layers of insurance. In Castellain v Preston a vendor, after insuring his property against fire, contracted to sell the property for £3,100. A fire then occurred and the insurance company paid the vendor £330 in respect of the damage caused by the fire. The purchaser paid the full £3,100 purchase price without deducting anything for the damage caused by the fire. The Court of Appeal held that the insurance company was entitled to be subrogated to the extent of £330 and to receive that sum from the vendor because, as Brett LJ said (11 QBD 380 at 386, [1881–5] All ER Rep 493 at 496): ‘… the assured have recovered, notwithstanding the loss, from the purchasers, the very sum of money which they were to obtain whether this building was burnt or not.' In my opinion an insured is not entitled to be indemnified against a loss which he has agreed to bear. I agree therefore with the Court of Appeal that the name must bear the loss to the extent of the excess, namely £25,000.

The second question is whether the stop-loss insurers have an interest in the moneys held by Richards Butler. For this purpose it may be assumed by way of example that the moneys held by Richards Butler include £130,000 paid by Outhwaite as damages for negligence which inflicted a loss of £160,000 on a name in respect of the 1982 year of account; can the stop-loss insurers assert an interest in that sum of £130,000 to the extent of the £95,000 which, as I have indicated, is due to them by way of subrogation?

When the hypothetical name suffered a loss of £160,000 as a result of the negligence of Outhwaite, the stop-loss insurers were bound to pay and did pay £100,000 under the policy. The stop-loss insurers immediately became entitled to be subrogated to the right of the name to sue and recover damages in an action against Outhwaite, albeit that the amount payable to the stop-loss insurers by way of subrogation could not be quantified until the action had been concluded and the damages paid. Nevertheless in my opinion the stop-loss insurers had an interest in the right of action possessed by the name against Outhwaite. That action, if brought by the name, would be an action for the benefit of the name and for the benefit of the stop-loss insurers. Where an insurer has paid on the policy, the courts have recognised the interests of the insurer in any right of action possessed by the insured person which will enable the insurer to claim back the whole or part of the sum which he has paid under the policy. The courts recognise the interests of the insurer by allowing him to sue in the name of the insured person against the wrongdoer if the insured person refuses to pursue the action.

In Randal v Cockran (1748) 1 Ves Sen 99, 27 ER 916 a vessel was insured against loss and the insurance company paid the amount of the insurance when the vessel was captured by the Spaniards. The owner of the vessel became entitled to share in the prize money from the sale of captured Spanish vessels in accordance with a royal proclamation. The commission for the distribution of the prize money refused to entertain a claim from the insurer. Lord Hardwicke LC—

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‘was of opinion, that the plaintiffs had the plainest equity that could be. The person originally sustaining the loss was the owner; but after satisfaction made to him, the insurer. No doubt, but from that time, as to the goods themselves, if restored in specie, or compensation made for them, the assured stands as a trustee for the insurer, in proportion for what he paid …’

In Blaauwpot v Da Costa (1758) 1 Eden 130, 28 ER 633 a ship insured for, £1,636 was seized by the Spaniards and the insurance company paid the sum insured. Subsequently prize money amounting to £2,050 18s 6d was paid to the executors of one of the former owners of the vessel. The executors were ordered to pay the sum £1,636 7s 3d to the insurers in accordance with the following judgment of Sir Robert Henley LK (1 Eden 130 at 131, 28 ER 633 at 634):

‘I am of opinion that upon the policy, and the peril happening, and the payment of the money by the underwriters, the whole rights of the assured vested in them. The assured had this right of restitution vested in them against the Spanish captors, which was afterwards prosecuted by the crown by reprisals. Satisfaction having been made in consequence of that capture, I think the plaintiffs are entitled to that benefit; and that it was received by the executors … in trust for them.’

In Mason v Sainsbury (1782) 3 Doug 61, 99 ER 538 a house had been insured against damage and the insurance company paid under the policy when damage was caused by the riots of 1780. The insurance company brought an action under the Riot Act (1714) against the local authority. The insurance company sued in the plaintiff’s name and with his consent and for the benefit of the insurance company. Lord Mansfield CJ said that the contract of insurance was an indemnity and that ‘Every day the insurer is put in the place of the insured’ (see 3 Doug 61 at 64, 99 ER 538 at 549).

In Yates v White (1838) 1 Arn 85 the owner of a vessel sued the defendant for damaging his ship by collision. The defendant claimed to deduct from the amount of damages the sum which the plaintiff had received from his insurers in respect of such damage. The claim was rejected.

In White v Dobinson (1844) 14 Sim 273 the ship Diana was insured against damage. After a collision the insurers paid £205 in respect of the damage. The owner of the vessel, Hicks, was awarded damages of £817 against a defendant who was held liable for the collision. Shadwell V-C granted an injunction restraining the insured person Hicks from receiving and the wrongdoer Dobinson from paying the sum of £817 in respect of damages without first paying or providing for the sum £205 in respect of which the insurers were entitled to be subrogated. On appeal Lord Lyndhurst LC said (5 LTOS 233):

‘What is an insurance but a contract of indemnity? Then Hicks having received a full satisfaction under the award, what right has he to retain money received from the insurance office as an indemnity for damage? … If Hicks had received an indemnity before the payment of the money by the company, it would clearly have been contrary to equity that he should retain that money. Parke on Marine Assurances [Park A System of the Law of Marine Insurances (8th edn, 1842)] says, that a contract to insure is one of indemnity only, and that the insured shall not receive double compensations for a loss but in case the loss has been paid, and the insured afterwards recovers the amount of damages from another source, the insurer shall stand in his place to the extent of the sum they have paid.’

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Hicks then argued that the plaintiff had no remedy in equity and that his only course was an action in a court of law for money had and received. This argument was rejected and the Lord Chancellor said:

‘Here the company have paid for a loss, for which the insured afterwards obtains full satisfaction, and it is contrary to equity that he should retain the money. The underwriters have a claim upon the fund awarded, and they are entitled in some shape or other to recover back the money they have paid.’

The injunctions were accordingly upheld.

This is authority for the proposition that, if application is made to the court before the wrongdoer has paid damages in respect of which an insurer is entitled to subrogation, the court will not allow the damages to be paid over without satisfying the claims of the insurer.

In Commercial Union Insurance Co v Lister (1874) LR 9 Ch App 483 the owner of a building insured it for £33,000 against fire but not for the full value. The building was burnt by what was said to be the negligence of the servants of a municipal corporation and suffered damage estimated at £56,000. The owner brought an action for damages against the corporation. It was held by the Court of Appeal, upholding the Master of the Rolls, that the owner undertaking to sue for the whole amount of damage would be allowed to conduct the action without interference from the insurers, but would be liable for anything done by him in violation of any equitable duty towards the insurers. In the course of his judgment Jessel MR had said (at 484n):

‘The total amount of the loss is admitted to exceed very largely the total amount of the insurances. It is alleged that the fire was caused … by the act of the corporation of Halifax … whose carelessness is alleged to have been the cause of the fire, and that the carelessness was of such a kind as to render the corporation liable for the whole of the loss. In that state of things the insurance company or companies is or are willing to pay the amount of the insurance, and they say that, having paid that amount (they pay of course by way of indemnity), if the assured obtains from the corporation of Halifax a sum larger than the difference between the amount of the insurance and the amount of the loss, he is a trustee for that excess for the insurance company or companies—a proposition which I take to be indisputable.’

In Castellain v Preston (1883) 11 QBD 380 at 388, [1881–5] All ER Rep 493 at 496 Brett LJ said:

‘In order to apply the doctrine of subrogation, it seems to me that the full and absolute meaning of the word must be used, that is to say, the insurer must be placed in the position of the assured. Now it seems to me that in order to carry out the fundamental rule of insurance law, this doctrine of subrogation must be carried to the extent to which I am now about to endeavour to express, namely, that as between the underwriter and the assured the underwriter is entitled to the advantage of every right of the assured, whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable, which can be, or has been exercised or had accrued, and whether such right could or could not be enforced by the insurer in the name of the assured by the exercise or acquiring of which right or condition the loss against which the assured is insured, can be, or has been diminished.’

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Clearly Brett LJ considered that an insurer was subrogated to any right of action subsisting when the insurer paid under the policy.

In Re Miller Gibb & Co Ltd [1957] 2 All ER 266, [1957] 1 WLR 703 the Export Credits Guarantee Department of the Board of Trade issued to a company a policy of insurance for 90% of the amount of any loss sustained in respect of goods sold to Brazil in the event of local regulations preventing payment or a transfer of payment from the buyer to the company. The buyer paid in Brazil into a bank for the account of Martins Bank, who were acting for the company. Transfer of this payment was prevented by Brazilian currency exchange regulations and the department accordingly paid 90% under the terms of the indemnity policy. The company was ordered to be wound up. The department gave notice to Martins Bank of their claim to be subrogated to the rights of the company with respect to the payment from Brazil when received. In January 1956 the bank received the full purchase price from Brazil and the Board of Trade claimed 90%. Wynn-Parry J ordered the liquidator of the company to execute all such documents and do all such things necessary to enable the department to obtain from Martins Bank 90% of the sum which had been received by the bank. This case is indistinguishable from the present.

In Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1961] 2 All ER 487, [1962] 2 QB 330 a vessel was insured for £72,000 and became an actual total loss. The insurers paid £72,000. The assured brought proceedings in Canada for the loss of the vessel and the defendants paid to the assured in Canada $Can336,000-odd, then worth £75,000-odd. The pound was devalued and when the damages were transmitted to London they were worth £127,000. Diplock J held that the doctrine of subrogation only entitled the insurers to recoupment of the £72,000 which they had paid. Diplock J referred to the doctrine of subrogation in these terms ([1961] 2 All ER 487 at 490–491, [1962] 2 QB 330 at 339–341):

‘The doctrine of subrogation is not restricted to the law of insurance. Although often referred to as an “equity” it is not an exclusively equitable doctrine. It was applied by the common law courts in insurance cases long before the fusion of law and equity, although the powers of the common law courts might in some cases require to be supplemented by those of the court of equity in order to give full effect to the doctrine; for example, by compelling an assured to allow his name to be used by the insurer for the purpose of enforcing the assured’s remedies against third parties in respect of the subject-matter of the loss … The expression “subrogation” in relation to a contract of marine insurance is thus no more than a convenient way of referring to those terms which are to be implied in the contract between the assured and the insurer to give business efficacy to an agreement whereby the assured in the case of a loss against which the policy has been made shall be fully indemnified, and never more than fully indemnified … In my view the doctrine of subrogation in insurance law requires one to imply in contracts of marine insurance only such terms as are necessary to ensure that notwithstanding that the insurer has made a payment under the policy the assured shall not be entitled to retain, as against the insurer, a greater sum than what is ultimately shown to be his actual loss … Thus, if after payment by the insurer of a loss that loss, as a result of an act of a third party, is reduced, the insurer can recover from the assured the amount of the reduction because that is the amount which he, the insurer, has overpaid under the contract of insurance. This sum he can recover at common law, without recourse to equity, as money had and received … the duty of the assured to take proceedings to reduce his loss and the correlative right of the insurer to

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require him to do so was a contractual duty. The remedy for its breach, by compelling the assured to allow an action to be brought in his name, was an equitable remedy in aid of rights at common law, and was alternative to the common law remedy of recovering damages for the breach of the duty …’

In Hobbs v Marlowe [1977] 2 All ER 241 at 254–255, [1978] AC 16 at 39 Lord Diplock said:

‘For my own part I prefer to regard the doctrine of subrogation in relation to contracts of insurance as having its origin at common law in the implied terms of the contract and calling for the aid of a court of equity only where its auxiliary jurisdiction was needed to compel the assured to lend his name to his insurer for the enforcement of rights and remedies to which his insurer was subrogated: see Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1961] 2 All ER 487, [1962] 2 QB 330. But the practical effects of the doctrine of subrogation on the rights and remedies of insurer and assured are similar in many respects to the effect of an equitable assignment of a chose in action …’

Thus Lord Diplock, far from deciding that a court of equity could not lend its aid to compel the assured to direct that the insurer be recouped under the doctrine of subrogation out of the damages recovered from the wrongdoer, equated the right of the insurer to that of the assignee of an equitable interest, a right which equity will of course enforce.

It may be that the common law invented and implied in contracts of insurance a promise by the insured person to take proceedings to reduce his loss, a promise by the insured person to account to the insurer for moneys recovered from a third party in respect of the insured loss and a promise by the insured person to allow the insurer to exercise in the name of the insured person rights of action vested in the insured person against third parties for the recovery of the insured loss if the insured person refuses or neglects to enforce those rights of action. There must also be implied a promise by the insured person that in exercising his rights of action against third parties he will act in good faith for the benefit of the insured person so far as he has borne the loss and for the benefit of the insurer so far as he has indemnified the insured person against the insured loss. My Lords, contractual promises may create equitable interests. An express promise by a vendor to convey land on payment of the purchase price confers on the purchaser an equitable interest in the land. In my opinion promises implied in a contract of insurance with regard to rights of action vested in the insured person for the recovery of an insured loss from a third party responsible for the loss confer on the insurer an equitable interest in those rights of action to the extent necessary to recoup the insurer who has indemnified the insured person against the insured loss.

In the hypothetical case under consideration, the intervention of equity is required to ensure that the insured person exercises his right of action against the wrongdoer in good faith and that the insurer is recouped out of the damages recovered from the wrongdoer. The stop-loss insurer is out of pocket to the amount of £100,000 from the time that he pays, as he must pay, £100,000 to the name immediately the loss has been suffered. The stop-loss insurer is entitled to be recouped £95,000 as soon as the damages of £130,000 are available from the wrongdoer. The name cannot delay or frustrate recoupment without inflicting harm on the insurer who remains out of pocket to the extent of £100,000 until he is recouped. The name cannot make use of the damages payable by the wrongdoer and available for recoupment of the stop-loss insurers without the

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name receiving a benefit or advantage to which he is not entitled. When I asked why the names were defending these present proceedings, your Lordships were blandly informed that the names wished to benefit their ‘cash flow’ by making use of all the damages payable by Outhwaite and deferring recoupment until each stop-loss insurer was able to obtain a judgment against each name for money had and received. The stop-loss insurers were not in a position to sue the name to whom they had paid £100,000 until the action against Outhwaite resulted in judgment or compromise which included £130,000 for the insured loss and the damages of £130,000 had been paid to the name; they were even then not in a position to sue the name until the amount which the stop-loss insurers were entitled to recoup under the doctrine of subrogation had been ascertained and calculated. There are 246 names, some of whom are resident in the United States of America and elsewhere abroad. In order to succeed in an action for money had and received stop-loss insurers might be obliged to pursue litigation at considerable expense and subject to considerable delay in a country which knows nothing of an action for money had and received or does not recognise the doctrine of subrogation or confines its civil litigation to the tender mercies of juries who are unsympathetic towards insurers. By the time that the stop-loss insurers ascertain that they are entitled to be repaid the sum of £95,000 and no more and no less under the doctrine of subrogation and bring and succeed in a claim against the hypothetical name to be paid £95,000, whether judgment for that sum be obtained at home or abroad, the name, having had and received £100,000 from the stop-loss insurers, may not be in a position to pay back £95,000. We were informed and accept that the respondent and representative name Lord Napier and Ettrick is a man of honour and substance and will fulfill his obligations although he is not apparently willing to fulfill them until a writ is issued and judgment is obtained against him for money had and receiveda. But no one can answer for the other 245 names.

If the stop-loss insurers have no equitable remedy in connection with their rights and if a name becomes bankrupt then subrogation is a mockery. Suppose, for example, that a name receives £100,000 from an insurer under a policy, recovers judgment for £130,000 damages from the wrongdoer and the name goes bankrupt before he receives the damages owing £1m and possessing no assets other than assets representing the £100,000 he has received from the insurer and the asset of £130,000 payable by the wrongdoer. In that case, if the argument on behalf of the names is correct, the unsecured creditors of the insured name will benefit by double payment. The stop-loss insurers will be in a worse position than an unsecured creditor because the insurers could resist payment under the policy whereas an unsecured creditor may choose whether to advance moneys or not. In the case of the bankruptcy of the name, the right of the insurer to subrogation will be useless unless equity protects that right.

Saville J and the Court of Appeal held that the stop-loss insurers were confined to their remedy for money had and received. The damages must first be distributed to the names. The stop-loss insurers must then agree or determine by application to the court the amount due to them respectively and must then bring proceedings for money had and received against each of the names. All the authorities which indicated that an insurer who pays on the policy and is entitled to recoupment by way of subrogation has an equitable interest in the right of action of the insured person against a wrongdoer and an equitable interest in the damages payable by the wrongdoer were said not to be binding on the courts. Those authorities which I have cited, and there are others, included Randal v Cockran 1 Ves Sen 98, 27 ER 916 decided in 1748, White v Dobinson 14 Sim 273,

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60 ER 363; affd 5 LTOS 233 decided in 1844, Commercial Union v Lister LR 9 Ch App 483 decided in 1874 and Re Miller Gibb & Co Ltd [1957] 2 All ER 266, [1957] 1 WLR 703 decided in 1957. I am not prepared to treat authorities which span over two centuries in a cavalier fashion. The principles which dictated the decisions of our ancestors and inspired their references to the equitable obligations of an insured person towards an insurer entitled to subrogation are discernible and immutable. They establish that such an insurer has an enforceable equitable interest in the damages payable by the wrongdoer. The insured person is guilty of unconscionable conduct if he does not provide for the insurer to be recouped out of the damages awarded against the wrongdoer. Equity will not allow the insured person to insist on his legal rights to all the damages awarded against the wrongdoer and will restrain the insured person from receiving or dealing with those damages so far as they are required to recoup the insurer under the doctrine of subrogation.

Where the insured person has been paid policy moneys by the insurer for a loss in respect of which the insured person recovers damages from a wrongdoer the insured person is guilty of unconscionable conduct if he does not procure and direct that the sum due to the insurer shall by way of subrogation be paid out of the damages.

It is next necessary to consider how equity copes with such unconscionable conduct. Saville J and the Court of Appeal appear to have thought that equity can only interfere by creating a trust fund held in trust by trustees for different beneficiaries in different shares, the trustees being burdened with administrative and investment duties, the trustees being liable for all the duties imposed on trustees but being free from liability if the trust fund is lost without negligence. I agree that if this were the only method of protecting the rights of an insurer the practical disadvantages would be fearsome. Fortunately, equity is not so inflexible or powerless. In order to protect the rights of the insurer under the doctrine of subrogation equity considers that the damages payable by the wrongdoer to the insured person are subject to an equitable lien or charge in favour of the insurer. The charge is imposed by equity because the insurer, once he has paid under the policy, has an interest in the right of action against the wrongdoer and an interest in the establishment, quantification, recovery and distribution of the damages awarded against the wrongdoer. It would be unconscionable for the insured person, who has received £100,000 from the insurer, to put damages of £130,000 into his own pocket without providing for the recoupment of the insurer who only contracted to indemnify the insured person.

The insurer can give notice to the wrongdoer of his equitable charge. When the wrongdoer is ordered or agrees to pay £130,000 and has notice of the rights of the insurer to subrogation, the wrongdoer can either pay the damages into court or decline to pay without the consent of both the insured person and the insurer. It would be the duty of the insured person to direct the wrongdoer to pay £95,000 of the damages to the insurer in recoupment and to pay the balance of £35,000 to himself. The equitable charge in favour of the insurer is enforceable against the damages ordered to be paid; that charge can be enforced so long as the damages form an identifiable separate fund. If, in the present case, Richards Butler had distributed the damages to the names before the stop-loss insurers issued proceedings or notified Richards Butler of their equitable charge, the stop-loss insurers would have been reduced to exercising their rights to sue the names for money had and received.

In the present case damages of £116m are in a separate fund held by Richards Butler on behalf of the names albeit that the damages in the fund also include moneys held on behalf of other names and other insurers. For the reasons I have indicated it would be unconscionable for the names to take their shares of the

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damages without providing for the sums due to the stop-loss insurers to be paid out of those damages. The equitable charge still affects the damages and affects Richards Butler, who hold the damages with notice of the charge.

It is true that it may not be possible to distribute the damages between the stop-loss insurers and the names at once because the amounts due to the names as opposed to other names may still be uncertain and because the amounts due to the stop-loss insurers in any particular case by way of subrogation may still be uncertain. These uncertainties are due to the fact that losses of Lloyd’s underwriters surface and are quantified in some cases many years after the relevant year of account. The calculations are also complicated by the fact that the damages of £116m are in compensation of claims extending over different years of account with different names and insurers and with insurance policies containing different provisions. Delay in distributing the damages cannot be blamed on the stop-loss insurers. Delay is as much a disadvantage to the stop-loss insurers as it is to the names. It is in the interests of everybody that the damages shall be distributed as soon as possible. Interim distributions can be made in favour of those names and stop-loss insurers whose rights and liabilities have been or are now capable of being calculated with certainty. If necessary the court will decide how much can now be distributed. Any reserves for uncertain events can be invested in joint names for the benefit of the name and the stop-loss insurers concerned.

In the result I would allow the appeal by the stop-loss insurers against the refusal of Saville J and the Court of Appeal to grant any relief in equity against the names and Richards Butler. In my opinion the stop-loss insurers are entitled to injunctions restraining Richards Butler from paying and each name from receiving any part of the damages of £116m now held by Richards Butler without first providing or paying out of the damages payable to the name the amounts which have been or shall be found to be due from that name to the stop-loss insurers by way of subrogation.

I would dismiss the cross-appeal by the names against the declaration made by the Court of Appeal in these terms:

‘That, when determining the amount which stop loss insurers are entitled to claim in respect of the Settlement monies, the stop loss insurers are entitled to be reimbursed any indemnity paid by them to an assured before that assured is fully indemnified by applying his share of the Settlement monies to a loss occurring below the excess in that assured’s policy.’

Since drafting this speech I have read in draft the speech to be delivered by my noble and learned friend Lord Goff of Chieveley. He agrees that the doctrine of subrogation confers on the insurer an equitable proprietary lien or charge on the moneys recovered by the insured person from a third party in respect of the insured loss. I agree that in the circumstances it is not now necessary to decide whether the equitable lien or charge attaches also to the rights of action vested in the insured person to recover from a third party. I have expressed the view that the doctrine of subrogation does apply in those circumstances but in any future case, if the point becomes material, that view may require reconsideration in the light of further research. Subject to this observation I agree with the views expressed by Lord Goff and I also agree with the speeches to be delivered by my noble and learned friends Lord Jauncey of Tullichettle and Lord Browne-Wilkinson.

The names must pay the costs of the stop-loss insurers before this House and in the courts below.

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LORD GOFF OF CHIEVELEY. My Lords, I, too, have reached the conclusion that the appeal should be allowed. I start with the common law. In Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1961] 2 All ER 487, [1962] 2 QB 330, a case concerned with marine insurance, Diplock J analysed the principle of subrogation in purely contractual terms. He said ([1961] 2 All ER 487 at 490, [1962] 2 QB 330 at 339–340):

‘The expression “subrogation” in relation to a contract of marine insurance is thus no more than a convenient way of referring to those terms which are to be implied in the contract between the assured and the insurer to give business efficacy to an agreement whereby the assured in the case of a loss against which the policy has been made shall be fully indemnified, and never more than fully indemnified.’

He went on to say that subrogation is concerned solely with the mutual rights and liabilities of the parties to the contract of insurance. The remedies of the insurer were, he said, essentially common law remedies; in particular, if the assured has, after payment of the loss by the insurer, received a sum from a third party in reduction of the loss, the insurer can recover the amount of the reduction as money had and received (for which Diplock J referred to Bullen and Leake’s Precedents of Pleadings (3rd edn, 1868) p 187). The only role which Diplock J assigned to equity was to come to the aid of the common law by compelling the assured to allow his name to be used in proceedings against the third party: see also his judgment, as Lord Diplock, in Hobbs v Marlowe [1977] 2 All ER 241 at 254–255, [1978] AC 16 at 39.

Now there is no reason why, subject to the one matter to which Lord Diplock refers, the principle of subrogation in the field of insurance should not have developed as a purely common law principle. But as a matter of history it did not do so. It is true that our law of marine insurance was very largely established by Lord Mansfield, in a remarkable series of decisions during his tenure of office as Chief Justice at the Court of King’s Bench, so much so that Park J dedicated the first edition of his treatise on the law of marine insurance (Park A System of the Law of Marine Insurances (1786)) to Lord Mansfield, describing the subject in the dedication as one which ‘must be admitted to be the exclusive property of your Lordship’. But in the early editions of the book there is little trace of the principle of subrogation, though there is much learning on the subject of abandonment. Lord Mansfield CJ’s decision in the leading case of Mason v Sainsbury (1782) 3 Doug 61, 99 ER 538 established that payment of a claim by an insurer did not preclude him from thereafter proceeding in the name of the assured against the wrongdoer who had caused the relevant damage, and recovering damages in full from him. The payment of the loss by the insurer to the assured did not affect the liability of the wrongdoer; the action against him was to be considered ‘as if the insurers had not paid a farthing’ (see 3 Doug 61 at 64, 99 ER 538 at 540). However the insured could not proceed against the third party in his own name; he had to proceed in the name of the assured (see London Assurance Co v Sainsbury (1783) 3 Doug 245, 99 ER 636).

It is of some interest that in Mason v Sainsbury the action against the wrongdoer was brought in the name of the assured with his consent, for the benefit of the insurer. Here we can see an early example of the fact that the insurer, upon payment to the assured of his loss, receives from him as a matter of course not merely a receipt for the money, but also what has for many years been called a letter of subrogation signed by the assured which authorises the insurer to proceed in this way, and indeed nowadays may assign the relevant rights of action to the

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insurer. It is very difficult to imagine an insurer paying a claim without taking this elementary precaution, especially as the assured can have little or no incentive to refuse to sign such a document. I strongly suspect that letters of subrogation have been a commonplace of insurance claims for a very long time, and that it is their regular use which explains what appears to be a dearth of authority on such matters as proceedings to compel the assured to allow the insurer to commence proceedings in his name, and actions for money had and received by insurers against assured, because third parties would have settled direct with the insurer as expressly authorised by the assured (hence, pace Lord Diplock, the absence of any reference to such an action in Bullen and Leake’s Precedents of Pleading (3rd edn)). On the other hand, there is a substantial body of case law on the subject of the respective rights of insurer and assured in the institution, control and settlement of proceedings against wrongdoers who have caused the relevant loss (as to which see MacGillivray and Parkington on Insurance Law (8th edn, 1988) paras 1191ff).

At all events, what appears to have happened is not simply that equity came to the aid of the common law by compelling an assured whose loss has been paid to allow the insurer to proceed in his name against a third party wrongdoer responsible for the loss, but that a principle of subrogation was the subject of separate development by courts of equity in a line of authority dating from Randal v Cockran (1748) 1 Ves Sen 99, 27 ER 916, which was decided before Lord Mansfield was appointed Chief Justice of the Court of King’s Bench. This line of authority is traced in the speech of my noble and learned friend Lord Templeman, and I am therefore spared the burden of setting it out in this opinion. Spasmodic but consistent, the cases assert that recoveries by the assured which reduce the loss paid by the insurer are held in trust for the insurer, so much so that by 1881 Jessel MR regarded this proposition as indisputable (see Commercial Union Insurance Co v Lister (1874) LR 9 Ch App 848n). This principle was moreover recognised not only in courts of equity, but also in courts of common law (see the decision of the Court of Common Pleas in Yates v White (1838) 1 Arn 85, 4 Bing NC 272, 132 ER 793, subsequently approved by this House in Simpson & Co v Thomson (1877) 3 App Cas 279, in which Lord Cairns LC (at 285–286) cited in extenso passages from the judgment in Yates v Whyte 4 Bing NC 272 at 282–283, 132 ER 793 at 797 in which reliance was placed on Randal v Cockran, and Lord Blackburn (at 293) relied on Randal v Cockran itself in a passage to which I shall refer later in this opinion. It is perhaps also relevant that in 1783 Lord Mansfield CJ had justified his conclusion that the insurer could not proceed in his own name but must proceed in the name of the assured on the ground that ‘Trustee and cestui que trust cannot both have a right of action’: see London Assurance Co v Sainsbury (1783) 3 Doug 245 at 253, 99 ER 636 at 640.

I agree with my noble and learned friend Lord Browne-Wilkinson that the decisive case in the line of equity cases is White v Dobinson (1844) 14 Sim 273, 60 ER 363; affd (1845) 5 LTOS 233. The case was concerned with a collision at sea. The owner of one of the ships, after payment by his underwriter of £205, was awarded £600 damages in arbitration proceedings against the other shipowner. Shadwell V-C, relying upon Randal v Cockran and Blaauwpot v da Costa (1758) 1 Eden 130, 28 ER 633, granted an interlocutory injunction which had the effect of retaining the fund, and not letting it pass into the hands of the assured. The injunction appears to have restrained both the assured from receiving, and the other shipowner from paying, the money without first paying or providing for the sum of £205 paid by the insurer (see 5 LTOS 233). Lord Lyndhurst LC discharged the injunction as against the other shipowner, but otherwise maintained it in force. The case is important for a number of reasons. First, the

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insurer’s case was advanced on the basis that he had a lien on the sum awarded, and was resisted on the ground that the insurer’s right, if it existed at all, was a right to proceed at law in an action for money had and received, and was not an equitable right. That argument was rejected. Second, the Lord Chancellor also rejected a claim by a bank as assignee from the assured, on the ground that the bank’s security was taken subject to all the equities which would have affected the money received in the hands of the assured himself. Third, the Lord Chancellor held that the insurers had a claim upon the fund awarded, and were ‘entitled in some shape or other to recover back the money they have paid’.

Now it is true that the case was concerned with an interlocutory injunction, a point which evidently concerned the Lord Chancellor himself. But he nevertheless upheld the injunction on the basis of the authority cited to him, in which, as he said (5 LTOS 233):

‘… we have the clearly expressed opinions of Lord Hardwicke [in Randal v Cockran (1748) 1 Ves Sen 98, 27 ER 916] and Lord Northington [in Blaauwpot v da Costa (1758) 1 Eden 130, 28 ER 633], recognized by Mr. Baron Parke, and more recently by Lord Abinger [in Brooks v MacDonnell (1835) 1 Y & C Ex 500, 160 ER 204], who at that time possessed considerable experience of the practice in equity, from having presided for several years on the equity side of the Court of Exchequer …’

Subsequent authorities to the same effect are King v Victoria Insurance Co [1896] AC 250 at 255–256 per Lord Hobhouse, who (in a passage in which he appears to have placed no reliance upon the existence of an assignment by the assured of its rights and causes of action against the third party) expressed the opinion that the assured would have held any damages recovered from the third party as trustee for the insurer, and Re Miller Gibb & Co Ltd [1957] 2 All ER 266, [1957] 1 WLR 703. The only case in equity which appears at first sight to be inconsistent with this line of authority is Stearns v Village Main Reef Gold Mining Co Ltd (1905) 10 Com Cas 89. However, as my noble and learned friend Lord Browne-Wilkinson has pointed out, that case was concerned with the recovery of an overpayment; indeed, it was upon that basis that it was distinguished by Wynn-Parry J in Re Miller Gibb & Co Ltd [1957] 2 All ER 266 at 272, [1957] 1 WLR 703 at 710–711.

Despite Saville J’s reservations on this point, I can discern no inconsistency between the equitable proprietary right recognised by courts of equity in these cases and the personal rights and obligations embodied in the contract of insurance itself. No doubt our task nowadays is to see the two strands of authority, at law and in equity, moulded into a coherent whole; but for my part I cannot see why this amalgamation should lead to the rejection of the equitable proprietary right recognised in the line of cases to which I have referred. Of course, it is proper to start with the contract of insurance, and to see how the common law courts have worked out the mutual rights and obligations of the parties in contractual terms with recourse to implied terms where appropriate. But, with all respect, I am unable to agree with Diplock J that subrogation is in this context concerned solely with the mutual rights and obligations of the parties under the contract. In this connection, I observe from the report of Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1961] 2 All ER 487, [1962] 2 QB 330 that the important case of White v Dobinson (1844) 14 Sim 273, 60 ER 363; affd 116 LTOS 233 was not cited in argument, and indeed the existence of an equitable proprietary right was not in issue in that case. In these circumstances I cannot derive from Diplock J’s judgment any justification for sweeping the line of equity cases under the carpet as though it did not exist. In my opinion, this line of authority must be recognised,

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and appropriate weight should be given to the views expressed in the cases by the distinguished judges who decided them. I wish to add that I do not read s 79 of the Marine Insurance Act 1906 (concerned with the right of subrogation) as in any way detracting from this conclusion.

Even so, an important feature of these cases is that the principle of subrogation in the law of insurance arises in a contractual context. It is true that in some cases at common law it has been described as arising as a matter of equity. Thus in Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333 at 339 Lord Blackburn described it simply as ‘an equity’. Furthermore, it has not been usual to express the principle of subrogation as arising from an implied term in the contract. Even so it has been regarded, both at law and in equity, as giving effect to the underlying nature of a contract of insurance, which is that it is intended to provide an indemnity but no more than an indemnity. Not only does this principle inform the judgments of the Court of Appeal in the leading case of Castellain v Preston (1883) 11 QBD 380, [1881–5] All ER Rep 493, but it underlies Lord Lyndhurst LC’s judgment in White v Dobinson (1845) 5 LTOS 233. In so far as the principle requires the payment of money, it could no doubt be formulated as an implied term, to which effect could have been given by the old action for money had and received. But I do not see why the mere fact that the purpose of, subrogation in this context is to give effect to the principle of indemnity embodied in the contract should preclude recognition of the equitable proprietary right, if justice so requires. If I search for a parallel, the closest analogy is perhaps to be found in the law of agency, in which, although the relationship between principal and agent is governed by a contract, nevertheless the agent may be held in certain circumstances to hold money, which he has received from a third party in his capacity as agent, as trustee for his principal. It is by no means easy to ascertain the circumstances in which a trusteeship exists; but, in a valuable discussion in Bowstead on Agency (15th edn, 1985) pp 162–163, Professor Francis Reynolds suggests that it is right to inquire—

‘whether the trust relationship is appropriate to the commercial relationship in which the parties find themselves; whether it was appropriate that money or property should be, and whether it was, held separately, or whether it was contemplated that the agent should use the money, property or proceeds of the property as part of his normal cash flow in such a way that the relationship of debtor and creditor is more appropriate.’

He also suggests that—

‘a central question, perhaps too often overlooked (because not directly in issue), is whether the rights of the principal are sufficiently strong, and differentiable from other claims, for him to be entitled to a prior position in respect of them on the agent’s bankruptcy.’

I have little doubt that the distinguished judges who decided the cases in the line of equity authority to which I have referred must have considered that money received by an assured from a third party in reduction of a loss paid by an insurer should not be treated as available for the assured’s normal cash flow, and further that the rights of the insurer to such money were sufficiently strong to entitle the insurer to priority in the event of the assured’s bankruptcy, as was indeed held by Wynn-Parry J in Re Miller Gibb & Co [1957] 2 All ER 266, [1957] 1 WLR 703. I for my part can see no good reason to depart from this line of authority. However, since the constitution of the assured as trustee of such money may impose upon him obligations of too onerous a character (a point which troubled Saville J in the present case), I am very content that the equitable proprietary right of the insurer

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should be classified as a lien, as proposed by my noble and learned friend Lord Templeman, and indeed as claimed by the insurer in White v Dobinson (1844) 14 Sim 237, 60 ER 363 itself. Indeed a lien is the more appropriate form of proprietary right in circumstances where, as here, its function is to protect the interest of the insurer in an asset only to the extent that its retention by the assured will have the effect that he is more than indemnified under the policy of insurance.

There is one particular problem to which I wish to refer, although, as I understand it, it does not fall to be decided in the present case. Does the equitable proprietary interest of the insurer attach only to a fund consisting of sums which come into the hands of the assured in reduction of the loss paid by the insurer? Or does it attach also to a right of action vested in the assured which, if enforced, would yield such a fund? The point is not altogether easy. I can see no reason in principle why such an interest should not be capable of attaching to property in the nature of a chose in action. Moreover that it should do so in the present context appears to have been the opinion of Lord Blackburn in Simpson v Thomson (1877) 3 App Cas 279 at 292–293. On the other hand, cases such as Morley v Moore [1936] 2 All ER 79, [1936] 2 KB 359 appear to point in the opposite direction, as perhaps does the decision of Lord Lyndhurst LC in White v Dobinson (1845) 5 LTOS 233 to discharge the injunction as against the owner of the ship at fault in that case. However, since the point was not directly addressed in the argument before your Lordships, I am reluctant to reach any conclusion upon it without a full examination of the authorities relating to the respective rights and obligations of insurer and assured, especially with regard to the conduct and disposal of litigation relating to causes of action of the relevant kind. I therefore wish to reserve my opinion upon this question, the answer to which I do not regard as necessary for the resolution of the issue which has arisen in the present case.

For these reasons, I would allow the appeal. For the reasons given by my noble and learned friends Lord Templeman and Lord Jauncey of Tullichettle, I would dismiss the cross-appeal.

LORD JAUNCEY OF TULLICHETTLE. My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Templeman, Lord Goff of Chieveley and Lord Browne-Wilkinson. I agree that for the reasons which they have given the appeal of the stop-loss insurers should be allowed and I cannot usefully add anything to what they have said. I also agree that the cross-appeal by the names should be refused and wish only to add a few words of my own thereanent.

The cross-appeal raises the question of how moneys recovered (the recoveries) by the names in the Outhwaite actions are to be applied as between the names and the stop-loss insurers. A typical policy granted by the stop-loss insurers undertook to—

‘indemnify the Assured for the amount by which the Assured’s overall ascertained net underwriting loss as hereinafter defined for the Underwriting Year(s) of Account shown in the schedule exceeds the amount stated as “Excess” in the schedule.’

The policy further provided that the insurers liability should not exceed a specified limit. The names contended that the recoveries should be applied first towards their losses above the specified limit, second towards their losses up to the excess and thereafter to the stop-loss insurers. The latter accepted that the recoveries should be applied in the first instance towards the names’ losses above the specified limit but contended that they should then be applied for their benefit. The

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competing arguments may perhaps be best illustrated by a hypothetical example which was relied upon in the Court of Appeal and before this House. A name having a policy with an excess of £25,000 and insurers’ liability limited to £100,000 suffers a total loss of £160,000, but receives £100,000 under his policy and later recovers £130,000 in the action. The names argued that the £130,000 fell to be applied as to £35,000 to meet the uninsured top slice of the loss, as to £25,000 to meet the initial excess and as to the remaining £70,000 for the benefit of the stop-loss insurers. There was no dispute as to the application of £35,000 but the stop-loss insurers maintained that the remaining £95,000 should be applied for their benefit leaving them with a liability to the insured of only £5,000. In short the question was whether the names were entitled to recoup themselves out of the recoveries for their initial uninsured £25,000 loss in priority to the stop-loss insurers. Saville J held that the names were so entitled but the Court of Appeal held that they were not. Your Lordships were informed that a sum of about £6m was affected by this issue.

The basis of the stop-loss insurers’ right to receive any part of the recoveries is the doctrine of subrogation. In Castellain v Preston (1883) 11 QBD 380 at 386, [1881–5] All ER Rep 493 at 495 Brett LJ said:

‘The very foundation, in my opinion, of every rule which has been applied to insurance law is this, namely, that the contract of insurance contained in a marine or fire policy is a contract of indemnity, and of indemnity only, and that this contract means that the assured, in case of a loss against which the policy has been made, shall be fully indemnified, but shall never be more than fully indemnified.’

He later went on to give an enlarged definition of subrogation pointing out that ‘the insurer must be placed in the position of the assured’ (see 11 QBD 380 at 388, [1881–5] All ER Rep 493 at 496). He pointed out that although an insurer who had not yet fully indemnified an insured could not, in relation to prior recoveries, be subrogated to any right of action nevertheless it would be contrary to the doctrine of subrogation if the insured’s loss were not diminished vis-à-vis the insurer (see 11 QBD 380 at 389–390, cf [1881–5] All ER Rep 493 at 496). Brett LJ was thus equiparating the effect of recoveries made before indemnification by the insurer with those made afterwards. In the case of recoveries made towards a loss which was indemnifiable but had not yet been indemnified the matter could equally well be approached by saying that the loss which the insurer had undertaken to meet was the initial loss diminished by all relevant recoveries prior to payment by the insurer. This appears to have been the approach of Cotton LJ in Castellain v Preston 11 QBD 380 at 393, [1881–5] All ER Rep 493 at 498, where after referring to the loss insured against he said:

‘In order to ascertain what that loss is, everything must be taken into account which is received by and comes to the hand of the assured, and which diminishes that loss. It is only the amount of the loss, when it is considered as a contract of indemnity, which is to be paid after taking into account and estimating those benefits or sums of money which the assured may have received in diminution of the loss.’

He said (11 QBD 380 at 395, [1881–5] All ER Rep 493 at 498):

‘The principle which I have enunciated goes further, and if there is a money or any other benefit received which ought to be taken into account in diminishing the loss or in ascertaining what the real loss is against which the

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contract of indemnity is given, the indemnifier ought to be allowed to take advantage of it in order to calculate what the real loss is …’

A similar approach was adopted by Lord Blackburn in Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333 at 339 in these words:

‘The general rule of law (and it is obvious justice) is that where there is a contract of indemnity (it matters not whether it is a marine policy, or a policy against fire on land, or any other contract of indemnity) and a loss happens, anything which reduces or diminishes that loss reduces or diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already paid it, then, if anything which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the person who has already paid the full indemnity is entitled to be recouped by having that amount back.’

What is, in my view, particularly significant about the foregoing dicta is the emphasis which they place upon the fact that in the context of recoveries subrogation is concerned only with the loss against which the assured is insured rather than any general loss. If an assured has suffered an insured loss and an uninsured loss full indemnification of the former subrogates the insurers irrespective of the fact that the assured has not yet recovered the uninsured loss.

Saville J in rejecting the argument of the stop-loss insurers said that it ‘involves the proposition that they can take account of the recovery before the assured has been reimbursed for his loss’. He concluded his judgment by saying:

‘The question to be asked … is whether the recovery together with the indemnity will more than compensate the assured for the loss. If it will, then, if this arises before payment, the amount of the indemnity will be reduced so as to avoid overcompensation, while, if it occurs after payment, the assured will have to repay the amount of overcompensation to his indemnifiers. I can only repeat that any approach which does not achieve this result but instead leaves the assured over- or under-compensated must be wrong, since it offends the very reason why subrogation exists in our law.’

With respect to the learned judge it seems to me that he was there confusing the whole loss suffered by the assured with the loss against which the insurer had agreed to indemnify him. When the indemnity extends to the total loss sustained the two will be coincident but in the present case they were not. In my view Staughton LJ was correct in stating that—

‘It is [the loss against which the policy has been made] which the insured must have been reimbursed for, if the insurer is to claim any benefit by way of subrogation.’

In this case the stop-loss insurers undertook to indemnify the assured for the amount by which their overall ascertained underwriting loss exceeded a specified excess but did not exceed a stated limit. In the given example they undertook to meet losses neither below £25,000 nor above £125,000. When they paid over the £100,000 to the names the latter were fully indemnified against the insured loss although they themselves had further uninsured losses of £60,000 and the stop-loss insurers were subrogated to any recoveries which reduced the insured loss. If in the given example recovery of £130,000 had been achieved before the stop-loss insurers were called upon to pay what would have been the loss which the names had at that stage sustained? The insurers would answer ‘£30,000’ upon

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the view that a recovery of £130,000 had reduced an initial loss of £160,000 to that figure. The names however would answer, ‘We have sustained a loss of £30,000 lying within a band between £25,000 and £55,000 for which loss we are entitled to indemnity from the insurers’. My Lords, not only does the names’ answer defy common sense but it also involves their accepting that they have sustained no loss in respect of the initial excess, a loss whose existence is a prerequisite to any liability on the part of the stop-loss insurers. To put the matter another way, the names’ answer involves treating the ‘loss against which the policy has been made’ not as provided for in that policy but as the first £100,000 without excess, an exercise for which there is, in my view, no warrant whatsoever. Suppose that instead of carrying the first £25,000 themselves the names had insured that sum with another insurer. Could they on receipt of the £130,000 of recoveries have paid £25,000 to that insurer at the expense of the stop-loss insurers? The answer can only be No. The fact that they have chosen to carry their own insurance for that sum cannot in my view place them in a better position vis-à-vis the other insurers than would have been an insurer of that sum. When an insured loss is diminished by a recovery from a third party, whether before or after any indemnification has been made, the ultimate loss is simply the initial loss minus the recovery and it is that sum to which the provisions of the policy of assurance apply including any provision as to an excess.

My Lords, for the foregoing reasons and for those given by my noble and learned friend Lord Templeman I consider that the Court of Appeal reached a correct conclusion on this matter and that the cross-appeal should be dismissed.

LORD BROWNE-WILKINSON. My Lords, I agree with the speeches of my noble and learned friends Lord Templeman and Lord Jauncey of Tullichettle. I add some words of my own on the question whether the stop-loss insurers have a proprietary interest in the damages recovered by the names from Outhwaite because we are differing from the Court of Appeal on that point.

Dillon LJ (with whom Staughton and Nolan LJJ agreed on this point) based his conclusion that the doctrine of subrogation does not give rise to any proprietary interest primarily on the statement of the law by Diplock J in Yorkshire Insurance Co Ltd v Nisbet Shipping Co Ltd [1961] 2 All ER 487 at 490, [1962] 2 QB 330 at 339–340 and, as Lord Diplock, in Hobbs v Marlowe [1977] 2 All ER 241 at 254–255, [1978] AC 16 at 39. Lord Diplock said, in effect, that in relation to insurance the right of subrogation was a common law doctrine based on the implied terms of the contract of insurance, the role of equity being limited to aiding the common law right of recovery by forcing the assured to permit the insurers to sue third parties in the name of the assured. It was the view of the Court of Appeal that, as a common law doctrine, the right of subrogation enjoyed by insurers was unlikely to give rise to a trust or other equitable or proprietary right.

However, the researches of counsel in the present case have failed to disclose any reported decision before the fusion of law and equity in which an insurer successfully sued the assured at law for money had and received, being moneys recovered by the assured from a third party wrongdoer in reduction of the insured loss. Nor has any case been found in which a court of equity was asked to make an order directing the assured to permit the insurers to sue in the name of the assured. Nor can I find in Bullen and Leake’s Precedents of Pleadings (3rd edn, 1868) p 187 (on which Diplock J relied in the Yorkshire Insurance case [1961] 2 All ER 487 at 491, [1962] 2 QB 330 at 341) any precedent for a common law action for money had and received brought by the insurer against the insured.

On the other side, the authorities cited by Lord Templeman show a series of decisions from 1748 onwards in which courts of equity were themselves enforcing

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rights of subrogation against the assured and in which both equity and common law courts referred to the assured as holding benefits received from a third party as ‘trustee’ for the insurers or subject to a lien in favour of the insurers.

In my judgment therefore Lord Diplock’s dicta are not well founded if they suggest that subrogation in insurance cases was purely a common law doctrine and that equity only intervened for the purpose of enabling the insurer to sue in the name of the assured. Equity itself enforced rights of subrogation against the assured. Despite the lack of reported cases, it may well be that before 1875 the common law also recognised the right of insurers to sue the assured for money had and received. The probability is that in the majority of cases there was a letter of subrogation obtained from the assured when the insurance moneys were paid. Such a letter would regulate the rights of the insurers to sue and the destination of the moneys recovered.

What, then, was the basis on which equity enforced rights of subrogation? Was it merely a personal obligation of the assured to account to the insurers for benefits received from third party wrongdoers in diminution of the insured loss, or was it a proprietary right of the insurers in the damages recovered from third parties? In my judgment, the authorities show that it was a proprietary right in the damages recovered.

First, the question arose whether, in an action at law by the assured against the third party wrongdoer, the damages recoverable had to be reduced by the amount of the insurance moneys received by the assured. It was argued that, unless such reduction were made, the assured would be obtaining double compensation. In Yates v White (1838) 1 Arn 85 such an argument was rejected by the Court of Common Pleas on the ground that the assured was not making a double recovery since he would be a trustee for the insurers of the moneys recovered from the third party wrongdoer. Tindal CJ said (at 91):

‘The principle that the insured stands as trustee for the insurer, after the latter has paid, is established by the case of Randal v. Cockran ((1748) 1 Ves Sen 98, 27 ER 916): whatever money therefore the plaintiff may recover in the present action, equity will undoubtedly compel him to pay over to the underwriters.’

Park J followed the decision in Mason v Sainsbury (1782) 3 Doug 64, 99 ER 538, holding that there would be no double recovery by the assured since he would hold the damages recovered as trustee for the insurer. Both Mason v Sainsbury and Yates v White were approved by this House in Simpson & Co v Thomson (1877) 3 App Cas 279.

Next, the question arose whether an insurer entitled by way of subrogation could at law sue a third party wrongdoer in his own name or only in the name of the assured. It was held that he could only sue in the name of the assured: see London Assurance Co v Sainsbury (1783) 3 Doug 245, 99 ER 638. Lord Mansfield CJ said (3 Doug 245 at 253, 99 ER 638 at 640):

‘If the insurer could sue in his own name, no release by the insured would bar, nor would a verdict by him be a bar. It is impossible that the insured should transfer, and yet retain his right of action. Trustee and cestui que trust cannot both have a right of action.’

However, in my judgment the decisive case is White v Dobinson (1844) 14 Sim 273, 60 ER 363; affd (1845) 5 LTOS 233. In that case Hicks had insured the ship Diana with the plaintiff. Diana was in collision with Xenophon owned by Dobinson. The plaintiff paid the full sum due under the insurance to Hicks. Hicks then brought an action against Dobinson as owner of the Xenophon and

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was awarded £600 damages. Hicks had assigned to a bank whatever he recovered from the owner of the Xenophon. The plaintiff sought, and Shadwell V-C granted, an interlocutory injunction restraining Hicks from receiving and Dobinson from paying the £600 damages without first recouping to the plaintiff the amount of the insurance he had paid, on the ground that by way of subrogation the plaintiff had a lien in equity on the fund. Lord Lyndhurst LC upheld the Vice-Chancellor’s decision, but discharged the injunction against Dobinson. First, the Lord Chancellor disregarded the rights of the bank as assignee from Hicks since the bank’s rights were ‘subject to all the equities which would have affected the money recovered’. Second, he held that ‘the underwriters have a claim upon the fund awarded, and are entitled in some shape or other to recover back the money they have paid’.

Although this was only an interlocutory decision, it was argued for two days and decided by a distinguished Lord Chancellor. It is clear that it recognised that the insurer enjoyed a proprietary right in the damages (not merely a personal right of recovery from Hicks) both because the injunction froze the damages in specie and because the assignment of the damages to the bank was disregarded as being subject to the plaintiff’s equities in the fund. This is therefore a clear decision before the fusion of law and equity that equity treated an insurer entitled to be subrogated as having a proprietary interest in damages recovered from a third party wrongdoer.

However, it should be noted that Lord Lyndhurst LC did not continue the injunction against the third party wrongdoer, Dobinson. The case therefore established only that there is a proprietary right in the damages once recovered by the assured.

In Re Miller Gibb & Co Ltd [1957] 2 All ER 266, [1957] 1 WLR 703 the insurer was held to have a proprietary interest in the damages recovered from the third party wrongdoer. In my judgment, that case was rightly decided.

With one possible exception we were not referred to any decided case pointing in the other direction. The Court of Appeal in the present case treated the decision in Stearns v Village Main Reef Gold Mining Co (1905) 10 Com Cas 89 as being to the contrary effect. In that case, gold belonging to the defendants had been insured by the plaintiffs. The Transvaal government, shortly before the outbreak of the Boer War, commandeered the defendants’ gold to the value of £21,880. In 1899 the plaintiffs were paid £7,239-odd by the Transvaal government, which payment the court decided had to be treated as a reduction in the defendants’ loss. On 2 August 1900 the plaintiffs, in ignorance of the payment by the Transvaal government, accepted liability for the full £21,880 and paid the sum into the joint names of the plaintiffs and the defendants to await the outcome of certain other litigation. On 19 November 1902 the £21,880 together with the amount earned on it was paid out to the defendants. When the plaintiffs subsequently learnt of the payment by the Transvaal government, they sued to recover the £7,239 plus interest. The trial judge held that the plaintiffs were entitled to recover the £7,239 plus interest from 2 August 1900 (the date of its investment in the joint names) until 19 November 1902 (the date of its payment out to the defendants). The defendants appealed and the plaintiffs cross-appealed, claiming interest down to the date of trial on the ground that the defendants were trustees. Only Stirling LJ dealt in his judgment with the cross-appeal. He rejected the claim for interest, holding that the relationship was one of debtor and creditor not that of trustee and cestui que trust.

That case is difficult to understand. So far as trusteeship was concerned, there was no fund capable of being the subject matter of a trust since the moneys were recovered by the assured from the third party (the Transvaal government) before

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the plaintiff insurers settled the insurance claim. It was a case of overpayment by the insurers under a mistake, not subsequent recovery by the assured from a third party of a fund for which the assured was accountable to the insurer. The only possible form of equitable relief in that case would be to have imposed on the assured some form of constructive trusteeship not of specified funds but as a general equitable liability.

Although the principles underlying subrogation as stated in Castellain v Preston (1883) 11 QBD 380, [1881–5] All ER Rep 493 apply to sums recovered from a third party whether such recovery takes place before or after the insurers have paid under the policy, the proper legal analysis of the parties’ rights does depend on the order of receipts. If the assured recovers from the third party (thereby reducing the insured loss) before the insurers have paid under the policy, there is an overpayment of the insurance money: there is no fund of money which can be the subject matter of a trust or charge. If, on the other hand, the assured does not recover from the third party until after payment of the insurance moneys the moneys recovered from the third party constitute a defined fund which can be impressed with a lien or trust.

The decision of Stirling LJ in that case goes no further than the facts of that case demanded, namely to hold that an overpaid assured is not accountable as a constructive trustee for the amount of the overpayment, there being no defined trust fund. He was not considering a case where there was a defined fund arising from a subsequent recovery by the insured which the insured was still holding.

In my judgment, therefore, an insurer who has paid over the insurance moneys does have a proprietary interest in moneys subsequently recovered by an assured from a third party wrongdoer. Although many of the authorities refer to that right as arising under a trust, in my judgment the imposition of a trust is neither necessary nor desirable: to impose fiduciary liabilities on the assured is commercially undesirable and unnecessary to protect the insurers’ interests. In my judgment, the correct analysis is as follows. The contract of insurance contains an implied term that the assured will pay to the insurer out of the moneys received in reduction of the loss the amount to which the insurer is entitled by way of subrogation. That contractual obligation is specifically enforceable in equity against the defined fund (ie the damages) in just the same way as are other contracts to assign or charge specific property, eg equitable assignments and equitable charges. Since equity regards as done that which ought to be done under a contract, this specifically enforceable right gives rise to an immediate proprietary interest in the moneys recovered from the third party. In my judgment, this proprietary interest is adequately satisfied in the circumstances of subrogation under an insurance contract by granting the insurers a lien over the moneys recovered by the assured from the third party. This lien will be enforceable against the fund so long as it is traceable and has not been acquired by a bona fide purchaser for value without notice. In addition to the equitable lien, the insurer will have a personal right of action at law to recover the amount received by the assured as moneys had and received to the use of the insurer.

As to the question whether the insurers have a proprietary interest in the assured’s cause of action against the third party (as contrasted with the damages actually recovered) I prefer to express no concluded view. I do not think that the proprietary interest in the damages necessarily postulates a pre-existing proprietary interest in the cause of action. The contrary view could be reached by an argument along the following lines. Any equitable proprietary right must be based on the contract between the insurers and the assured. The implied terms of such contract are established by the decided authorities. Some of those implied terms may be inconsistent with the insurers having any right of property in the cause of action

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as opposed to the damages recovered. Thus, the third party can compromise the claim with the assured alone, without requiring the concurrence of the insurers. Again, the third party will obtain a good discharge for a judgment only if he pays the assured as opposed to the insurers. If the insurers have a proprietary interest in the cause of action it could be argued that the assured alone could neither effect a valid compromise nor give a good discharge: the insurers also would have to be parties. Accordingly, it could be said that the implied terms of the contract between the insurers and the assured are such that equity would not be specifically enforcing the parties’ bargain if it treated the insurers as having proprietary rights in the cause of action inconsistent with the rights of the assured and that accordingly the rights of the insurers are purely personal rights to require the assured either to pursue the cause of action against the third party or to permit the insurers to do so in his name. But there are plainly factors pointing the other way and since the question was not fully argued I prefer to express no view on the point.

For these reasons, in addition to those given by my noble and learned friends Lord Templeman and Lord Jauncey of Tullichettle, I would allow the appeal and dismiss the cross-appeal.

LORD SLYNN OF HADLEY. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Templeman. I agree that for the reasons he gives, the appeal should be allowed and the cross-appeal dismissed.

17 December. The House of Lords let it be known that the following addendum should be added to the speeches.

LORD TEMPLEMAN. Their Lordships are now given to understand that, although joined to the action as a representative name, Lord Napier and Ettrick was not in fact insured by any of the stop-loss insurers and that there was therefore no question of him personally delaying any payment to the stop-loss insurers.

Appeal allowed against first respondent. Stop-loss insurers granted injunction in terms set out in speech of Lord Templeman. Cross-appeal dismissed.

Mary Rose Plummer   Barrister.

R v Hendon Justices and others, ex parte Director of Public Prosecutions

[1993] 1 All ER 411

Categories:        ADMINISTRATION OF JUSTICE; Courts        

Court:        QUEEN’S BENCH DIVISION        

Lord(s):        MANN LJ, FRENCH AND AULD JJ        

Hearing Date(s):        8, 9 JUNE, 8 JULY 1992        

Magistrates – Proceedings – Control by judicial review – Non-appearance of prosecution – Justices dismissing charge without giving prosecution opportunity to present case – Prosecutor applying for certiorari to quash dismissal – Whether justices acting unreasonably – Whether certiorari can issue to quash acquittal arising from dismissal of information which was a nullity – Magistrates’ Courts Act 1980, s 15.

On 10 April 1991 the two accused were arrested and charged with the attempted burglary of a dwelling house. When they appeared before the justices they elected summary trial and pleaded not guilty. The hearing of the charges was then adjourned to 1 May for summary trial. On 30 April the Crown Prosecution Service received a computer-prepared list of the magistrates’ court’s hearings for 1 May which contained no reference to the accuseds’ case and when the Crown Prosecution Service made inquiries of the court they were mistakenly informed that the court which was in fact due to hear the accuseds’ case was not sitting the next morning. The Crown Prosecution Service accordingly failed to arrange an appearance by a prosecutor and when the next morning it became clear that the Crown Prosecution Service had been misinformed a senior lawyer on the Crown Prosecution Service staff telephoned the court to say that he was on his way and then set out for the court, which was some eight miles away. When he arrived at 11.45 am he found that the justices had exercised their power under s 15a of the Magistrates’ Courts Act 1980 to dismiss the informations for want of prosecution 15 minutes earlier. The Crown Prosecution Service applied for judicial review of the justices’ decision to dismiss the informations against the accused.

Held – It was unreasonable for justices to exercise the power conferred by s 15 of the 1980 Act to dismiss an information as a means of punishing the Crown Prosecution Service for what they perceived to be inefficiency and therefore the justices had acted unreasonably in exercising their power under s 15 to dismiss the informations because the prosecution had failed to appear when they were aware that the prosecutor was on his way to court and the case was otherwise ready to be presented. Furthermore, certiorari could issue to quash an acquittal arising from the dismissal of an information which was a nullity arising out of the justices wrongly declining jurisdiction although mandamus would usually be the more appropriate remedy where the prosecution wished to proceed upon the information. Since the justices’ decision to dismiss the informations was unreasonable, in the sense that no reasonable bench could have come to that decision, the decision was a nullity and mandamus would issue requiring the justices to hear the informations according to law (see p 415 h to p 416 b and p 419 e g to p 420 a, post).

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680 applied.

Dictum of Lord Roskill in Harrington v Roots [1984] 2 All ER 474 at 479 explained.

Page 412 of [1993] 1 All ER 411

R v Simpson [1914] 1 KB 66, R v Middlesex Justices, ex p DPP [1952] 2 All ER 312 and Harrington v Roots [1984] 2 All ER 474 considered.

Dictum of Mann LJ in R v Sutton Justices, ex p DPP [1992] 2 All ER 129 at 133 not followed.

Notes

For control of justices’ proceedings by judicial review, see 29 Halsbury’s Laws (4th edn) para 474, and for cases on the subject, see 16 Digest (Reissue) 429, 4719–4724 and 33 Digest (Reissue) 176–179, 1368–1387.

For the Magistrates’ Courts Act 1980, s 15, see 27 Halsbury’s Statutes (4th edn) (1992 reissue) 171.

Cases referred to in judgment

Anisminic Ltd v Foreign Compensation Commission [1969] 1 All ER 208, [1969] 2 AC 147, [1969] 2 WLR 163, HL.

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, CA.

Dimes v Grand Junction Canal Proprietors (1852) 3 HL Cas 759, 10 ER 301.

DPP v Nasralla [1967] 2 All ER 161, [1967] 2 AC 238, [1967] 3 WLR 13, PC.

Harrington v Roots [1984] 2 All ER 474, [1984] AC 473, [1984] 3 WLR 142, HL; rvsg sub nom R v Dorking Justices, ex p Harrington [1983] 3 All ER 29, [1983] QB 1076, [1983] 3 WLR 370, DC.

Hoffmann-La Roche (F) & Co AG v Secretary of State for Trade and Industry [1974] 2 All ER 1128, [1975] AC 295, [1974] 3 WLR 104, HL.

London and Clydeside Estates Ltd v Aberdeen DC [1979] 3 All ER 876, [1980] 1 WLR 182, HL.

O’Reilly v Mackman [1982] 3 All ER 1124, [1983] 2 AC 237, [1982] 3 WLR 1096, HL.

R (Giant’s Causeway & Tramway Co) v Antrim Justices [1895] 2 IR 653, Ir QB.

R v Birmingham Justices, ex p Lamb [1983] 3 All ER 23, [1983] 1 WLR 339, DC.

R v Brown (1857) 7 E & B 757, 119 ER 1427.

R v Clerkenwell Metropolitan Stipendiary Magistrates, ex p DPP [1984] 2 All ER 193, [1984] QB 821, [1984] 2 WLR 244, DC.

R v Duncan (1881) 7 QBD 198, DC.

R (Hastings) v Galway Justices [1906] 2 IR 499, Ir KB.

R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240, [1985] QB 67, [1984] 3 WLR 643, DC.

R v Middlesex Justices, ex p DPP [1952] 2 All ER 312, [1952] 2 QB 758, DC.

R v Neal [1949] 2 All ER 438, [1949] 2 KB 590, CCA.

R v Simpson [1914] 1 KB 66, DC.

R v Sutton Justices, ex p DPP [1992] 2 All ER 129, DC.

R v Swansea Justices, ex p DPP (1990) 154 JP 709, DC.

R v West [1962] 2 All ER 624, [1964] 1 QB 15, [1962] 3 WLR 218, CCA.

Ridge v Baldwin [1963] 2 All ER 66, [1964] AC 40, [1963] 2 WLR 935, HL.

Smith v East Elloe RDC [1956] 1 All ER 855, [1956] AC 736, [1956] 2 WLR 888, HL.

Cases also cited or referred to in skeleton arguments

Connelly v DPP [1964] 2 All ER 401, [1964] AC 1254, HL.

Crane v DPP [1921] 2 AC 299, [1921] All ER Rep 19, HL.

Haynes v Davis [1915] 1 KB 332, DC.

R v Bennett (1908) 24 TLR, DC.

Page 413 of [1993] 1 All ER 411

R v Cardiff Magistrates’ Court, ex p Cardiff City Council (1987) Times, 24 February, DC.

R v Crown Court at Wolverhampton, ex p Crofts [1982] 3 All ER 702, [1983] 1 WLR 204, DC.

R v Griffiths (1980) 72 Cr App R 307, CA.

R v Thames Magistrates’ Court, ex p Polemis [1974] 2 All ER 1219, [1974] 1 WLR, DC.

R v Uxbridge Justices, ex p Smith [1977] RTR 93, DC.

R (Drohan) v Waterford Justices [1901] 2 IR 548, Ir QB.

R v Watford Justices, ex p DPP [1990] RTR 374, DC.

Vaux’s Case (1591) 4 Co Rep 44a, 76 ER 992.

Weight v MacKay [1984] 2 All ER 673, [1984] 1 WLR 980, HL.

Williams v DPP [1991] 3 All ER 651, [1991] 1 WLR 1160, DC.

Application for judicial review

The Director of Public Prosecutions applied, with the leave of Otton J given on 26 July 1991, for judicial review by way of an order of certiorari to quash the decision of the first respondents, the justices sitting at the Hendon Magistrates’ Court, on 1 May 1991 dismissing two informations charging the second and third respondents, Thomas Peter Harty and Patrick Cash, with attempted burglary. The facts are set out in the judgment of the court.

Tom Kark (instructed by the Crown Prosecution Service, Wood Green) for the Director of Public Prosecutions.

Clare Montgomery (instructed by the Treasury Solicitor) as amicus curiae. The respondents did not appear.

Cur adv vult

8 July 1992. The following judgment of the court was delivered.

MANN LJ. There is before the court an application for judicial review for which leave to move was given by Otton J on 26 July 1991. The applicant is the Crown Prosecution Service, and the decision impugned is a decision of justices for the petty sessional area of Barnet when sitting at the Hendon Magistrates’ Court on 1 May 1991. By that decision the justices dismissed two informations which had been laid by the applicant against Thomas Peter Harty and Patrick Cash. The respondents to the application are the justices, Mr Harty and Mr Cash. The respondents neither appeared nor were represented but Mr John Clark, who is the clerk to the Barnet justices, filed an affidavit. The relief which is claimed is an order of certiorari to quash the decision.

The matter arises as follows. On 10 April 1991 Mr Harty and Mr Cash were arrested and charged with the attempted burglary of a dwelling house on that day. They appeared before the Hendon Magistrates’ Court on 12 April and were remanded until 18 April. There was then a further remand until 25 April, when the justices determined mode of trial and accepted jurisdiction. The defendants were put to their election, elected summary trial and pleaded not guilty. The case was remanded until 1 May for summary trial at the Hendon Magistrates’ Court. On 30 April the applicant received the computer prepared list of the Hendon Magistrates’ Court for 1 May. It contained no reference to Mr Harty and Mr Cash but this did not of itself surprise the applicant because its officers knew the computer was often not updated with remands of a week or less. However, and

Page 414 of [1993] 1 All ER 411

importantly, the list did not show any cases listed in court 2 for the morning session but showed cases listed in court 1 for that session. The applicant’s officer made inquiries at the list office and was informed that court 2 was not sitting on the next morning. The clerk to the justices has deposed that he is unable to find any member of his staff who passed on such wrong information. It was wrong because, despite its absence from the list, court 2 was to sit at 10 o’clock to hear the case of Mr Harty and Mr Cash. However, in the light of the list and of the wrong information, the applicant cancelled the attendance of the prosecutor who had been booked for the morning session in court 2 and gave the papers in the case of Mr Harty and Mr Cash to the advocate prosecuting in court 1. Next morning it became clear to the applicant that it had been misinformed. The morning list showed the cases of Mr Harty and Mr Cash listed in court 2 at 10 am and the two defendants were produced from custody for that time. Their advocate was present, as were all of the prosecution witnesses, who had been duly warned for 1 May. Mr Richard Blake, a senior lawyer on the applicant’s staff, was informed of the position. Mr Blake, who was eight miles away at the applicant’s office in Wood Green, made inquiries as to the whereabouts of the papers in the case and then set out for Hendon in order to retrieve the papers from court 1 and to prosecute in court 2. Before setting out Mr Blake had telephoned the gaoler’s office at the court and asked that the court be informed he was on his way. The custody officer has deposed that the court ‘was informed that … Mr. Richard Blake was on his way to court to conduct the case’. However, when Mr Blake arrived at 11.45 am he discovered that the two informations had been dismissed for want of prosecution 15 minutes earlier. It is the decision to dismiss which is now impugned.

Mr Tom Kark who appeared for the applicant submitted that the decision was void and that an order of certiorari should issue to quash it, thereby depriving the decision of any effect it may have had. Mr Clark in his affidavit submitted that the justices were entitled to conclude by 11.30 am that the prosecution had had sufficient opportunity to prosecute the charges and accordingly rightly dismissed the informations. He states that the clerk in court had, on a telephone inquiry, been informed by the applicant that a prosecutor would be sent ‘as soon as conveniently possible’.

The powers and duties of justices are derived from statute, and in particular from the Magistrates’ Courts Act 1980. Amongst the provisions of that Act which deal with the summary trial of an information are ss 9, 10(1) and 15(1), which (re-enacting earlier provisions) provide as follows:

‘9.—(1) On the summary trial of an information, the court shall, if the accused appears, state to him the substance of the information and ask him whether he pleads guilty or not guilty.

(2) The court, after hearing the evidence and the parties, shall convict the accused or dismiss the information.

(3) If the accused pleads guilty, the court may convict him without hearing evidence.

10.—(1) A magistrates’ court may at any time, whether before or after beginning to try an information, adjourn the trial, and may do so, notwithstanding anything in this Act, when composed of a single justice …

15.—(1) Where at the time and place appointed for the trial or adjourned trial of an information the accused appears or is brought before the court and the prosecutor does not appear, the court may dismiss the information or, if evidence has been received on a previous occasion, proceed in the absence of the prosecutor …’

Page 415 of [1993] 1 All ER 411

It was in the exercise or purported exercise of the power conferred by s 15(1) that the respondent justices acted in dismissing the informations against Messrs Harty and Cash. We observe that, when regard is had to the published list, there may be room for argument as to whether 10 am in court 2 was the time and place appointed for the trial. We do not enter that room. The main thrust of Mr Kark’s submission was, in effect, that the decision was in the circumstances so unreasonable that no reasonable bench could have come to it (cf Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680 at 683, [1948] 1 KB 223 at 230 by Lord Greene MR). He submits that the proper course in the circumstances would have been for the justices to exercise their power under s 10(1) and to adjourn the trial in order that the prosecution could have an opportunity to present the evidence which was available to be called (as to the exercise of the power, see R v Swansea Justices, ex p DPP (1990) 154 JP 709).

This court, in the exercise of its supervisory jurisdiction over magistrates’ courts, will ordinarily treat as a nullity a decision of such a court if it is so unreasonable that no reasonable bench in like circumstances could have come to it. In so doing, the court is not acting in an appellate capacity but is acting so as to ensure that the inferior court is acting within the limits of the powers which have been granted to it by Parliament. It is implicit in the enactment that a conferred power is not to be exercised unreasonably (cf Ridge v Baldwin [1963] 2 All ER 66, [1964] AC 40 and Anisminic Ltd v Foreign Compensation Commission [1969] 1 All ER 208 at 245, [1969] 2 AC 147 at 209 by Lord Wilberforce). If it is, then the exercise is outwith the conferred power and can be characterised as ‘illegal’, ‘void’ or a ‘nullity’, although until so characterised it may be capable of having its ostensible effect (cf London and Clydeside Estates Ltd v Aberdeen DC [1979]3 All ER 876 at 883, [1980] 1 WLR 182 at 189 by Lord Hailsham of St Marylebone and also F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1974] 2 All ER 1128 at 1154, [1975] AC 295 at 366 by Lord Diplock). The capacity of decisions which are to be characterised as nullities to have an ostensible effect until so characterised has on occasions caused them to be described as ‘voidable’. The contrast is presumably with decisions which have no ostensible effect because (to adapt Lord Radcliffe’s phrase) they bear the brand of invalidity upon their foreheads (see Smith v East Elloe RDC [1956] 1 All ER 855 at 871, [1956] AC 736 at 769–770). However, Lord Wilberforce has observed that the distinction between void and voidable is a difficult one and he has not wished to be taken as recognising that it exists (see Anisminic Ltd v Foreign Compensation Commission [1969] 1 All ER 208 at 244, [1969] 2 AC 147 at 208). There is no recent authority which suggests that it does in the area of law with which we are concerned, and we think that nowadays the void and voidable distinction is ordinarily no more than a convenient nomenclature to distinguish decisions all of which are outwith the conferred power, but some of which will and some of which will not have an ostensible effect until their character is judicially decided.

We regret to say that in our judgment the decision of the respondent justices in the present case was so unreasonable that no reasonable bench in like circumstances could have come to it. We express our judgment with regret because we are sure the lapse was uncharacteristic of justices who were doing their best and because we are fully appreciative of the pressures upon a busy court such as is Hendon. However, the duty of the court is to hear informations which are properly before it. The prosecution has a right to be heard and there is a public interest that, save in exceptional circumstances, it should be heard. A court’s irritation at the absence of a prosecutor at the appointed time is understandable. That said, it can seldom be reasonable to exercise the power under s 15 of the 1980 Act (as opposed to that under s 10(1)) where the justices know that a

Page 416 of [1993] 1 All ER 411

prosecutor is on the way to their court and the case is otherwise ready to be presented. In this case, according to the custody officer, the justices knew that Mr Blake was on his way and in any event a further telephone call would have established the position precisely. The exercise was not reasonable in this case as it was not in R v Sutton Justices, ex p DPP [1992] 2 All ER 129. We entertain the strongest suspicion that the justices were here acting so as to punish what they saw as the inefficiency of the Crown Prosecution Service. We think any inefficiency was merely apparent and liable to be dispelled on inquiry. We also think that the power conferred by s 15 is not one conferred for punitive purposes.

The decision being unreasonable in the Wednesbury sense, the question arises as to whether the order of certiorari which is sought is an available remedy. Upon this question we had the assistance of oral and written argument from Miss Clare Montgomery, who was appointed by the Attorney General to act as amicus curiae. We are indebted to her for those arguments.

The question arising may seem a surprising one because certiorari is usually thought to lie in respect of any order of an inferior tribunal, whilst mandamus clearly lies to require the hearing of an information which has been dismissed as a result of a jurisdiction having been wrongly declined (see for example R v Clerkenwell Metropolitan Stipendiary Magistrates, ex p DPP [1984] 2 All ER 193, [1984] QB 821). However, in R v Simpson [1914] 1 KB 66 at 75 Scrutton J said ‘there never has been a case in which an acquittal by a Court of summary jurisdiction has been quashed by certiorari’, and we have not been referred to any fully reported case since that time in which an ‘acquittal’ (as opposed to a conviction) has been quashed by certiorari. If there is a principle by reference to which the remedy is not granted in respect of an ‘acquittal’, then the position of the court will be different upon a judicial review from its position upon an appeal by case stated, when, by statute, it has power to direct a conviction after dismissal by justices (see the 1980 Act, ss 111 and 112).

In R v Simpson this court had before it an application for certiorari to quash an order dismissing an information on the ground that the magistrates’ court had had an improper constitution. The application was refused. Ridley J thought that the case was one to which the maxim ‘nemo debet bis vexari’ applied. He said (at 71–72):

‘It is true that the charge in the present case was not one of a very serious character, but the principle involved is one of great importance, and if it were once assailed by the introduction of exceptions, they might in course of time be applied to very different cases. If, therefore, I find that these defendants have once stood in danger and have been acquitted, then in my opinion this Court ought not to grant a certiorari to quash the acquittal. The question, therefore is, have the defendants, in the words of Lord Coleridge C.J. in Reg. v. Duncan ((1881) 7 QBD 198 at 199), stood in danger of imprisonment?’

Ridley J then referred to the Irish cases of R (Giant’s Causeway & Tramway Co) v Antrim Justices [1895] 2 IR 653 and R (Hastings) v Galway Justices [1906] 2 IR 499 and quoted from that part of the judgment of Lord O’Brien LCJ in the latter case where he said (at 502–503):

‘There is no instance in the history of our law of an acquittal under such circumstances being brought up on certiorari. What is the principle? That a man cannot be put in peril twice for the same offence. Was this man put in peril before the tribunal that is alleged to be biassed? I am of opinion that he was, and for this reason, that the order of a biassed tribunal is voidable only,

Page 417 of [1993] 1 All ER 411

and not void. That such an order is voidable only, and not void, clearly follows from the case of Dimes v. The Grand Junction Canal Co. ((1852) 3 HL Cas 759, 10 ER 301)—a familiar case, and one of the highest authority. Now, if the order is voidable only, and not void, the accused was in peril when he stood before the tribunal. Though in this case he was acquitted, he might have been convicted. He was certainly in peril, because he might have been arrested and imprisoned on a voidable order, and a very considerable time might elapse before a voidable order could be avoided by proceedings by way of certiorari. Until avoided, a voidable order justifies both arrest and imprisonment.’

Ridley J held that the distinction pointed out was one on which the court should take its stand and accordingly that the improper constitution of the court rendered its decision ‘voidable’ so that the defendants had once stood in peril. Bailhache J also quoted from Lord O’Brien LCJ and his judgment was to the like effect as that of Ridley J (see [1914] 1 KB 66 at 76). Scrutton J concluded that the application should be refused but his ground was different from that of the other two members of the court. He said (at 75):

‘I am inclined to think, though in my view it is not necessary for us to decide that point, that where a person acts as a member of a Court when he is under a statutory disqualification the Court cannot be said to be a Court of competent jurisdiction. If that be so, a defendant tried by that Court would never have been in peril, for the proceedings would be a mere nullity. But I do not propose to decide that point for the following reason. If we were to quash this acquittal, and fresh proceedings were to be subsequently instituted against the defendants in respect of the same alleged offence, the defendants would not be able to plead autrefois acquit, for the acquittal having been quashed there would be no acquittal in existence. If, however, in any subsequent proceedings the defendants should raise the plea of autrefois acquit it will be open to the Court to decide whether the previous hearing was before a Court of competent jurisdiction. That is the ground, a somewhat narrow one, on which I am prepared to decide this case.’

The ability of a court of trial to determine whether a prior ‘acquittal’ is a ‘nullity’ was later to be established by the Court of Criminal Appeal in R v West [1962] 2 All ER 624, [1964] 1 QB 15.

R v Simpson was amongst the authorities which were before a Divisional Court of five judges presided over by Lord Goddard CJ in R v Middlesex Justices, ex p DPP [1952] 2 All ER 312, [1952] 2 QB 758. The case related to a trial on indictment during which the conduct of the chairman of sessions was such as subsequently to earn the severest disapprobation of this court. The defendant was acquitted by the jury and the Director of Public Prosecutions applied for an order of certiorari. However, despite the disapprobation this court concluded that the relief sought could not be granted for there had not been ‘anything in the nature of a mistrial’. Lord Goddard CJ said ([1952] 2 All ER 312 at 314, [1952] 2 QB 758 at 769):

‘To constitute a mistrial the proceedings must have been abortive from beginning to end so that, had the record been drawn up, the error would have been apparent: R. v. Neal ([1949] 2 All ER 438, [1949] 2 KB 590). Here the defendant was properly arraigned and the jury sworn to try him, so technically he was in peril, and as they returned a verdict of Not Guilty, however improperly that verdict may have been obtained, this court cannot,

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as it seems to us, direct a new trial. In R. v. Simpson, ([1914] 1 KB 66 at 75) Scrutton, J., said: “… there never has been a case in which an acquittal by a court of summary jurisdiction has been quashed by certiorari, and, although in some cases judges have acted proprio vigore in making precedents, I do not myself feel disposed to do so in this case.” Nor do we. An acquittal by a jury seems to be a fortiori.’

In R v Dorking Justices, ex p Harrington [1983] 3 All ER 29, [1983] QB 1076 this court (Robert Goff LJ and Glidewell J) applied the principle it derived from the Middlesex Justices case to the dismissal of an information by justices after proceedings which it had not been argued were a ‘nullity’. The circumstances of the case were these. The defendant pleaded not guilty to two charges and the prosecution applied for an adjournment as one of its witnesses was not available. The justices announced an adjournment to a date which excited protest from the defendant as he was to be on holiday on that date. The justices thereupon dismissed the informations without giving the prosecutor the opportunity to proceed immediately with the witnesses whom he did have available and which opportunity he would have wished to have taken. On those circumstances the House of Lords reversed the decision of this court and it was held that the proceedings were a ‘nullity’ (see Harrington v Roots [1984] 2 All ER 474, [1984] AC 473). Lord Roskill, who delivered the leading speech, said that, having decided to refuse the adjournment, it was, by reason of s 9(2) of the 1980 Act, the duty of the justices to invite the prosecutor to proceed (see [1984] 2 All ER 474 at 478, [1984] AC 743 at 751). The breach of duty caused the dismissal of the information to be a nullity. Lord Roskill said ([1984] 2 All ER 474 at 479, [1984] AC 743 at 753):

‘My Lords, I am clearly of the view that what happened in the instant case was, to adapt Lord Sumner’s phrase, no trial at all. The dismissal of these informations was without jurisdiction and was a nullity. To borrow the phrase of Coleridge J in Brown’s case (1857) 7 E & B 757 at 761, 119 ER 1427 at 1429, the duty of adjudging was declined. Both on principle and authority I see no reason why, had the prosecution sought to take the matter further, mandamus should not have issued to the justices directing them to hear and determine these informations according to law. Since in my view their orders were a nullity I do not think that it would have been right to order certiorari to issue as well.’

Lord Roskill referred to both R v Simpson and the Middlesex Justices case. The latter he regarded as being a case where the chairman had been ‘acting within his jurisdiction’ and inferentially so also did he regard R v Simpson (see [1984] 2 All ER 474 at 480, 479, [1984] AC 743 at 753, 752). He observed ([1984] 2 All ER 474 at 479, [1984] AC 743 at 752):

‘No doubt in some cases the distinction between actions by justices which are without jurisdiction and thus a nullity and actions which are an erroneous exercise of jurisdiction may be fine.’

Nowhere in Lord Roskill’s speech is any countenance given to the distinction between void and voidable decisions. His own distinction between actions without jurisdiction and actions which are an erroneous exercise of jurisdiction must, we respectfully believe, have been intended to be read in the light of the Anisminic decision [1969] 1 All ER 208 esp at 213–214, [1969] 2 AC 147 esp at 171 where Lord Reid said:

Page 419 of [1993] 1 All ER 411

‘It has sometimes been said that it is only where a tribunal acts without jurisdiction that its decision is a nullity. But in such cases the word “jurisdiction” has been used in a very wide sense, and I have come to the conclusion that it is better not to use the term except in the narrow and original sense of the tribunal being entitled to enter on the enquiry in question. But there are many cases where, although the tribunal had jurisdiction to enter on the enquiry, it has done or failed to do something in the course of the enquiry which is of such a nature that its decision is a nullity. It may have given its decision in bad faith. It may have made a decision which it had no power to make. It may have failed in the course of the enquiry to comply with the requirements of natural justice. It may in perfect good faith have misconstrued the provisions giving it power to act so that it failed to deal with the question remitted to it and decided some question which was not remitted to it. It may have refused to take into account something which it was required to take into account. Or it may have based its decision on some matter which, under the provisions setting it up, it had no right to take into account. I do not intend this list to be exhaustive. But if it decides a question remitted to it for decision without committing any of these errors it is as much entitled to decide that question wrongly as it is to decide it rightly.’

Lord Diplock has included inferior courts within the bodies to which this statement of principle applies (O’Reilly v Mackman [1982] 3 All ER 1124 at 1129, [1983] 2 AC 237 at 278) and this court has so applied it (R v Greater Manchester Coroner, ex p Tal [1984] 3 All ER 240 at 249, [1985] QB 67 at 82 to 83). We have already stated that in our judgment the respondent justices’ decision to dismiss the information was outwith their statutory power. It was thus a nullity and could not have sustained a plea of autrefois because there had not been a lawful acquittal (see [1984] 2 All ER 474 at 479, [1984] AC at 752 by Lord Roskill referring to DPP v Nasralla [1967] 2 All ER 161 at 166, [1967] 2 AC 238 at 249–250 by Lord Devlin). Whether the decision is to be described as void or voidable is, with respect to Ridley and Bailhache JJ and the Irish judges whom they followed, a question of nomenclature which we do not find it helpful to answer. As to the actual decision in R v Simpson, there is plainly now much to be said for the then contemporary view of Scrutton J that the justices’ decision was a nullity.

In our judgment, certiorari can go to quash a decision which is a nullity and which by hypothesis is accordingly not an acquittal. We recognise the defiance of logic in stating that the order can go, but in practice decisions which are nullities are quashed as a convenient way of preventing the continuance of an ostensible effect. However, it will usually be more appropriate to issue mandamus where the prosecution wishes to proceed upon the information (see Lord Roskill above). Mandamus is, like certiorari, a discretionary remedy. In exercising discretion the court will take into account a variety of factors. Amongst them will be the time since the alleged offence was committed, for the court should be slow to issue mandamus where the case is dependent on recollection which may have dimmed. In R v Birmingham Justices, ex p Lamb [1983] 3 All ER 23 at 28, [1983] 1 WLR 339 at 344 McNeill J had regard to the fact that the defendants ‘might properly feel that they have been acquitted and it would be wrong to allow them to feel, however erroneously, that they would be put in jeopardy for a second time’. An important factor the other way is that properly presented prosecutions for a serious offence should be heard. In this case, the offence alleged against Messrs Harty and Cash was a serious one, the date of commission is not remote and the defendants can have no reasonable belief that the dismissal of the charges was

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other than a fortuity. In our judgment, mandamus should issue requiring the justices to hear the informations according to law.

We add this. Our decision as to the availability of a remedy is inconsistent with the decision of this court in R v Sutton Justices, ex p DPP [1992] 2 All ER 129 at 133, where it was said, without discussion, that certiorari would not go to quash an acquittal. The question was not argued on that occasion. In the light of the full argument which we have now had, we are convinced that the decision was wrong on this point (see Ex p Tal [1984] 3 All ER 240 at 248, [1985] QB 67 at 81), although whether mandamus would have been granted on the facts of that case may be doubted.

Application allowed. Order of mandamus granted.

Dilys Tausz   Barrister.

R v International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd, ex parte Else (1982) Ltd and another

R v International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd, ex parte Roberts

[1993] 1 All ER 420

Categories:        COMPANY; Shares: ADMINISTRATIVE        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        SIR THOMAS BINGHAM MR, McCOWAN AND LEGGATT LJJ        

Hearing Date(s):        12, 13, 14, 16 OCTOBER 1992        

Company – Shares – Listing of shares by stock exchange – Quotations committee of stock exchange cancelling company’s listing – Company not challenging cancellation – Whether shareholders entitled to be notified of and given opportunity to make representations about committee’s impending decision to cancel listing – Whether shareholders having right to challenge cancellation of listing by judicial review – Council Directive (EEC) 79/279, art 15.

Judicial review – Leave to apply for judicial review – Sufficient interest – Application to challenge decision to cancel listing of shares by stock exchange – Applicant overcoming restrictions on tardy applications – Whether application should fail on ground that applicant lacked sufficient interest in decision challenged – Supreme Court Act 1981, s 31(3)(6).

In June 1989 the Stock Exchange suspended the listing of a company’s shares following the arrest of its chairman on suspicion of insider-dealing offences. Although he was subsequently acquitted of the charges the suspension of the shares was continued and in November 1990 the quotations panel of the Stock Exchange decided that the company’s listing should be cancelled. The company appealed to the quotations committee, which upheld the decision. Thereafter the company itself did not challenge the decisions of the committee or the panel but the applicants, who were shareholders in the company, applied for judicial review of the committee’s decision to cancel the listing. During the hearing of their

Page 421 of [1993] 1 All ER 420

applications the questions arose whether the applicants had locus standi to challenge the committee’s decision to cancel the listing and whether as shareholders they were entitled under art 15a of Council Directive (EEC) 791/279 to be notified of, and given the opportunity to make representations about, the committee’s impending decision whether the company’s listing should be cancelled. Article 15 was promulgated with the purpose of co-ordinating the conditions of the admission of securities to official listing in member states and provided that the refusal of admission of a security to official listing or the discontinuing of such a listing should be subject to the right to apply to the courts against such a decision. It was common ground that the council of the Stock Exchange had been designated as the competent authority for listing in the United Kingdom and that the quotations committee was empowered to act on its behalf. The judge directed that a reference be made to the Court of Justice of the European Communities under art 177 of the EEC Treaty on the interpretation of art 15. The Stock Exchange appealed against the judge’s direction for a reference to the Court of Justice.

Held – Although Council Directive (EEC) 79/279 expressly recognised the responsibility of competent listing authorities to protect the interests of investors, which was always to be the overriding concern of a competent authority when exercising its powers in dealing with conditions imposed and obligations undertaken by companies whose securities were admitted to listing, the primary purpose of the directive was to co-ordinate the listing practice of competent authorities in member states with a view to establishing a common market in securities and not in any direct way to provide additional protection for investors. The directive was concerned with relations between competent authorities and companies and issuers, and the right to apply to the courts under art 15 was conferred on a company or issuer alone. Accordingly, although investors such as the applicants were liable to suffer prejudice if the public listing of a company was cancelled and although they could not effectively resist a potentially damaging cancellation unless they were given notice of an impending decision and the grounds of cancellation and an opportunity to make representations, the directive did not confer any enforceable rights on investors to have recourse to the courts. Furthermore, since the rights claimed by the applicants, particularly those claimed before a cancellation decision was made, subverted the directive’s intention that regulatory authorities should be able to take quick and decisive action when necessary, since there was no provision in the directive for circularising shareholders and giving them information, since the directive did not address problems arising from the principles that a company was a legal entity separate and distinct from its shareholders and that a shareholder could not as such act on behalf of or enforce the rights of the company, and since the directive did not define ‘investors’ so that it could not properly be given direct effect, art 15 plainly did not entitle the applicants to be notified of or given the opportunity to make representations about the committee’s impending decision that the company’s listing should be cancelled or to challenge its decision in the courts. Recourse to the Court of Justice for a ruling on the construction of art 15 was therefore unnecessary. Accordingly, the appeal would be allowed and the order for reference quashed (see p 427 c, p 430 a b e to p 431 f, p 432 d to g, p 433 c and p 434 d to g, post).

Per curiam. If a shareholder seeking leave to apply for judicial review of the cancellation of the listing of a company’s shares is, exceptionally, able to overcome

Page 422 of [1993] 1 All ER 420

the restriction on tardy applications in s 31(6)b of the Supreme Court Act 1981, it is questionable whether his claim to relief ought to fail for lack of sufficient interest within s 31(3) and RSC Ord 53, r 3(7)c (see p 432 c d, post).

Notes

For the official listing of securities, see 7(1) Halsbury’s Laws (4th edn reissue) para 284 and 45 Halsbury’s Laws (4th edn) para 5.

For the requirement of sufficient interest to apply for judicial review and the effect of delay in applying for relief, see 1(1) Halsbury’s Laws (4th edn reissue) paras 63, 169–170, and for a case on the subject, see 37(3) Digest (Reissue) 138, 3666.

For the Supreme Court Act 1981, s 31, see 11 Halsbury’s Statutes (4th edn) (reissue) 991.

For the EEC Treaty, art 177, see 50 Halsbury’s Statutes (4th edn) 325.

Cases referred to in judgments

Bulmer (H P) Ltd v J Bollinger SA [1974] 2 All ER 1226, [1974] Ch 401, [1973] 3 WLR 202, CA.

R v Pharmaceutical Society of GB, ex p Association of Pharmaceutical Importers [1987] 3 CMLR 951, CA; on reference Joined cases 266 and 267/87 [1989] 2 All ER 758, [1990] 1 QB 534, [1989] ECR 1295, CJEC.

Srl CILFIT v Ministry of Health Case 283/81 [1982] ECR 3415.

Cases also cited or referred to in skeleton arguments

Amministrazione delle Finanze dello Stato v Simmenthal SpA Case 106/77 [1978] ECR 629.

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, CA.

Brind v Secretary of State for the Home Dept [1991] 1 All ER 720, [1991] 1 AC 696, HL.

Calvin v Carr [1979] 2 All ER 440, [1980] AC 574, PC.

Customs and Excise Comrs v ApS Samex (Hanil Synthetic Fiber Industrial Co Ltd, third party) [1983] 1 All ER 1042.

Foss v Harbottle (1843) 2 Hare 461, 67 ER 189.

Freight Transport Association Ltd v London Boroughs Transport Committee [1991] 3 All ER 915, [1991] 1 WLR 308, HL.

Garland v British Rail Engineering Ltd [1982] 2 All ER 402, [1983] 2 AC 751, CJEC and HL.

Hadmor Productions Ltd v Hamilton [1982] 1 All ER 1042, [1983] 1 AC 191, HL.

Hoffmann-La Roche (F) & Co AG v Secretary of State for Trade and Industry [1974] 2 All ER 1128, [1975] AC 295, HL.

Page 423 of [1993] 1 All ER 420

IRC v National Federation of Self-Employed and Small Businesses Ltd [1981] 2 All ER 93, [1982] AC 617, HL.

Marleasing SA v Comercial Internacional de Alimentación SA Case C-106/89 [1990] ECR I–4135.

Oberkreisdirektor des Kreises Borken v Handelsonderneming Moormann BV Case 190/87 [1988] ECR 4689.

Practice Direction [1982] 3 All ER 800, [1982] 1 WLR 1375.

Practice Note [1990] 1 All ER 128.

Prudential Assurance Co Ltd v Newman Industries Ltd [1982] 1 All ER 354, [1982] Ch 204, CA.

R v IRC, ex p Commerzbank AG [1991] STC 271, DC.

R v Life Assurance and Unit Trust Regulatory Organisation Ltd, ex p Ross [1992] 1 All ER 422, [1993] QB 17, DC; affd [1993] QB 17, CA.

R v Monopolies and Mergers Commission, ex p Argyll Group plc [1986] 2 All ER 257, [1986] 1 WLR 763, CA.

R v Panel on Take-overs and Mergers, ex p Datafin plc (Norton Opax plc intervening) [1987] 1 All ER 564, [1987] QB 815, CA.

R v Secretary of State for Health, ex p US Tobacco International Inc [1992] 1 All ER 212, [1992] QB 353, DC.

R v Secretary of State for Transport, ex p Factortame Ltd Case C-213/89 [1991] 1 All ER 70, [1991] 1 AC 603, CJEC and HL.

R v Thames Magistrates’ Court, ex p Greenbaum (1957) 55 LGR 129, CA.

Roudolff, Criminal proceedings against Case 803/79 [1980] ECR 2015.

Salomon v A Salomon & Co Ltd [1897] AC 22, [1895–9] All ER Rep 33, HL.

Shaw (John) & Sons (Salford) Ltd v Shaw [1935] 2 KB 113, [1935] All ER Rep 456, CA.

Sindesmos Melon tis Eleftheras Evangelikis Ekklisias v Greece Case C-381/89 OJ 1992 C 103, p 5, CJEC.

Topfer (August) & Co GmbH v EC Commission Case 112/77 [1978] ECR 1019.

Appeals, cross-appeal and applications

R v International Stock Exchange of the UK and the Republic of Ireland, ex p Else (1982) Ltd and anor

By notice dated 7 March 1991 the applicants, Else (1982) Ltd and Leonard Brealey as trustee of Vale Private Pension Trust, applied for leave to apply for judicial review of (1) the decision of the Quotations Panel of the International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd (the Stock Exchange) on 29 June 1989 to suspend dealings in the shares of the company known as Titaghur plc, formerly known as the Titaghur Jute Factory plc, in which the applicants held shares, (2) the decision of the panel taken on 23 November 1990 to delist the shares of Titaghur plc and (3) the decision of the Committee on Quotations of the Stock Exchange on 7 December 1990 to uphold the decision of the panel to delist the shares of the company. On 7 June 1991 Auld J, hearing the Crown Office list, granted the applicants leave to move for judicial review in respect of the committee’s decision but refused them leave to challenge the panel’s decisions. On 23 July 1992 Popplewell J hearing the substantive application refused the applicants leave to amend their notice of motion to challenge the panel’s decision but, on 24 July 1992, in order to enable him to give judgment, directed that two questions on the interpretation and effect of art 15 of Council Directive (EEC) 79/279 be referred to the Court of Justice of the European Communities for a preliminary ruling under art 177 of the EEC Treaty, namely (1) whether art 15 of the directive was to be interpreted as giving to a registered shareholder in an officially listed company, the listing of

Page 424 of [1993] 1 All ER 420

which the competent authorities had decided to discontinue, the right to apply to the relevant national court in relation to such decision and (2) whether, where the competent authorities of a member state were considering whether to discontinue the official listing of a company, art 15 conferred a right on a registered shareholder in the company to be heard by the competent authorities in relation to such decision. The Stock Exchange appealed from the order for reference. By their amended respondent’s notice the applicants cross-appealed from, inter alia, that part of Popplewell J’s judgment whereby by implication he concluded that the committee’s decision of 7 December 1990 was a lawful decision, his refusal of leave to reamend the notice of motion for judicial review, his decision to refer the second of the two questions referred to the Court of Justice and his failure to refer a further question on the interpretation of the directive as to the obligation of the Stock Exchange to notify shareholders in advance of any decision being taken to cancel the listing of the company and the possible reasons for such decision. The applicants also applied (1) to renew their application made before Auld J on 7 June 1991 for leave to move for judicial review of the panel’s decision made on 23 November 1990, (2) for leave to appeal from the order of Popplewell J refusing them leave to reamend their notice of motion for judicial review of the panel’s decision on 23 November 1990 and (3) for leave to amend their respondent’s cross-notice of appeal. The facts are set out in the judgment of Sir Thomas Bingham MR.

R v International Stock Exchange of the UK and the Republic of Ireland Ltd, ex p Thomas

By notice of motion dated 6 June 1991 the applicant, Gerard Patrick Thomas, a shareholder in Titaghur plc, applied for leave to move for judicial review of the decision of the Committee on Quotations of the International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd (the Stock Exchange) on 7 December 1990 to cancel the listing of the company’s shares. On 7 June 1991 Auld J granted leave and directed that his application be heard at the same time as the applications of Else (1982) Ltd and Leonard Brealey. On 24 July 1992 Popplewell J made the same order for reference to the Court of Justice of the European Communities as in R v International Stock Exchange of the UK and the Republic of Ireland, ex p Else (1982) Ltd and anor. The Stock Exchange appealed. By his respondent’s notice the applicant sought an order that Popplewell J’s order for reference be varied so that two further questions on the interpretation of art 15 of Council Directive (EEC) 79/279 be referred at the same time. The facts are set out in the judgment of Sir Thomas Bingham MR.

Roger Henderson QC, Adrian Brunner and John Cone (instructed by Peter Gerrard) for the Stock Exchange.

Monique Allan and Marc Rowlands (instructed by Arnold Deacon Greene & Co, Sleaford) for the applicants Else (1982) Ltd and Mr Brealey.

Mr Thomas appeared in person.

Cur adv vult

16 October 1992. The following judgments were delivered.

SIR THOMAS BINGHAM MR This appeal concerns a company named Titaghur plc. The company (as I shall call it) was incorporated in Scotland in 1883. It runs a substantial jute business in India, where it has some 18,000 employees. The shares of the company were first listed by the Stock Exchange in London in 1912 and continued to be so listed until 1988.

Page 425 of [1993] 1 All ER 420

In May 1988 the International Stock Exchange of the United Kingdom and the Republic of Ireland (which I shall for brevity call ‘the Stock Exchange’) suspended the listing of the company’s shares because annual listing charges had not been paid. This omission was rectified and the listing was restored after one month’s intermission.

On 28 June 1989 the listing of the company’s shares was again suspended by the Stock Exchange. The immediate cause of this suspension was the arrest of the chairman of the company on suspicion of insider-dealing offences. (He was later prosecuted on a number of counts and, after the events giving rise to this appeal, acquitted.) The suspension of the listing continued, partly because of uncertainty concerning the chairman’s position, partly because the Stock Exchange was concerned about possible failures to notify dealings in the company’s shares and partly because the Stock Exchange was concerned about the adequacy of the financial information provided by the company and about its accounts. There were meetings between representatives of the company and the Stock Exchange concerning these matters, which were also raised in correspondence. It was made clear that the company wished the suspension to be ended, but it appears that in November 1990 the company’s broker was told that the quotations department of the Stock Exchange had decided to take the matter of the listing of the company to the panel of the quotations committee with a recommendation that the listing be cancelled. The broker indicated that he would probably not attend the quotations panel but might appeal against any cancellation decision to the quotations committee. The case was duly referred to the panel, which on 23 November 1990 concluded that the listing should be cancelled.

The company (by its broker) was informed of this decision and exercised its right to appeal to the committee. The committee met on 7 December 1990 to hear the appeal. A director and two representatives of its brokers attended on behalf of the company. The committee decided to uphold the decision of the panel and accordingly directed that the company’s listing should be cancelled in view of the inadequacy of the financial information currently available concerning the company.

The company itself has taken no formal step at any time to challenge the decisions of the panel or the committee. It is not a party to these proceedings and has played no part in them.

The proceedings arise out of applications for judicial review made by three applicants. All of the applicants are shareholders in the company, having bought shares off-market during the period when the listing was suspended and before it was cancelled. Two of the applicants (Else (1982) Ltd and Leonard Brealey as a trustee of a private pension trust) sought leave to challenge the panel’s decisions to suspend the company’s listing in June 1989 and to cancel the listing in November 1990 and the committee’s decision to cancel the listing in December 1990. They were granted leave to challenge the committee’s decision, but refused leave to challenge the panel’s decisions. Following this refusal, no renewed application for leave to challenge the panel’s decisions was made until, during the hearing of this appeal, application was made to this court for leave to move to challenge the panel’s cancellation decision. We refused that application. The third applicant, Gerard Patrick Thomas, is a Scots solicitor. He sought and obtained leave to move to challenge the committee’s cancellation decision. He has not sought to challenge either of the panel’s decisions.

Following an order for expedition, the hearing of these substantive applications took place before Popplewell J in June 1992. At that hearing the applicants attacked the committee’s decision as irrational, disproportionate and tainted by bias or the appearance of bias. The judge rejected these criticisms.

Page 426 of [1993] 1 All ER 420

Before the judge an issue of European Community law arose on which the judge held it necessary to seek a ruling from the Court of Justice of the European Communities under art 177 of the EEC Treaty to enable him to give judgment. Although the applicants in the court below contended that the issue should be decided in their favour, they did not resist the course adopted by the judge if he was left in doubt on the issue, subject to settling appropriate questions. The Stock Exchange, on the other hand, contended below that the issue should be decided in their favour and opposed a reference. The judge having decided to refer, they appeal against his decision to do so. They continue to argue that the Community law issue should be resolved in their favour. As an authority responsible for regulating an important international market, they have further urged the practical importance of knowing where they stand as quickly as possible. The apparent cogency of that consideration has caused the hearing of this appeal, on the Community law issue, to be expedited. It has proved convenient also to consider an issue of domestic law closely related to the Community law issue. For the avoidance of doubt I should make clear that by ‘domestic law’ I mean, for present purposes, the law of England not including that part of it which derives directly from the law of the Community.

The issues

The central issues on this appeal are these. 1. Were the applicants as shareholders entitled to be notified of and given the opportunity to make representations (which should have been duly considered) about the committee’s impending decision whether the company’s listing should be cancelled (a) in Community law? (b) in domestic law? 2. Are the applicants as shareholders entitled to challenge the committee’s decision to cancel the company’s listing (a) in Community law? (b) in domestic law?

In relation to questions such as 1(a) and 2(a), I understand the correct approach in principle of a national court (other than a final court of appeal) to be quite clear: if the facts have been found and the Community law issue is critical to the court’s final decision, the appropriate course is ordinarily to refer the issue to the Court of Justice unless the national court can with complete confidence resolve the issue itself. In considering whether it can with complete confidence resolve the issue itself the national court must be fully mindful of the differences between national and Community legislation, of the pitfalls which face a national court venturing into what may be an unfamiliar field, of the need for uniform interpretation throughout the Community and of the great advantages enjoyed by the Court of Justice in construing Community instruments. If the national court has any real doubt, it should ordinarily refer. I am not here attempting to summarise comprehensively the effect of such leading cases as H P Bulmer Ltd v J Bollinger SA [1974] 2 All ER 1226, [1974] Ch 401, Srl CILFIT v Ministry of Health Case 283/81 [1982] ECR 3415 and R v Pharmaceutical Society of GB, ex p Association of Pharmaceutical Importers [1987] 3 CMLR 951, but I hope I am fairly expressing their essential point.

It is convenient, with that point in mind, to turn to the Community law issue. This arises, and arises only, from Council Directive (EEC) 79/279 of 5 March 1979, the admission directive. I shall refer to it as ‘the directive’. Since its correct construction lies at the heart of this appeal, the directive must be analysed in a little detail.

The directive

The directive was made under the EEC Treaty and in particular arts 54(3)(g)

Page 427 of [1993] 1 All ER 420

and 100 thereof. Article 54(3)(g) required the Council and the Commission to carry out their duties under the Treaty in particular—

‘by co-ordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms within the meaning of the second paragraph of Article 58 with a view to making such safeguards equivalent throughout the Community.’

The second paragraph of art 58 contained a stipulative definition of ‘companies or firms’. Article 100 required the Council to issue directives for the approximation of such provisions laid down by law, regulation or administrative action in member states as directly affect the establishment or functioning of the common market.

The directive was intended, as its long title makes plain, to co-ordinate the conditions for the admission of securities to official stock exchange listing. This was a step towards establishment of a common market in securities. In other member states, as here, conditions (imposed for the protection of investors) had to be met before a security was admitted to listing. There could be no truly common market so long as different conditions were imposed by the various members states. Still less could there be a truly common market if it was open to national authorities, under the guise of protecting investors, to make the admission of local securities to listing easier than that of foreign securities. The policy objectives to be achieved by co-ordinating the listing conditions in the various member states were outlined in the fifth recital to the directive: to provide equivalent protection for investors at Community level, because of the more uniform guarantees offered to investors in the various member states; to facilitate Community-wide listing of member state securities; and to enable member states to penetrate each other’s securities markets so as to contribute to establishment of a European capital market. The directive applied to entities not covered by the second paragraph of art 58 of the Treaty and was acknowledged to go beyond art 54(3)(g), but was seen as directly affecting the establishment and functioning of the Common Market within the meaning of art 100.

The seventh recital to the directive is of such significance to this appeal as to justify verbatim quotation:

‘Whereas there should be the possibility of a right to apply to the courts against decisions by the competent national authorities in respect of the application of this Directive, although such right to apply must not be allowed to restrict the discretion of these authorities.’

Co-ordination was in the first instance to be limited to establishing minimum conditions for the admission of securities to official stock exchange lists in member states, but issuers were to have no right to listing.

Section I of the directive contains general provisions. These prescribe minimum conditions to be satisfied by securities admitted to official listing in member states and minimum obligations to which issuers shall be subject. While member states may impose conditions and obligations more stringent than the minimum, they may not (generally speaking) discriminate in doing so. Member states may in accordance with applicable national rules require issuers of securities admitted to official listing to inform the public on a regular basis of their financial position and the general course of their business.

Section II of the directive concerns the authorities competent to admit securities to official listing and contains the provisions most central to this appeal. Member

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states are required to designate such competent authorities. It is common ground in this case that the Council of the Stock Exchange is so designated and that the committee on quotations is empowered to act on its behalf. Member states are to ensure that the competent authorities have such powers as may be necessary for the exercise of their duties and, by para 3 of art 9:

‘Without prejudice to the other powers conferred upon them, the competent authorities may reject an application for the admission of a security to official listing if, in their opinion, the issuer’s situation is such that admission would be detrimental to investors’ interests.’

This is supplemented by art 10:

‘By way of derogation from Article 5, Member States may, solely in the interests of protecting the investors, give the competent authorities power to make the admission of a security to official listing subject to any special condition which the competent authorities consider appropriate and of which they have explicitly informed the applicant.’

Article 12 authorises competent authorities (in addition to any other sanction) to publicise the fact that an issuer is failing to comply with its obligations. Article 13 requires an issuer whose securities are admitted to official listing to provide the competent authorities with all the information they consider appropriate ‘to protect investors or ensure the smooth operation of the market’ and, by para 2 of this article:

‘Where protection of investors or the smooth operation of the market so requires, an issuer may be required by the competent authorities to publish such information in such a form and within such time limits as they consider appropriate. Should the issuer fail to comply with such requirement, the competent authorities may themselves publish such information after having heard the issuer.’

This section of the directive ends with arts 14, 15 and 16, which I quote in full:

‘Article 14

1. The competent authorities may decide to suspend the listing of a security where the smooth operation of the market is, or may be, temporarily jeopardized or where protection of investors so requires.

2. The competent authorities may decide that the listing of the security be discontinued where they are satisfied that, owing to special circumstances, normal regular dealings in a security are no longer possible.

Article 15

1. Member States shall ensure decisions of the competent authorities refusing the admission of a security to official listing or discontinuing such a listing shall be subject to the right to apply to the courts.

2. An applicant shall be notified of a decision regarding his application for admission to official listing within six months of receipt of the application or, should the competent authority require any further information within that period, within six months of the applicant’s supplying such information.

3. Failure to give a decision within the time limit specified in paragraph 2 shall be deemed a rejection of the application. Such rejection shall give rise to the right to apply to the courts provided for in paragraph 1.

Article 16

Where an application for admission to official listing relates to certificates representing shares, the application shall be considered only if the competent authorities are of the opinion that the issuer of the certificates is offering adequate safeguards for the protection of investors.’

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Section III of the directive covers the publication of information to be made available to the public. Section IV covers co-operation between member states. Our attention was drawn to art 18, which requires member states to co-operate and communicate with each other. Article 19 imposes a duty of professional secrecy but provides that communication between the competent authorities of member states shall not be a breach of it. Section V made provision for a contact committee composed of representatives of member states and the Commission to discuss implementation of the directive and practical problems arising from it and to advise the Commission.

At its request the court was referred to the proposal from the Commission, the opinion of the European Parliament and the opinion of the economic and social committee to which reference is made in the second, third and fourth recitals of the directive. These show, as one would expect, that the original draft of the directive was modified before its final adoption, but they throw no definitive light on the issue between the parties in this court. It is, however, of interest that the proposed directive contained no precursor of the seventh recital in the directive, although it did provide in art 10(2) that each member state should provide for a right of appeal to the courts against a decision to refuse an application for listing. The economic and social committee criticised that proposal, suggesting that a right of appeal should be provided against any decision of the competent authorities and not just against a decision to refuse an application for listing. The Parliament also felt that there should be greater rights of appeal against the decisions of the national authorities responsible for the admission of securities to quotation. It advised that there should be a right of administrative appeal against decisions to refuse listing, against decisions that information should be published, against decisions that listing be discontinued and against decisions by the competent authorities of their own motion to list a security (a power not in the event conferred by the directive itself). There was no suggestion that the right of appeal should be conferred on additional parties.

The parties to this appeal agree that the directive takes direct effect. We were told that the researches of counsel had unearthed no relevant authority on its construction.

The applicants’ argument on the directive

On behalf of the applicants, a long and detailed argument was advanced. I understood the essential steps in the argument to be these. (1) The directive is a measure intended to protect investors, including shareholders such as the applicants. (2) Shareholders such as the applicants are likely to suffer loss or prejudice if the public listing of the company in which they hold shares is cancelled. (3) Shareholders such as the applicants cannot effectively resist a potentially damaging cancellation unless they are notified of an impending decision, unless they are informed of the grounds on which the decision may be taken, unless they have the opportunity to make representations and unless the competent authority is bound to consider these representations before making a decision. (4) The seventh recital of the directive and art 15 impose no restriction upon the parties granted a right to apply to the courts. (5) In the light of (1) to (4) above the intention of art 15 is, or at any rate may be, to confer rights on shareholders such as the applicants to be notified of an impending decision whether a listing should be cancelled, to be informed of the grounds relied on and to be given an opportunity to make representations and, after the decision has been made, to challenge it. (6) The English court should accordingly seek a ruling from the Court of Justice on the correct construction of the directive, and the judge was right to refer.

Each of these steps calls for careful consideration.

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The conditions which national authorities impose on admission to listing are imposed for the protection of investors. The body of investors includes existing shareholders. It also includes, very particularly in this context, potential future investors. In dealing with conditions imposed and obligations undertaken by companies whose securities are admitted to listing, the directive expressly recognises the responsibility of the competent authorities to protect the interests of investors, which must always be their overriding concern when exercising their powers. But the primary purpose of the directive is to co-ordinate the listing practice of competent authorities in the various member states with a view to establishing a common market in securities and not, in any direct way, to provide additional protection for investors.

I accept without question that shareholders such as the applicants are liable to suffer loss or prejudice if the public listing of a company in which they hold shares is cancelled. But so they may if the listing is suspended or, in a less obvious way, if an application for listing is refused. The applicants accept that the directive does not, in either of these situations, confer upon shareholders any right of recourse to the court.

I accept that in the ordinary way step (3) in the applicants’ argument is likely to be factually correct.

I accept that the seventh recital of the directive and art 15 do not in express terms define the parties upon whom a right to apply to the courts is conferred. But several considerations compel me to what I regard as an inevitable conclusion that the right is conferred on a company or an issuer alone. (i) In the proposed directive the right provided for was one of appeal. While the Economic and Social Committee and the Parliament favoured a wider right of appeal, there is no suggestion that they or anyone envisaged any right other than a right of appeal. In any ordinary situation, a right of appeal is accorded to the party who has been the subject of an adverse decision. There is nothing to suggest that any party other than a company or issuer was seen as potentially the subject of any adverse decision or as having any right of appeal. (ii) The directive is concerned with relations between competent authorities (who are responsible for protecting the interests of investors) and companies or issuers. Nothing in the directive suggests that competent authorities may have direct relations with investors. (iii) Once it is accepted, as it must be, that the directive gives investors no right of recourse to the courts in respect of suspension and refusal of listing, it cannot rationally be construed as conferring such a right on investors in respect of cancellation.

I cannot accept the soundness of step (5). In addition to reasons already given, I see powerful further objections, particularly to the rights the applicants claim before a cancellation decision is made. (i) Such rights would in my view gravely restrict the discretion of the competent authorities, which the seventh recital indicates must not be allowed. The applicants do not, I think, deny that the procedure for which they contend could substantially postpone the date at which a cancellation might become effective, but they suggest that only suspension need take place urgently; thereafter the rights of a company and investors are frozen and a delay in cancellation (they say) carries no risk. Often this may be so, but I do not accept it is necessarily so. Article 14 lays down different tests for suspension and cancellation. It is for the competent authority to decide in the exercise of its informed judgment which of these courses, if either, is appropriate on given facts. Recent history in more than one field emphasises the need for regulatory authorities to take quick and decisive action where the situation requires it. The directive, in my view, recognises that need and gives effect to it. The applicants’ argument subverts that intention. (ii) It is obvious that with a company of any

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size the task of circularising all shareholders and giving them the information they need to make a decision is a substantial and expensive task. If the directive envisaged such a procedure it could scarcely avoid all reference to the questions: who is to carry out this task? and who is to pay? Spare though the style of Community draftsmanship may be, it would be surprising to find a lacuna as gross as this. (iii) There are deeply-rooted principles of company law that a company is a legal entity separate and distinct from its shareholders and that a shareholder may not as such act on behalf of or enforce the rights of the company. On the applicants’ argument, difficult questions would be bound to arise where, as here, a cancellation decision is accepted by a company but challenged by some (although only a small minority) of shareholders. It would arise even more acutely in the common case where cancellation is requested by a company, if resisted by a small minority of shareholders. These are, again, obvious problems posed by the applicants’ argument which the directive fails to address. This would be very surprising if that argument were right. If it is wrong, the directive does not give rise to these problems and they are rightly ignored. (iv) The directive does not define ‘investors’. This is understandable if, as I hold, the directive confers no enforceable rights on investors. But on the applicants’ argument, in an instrument having direct effect, it would be very important to know who the class of ‘investors’ included. A number of possible categories have been suggested, in addition to shareholders. But it is hard to suppose that potential buyers of securities, a class of much concern to the competent authorities, could enjoy the rights the applicants claim, and this lack of definition weighs powerfully against the applicants’ argument, because an instrument of such uncertain scope cannot properly be given direct effect. In the result, I feel able with complete confidence to reject the applicants’ argument based on the directive. For reasons which I have tried to give, I do not share the doubts felt by the learned judge about the effect to be given to it. If I did, I would of course respect his exercise of discretion to refer, which would in any event have been the proper course. But taking the view I do, I do not find it necessary to seek a ruling on this question from the Court of Justice to enable me to give judgment. It follows that I would allow the appeal of the Stock Exchange on this point and quash the order made under art 177 of the Treaty.

Domestic law

It was not suggested that the law of England, independently of Community law, permitted an affirmative answer to the question posed at 1(b) above. Nor, I think, was it argued that domestic law, independently of Community law, conferred a right on shareholders as envisaged by question 2(b). But the applicants argued (and the Stock Exchange broadly denied) that as shareholders they had a sufficient interest in the cancellation decision within the meaning of s 31(3) of the Supreme Court Act 1981 and RSC Ord 53, r 3(7) to enable a grant of leave to move for judicial review to be properly made, subject of course to the applicants meeting the other qualifying conditions.

On the facts here, no application for leave to move was made before the cancellation decision. I decline to speculate what the position would have been had the applicants been in a position to apply, and had they done so, at that stage.

When the applicants applied for leave to move Auld J was tentatively of opinion that they could show a sufficient interest. He was no doubt mindful that they were not busybodies but claimed, as shareholders, to have a direct financial interest in the company which the cancellation decision affected. At the substantive hearing Popplewell J took a different view, ruling that the applicants

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had no sufficient interest. The applicants appeal against that decision. In the event, however, the judge did investigate and rule upon the various grounds relied upon to challenge the committee’s cancellation decision (with the exception of additional grounds which he did not, quite rightly, allow the applicants to pursue). He rejected that challenge. It follows that whether the applicants had a sufficient interest to mount a retrospective challenge to the cancellation decision is strictly academic unless or until this court is persuaded that the judge was wrong to reject that challenge. The applicants do not appeal on that aspect. It is therefore undesirable to express a concluded view. I would simply observe that the problems facing any shareholder seeking to mount such a challenge are formidable in the extreme. In a highly sensitive and potentially fluid financial market, the factors listed in s 31(6) of the 1981 Act have a special significance. And the courts will not second-guess the informed judgment of responsible regulators steeped in knowledge of their particular market. But if, exceptionally, a shareholder were able to overcome these formidable problems, I question whether his claim to relief should fail for lack of sufficient interest.

The order resulting from this hearing is not entirely straightforward. I would be grateful if counsel could prepare draft minutes of order, which should be copied to Mr Thomas and, if agreed by all parties, submitted to the associate.

McCOWAN LJ. I agree with Sir Thomas Bingham MR’s judgment and would add only a few words of my own.

Miss Allan for the applicants in the first appeal conceded before this court that only the company in question, as the applicant for listing, has the right to apply to the courts in respect of a refusal of admission to listing. But, she argued, art 15(1) only provides, as she put it, ‘a broad scenario’, which is cut down in respect of a refusal of admission to listing by paras (2) and (3), but not in respect of discontinuance of listing, as to which the article is silent.

To my mind, however, it would be very odd if art 15 contemplated that a wider class of persons than the company should have the right to apply to the courts in respect of discontinuance of listing than in respect of admission to listing but neglected to say so. Moreover, Miss Allan has been unable to point to anything in art 15 to suggest that an application to the courts in respect of discontinuance can be made by a different body or class of persons than that which the article clearly says can make the application in respect of listing, namely the company.

In my judgment, therefore, the terms of art 15 itself are plainly against her submissions.

LEGGATT LJ. It is the policy of the EEC Treaty to abolish restrictions on freedom of establishment. One way of furthering this policy is to co-ordinate safeguards for the protection of individuals by rendering the safeguards ‘equivalent’ throughout the Community. A series of directives has applied this principle to companies. But that does not detract from the distinction which English law recognises between a company and its members. The court cannot interfere with the internal management of a company acting within its powers. Although the court will interfere to prevent fraud on a minority of shareholders, it will not ordinarily recognise any independent right of action by an individual shareholder based on an allegation of damage to the value of his shareholding, whether caused by the directors or by third parties. Nothing in Community law departs from that principle unless the applicants’ submission in the present case is correct that Council Directive (EEC) 79/279 accords to individual shareholders the right to apply to the court for the purpose of objecting to the discontinuance of the listing of the company of which they are members.

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Community legislation about stock exchanges is mainly concerned with the listing of securities. Directive 79/279 has been followed by directives dealing with requirements for furnishing particulars of securities for which listing has been applied, and with information which must be published regularly by companies with listed shares. These directives are intended to protect investors as well as to facilitate access to the markets of the member states. By force of the Stock Exchange (Listing) Regulations 1984, SI 1984/716, these directives apply to the United Kingdom.

The scheme of the relevant Community legislation, and Directive 79/279 in particular, is to provide for the co-ordination of conditions for admission to listing by designating a competent authority in each member state to police the process. Ancillary provision is made for the suspension of listing and for discontinuance of listing. But although one of the main aims of controlling admission to listing is the protection of investors, the directive is concerned with the means of control by the competent authority rather than with conferring rights on investors so that they may look out for themselves.

The function of Directive 79/279, known as ‘the admission directive’, is ‘coordinating the conditions for the admission of securities to official stock exchange listing’. The recitals show that this process is likely to provide protection for investors by rendering more uniform the practices in the member states. The general approach is prescribed by art 3, which says:

‘Member States shall ensure that:—securities may not be admitted to official listing on any stock exchange situated or operating within their territory unless the conditions laid down by this Directive are satisfied, and that—issuers of securities admitted to such official listing, whether admission takes place before or after the date on which this Directive is implemented, are subject to the obligations provided for by this Directive.’

Article 4 provides that the admission of securities to official listing is subject to the conditions set out in Schs A and B relating to shares and debt securities, and that the issuers of listed securities must fulfil the obligations in the corresponding Schs C and D. Schedule A therefore contains conditions for the admission of shares, and Sch C deals with the obligations of companies whose shares are admitted. Paragraph 2 of Sch C is concerned with treatment of shareholders. By sub-para (b)—

‘The company must ensure, at least in each Member State in which its shares are listed, that all the necessary facilities and information are available to enable shareholders to exercise their rights …’

This includes information about shareholders’ meetings and notices about dividends and new shares.

Section II of the directive is headed: ‘Authorities competent to admit securities to official listing.' In that section art 9 by para 1 requires member states to designate the competent authority ‘to decide on the admission of securities to official listing’. Paragraph 3 provides:

‘Without prejudice to the other powers conferred upon them, the competent authorities may reject an application for the admission of a security to official listing if, in their opinion, the issuer’s situation is such that admission would be detrimental to investors’ interests.’

Article 10 applies to any special condition to which the competent authority may make the admission of a security subject, and of which they have informed the applicant, that is, the person applying for the admission. Article 11 refers to a

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refusal to admit. Articles 12 and 13 apply to failure by the issuer to comply with obligations and to publish information. Article 14 is concerned with suspension and discontinuance of the listing. Finally, art 15 (2) relates to notification to an applicant of a decision regarding his application for admission, and para 3 provides that a deemed rejection of the application ‘shall give rise to the right to apply to the courts provided for in paragraph 1’. The would-be issuer is both the applicant for admission and the person with the right to apply to the courts. Paragraph 1 itself says:

‘Member States shall ensure decisions of the competent authorities refusing the admission of a security to official listing or discontinuing such a listing shall be subject to the right to apply to the courts.’

‘Decisions’ are made under art 9(1); ‘decisions refusing’ may be made under art 9(3) or under art 11; and ‘decisions discontinuing’ may be made under art 14(2).

In my judgment as a matter of construction the fact that the decisions have to be ‘subject to the right to apply to the courts’ means that as with a deemed rejection under art 15(3), it is the giving to the applicant of an adverse decision by the competent authority that also gives to the applicant a right to apply to the courts. There is no other person to whom that right is given: it is given solely to the applicant. Miss Allan argues that because the directive is for the protection of investors it is they who must have a right to apply to the court. That is a non sequitur. Nothing in the language of the directive accords such a right to investors, actual or potential. I am fortified in this conclusion by the fact that, if the law were otherwise, the consequences of extending to persons other than the company the right to apply to the court would be commercially intolerable. If the number of shareholders was large, the process of identifying and communicating with them might be onerous, protracted and expensive. As Mr Henderson QC has pointed out, it might jeopardise confidentiality. It might even allow the will of a majority to be thwarted, if not overborne, by the protestation of an individual shareholder. I therefore conclude that the correct application of Community law in this case is so obvious as to leave no scope for any reasonable doubt, that recourse to the Court of Justice of the European Communities is unnecessary and that the appeal should be allowed and the cross-appeal dismissed.

Appeals allowed; cross-appeal in first appeal dismissed; first two applications of respondents in first appeal dismissed and third application allowed. Leave to appeal to the House of Lords refused.

Mary Rose Plummer   Barrister.

R v Doncaster Magistrates’ Court, ex parte Goulding

[1993] 1 All ER 435

Categories:        CRIMINAL; Criminal Procedure        

Court:        QUEEN’S BENCH DIVISION        

Lord(s):        NEILL LJ AND McCULLOUGH J        

Hearing Date(s):        15, 24 OCTOBER 1991        

Magistrates – Committal for sentence – Offence triable summarily or on indictment – Discontinuance of summary trial and committal to Crown Court – Circumstances of offence – Character and antecedents of accused – Accused charged with offences triable either way -Justices agreeing to try case summarily – Whether stipendiary magistrate having power to commit accused to Crown Court for sentence – Whether circumstances of offence part of accused’s character and antecedents – Whether decision of one bench to try case summarily precluding subsequent committal to Crown Court for sentence by another bench – Principles to be applied when committing for sentence – Magistrates’ Courts Act 1980, ss 19(1), 38.

The applicant was charged with three offences of possession of controlled drugs. When he was brought before the bench of lay justices they decided under s 19a of the Magistrates’ Courts Act 1980 that although the offences were triable either way they were suitable for summary trial. The applicant then pleaded guilty to possession but not guilty to possession with intent to supply. The justices adjourned the case for trial but when the applicant appeared before a stipendiary magistrate for trial and sentence the trial was unable to proceed and the magistrate expressed surprise that the justices had thought the case suitable for summary trial and stated that on the next occasion they ought to reconsider the matter, discontinue the summary trial and proceed as examining magistrates. When the applicant next appeared before the stipendiary magistrate he changed his plea on the outstanding charge to guilty and the magistrate committed him to the Crown Court for sentence because of his previous convictions (none of which had involved drugs or had resulted in a custodial sentence) and because he considered that the justices had been wrong to proceed with summary trial. The applicant applied for judicial review of the magistrate’s decision, contending that there was no jurisdiction to commit him to the Crown Court for sentence having regard to the justices’ earlier decision that the offences were suitable for summary trial.

Held – Once a magistrates’ court had decided under s 19(1) of the 1980 Act to proceed summarily on an offence triable either way because the ‘circumstances of the offence’ indicated that summary trial was more appropriate the court nevertheless had power under s 38b of that Act to commit the defendant to the Crown Court for sentence after conviction if his ‘character and antecedents’, which included anything that reflected on the defendant’s character and anything about the circumstances of the offence which subsequently came to the court’s attention after deciding to try the offence summarily, were such that a greater punishment should be imposed than the magistrates’ court had power to impose. For the purposes of s 38 the defendant’s ‘character and antecedents’ meant anything that reflected on his character, even if it was a circumstance of the offence, and any such matter could be taken into account in deciding whether to commit him for sentence provided it was not known to the justices when they

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took their decision to try the case summarily and the new matter was more than the filling in of detail, which would be a matter of degree, and it did not matter whether the justices’ ignorance of that matter resulted from their failure to make any or any proper inquiry or from the failure of the prosecution to inform them of it or from any other cause. It followed that the stipendiary magistrate had had jurisdiction under s 38 to commit the applicant to the Crown Court for sentence and that the application for judicial review would therefore be dismissed (see p 442 b c g to j, p 445 c d and p 446 b to d, post).

R v Vallett [1951] 1 All ER 231, R v King’s Lynn Justices, ex p Carter [1968] 3 All ER 858 and R v Lymm Justices, ex p Brown [1973] 1 All ER 716 applied.

Notes

For power of justices to commit for sentence for an offence triable either way, see 11(2) Halsbury’s Laws (4th edn reissue) para 821.

For the Magistrates’ Courts Act 1980, ss 19, 38, see 27 Halsbury’s Statutes (4th edn) (1992 reissue) 173, 191.

Cases referred to in judgment

R v Broadcasting Complaints Commission, ex p Owen [1985] 2 All ER 522, [1985] QB 1153, [1985] 2 WLR 1025, DC.

R v Cardiff Stipendiary Magistrate, ex p Morgan [1989] Crim LR 503, DC.

R v Derby and South Derbyshire Magistrates, ex p McCarthy (1980) 2 Cr App R (S) 140, DC.

R v Guildhall Justices ex p Cooper (1983) Times, 6 May, DC.

R v Harlow Justices, ex p Galway [1975] Crim LR 288, DC.

R v Hartlepool Justices, ex p King [1973] Crim LR 637, DC.

R v King’s Lynn Justices, ex p Carter [1968] 3 All ER 858, [1969] 1 QB 488, [1968] 3 WLR 1210, DC.

R v Lymm Justices, ex p Brown [1973] 1 All ER 716, [1973] 1 WLR 1039, DC.

R v Tower Bridge Magistrate, ex p Osman [1971] 2 All ER 1018, [1971] 1 WLR 1109, DC.

R v Vallett [1951] 1 All ER 231, 34 Cr App R 251, CCA.

R v Warrington Justices, ex p Mooney (1980) 2 Cr App R (S) 40, DC.

Application for judicial review

Mark Anthony Goulding applied, with the leave of Brooke J given on 23 May 1991, for judicial review by way of an order of, inter alia, (i) certiorari to quash the decision of Mr J E Barry, a stipendiary magistrate sitting at the Doncaster Magistrates’ Court on 25 February 1991, committing the applicant to the Crown Court for sentence under s 38 of the Magistrates’ Courts Act 1980, (ii) an order of mandamus requiring the Doncaster Magistrates’ Court to hear and determine the charges against the applicant according to law and (iii) an order of prohibition directed to the Crown Court at Doncaster restraining the court from adjudicating on the charges in respect of which the applicant was committed by the magistrate for sentence. The facts are set out in the judgment of McCullough J.

Richard Gordon (instructed by Attey Bower & Jones, Doncaster) for the applicant.

Jeremy R Baker (instructed by the Crown Prosecution Service, Doncaster) for the Director of Public Prosecutions, as an interested party.

The stipendiary magistrate did not appear.

Cur adv vult

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24 October 1991. The following judgments were delivered.

McCULLOUGH J (delivering the first judgment at the invitation of Neill LJ). Mr Mark Anthony Goulding applies by way of judicial review to quash the decision of the Doncaster stipendiary magistrate, Mr J E Barry, on 25 February 1991 to commit him to the Crown Court at Doncaster under s 38 of the Magistrates’ Courts Act 1980 to be sentenced for three offences of possession of controlled drugs, contrary to the Misuse of Drugs Act 1971, to which he had earlier pleaded guilty. All were triable either summarily or on indictment.

The question for this court is the familiar one of whether there was jurisdiction to commit for sentence having regard to an earlier decision that the offences were suitable for summary trial and to the factual basis on which that earlier decision was taken. It is submitted on behalf of the applicant that the grounds put forward by the stipendiary magistrate to justify his decision were insufficient in law to entitle him to commit the applicant to the Crown Court for sentence.

The legislation

Where a person appears before a magistrates’ court charged with an offence which is triable either summarily or on indictment s 19(1) of the Magistrates’ Courts Act 1980 requires the court to—

‘consider whether, having regard to the matters mentioned in subsection (3) below and any representations made by the prosecutor or the accused, the offence appears to the court more suitable for summary trial or for trial on indictment.’

Subsection (3) provides:

‘The matters to which the court is to have regard under subsection (1) above are the nature of the case; whether the circumstances make the offence one of serious character; whether the punishment which a magistrates’ court would have power to inflict for it would be adequate; and any other circumstances which appear to the court to make it more suitable for the offence to be tried in one way rather than the other.’

The law recognises, however, that there may be cases where the initial view that punishment which the magistrates’ court would have power to inflict would be adequate calls for revision in the light of fresh information which becomes available after conviction. Accordingly s 38 provides:

‘Where on the summary trial of an offence triable either way … a person … is convicted of the offence, then, if on obtaining information about his character and antecedents the court is of the opinion that they are such that greater punishment should be inflicted for the offence than the court has power to inflict, the court may … commit him … to the Crown Court for sentence …’

The power to commit for sentence first appeared in s 29(1) of the Criminal Justice Act 1948. This was replaced by s 29 of the Magistrates’ Courts Act 1952 which was in turn replaced by s 38 of the 1980 Act. In each of these sections the operative words have been the same.

The criteria now found in ss 19(3) and 38 of the 1980 Act are different. None is mentioned in both sections. Looking at the sections on their own, one might have concluded that ‘the circumstances of the offence’ and the ‘character and antecedents’ were mutually exclusive concepts. On their face they are different. Either an offence is serious or it is not, the character and antecedents of the defendant cannot affect this. It is, of course, true to say that the circumstances of

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an offence that a man has committed reflect on his character and they are antecedent to the court proceedings, but ss 19(3) and 38 are worded consistently with the assumptions (i) that all the circumstances which make the offence of a serious character are to be mentioned when the mode of trial is being considered and (ii) that those aspects of the defendant’s character and antecedents which make it appear that the court’s powers of punishment are inadequate will appear after conviction. When the mode of trial is under consideration neither previous convictions nor any other discreditable feature in the defendant’s history can properly be mentioned by the prosecution. If the defending advocate volunteers them, it will be to make the point that, while his client’s record is not unblemished, the blemish is slight, so that the powers of the justices to inflict punishment will more likely be adequate. The same will apply to other offences which the defendant intends to ask to be taken into consideration. These cannot properly be mentioned by the prosecution at this first stage unless the defendant agrees. All this is catered for in the words ‘any other circumstances which appear to the court to make it more suitable for the offence to be tried in one way rather than the other’. It is obviously convenient, and it is not unjust, to commit for sentence a defendant who pleads guilty if it should later transpire that the decision to try him summarily was for some reason mistaken, but had this been the intention of Parliament a suitable addition to the words of s 38 could have made express provision for this.

Despite these considerations, the cases which here turned on the interpretation of the power to commit for sentence show that the words ‘character and antecedents’ have in the context of the power to commit for sentence been interpreted as embracing such circumstances of the offence as bear on the defendant’s character.

Some of the cases concerned offences triable either summarily or on indictment. Others concerned the summary trial of indictable offences. The provisions governing the procedure to be adopted by the magistrates in each type of offence differ slightly: see s 24(1) of the Criminal Justice Act 1925 (as amended by the 1948 Act) and s 28 of the 1948 Act, which were replaced, without significant alteration, by ss 18 and 19 of the Magistrates’ Courts Act 1952. In 1977, when a number of hitherto indictable offences were made triable either summarily or on indictment, the procedure enabling indictable offences alleged against those aged 17 and over to be tried summarily was abolished and the scheme now found in the 1980 Act was introduced: see ss 16 and 20 of the Criminal Law Act 1977.

Of these earlier provisions it is necessary to mention the terms of only s 24(1) of the Criminal Justice Act 1925. This read:

‘Where a person … is charged before a court of summary jurisdiction with an indictable offence, being one of the offences specified in the Second Schedule to this Act, the court, if it thinks it expedient so to do, having regard to … [the character and antecedents of the accused,] the nature of the offence, the absence of circumstances which would render the offence one of a grave or serious character and all the other circumstances of the case (including the adequacy of the punishment which a court of summary jurisdiction has power to inflict), and if the accused … consents to be dealt with summarily, may … deal summarily with the offence …’

By s 79 of and Sch 9 to the Criminal Justice Act 1948 the words in square brackets ceased to have effect. Both the presence of the words ‘character and antecedents’ in the original s 24(1) and their removal contemporaneously with the enactment of s 29 of the 1948 Act might have been thought to indicate that ‘character and antecedents’ did not embrace the circumstances of the offence.

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The authorities

In all of the decided cases, after summary trial had been decided upon, the defendant pleaded guilty and was later committed to the Crown Court (or Quarter Sessions) for sentence, and the lawfulness of the committal was later challenged.

The question for decision in those cases, as in this, can be formulated as follows: Did the magistrates’ court, having earlier decided to try the case summarily, have power to commit the convicted person for sentence on obtaining information as to his character and antecedents which made the court consider that his character and antecedents were such that greater punishment should be inflicted in respect of the offence than the court had power to inflict? The crucial words are ‘character and antecedents’.

The earliest case is R v Vallett [1951] 1 All ER 231, 34 Cr App R 251, a decision of the Court of Criminal Appeal. Vallett was charged with four offences of larceny as a servant. She was a supervisor at a laundry and knew the arrangements made by her employers to combat thefts. She made use of this knowledge to carry out thefts over a long period. After summary trial had been decided (presumably under s 24(1) of the Criminal Justice Act 1925 as amended) she pleaded guilty and asked for a further 96 offences to be taken into consideration; she had no previous convictions. She was committed for sentence to Quarter Sessions under s 29(1) of the Criminal Justice Act 1948 and sentenced to two years’ imprisonment. On appeal it was submitted that there was no power to commit her for sentence because she had never previously been convicted and she bore a good reputation. Her appeal was dismissed.

In giving the judgment of the court Lord Goddard CJ said (at 231–232):

‘… “character” … certainly relates, in my opinion, to something more than the fact that a person has been previously convicted, and the word “antecedents” is as wide as can be conceived … The character and antecedents of the appellant show that she has been a shameless thief for a long period of time …’

The report does not give the dates of the offences nor does it reveal how many of the facts were known to the justices when they decided to try her summarily and how many emerged later. The report of counsel’s argument (see 34 Cr App R 251) would suggest that he did not submit that this was relevant.

R v King’s Lynn Justices, ex p Carter [1968] 3 All ER 858, [1969] 1 QB 488 concerned three defendants, C, S and W, who were jointly charged that between October 1967 and January 1968, being servants to Jaegar & Co Ltd, they stole 489 ladies’ garments of a total value of just under £3,500. At the outset and without hearing the circumstances of the charge the justices agreed to try the case summarily in accordance with s 29 of the 1952 Act. The three then pleaded guilty. Thereafter the bench was told the following. S and W who were cleaners employed by the company had confessed to a long series of thefts between the dates in the charge. C was superior to S and W and in a position of trust. He had approached the other two and had requested them to take the garments out of the premises in rubbish bags and then transfer them to the boot of C’s car, of which they had been given the key. Although C had only admitted being involved during the last week of the thefts, the court thought it right to take against him what S and W had said; so he too was regarded as having been involved throughout. The applications were all dismissed. The report reveals that the court certified the following point of general public importance but refused leave to appeal to the House of Lords: what matters could be taken into consideration as going to character and antecedents within s 29 of the 1952 Act? (See [1968] 3 All ER 858 at 862, [1969] 1 QB 488 at 497–498.)

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Lord Parker CJ said ([1968] 3 All ER 858 at 862, [1969] 1 QB 488 at 497):

‘As I see it, speaking for myself, the expression “character and antecedents” being as wide as it possibly can be, justices are entitled to take into consideration in deciding whether or not to commit, not merely previous convictions, not merely offences which they are asked to take into consideration, but matters revealed in the course of the case connected with the offence charged which reflects in any way on the accused’s character. Of course, in the ordinary way where justices do their duty under s. 19(2) of the Act of 1952, the circumstances of the offence which reflect on character and antecedents will already have emerged, and if, notwithstanding that, the justices decide to deal with the case summarily, they cannot take those matters into consideration again when they are considering committal under s. 29; there must be something more than has been revealed at the stage when they decided to deal with the case summarily. On the other hand where, as in the present case, they have either been persuaded to deal with the case summarily, or have embarked on the summary trial without making any proper inquiry, or without conducting their inquiry as examining magistrates far enough to understand the nature of the case, then, as it seems to me, they are fully entitled to take into consideration those matters relating to the offence which had been revealed at the trial and which do reflect on the character and antecedents.’

It may be asked how this principle applied to the facts of the case, ie what new circumstances emerged after it was decided to try the case summarily. The charge itself showed that there were three defendants, that all were servants and that the value of the goods stolen between 1 October 1967 and 10 January 1968 was nearly £3,500. The fact that C was superior to S and W and had corrupted them was new. But what emerged which made the parts played by the other two worse than was apparent from the charge itself? In R v Tower Bridge Magistrate, ex p Osman [1971] 2 All ER 1018 at 1020, [1971] 1 WLR 1109 at 1111 Lord Parker CJ described the King’s Lynn Justices case as ‘very special’ and added:

‘… the gravity of the case was not revealed until the prosecution case was opened, when it was found that these thefts had been going on over a very long period.’

It must, I think, be presumed that the court assumed that the lay justices would not have realised from the span of three and a half months in the dates of the charge that there had been a series of thefts, rather than one, at some time during that period when all 489 garments had been taken.

It was the absence of new facts which led to the committal for sentence being quashed in R v Tower Bridge Magistrate, ex p Osman [1971] 2 All ER 1018, [1971] 1 WLR 1109. Osman had been charged with three offences of theft of goods of small value from the Bricklayers’ Arms goods depot of British Railways covering the period 1 January 1970 to 23 November 1970. The only thing that emerged after the stipendiary magistrate had decided on summary trial under s 19 of the 1952 Act and Osman had pleaded guilty was that he was himself employed by British Railways.

Lord Parker CJ said ([1971] 2 All ER 1018 at 1020, [1971] 1 WLR 1109 at 111):

‘… it was perfectly patent to anybody who read the charges, and in particular this magistrate, who had had this trouble with this depot in the past, and particularly when the thefts were alleged to have occurred over

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such a long period, that this was a typical case of pilfering by an employee of the railways … it is not a question of something more being revealed in the prosecution case which enhanced the gravity of the offences. Here the gravity of the offences was undoubtedly to this magistrate patent on the very face of them …’

In R v Lymm Justices, ex p Brown [1973] 1 All ER 716, [1973] 1 WLR 1039 the defendant was charged with two offences of theft; the first alleged theft of a lady’s twin set on 29 June 1971; fewer particulars of the second are given in the report, and all one knows is that it charged him on divers dates over a period of months with the theft of a great list of articles on perhaps 20 or some such number of occasions (see [1973] 1 All ER 716 at 718–720, [1973] 1 WLR 1039 at 1041–1043). After the justices had agreed to try the case summarily under s 19 of the 1952 Act and the defendant had pleaded guilty they were told that he had committed the thefts while on duty as a police officer at the airport where the thefts had taken place. He asked for one further offence, of which no details are given, to be taken into consideration. The application to quash the committal was dismissed because the justices discovered after they had agreed to try the case summarily and after the conviction that the applicant was a police officer and had committed the offence when on duty.

Lord Widgery CJ, having cited the judgment of Lord Parker CJ in the King’s Lynn Justices case, said ([1973] 1 All ER 716 at 719, [1973] 1 WLR 1039 at 1042):

‘Lord Parker CJ was saying in the clearest terms that although it is right and desirable for justices to make as full an enquiry as possible before committing themselves to a decision to try the case summarily, yet if they do not do that, either because they have been over-persuaded by the prosecution, or for any other reason, they can have regard to facts subsequently emerging in deciding whether or not to apply s 29, and that in my judgment is exactly what the justices did in this case. They discovered after they had agreed to try the case summarily and after the conviction that the applicant was a policeman and had committed these offences when on duty. Those were matters of antecedents for the purpose of s 29, as is not disputed …’

Last before the changes made by the Criminal Law Act 1977 come two cases noted briefly in the Criminal Law Review. The Crown Office does not have a transcript of the judgment in either. In R v Hartlepool Justices, ex p King [1973] Crim LR 637 the decision to commit was quashed because after it had been decided to try the case summarily and the defendant, who had no previous conviction, had pleaded guilty the only new factor to emerge was that the facts of the offence (an assault occasioning actual bodily harm) were more serious than the justices had imagined. He had not been previously convicted.

In R v Harlow Justices, ex p Galway [1975] Crim LR 288 the justices had embarked on a summary trial of eight offences concerning forged income tax forms without further inquiry, and after the defendant had pleaded guilty it became apparent that he had systematically defrauded the revenue of £5,000 and was asking for 19 further offences to be considered. It was held that the justices were entitled to commit for sentence even though they had failed to make proper inquiry at the earlier stage.

We know only four cases on this topic which have been decided since the coming into force of the 1977 Act, viz R v Warrington Justices, ex p Mooney (1980) 2 Cr App R (S) 40, R v Derby and South Derbyshire Magistrates, ex p McCarthy (1980) 2 Cr App R (S) 140, R v Guildhall Justices, ex p Cooper (1983) Times, 6 May (the

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court has seen a transcript of the judgments) and R v Cardiff Stipendiary Magistrate, ex p Morgan [1989] Crim LR 503. In each the committal for sentence was quashed because after the decision to try the case summarily was taken nothing more than the filling in of detail emerged.

There is no post-1977 equivalent of R v Vallett [1951] 1 All ER 231, R v King’s Lynn Justices, ex p Carter [1968] 3 All ER 858, [1969] 1 QB 488 and R v Lymm Justices, ex p Brown [1973] 1 All ER 716, [1973] 1 WLR 1039—the three decisions which established the proposition that ‘character and antecedents’ mean anything that reflects on the defendant’s character, even if it is the circumstances of the offence.

Even so, these earlier cases must, in my judgment, be taken by this court to have decided the meaning of ‘character and antecedents’ in s 38 of the 1980 Act. I say so for the following reasons.

(a) The operative words of s 38 are identical with those in s 29 of the 1948 Act.

(b) The criteria in s 19(3) of the 1980 Act do not differ significantly from those in the corresponding earlier provisions.

(c) Although there has been no post-1977 case where a committal was upheld on the basis that circumstances relating to the offence, which emerged after the mode of trial had been decided, fell within the words ‘character and antecedents’, it is implicit in the judgments in all of the cases since 1977 that had there been more than the filling in of detail the committals would not have been quashed, even although those details related to the offence.

(d) In his judgment in R v Warrington Justices, ex p Mooney Bridge LJ noted that the 1977 Act had changed the law, reviewed the earlier cases and said that it was not altogether easy to reconcile them. Yet he said nothing to suggest that the words ‘character and antecedents’ should be construed more restrictively than hitherto. Nor is there a hint of this in the other three cases.

(e) Parliament must be taken to have known the construction that had been put on this phrase to 1977, and in re-enacting the earlier provision for committal for sentence in the same words, must be taken to have intended them to be used in the same sense.

The principles derived from the cases

In my judgment, the principles to be applied to the interpretation of s 38 of the 1980 Act are, therefore, as follows: (1) ‘character and antecedents’ mean anything that reflect on the defendant’s character, even if it is a circumstance of the offence; (2) any such thing may be taken into account in deciding whether to commit for sentence, provided (a) that it was not known to the justices when they took their decision to try the case summarily, and (b) that the new matter is more than the filling in of detail; (3) it does not matter whether the justices’ ignorance of that thing resulted from their failure to make any or any proper inquiry or from the failure of the prosecution to inform them of it or from any other cause.

To these principles I would respectfully add two comments. (a) Whether or not new facts are more than the mere filling in of detail must be a matter of degree. (b) It would seem to follow from (1) that many circumstances of an offence will qualify, since many bear on the character of the person who commits it. It is only right to observe that neither counsel made any submission to the effect that these were not the principles to be applied.

The application of the principles for the present case

The offences committed by the applicant were all committed on 20 December 1990 at his home address. One alleged simple possession of a quantity of cannabis

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resin; the second alleged simple possession of LSD tables (lysergide); the third also alleged possession of LSD tablets (lysergide), but with intent to supply them to another. LSD is a class A controlled drug; cannabis resin is in class B. The first two offences were contrary to s 5(2) of the Misuse of Drugs Act 1971 and the third contrary to s 5(3).

On 4 January 1991 the bench, which then consisted of lay justices, considered whether the offences appeared more suitable for summary trial or for trial on indictment.

The prosecuting solicitor gave the following information to the bench. On 20 December 1990 police officers searched the applicant’s house. They found two plastic bags hidden in the loft opening; one contained cannabis; the other contained 44 individual silver foil wraps of LSD. On a work surface in the kitchen were a pair of scales and a tin containing £70. The applicant admitted that the drugs were his. He said that he believed they were cannabis and LSD. He refused to answer questions about the scales or the £70. It was suspected that he intended to supply the drugs to his girlfriend, with whom he shared the house, but he made no admission that he intended to supply them to anyone. She was in full time employment. There was no evidence that the £70 was his rather than hers. There was no further evidence of intent to supply.

The prosecuting solicitor told the bench that she considered the case a difficult one and that they might think that their powers of sentencing were not adequate. The defending solicitor submitted that the summary trial would be appropriate. He said that the LSD was less than usually strong. The prosecutor told the bench that he had no evidence to confirm its strength.

The bench decided on summary trial. The applicant pleaded guilty to the two charges of possession and not guilty to the charge of possession with intent to supply. The matter was thereafter adjourned for trial.

The applicant next appeared before the court on 17 January 1991. On this occasion Mr Barry, the stipendiary magistrate, was sitting. The trial of the most serious of the offences was then to have taken place, but, as the sole prosecution witness was unable to attend, it had to be adjourned again.

During the hearing on 17 January 1991 Mr Barry expressed surprise that the justices had thought the case more suitable for summary trial and said that they would on the next occasion be able to reconsider the matter, discontinue the summary trial and proceed with inquiries into the case as examining justices. In saying so it was clear that he had expected the applicant to maintain his plea of not guilty and that he had in mind the provisions of s 29 of the 1980 Act.

On 25 January 1991 the applicant appeared again. He then changed his plea on the outstanding charge to guilty, and the case was further adjourned, doubtless for the preparation of a social inquiry report.

Finally one comes to 25 February 1991, when the decision under challenge was taken. Mr Barry was again sitting. He was provided with details of the applicant’s previous convictions and findings of guilt and with a social inquiry report dated 15 February 1991. It hardly needs to be said that none of this was before the bench on 4 January 1991. He also heard mitigation from counsel for the applicant, Mr Hennis.

The applicant was born on 1 November 1967. He had been before the courts on seven previous occasions. His convictions and findings of guilt included: handling a stolen skirt in 1985 for which he was fined £35; burglary of an unoccupied shop and theft of a refrigerator worth £10 in 1987 and, at the same appearance, handling stolen cash from a gas meter, for both of which he was conditionally discharged; theft later in 1987 for which he was fined £60;

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fraudulent use of a vehicle excise licence for which he was fined £30 in 1989; a variety of motoring offences for which he was conditionally discharged on 3 December 1990 and, on the same date, driving whilst disqualified for which he was placed on probation for 12 months and disqualified for 12 months. This last appearance was 17 days before he was found in possession of cannabis and LSD. He had not previously been convicted of any offence involving drugs or served any custodial sentence.

The following passages appeared in the social inquiry report:

‘12. Mr. Goulding tells me he has used cannabis on occasion since leaving home at the age of seventeen years. He states he had not experienced L.S.D. until the summer of last year when the drug became widely available and was associated with “Acid House Parties”. 13. Mr. Goulding tells me he purchased an ounce of cannabis for his own and his girlfriend’s personal use. With regard to the L.S.D. he tells me he was offered the drug in a fairly large quantity i.e. forty-five tablets for a discount price. He states he bought the drug from people whom he did not know from, he thinks, the London area. He states he has not previously purchased that amount but assures me the tablets were for his and his girlfriend’s use. 14. The charge of intent to supply arises from the purchase of the drugs with intent to share them with his girlfriend and was not in any way, he assures me, for profit.’

The report also recorded that the applicant had told the probation officer that he had bought the drugs with money he had saved to repaint his car, that the £70 was the remainder of his savings, that he used the scales to weigh his cannabis and that he had now finished with drugs. The view was expressed that it was unlikely that he had been addicted to them in any way. The applicant had said that he had taken steps to find employment and was hopeful of a place on an employment training scheme in the near future. He had spent five weeks in custody and it was suggested that if a sentence of imprisonment was imposed it should be suspended.

In his address in mitigation Mr Hennis said that there was no evidence that the applicant had supplied anyone with drugs, nor could it be inferred that he had arranged to do so. He repeated his assertion that the LSD was less than usually strong and therefore, he suggested, much less damaging. Mr Barry, who had not heard such an assertion made in any previous case, rejected this submission. Mr Hennis also said that the applicant had intended to supply only his girlfriend. Mr Barry found this incredible in view of the amount of LSD. He committed the applicant to the Crown Court for sentence.

In his affidavit he set out his reasons for doing so. I would summarise them like this:

(1) The justices on 4 January 1991 would have assumed that the applicant had an unblemished record. He had seen his record which included ‘convictions for burglary, handling stolen goods, fraudulent use of a vehicle excise licence and driving whilst disqualified: his past conduct had been serious enough to justify probation orders’. (In fact there had been only one such order, but no point was taken about this.) (2) The social inquiry report, prepared since 4 January 1991, showed ‘a practice of using unlawful drugs since he was 17 years old and Class A drugs since the summer of 1990’. (3) The justices on 4 January 1991 would have been entitled to proceed on the basis that the LSD was, as Mr Hennis represented, under strength, as the prosecution had not made any representation to the contrary. He, on the other hand, had rejected that submission. He therefore supposed that the offence was more serious than the magistrate had been led to believe.

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The fact that the applicant’s assertion that he only intended to supply his girlfriend was false was not a factor in his decision to commit for sentence.

Had he not been given the information set out in (1) and (2) above he would not have committed for sentence.

Mr Barry also says in his affidavit that he thought that the prosecution had been wrong in not asking the justices to commit for trial and had consciously looked for a lawful way in which he could commit the applicant for sentence.

Before us Mr Richard Gordon, counsel for the applicant, submitted that the learned magistrate prejudged the question of whether or not he should commit the applicant for sentence. He allowed himself to be influenced by his view that the prosecution had been wrong not to ask for committal for trial and thereafter looked for a way to commit for sentence. This attitude coloured his approach and flawed his judgment. His decision was therefore unlawful.

I cannot accept this submission. The learned stipendiary cannot be criticised for forming the view he did about the prosecution’s failure to ask for a committal for trial or the justices’ decision to try the case summarily. There can be few in his position who would have thought otherwise. True it is, as he volunteered, that he looked for a way in which he could commit, but he was only looking for a lawful way in which to do so. There is no reason to think that he would have contemplated adopting any other. It is a common experience for a judge who has formed an overall view of what the justice of a case requires to see whether the law permits him or precludes him from reaching that result.

Next Mr Gordon submitted that Mr Barry was wrong to infer from the social inquiry report ‘a practice of using unlawful drugs since he was 17 years old and Class A drugs since the summer of 1990’. Thus he took into account an immaterial consideration.

It is difficult to say more than I do not accept this; such an inference could reasonably be drawn from the material before him.

Mr Gordon also submitted that the learned stipendiary was in error in assuming that the justices had accepted jurisdiction on the basis that the LSD was of low strength and wrong to use his own belief that this could not be so, since he had not previously heard this said of LSD.

Again I cannot accept this. When there is an issue of fact in the criminal case the version more favourable to the defendant must be accepted unless it is so manifestly wrong that it can be dismissed or unless the contrary is proved beyond reasonable doubt. I do not think it unreasonable for Mr Barry to have assumed that lay justices would proceed on this basis, even although he, with his greater professional experience, felt able to reject the applicant’s assertion. Mr Barry has been both the stipendiary magistrate for South Yorkshire and a recorder of the Crown Court since 1985 and had practised at the Bar on the North Eastern Circuit for over 20 years before that.

But, even if my view were wrong and if Mr Barry were in error, either in his own dismissal of the applicant’s assertion or in his assumption that the justices assumed it to be good, this would not enable the applicant to succeed in this application. Here the words of May LJ in R v Broadcasting Complaints Commission, ex p Owen [1985] 2 All ER 522 at 533, [1985] QB 1153 at 1177 are pertinent:

‘Where the reasons given by a statutory body for taking or not taking a particular course of action are not mixed and can clearly be disentangled, but where the court is quite satisfied that even though one reason may be bad in law, nevertheless the statutory body would have reached precisely the same decision on the other valid reasons, then this court will not interfere by way

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of judicial review. In such a case, looked at realistically and with justice, such a decision of such a body ought not to be disturbed.’

I believe that to be the position here. Mr Barry’s affidavit makes clear that, although his rejection of the applicant’s submission about the strength of the LSD and his assumption that the justices had accepted it were things he took into account, the operative factors without which he would not have committed were the applicant’s criminal record and the fact that the social inquiry report demonstrated that the applicant’s involvement with dangerous drugs on 20 December 1990 was not his first. Though implicit, it is clear that he would have committed on the basis of the applicant’s previous criminal record and the contents of the social inquiry report alone—plainly matters of ‘character and antecedents’; a committal on that basis would have been lawful.

I would dismiss this application.

NEILL LJ. I have had the advantage of considering in draft the judgment which has been delivered by McCullough J. I agree with it. For the reasons which are set out in that judgment I too would dismiss this application.

Application dismissed.

Dilys Tausz   Barrister.

R v Tower Hamlets London Borough Council, ex parte Begum

R v Tower Hamlets London Borough Council, ex parte Rahman

[1993] 1 All ER 447

Categories:        HOUSING        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        LORD DONALDSON OF LYMINGTON MR, BUTLER-SLOSS AND STAUGHTON LJJ        

Hearing Date(s):        15, 20, 30 JULY 1992        

Housing – Homeless person – Duty of housing authority to provide accommodation – Application for priority need accommodation – Application by person suffering mental incapacity – Application made by another person on behalf of person suffering mental incapacity – Housing authority rejecting application – Whether application for priority need housing may be made on behalf of person unable to complete application form – National Assistance Act 1948, s 21(1) – Housing Act 1985, ss 59(1)(c), 62.

In two separate appeals concerning applications by homeless people for priority need housing under s 62a of the Housing Act 1985 the question arose whether the application could be made by a person acting on behalf of a potential applicant who was unable, through lack of capacity, either to make or to consent to the making of the application. In the first case the applicant, who was 24, had arrived from Bangladesh with his family in 1991. He was moderately to severely mentally handicapped and was believed to have a mental age of between 10 and 13. At first the family lived with relatives, but subsequently the applicant, assisted by an organisation which assisted people with mental handicap living in the community, applied to the local authority for accommodation under s 62 of the 1985 Act on the basis that he fell within s 59(1)(c)b of that Act, which provided that a person who was vulnerable as a result of, inter alia, ‘mental illness or handicap or physical disability’ was to be treated as a having a priority need for housing. However, the local authority concluded that, given his mental condition and assessed mental age, the applicant was not capable of making an application under s 62, nor could he have acquiesced in any application and he was therefore to be treated as not having made the application. The applicant applied for leave to move for judicial review but the judge refused the application. The applicant appealed and was granted leave by the Court of Appeal, which then heard the substantive application. In the second case, the appellant, who was 24, deaf and had limited speech, had arrived from Bangladesh with her family in 1989. In July 1990 the appellant and her father attended the homeless persons unit of the local authority and she signed an application under s 62 for priority housing in accordance with s 59(1)(c). However, the local authority concluded that she lacked the necessary capacity to make the application. The appellant applied for judicial review but the judge dismissed the application on the basis that, for the purposes of an application under s 62, prima facie there had to be knowledge on the part of the applicant that an application was being made. The appellant appealed. In both cases the local authority contended that the structure of the 1985 Act presupposed an applicant of sufficient comprehension to be able to make an application or to consent to an application being made on his behalf and that persons under such disability as not to understand that an application was being made were excluded

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from the mechanism of the 1985 Act and their needs, including the need to be accommodated, had to be met by social services departments under the National Assistance Act 1948, s 21(1)c of which authorised local authorities to provide residential accommodation for persons aged 18 or over who ‘by reason of … infirmity or any other circumstances are in need of care and attention which is not otherwise available to them’.

Held – An application for priority housing under s 62 of the 1985 Act could be made by a person with capacity to make it, by another person with the consent of the applicant or by someone acting on behalf of a person who was entitled to make an application but who was unable through mental incapacity to make or consent to the making of an application, provided the writer or maker of the application on behalf of that person could demonstrate reasonable grounds for making the application and that he was acting bona fide in the best interests of the applicant, since on its true construction s 62 was procedural and provided no barrier of mental capacity to the acceptance of an application. Furthermore, the purpose of the legislation was to include within its framework those with mental illness or handicap without reference to a definable cut-off point of mental capacity and s 59(1)(c) of the 1985 Act clearly contemplated that applications could be made by those under a disability or who were vulnerable. Moreover, although the 1985 and 1948 Acts overlapped, they fulfilled different needs: the 1985 Act presupposed homelessness or the threat of it, whereas the 1948 Act catered for those who were in need of care, albeit that they might be adequately housed. It followed that the applicant and the appellant were clearly within the ambit of the 1985 Act and had made valid applications for priority housing on which the local authority was bound to act. Accordingly the decision of the local authority in each case would be set aside (see p 454 a to g, p 455 e f h and p 456 b c, post).

Notes

For accommodation for homeless persons and priority need for accommodation, see 22 Halsbury’s Laws (4th edn) paras 509–510, and for cases on the subject, see 26 Digest (Reissue) 797–801, 5325–5338.

For the National Assistance Act 1948, s 21, see 40 Halsbury’s Statutes (4th edn) 23.

For the Housing Act 1985, ss 59, 62, see 21 Halsbury’s Statutes (4th edn) (1990 reissue) 98, 101.

Cases referred to in judgments

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, CA.

Khawaja v Secretary of State for the Home Dept [1983] 1 All ER 765, [1984] 1 AC 74, [1983] 2 WLR 321, HL.

R v Oldham Metropolitan BC, ex p G (1992) Times, 20 April.

Cases also cited or referred to in skeleton arguments

Cocks v Thanet DC [1982] 3 All ER 1135, [1983] 2 AC 286, HL.

F v West Berkshire Health Authority (Mental Health Act Commission intervening) [1989] 2 All ER 545, [1900] 2 AC 1, HL.

Lewis v North Devon DC [1981] 1 All ER 27, [1981] 1 WLR 328.

R v Bath City Council, ex p Sangermano (1984) 17 HLR 94.

R v Brent London BC, ex p Omar (1991) 23 HLR 446.

Page 449 of [1993] 1 All ER 447

R v Chiltern DC, ex p Roberts (1990) 23 HLR 387.

R v Eastleigh BC, ex p Beattie (1984) 17 HLR 168.

R v Fulham Hammersmith and Kensington Rent Tribunal, ex p Zerek [1951] 1 All ER 482, [1951] 2 KB 1, DC.

R v Lambeth London BC, ex p Ly (1986) 19 HLR 51.

Roberts v Dorset CC (1976) 75 LGR 462.

Zamir v Secretary of State for the Home Dept [1980] 2 All ER 768, [1980] AC 930, HL.

Application for judicial review and appeal

R v Tower Hamlets London BC, ex p Begum

Ferdous Begum appealed from the order of Rose J made on 28 November 1991 whereby he dismissed her motion for judicial review, brought with the leave of Popplewell J given on 2 September 1991, of the decision of the respondent, Tower Hamlets London Borough Council, communicated to the appellant’s father by letter dated 11 July 1991 that the appellant had not made an application to the council pursuant to Pt III of the Housing Act 1985 as a homeless person and therefore the council was under no obligation to make inquiries into the appellant’s homelessness pursuant to s 62 of that Act. The facts are set out in the judgment of Butler-Sloss LJ.

R v Tower Hamlets London BC, ex p Rahman

Lutfur Rahman applied by way of renewed application, with the leave of the Court of Appeal (Lord Donaldson MR, Stocker and Butler-Sloss LJJ) given on 23 March 1992, for judicial review of the decision of the respondent, Tower Hamlets London Borough Council, given on 18 February 1992 that the applicant had not on 28 January 1992 made an application to the council pursuant to Pt III of the Housing Act 1985, the original application for such leave having been refused by Macpherson J on 13 March 1992. The court ordered that the substantive application be retained for hearing by the Court of Appeal. The relief sought was an order of certiorari to quash the council’s decision, an order of mandamus requiring the council to consider and determine the application and a declaration that on 28 January 1992 the applicant had made a valid application to the council pursuant to Pt III of the 1985 Act. The facts are set out in the judgment of Butler-Sloss LJ.

Robert Carnwath QC and Terence Gallivan (instructed by T V Edwards) for the applicant Rahman

David Watkinson and Leslie Thomas (instructed by Hereward & Foster) for the appellant Begum.

Ashley Underwood and Lisa Giovannetti (instructed by J E Marlowe) for the council.

Cur adv vult

30 July 1992. The following judgments were delivered.

BUTLER-SLOSS LJ (giving the first judgment at the invitation of Lord Donaldson MR). The two matters before this court, one an appeal from the dismissal of judicial review and the second the retention by this court of a substantive application for judicial review after the granting of leave, raise the same issue under the Housing Act 1985 as to the right of people suffering from

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mental illness or mental handicap to apply for priority housing. The relevant facts of each appeal are as follows.

Lutfur Rahman

The applicant is 24. He and his family came to England from Bangladesh in 1991. His family consists of his mother and two sisters aged 16 and 11. They lived at first with relatives in Tower Hamlets and then approached the homeless persons unit. They have been housed in temporary accommodation pending inquiries. The housing authority decided that the mother was homeless, in priority need, and was intentionally homeless and that accommodation would not be provided beyond 3 February 1992. There has been no challenge to that decision.

The applicant came to the attention of the Community Team for People with Learning Difficulties (CTLD), which is part of the Royal London Trust and which assists people with mental handicap living in the community. The applicant was assessed by the same psychologist as Ferdous Begum (see post), who concluded that he had both moderate and in some respects severe mental handicap, that he had hearing difficulties and that he is functioning at a mental age of between 10 and 13.

The applicant, assisted by the CTLD, applied to the housing authority for accommodation under the provisions of s 59(1)(c) of the 1985 Act. A representative of the housing authority interviewed the family and the applicant and concluded that the applicant was not capable of making an application under s 62, and on 19 February 1992 another representative of the housing authority wrote to the applicant’s mother setting out the applicant’s mental condition and assessed mental age, and continued:

‘I must therefore conclude that [Lutfur] is dependant on you. In all of these circumstances I conclude that he cannot have acquiesced in any application for housing and is not capable of making an application for rehousing. It follows that I must treat him as not having made an application and I therefore conclude that the purported application was merely a device by which you sought to get round the unchallenged finding of your intentional homelessness.’

On 13 March 1992 Macpherson J refused leave to move for judicial review, but leave was granted by a division of this court on 23 March 1992 and the hearing of the substantive application was retained to be heard by this court.

Ferdous Begum

The appellant is 24. She and her family arrived in England from Bangladesh on 17 December 1989. She has a father, mother, either two or three sisters and a brother. On arrival, after a night with relatives her father approached the homeless persons unit of the respondent housing authority, who housed the family in temporary accommodation pending inquiries. The housing authority found the father to be intentionally homeless and indicated that they would not provide accommodation for the family beyond 18 July 1990. The father took no steps to set aside that decision.

The appellant is profoundly deaf and has very limited speech. She communicates with her family by means of signs and words understood only by them. She has been assessed to a limited extent by a psychologist, who considered that she was functioning far below her potential level but did not come to a conclusion as to her mental age. Additional evidence has been accepted by this court which shows that she has an ability to function quite successfully within the family.

Page 451 of [1993] 1 All ER 447

The appellant and her father attended the homeless persons unit on 17 July 1990 and she signed an application for priority housing in accordance with the provisions of s 59(1)(c) of the 1985 Act. By letter dated 11 July 1991 a representative of the housing authority notified the appellant’s father that they considered that she had not made an application. After setting out her disabilities the letter concluded:

‘Her only means of communication with us has been through you. In all of those circumstances I conclude not only that she could not have acquiesced in any act or omission by you rendering her homeless, I find that she cannot have acquiesced in any application for housing. It follows that I must treat her as not having made an application and I therefore conclude that the purported application was merely a device by which you sought to get around the unchallenged finding of your intentional homelessness.’

The appellant was granted leave to move for judicial review by Popplewell J on 2 September 1991, but the application was dismissed by Rose J on 28 November 1991.

The 1985 Act provides a framework in Pt III within which local housing authorities try to cope with the problems of homelessness within their local areas. It consolidates earlier legislation dealing with the same problem. Section 58 defines homelessness and threatened homelessness. Section 59(1) sets out the categories of priority need for accommodation, and para (c) is relied upon in both cases before this court:

‘The following have a priority need for accommodation—(a) a pregnant woman or a person with whom a pregnant woman resides or might reasonably be expected to reside; (b) a person with whom dependent children reside or might reasonably be expected to reside; (c) a person who is vulnerable as a result of old age, mental illness or handicap or physical disability or other special reason, or with whom such a person resides or might reasonably be expected to reside; (d) a person who is homeless or threatened with homelessness as a result of an emergency such as flood, fire or other disaster.’

Section 60 defines intentional homelessness. Section 62 deals with the inquiry into cases of possible homelessness or threatened homelessness and provides in general terms for the application to be made:

‘(1) If a person (an “applicant”) applies to a local housing authority for accommodation, or for assistance in obtaining accommodation, and the authority have reason to believe that he may be homeless or threatened with homelessness, they shall make such inquiries as are necessary to satisfy themselves as to whether he is homeless or threatened with homelessness.

(2) If they are so satisfied, they shall make any further inquiries necessary to satisfy themselves as to—(a) whether he has a priority need, and (b) whether he became homeless or threatened with homelessness intentionally …’

Pending inquiries the housing authority have an interim duty under s 63 to make accommodation available to the applicant. Notification of the decision and the reasons for it is covered by s 64. Once a housing authority are—

‘satisfied that he has a priority need and are not satisfied that he became homeless intentionally, they shall … secure that accommodation becomes available for his occupation.’ (See s 65(2).)

Sections 65 and 69 also lay other duties upon the housing authority to provide accommodation for a limited period and to offer advice and assistance.

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A local housing authority may refer an applicant to another housing authority and house him in the meantime (ss 67 and 68). False statements, withholding information and failure to disclose change of circumstances are dealt with in s 74.

Section 75 states:

‘For the purposes of this Part accommodation shall be regarded as available for a person’s occupation only if it is available for occupation both by him and by any other person who might reasonably be expected to reside with him …’

In discharge of their duties local housing authorities are assisted by the Code of Guidance for Local Authorities on Homelessness. The Secretary of State is empowered to issue such guidance by virtue of s 71(2) and a local housing authority is required to have regard to it. Paragraph 3.2 in ch 3 deals with ‘What is an application?’ and continues:

‘Under s. 62 of the Act an authority is required to take action whenever someone approaches it for help in obtaining housing and the authority has reason to believe that s/he may be homeless or threatened with homelessness. This duty exists regardless of which department of the local authority the applicant approaches or of the way in which the application is made. Authorities should be aware of the need to recognise people who should be treated as homeless even if there is no formal application and they should monitor all applications.’

In paras 6.10 and 6.11 of ch 6 the code of guidance deals specifically with the groups within the community falling within s 59(1)(c) and in para 6.10 they are advised in cases of vulnerability to have regard to medical advice and where appropriate to seek social services advice. Paragraph 6.11 refers in particular to liaison between the health authority and the housing authority. Section 72 of the Act sets out the duty of co-operation between local housing authorities and also by social service authorities when called on to render assistance to a local housing authority.

The Act however does not state nor does the code of guidance assist as to the application itself—who may make it and in particular whether it can be made by someone acting on behalf of a potential applicant unable himself through lack of comprehension either to make or consent to the making of such an application for priority housing. This point has not previously been the subject of judicial scrutiny and is by no means without difficulty.

The case for both the applicant and the appellant is that the Act provides a comprehensive set of rules for homelessness. Section 62, which alone deals with the threshold of the application, lays down no criteria nor rules for the making of the application. Section 59(1)(c) expressly recognises that the more vulnerable sections of society will be applicants and among them those who are old, with mental illness or mental handicap. There is in the Act no restriction or limitation as to the degree of mental illness or mental handicap of a potential applicant any diminution in which will obviously reduce the cognitive ability of a person and in some cases may extinguish it. Indeed, the code of guidance recognises that an application may be informal, and local housing authorities are advised to have regard to medical advice and advice from social services.

The primary argument of Mr Carnwath QC for the applicant and of Mr Watkinson for the appellant is that there is no line to be drawn between those with sufficient understanding to make their own applications or to consent to their applications being made by others on their behalf, and those with no comprehension whatsoever who none the less are homeless or threatened with

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homelessness and whose plight ought to be considered and redressed within the framework of Pt III of the Act.

The secondary argument of both the applicant and the appellant is they have in fact sufficient understanding of the concept of homelessness and the need to seek help to come within the meaning of an applicant who knew he was making an application or consented to an application being made on his behalf. In considering this argument, the letter of the housing officer in each case clearly demonstrates that he fell into error. For entirely understandable reasons, since in each case the parent had been declared intentionally homeless, the application under s 59(1)(c) was seen as a device to get round the refusal of housing on the previous application of the family. This approach, that it was a device, was subsequently abandoned by the housing authority. But it undoubtedly had an effect on the thought processes of the housing officer and casts doubt on each decision. However, it is unnecessary to pursue this issue any further since Mr Underwood for the housing authority, with the advantage of further evidence as to the abilities of each of these young people, accepted that the housing authority would in any event have to reconsider their cases.

Mr Carnwath argued that the question ‘Who is an applicant?’ is not a matter for the decision of the local housing authority to be challenged on the ground of Wednesbury unreasonableness (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223) but is a jurisdictional fact as to the point at which the duties laid upon the housing authority come into existence. Consequently, if the housing authority can be shown to have come to the wrong decision, this court may, if appropriate, substitute its own decision for that of the housing authority.

Mr Underwood for the respondent local authority argued that the structure of the Act presupposes an applicant of sufficient comprehension to be able to make an application or consent to an application being made on his behalf. In these two cases the housing authority themselves involved a psychologist to assist in the assessment of each of them. A line has to be drawn which excludes those under such a disability as not to understand that an application is being made. There is nothing in the Act to show that a person with no mental ability can none the less be treated as an applicant without his knowledge. He pointed to the sections of the Act which require notification by the applicant of change of circumstances and the provisions in respect of false statements. He invited our attention to s 21(1) of the National Assistance Act 1948 part of which remains in force (with amendments) and authorises a local authority to make arrangements to provide—

‘(a) residential accommodation for persons aged eighteen or over who by reason of age, infirmity or any other circumstances are in need of care and attention which is not otherwise available to them.’

Section 21(1)(a) of the 1948 Act is however administered by the social services department and not the housing authority. The framework of the legislation therefore is that those incapable of understanding what they are doing or of making an application themselves do not come within the 1985 Act but their needs, including the need to be accommodated, are met by social services within the structure of the 1948 Act.

Rose J asked himself the question in regard to Ferdous Begum: does the mind go with the application? and answered it on the basis that—

‘the word “application” prima facie involves knowledge on the part of the applicant that an application is being made.’

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Although I see the force of the argument, in the context of the 1985 Act I do not believe that it is correct. There is nothing in the Act to demonstrate that s 62 is substantive rather than procedural and provides hurdles of mental capacity to surmount before an application can be accepted. On the contrary, s 59(1)(c) contemplates that applications will be made by those under a disability or who are vulnerable. Such legislation is in accord with the expressed policy of government departments to accept within the community those who might in former days have been shut away in long-stay institutions. I cannot construe from the statute any indication that a line has to be drawn among those targeted by s 59(1)(c) according to degrees of mental capacity less than the normal capacity to make an application. The purpose of the framework of the overall legislation is to include those with mental illness or handicap without reference to a definable cut-off point of mental capacity. The argument that applicants are required to inform the housing authority of changes of circumstances would, in the context of someone under a disability, be the obligation of the person who made or assisted in the making of the application. The offence of making a false statement is not restricted to the applicant alone.

In my view an application may be made under s 59(1)(c) by a person with capacity to make it, or by another with the consent of the applicant, or by someone on behalf of a person who is entitled to make an application but is unable through mental incapacity to make or consent to the making of an application. In the latter case the writer or maker of the application on behalf of another must demonstrate reasonable grounds for making the application and for acting on behalf of the actual applicant and that he is acting bona fide in the interests of the person unable to act without such help. An application by a well-meaning busybody would not be an acceptable application under s 62.

The 1985 Act and the 1948 Act undoubtedly overlap, and those administering each Act may from time to time have to consider the needs of the same person. There would be nothing surprising in that position since the wording of s 72(b) of the 1985 Act and of the code of guidance both contemplate the involvement of both services in housing the vulnerable homeless. However, the two Acts fulfil different roles and meet different needs. The 1948 Act caters for those in need of care and attention who may none the less be adequately housed, with no question of homelessness or threat of homelessness. But their inability to manage their own affairs may require them nevertheless to be accommodated in sheltered housing and to leave their own homes. Part III of the 1985 Act presupposes either homelessness or threat of homelessness; otherwise the application would not be made. Further, there is an important practical difference. Social services run residential accommodation for the person in need under the provisions of s 21(1) of the 1948 Act. They do not have a stock of housing as such and, without recourse to the local housing authority, would not be in a position to house the family of the person in need. The 1985 Act on the other hand specifically recognises in s 75 an obligation to house not only the applicant with priority need but some at least of his family, if he lives with one or more of them. Section 75 does not however cast a duty upon the local housing authority to house all members of a large extended family but only those who come within the definition of ‘any other person who might reasonably be expected to reside with him’.

In problems which may arise both within the ambit of the 1985 Act and the 1948 Act the people involved will inevitably be within the most vulnerable group contemplated by the legislation and it is especially important that their needs are recognised and their problems addressed without passing them from one department to another.

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The question whether a person is an applicant within the ambit of s 62 of the 1985 Act is not in my judgment a matter for the discretion of the local housing authority to be reviewed upon Wednesbury principles. It is a question whether the person comes within those contemplated by Pt III of the 1985 Act as applicants for priority housing, the receipt of whose applications will be the threshold for the assumption by the local housing authority of their various duties under the Act. Henry J in R v Oldham Metropolitan BC, ex p G (1992) Times, 20 April decided that dependent children could not be applicants in their own right under the provisions of Pt III of the 1985 Act. I do not wish to comment upon the issue raised in that decision, but the judge made general observations about applicants under s 62 which included the proposition that a person can only be considered as an applicant if he can establish a priority need. I do not agree. In my view the housing authority has to accept genuine applications and consider, on the facts revealed in the application and after any necessary inquiries, whether a duty arises under Pt III of the 1985 Act. The housing authority has to establish the precedent fact, as it was described by Lord Fraser in Khawaja v Secretary of State for the Home Dept [1983] 1 All ER 765 at 771, [1984] 1 AC 74 at 97, that an application for housing, in however informal terms, has been made. The question whether an application has been made and whether the housing authority have erred in their approach to this issue is a collateral question preceding the main decision-making process. Consequently I agree with Mr Carnwath that, if he can demonstrate that the housing authority wrongly excluded an application, this court has the jurisdiction to substitute its own decision. For the reasons which I have set out earlier I consider that both the appellant and the applicant made applications which the housing authority was bound to receive and to act upon and consequently they were not justified in rejecting them. It would seem to me unlikely that the housing authority would be able to reject applications made in similar circumstances although, of course, in carrying out their duties they may have a variety of options in responding to the applications.

In each case I would set aside the decision of the local housing authority.

STAUGHTON LJ. I agree with the orders proposed by Butler-Sloss LJ and Lord Donaldson MR for the reasons which they have given. In particular, I agree that a decision whether a person has made an application under s 62(1) of the Housing Act 1985 is not one which Parliament has entrusted to the local housing authority. If the authority has concluded that no application was made, it will be for the courts to decide whether the authority was right. But I prefer to express no opinion on the other requirement in s 62(1), that ‘the authority have reason to believe that he may be homeless or threatened with homelessness …’ That was not in issue in these cases.

LORD DONALDSON OF LYMINGTON MR. I too would set aside the decisions of the local housing authority for the reasons given by Butler-Sloss LJ.

This appeal and application are concerned with a human problem affecting the least advantaged citizens. I appreciate that what may be compendiously described as ‘social services’ and ‘housing’ are often, as a matter of administrative convenience, dealt with by separate departments in a single local authority and may, where there is multi-tiered local government, be dealt with by different authorities. This should be of no concern to the person who is homeless or threatened with homelessness (the ‘homeless person’). Whether he applies to the right or the wrong department or authority should not matter. That department or authority should either itself deal with the application or pass it on to what it considers to be the correct department or authority and should tell the homeless

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person what it has done. It should not tell that person to apply elsewhere. The game of ‘pass the parcel’ has no place in this field. And, if disputes arise between departments or authorities as to whether this is a ‘social services’ or a ‘housing’ problem, that should be sorted out between them and should not directly involve the homeless person.

I agree that reading s 59(1)(c) with s 62 makes it clear that no ‘application’ in the ordinary sense of the word is required of a homeless person as otherwise it would be quite impossible for some people who are ‘vulnerable as a result of old age, mental illness or handicap’ to attract the protection which it is the clearly intended duty of housing authorities to provide under Pt III of the 1985 Act. Accordingly s 62 must be construed as contemplating only that the homeless person and his circumstances will be brought to the attention of the housing authority by an application by him, by someone else on his behalf and with his authority or by someone else on his behalf and in his interests, such person having a bona fide concern with those interests.

In my judgment s 62(1) of the 1985 Act contains a double-barrelled threshold or precedent question of fact which has to be answered in the affirmative if the local housing authority’s duties under Pt III of the Act are to come into force. The first part of this question is whether a person has applied to it for accommodation in the sense which I have indicated. The second part is whether the authority has reason to believe that he may be homeless or threatened with homelessness. This is to be distinguished from the Pt III duty which follows immediately afterwards in the same sentence, namely, to make such inquiries as are necessary to satisfy itself as to whether he is homeless or threatened with homelessness. I cannot believe that Parliament intended that whether or not a local housing authority became subject to the duties set out in Pt III of the Act should depend upon whether it happened to be credulous or incredulous, myopic or far-sighted. The intention must have been that an objective test should be applied. The authority’s decision on both aspects of this threshold question therefore falls to be reviewed not on Wednesbury (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223) but on Khawaja principles—does the evidence justify the conclusion (see Khawaja v Secretary of State for the Home Dept [1983] 1 All ER 765 at 777, [1984] AC 74 at 105 per Lord Wilberforce).

We have not had to consider whether an application can be made under s 62 by or on behalf or in the interests of a child. This was considered by Henry J in R v Oldham Metropolitan BC, ex p G (1992) Times, 20 April. I express no view on the basis of that decision, save to say that children who do not come within s 59(1)(c) or (d) are not within the priority need category. Although ‘dependent children’ feature in para (b) they do so as a qualification of a different applicant, namely one with whom they reside or might reasonably be expected to reside. They do not feature in that paragraph in their own right.

Application granted and appeal allowed. Leave to appeal to the House of Lords refused.

18 January 1993. The Appeal Committee of the House of Lords gave leave to appeal.

Frances Rustin   Barrister.

McClory and others v Post Office

[1993] 1 All ER 457

Categories:        EMPLOYMENT; Contract of service        

Court:        CHANCERY DIVISION        

Lord(s):        DAVID NEUBERGER QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT        

Hearing Date(s):        11, 12, 13, 14, 20 FEBRUARY 1992        

Employment – Suspension – Obligation on employer when suspending or dismissing employee – Contract of service – Implied terms – Employee suspended on full pay – Suspension depriving employee of opportunity to work overtime – Express term of contract requiring employee to work overtime if required – Express term of contract giving employer discretionary power of suspension – Whether rules of natural justice applying to contracts of employment – Whether employer owing implied duty to act reasonably in exercising power of suspension – Whether employer under implied duty to provide overtime.

The three plaintiffs were employed by the Post Office as postmen under contracts of employment which provided by cl 3 that it was a condition of their employment that they were liable to work overtime if required and by cl 7 that they could be suspended either with or without pay if there was a need for inquiries to be made into alleged misconduct by them. On 25 September 1987 the plaintiffs were involved in a fight with other Post Office workers at a public house which resulted in their being arrested and charged with assault. On 7 October the Post Office suspended the plaintiffs on full pay pending its own inquiry into the incident. On 13 November the plaintiffs appeared before justices and pleaded not guilty to all charges and were committed to the Crown Court for trial. The Post Office then commenced its own internal inquiry and after Post Office staff involved in the incident and the plaintiffs themselves had been interviewed the suspension was lifted on 5 April 1988 and the plaintiffs returned to work. The plaintiffs were subsequently acquitted of all charges after their trial in the Crown Court. The plaintiffs brought an action for damages against the Post Office claiming compensation for loss of overtime payments during the period of suspension, contending that the Post Office was in breach of implied terms in the plaintiffs’ contracts of employment to the effect, inter alia, (i) that the plaintiffs had a right to be provided with the opportunity to undertake overtime and (ii) that in exercising its right of suspension under cl 7 the Post Office was under a duty to act reasonably, to observe the rules of natural justice and to act fairly. The Post Office contended that there was no general obligation on an employer to act reasonably, to observe the rules of natural justice or to act fairly when dismissing or suspending an employee for misconduct.

Held – (1) The rules of natural justice could not be imported into the purely contractual relationship of employer and employee and therefore an employer was entitled to make a decision affecting an employee without first informing the employee that the decision was about to be made. Likewise the employer was not required to act fairly in the sense of balancing his own interests against the employee’s interests when deciding to suspend an employee since the fairness or otherwise of the decision was a matter for the employer, not the court. Furthermore, it was not necessary to imply a term into the contract of employment that the employer had to give the employee the reasons for his suspension before suspending him, but in any event the plaintiffs must have been aware of the reason for their suspension (see p 462 h j, p 463 a to g and p 464 a b, post); dictum of Lord Wilberforce in Malloch v Aberdeen Corp [1971] 2 All ER 1278 at 1294 applied.

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(2) However, on the true construction of cl 7 of the plaintiffs’ contracts of employment, there was an implied term that the Post Office would act reasonably in exercising its right to suspend an employee and would only continue that suspension for as long as there were reasonable grounds for doing so, since the fact that cl 7 empowered the Post Office to suspend an employee without pay for an indefinite period implied that the suspension had to be reasonable. Nevertheless, in deciding that an employer’s contractual discretionary right to suspend an employee was subject to an implied term that it would only be exercised reasonably, the court would not step into the arena of the employer/employee relationship and substitute its own judgment for that of the employer. On the facts, the Post Office had not been in breach of the implied term that it act reasonably when suspending an employee because it had had reasonable grounds for effecting the suspension and reasonable grounds for continuing it. Accordingly, the plaintiffs’ claim failed, but, even if they had succeeded on liability, they could not have obtained damages because on the true construction of cl 3 of their contracts of employment there was no implied term giving them a right to overtime since cl 3, while expressly imposing on the employee an obligation to work overtime if the employer so required, contained no concomitant obligation on the employer actually to provide overtime (see p 464 h to p 465 a f to p 466 c, p 467 b h, p 468 d and p 469 a to j, post).

Notes

For implied terms in contracts of employment, see 16 Halsbury’s Laws (4th edn reissue) para 54.

For implied contractual terms generally, see 9 Halsbury’s Laws (4th edn) paras 351–362, and for cases on the subject, see 12(1) Digest (2nd reissue) 403–454, 3282–3546.

Cases referred to in judgment

Bauman v Hulton Press Ltd [1952] 2 All ER 1121.

British Home Stores Ltd v Burchell [1980] ICR 303, EAT.

Chaplin v Hicks [1911] 2 KB 786, [1911–13] All ER Rep 224, CA.

Dakri (A) & Co Ltd v Tiffen [1981] ICR 256, EAT.

Devonald v Rosser & Sons [1906] 2 KB 728, [1904–7] All ER Rep 988, CA.

Gunton v Richmond upon Thames London Borough [1980] 3 All ER 577, [1981] Ch 448, [1980] 3 WLR 714, CA.

Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293, [1992] QB 333, [1991] 2 WLR 1362, CA.

Langston v Amalgamated Union of Engineering Workers [1974] 1 All ER 980, [1974] 1 WLR 185, CA.

Langston v Amalgamated Union of Engineering Workers (No 2) [1974] ICR 510, NIRC.

Lavarack v Woods of Colchester Ltd [1966] 3 All ER 683, [1967] 1 QB 278, [1966] 3 WLR 706, CA.

Liverpool City Council v Irwin [1976] 2 All ER 39, [1977] AC 239, [1976] 2 WLR 562, HL.

MacRae (Kenneth) & Co Ltd v Dawson [1984] IRLR 5, EAT.

Malloch v Aberdeen Corp [1971] 2 All ER 1278, [1971] 1 WLR 1578, HL.

Ridge v Baldwin [1963] 2 All ER 66, [1964] AC 40, [1963] 2 WLR 935, HL.

United Bank Ltd v Akhtar [1989] IRLR 507, EAT.

Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713, [1978] QB 761, [1978] 2 WLR 344, CA.

White v Reflecting Roadstuds Ltd [1991] IRLR 331, EAT.

Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666, EAT; affd [1982] ICR 693, CA.

Page 459 of [1993] 1 All ER 457

Cases also cited

Alexander v Standard Telephones and Cables Ltd (No 2) [1991] IRLR 286.

Bird v British Celanese Ltd [1945] 1 All ER 488, [1945] KB 336, CA.

Carr v Alexander Russell Ltd [1979] ICR 469, Ct of Sess.

City and Hackney Health Authority v National Union of Public Employees [1985] IRLR 252, CA.

Collier v Sunday Referee Publishing Co Ltd [1940] 4 All ER 234, [1940] 2 KB 647.

Council of Civil Service Unions v Minister for the Civil Service [1984] 3 All ER 935, [1985] AC 374, HL.

Hanley v Pease & Partners Ltd [1915] 1 KB 698, [1914–15] All ER Rep 984, DC.

Harris (Ipswich) Ltd v Harrison [1978] ICR 1256, EAT.

Lister v Romford Ice and Cold Storage Co Ltd [1957] 1 All ER 125, [1957] AC 555, HL.

Post Office v Roberts [1980] IRLR 347, EAT.

R v East Berkshire Health Authority, ex p Walsh [1984] 3 All ER 425, [1985] QB 152, CA.

Shirlaw v Southern Foundries (1926) Ltd and Federated Foundries Ltd [1939] 2 All ER 113, [1939] 2 KB 206, CA.

Spafax Ltd v Harrison [1980] IRLR 442, CA.

Spencer v Marchington [1988] IRLR 392.

Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 2 All ER 260, [1973] 1 WLR 601, HL.

Turner v Sawdon & Co [1901] 2 KB 653, CA.

West Midlands Co-op Society Ltd v Tipton [1986] 1 All ER 513, [1986] AC 536, HL.

Action

The plaintiffs, James Gordon McClory, Andrew Perez and Stephen Keith Shipman, brought an action against the defendant, the Post Office, claiming damages and a declaration that the manner of the plaintiffs’ suspensions from their employment by the defendant and/or the length of time of the suspension were in breach of the plaintiffs’ contracts of employment in that they were unfair and/or in breach of the rules of natural justice. The facts are set out in the judgment.

Robert Reid QC and Anne Wakefield (instructed by Simpson Millar, Leeds) for the plaintiffs.

Jeffrey Burke QC and David Griffith-Jones (instructed by Hammond Suddards) for the defendant.

Cur adv vult

20 February 1992. The following judgment was delivered.

DAVID NEUBERGER QC. This is a claim by three former employees of the defendant, the Post Office, for damages to compensate them for the loss of income which they would have received by way of overtime payments during the period that they were suspended on full pay by the defendant.

The three plaintiffs were employed by the defendant as postmen higher grade under effectively identical forms of contract entered into in each case in 1984. Clause 2 of that contract provided for a fixed rate of weekly pay. Clause 3 provided for a 43-hour week and then stated as follows:

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‘The Post Office have the responsibility of providing a public service. This puts a special obligation on all employees to play their part in maintaining the kind of service which the public has a right to expect. For this reason it is a condition of employment that you are liable to work overtime and to attend at such varying times on weekdays and Sundays as the needs of the service demand. You may also be required to work elsewhere than at your initial place of employment. These obligations are implemented in accordance with Post Office rules.’

Clause 6 referred to termination, providing for a period of notice dependent on length of service, except in case of misconduct. Clause 7 provided:

‘In the event of misconduct or where there is a need for enquiries to be made into alleged misconduct you may be suspended from your employment, either with or without pay.’

The plaintiffs all worked at the sorting and post office at Mount Pleasant, Islington, where over 3,000 people were and are employed by the defendant.

On 25 September 1987 the plaintiffs went to the Wilmington Arms public house in Rosebery Avenue. There was another group of employees of the defendant at that public house at the same time, albeit that they were not employed at Mount Pleasant, but at another of the defendant’s offices, Calthorpe House. At some point during the evening there appears to have been something of a fight. A number of people were injured, most significantly two of the Calthorpe House employees, Mr Silk, who was knocked out, and Mr Sheddon, who fractured his ankle.

The police formed the view that there was sufficient evidence to justify bringing prosecutions against all three plaintiffs on the following counts, namely assault occasioning grievous bodily harm, assault occasioning actual bodily harm and violent disorder.

The plaintiffs were arrested and charged on 7 October 1987, when they were released on police bail. The defendant immediately suspended them on full pay. The suspension was effected orally, and was not formally communicated to them in writing until they each received letters from the defendant on 5 November 1987. Those letters referred to the alleged offences, the suspension and the fact that the plaintiffs had appeared in the magistrates’ court on 16 October, when they were remanded on bail to appear again on 13 November. The letters stated that the defendant was carrying out its own inquiries ‘in order to assess what action, if any, it needs to take’. The letters went on to say that it was likely that the defendant would wish to interview the plaintiffs in due course.

The person responsible for carrying out the internal inquiries was Mr Curtis, the personnel and industrial relations manager at Mount Pleasant. He decided to wait until 13 November to see whether the plaintiffs would plead guilty or not. In fact they pleaded not guilty and were sent for trial in the Crown Court. Accordingly, Mr Curtis started his inquiries. He fixed appointments for 16 and 17 November in order to interview the various Calthorpe House employees who had been present at the Wilmington Arms on 25 September. However, on that occasion he was only able to speak to four of those employees, none of whom had been directly involved in the incident. He prepared a brief summary of what they told him, and also provided an aide-mémoire summarising the effect of their evidence, which he considered to be fairly inconclusive so far as the guilt of the three plaintiffs was concerned.

Subsequently, on 4 December, he interviewed two more of the Calthorpe

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House employees, who had been on leave at the time of the earlier interviews. One of these was Mr Silk. Mr Curtis again prepared a summary of their evidence and an aide-mémoire to its effect. He formed the view that the evidence was still inconclusive, and that Mr Sheddon was a centrally important witness whom he had to interview. Immediately after this, Mr Curtis wrote and asked Mr Sheddon to come and see him about the incident. In fact, Mr Sheddon was difficult to contact, as he was on temporary leave attending a course at the North London Polytechnic. Mr Curtis wrote to Mr Sheddon at the polytechnic and at his home address. He also contacted Mr Meadows, who was apparently responsible for personnel at Calthorpe House, and to the principal at the Polytechnic, with a view to seeing Mr Sheddon.

Eventually, when Mr Curtis had more or less given up hope of interviewing him, Mr Sheddon came to see him on 24 February 1988. As Mr Curtis’s note of that meeting shows, Mr Sheddon’s recollection of what happened at the Wilmington Arms was so unclear as to be useless.

Meanwhile, Mr Curtis had reached the position where he considered it appropriate to interview the plaintiffs themselves, and he wrote to each of them on 12 February inviting them to come and see him 12 days later. The solicitors acting for the plaintiffs in the criminal proceedings replied on their behalf, indicating that they considered it inappropriate for their clients to discuss the incident, bearing in mind that they were facing criminal proceedings in connection with it. Accordingly, they asked Mr Curtis to postpone the interview until after the court hearing. Having discussed the matter fully with the Post Office solicitors, Mr Curtis replied to the plaintiffs’ solicitors on 23 March reiterating his intention to have a meeting with each of the plaintiffs, and those meetings took place on 28 March.

The attitude of each of the plaintiffs was that they were not prepared to discuss the incident in view of the advice they had received from their solicitors. Mr Curtis asked two of the plaintiffs for assurances that there would be no violence if they returned to work, and a similar assurance was sought from the remaining plaintiff on the next day. In each case the assurance was given.

In these circumstances the suspension on each of the plaintiffs was lifted, and they returned to work at Mount Pleasant on 5 April. In due course, in July, the criminal proceedings against the plaintiffs came on for trial in the Crown Court at Southwark and, after a six-day hearing, they were all acquitted by the jury of all charges.

Arising from these facts, the plaintiffs have brought proceedings against the defendant, alleging that the imposition of the suspension from 7 October 1987 to 5 April 1988 and/or the length of those suspensions constitute a breach of contract by the defendant, and that as a result of this breach the plaintiffs have suffered loss and damage, namely the loss of the opportunity to earn overtime payments. In this connection, the parties have very sensibly agreed, for the purpose of these proceedings only, the net earnings which the plaintiffs would in practice have received during the period of suspension had they been allowed to work overtime in the same manner that they had actually been working overtime before the suspension.

In order to succeed, the plaintiffs accept that they have to rely upon the breach by the defendant of one or more terms which the plaintiffs claim to have been implied into their respective contracts of employment. These implied terms are set out in the amended statement of claim and are as follows:

‘(a) The employee is entitled to be provided during the period of his employment with work to do and with the opportunities to undertake such

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overtime and rest-day working and to earn such bonuses as is usual or the norm for the particular employee or for an employee in his position;

(b) Any suspension of an employee should be only following full information to the employee by the employer of the reasons for the suspension;

(c) Following a suspension, the employee should within a reasonable time be given an opportunity by the employer to answer any matters put forward by the employer as reasons for the suspension;

(d) Any suspension of the employee by the employer should be for such period only as was reasonable in all the circumstances;

(e) In exercising any contractual right to suspend the Plaintiffs or any of them the Defendants would observe the rules of natural justice and act fairly in the circumstances.’

I shall refer to these alleged implied terms as ‘term (a)’, ‘term (b)’ etc.

So far as liability is concerned, it seems to me that term (a) takes matters no further. If the suspensions were lawful under cl 7 of the contract, and were not in breach of any other implied term, then, so far as term (a) is concerned, it must yield to the express right of the defendant to suspend under cl 7. If authority is required for the proposition that an implied term must yield, at least so far as it is necessary to give proper effect to an express term, to that express term, I would refer to Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293, [1992] QB 333.

Before turning to the other four implied terms, it is right to consider briefly the law relating to implied terms more generally. There are two categories of implied term: one is a term implied into a relationship because it creates a particular status; the other category is where a term is implied into a contract, which apparently forms the complete bargain between the parties. This case has been argued before me on the footing that the terms sought to be implied fall only into the second category. It is clear that terms can be implied into a contract of employment, just as into any other contract. However, in cases falling into the second category, it is equally clear that a term will only be implied if it is necessary to give efficacy to the contract or (which is often a different way of saying the same thing) it is so obvious a term that it goes without saying. Thus, in relation to a contract of employment, an employer cannot exercise a power contained in his favour in the contract in such a way as to put the employee into a position which requires him to do something which is, in practical terms, impossible: see for instance United Bank Ltd v Akhtar [1989] IRLR 507 esp at 511. However, as the decision of the House of Lords in Liverpool City Council v Irwin [1976] 2 All ER 39, [1977] AC 239 emphasises, one does not imply a term into a contract merely because it is reasonable to do so. Indeed, in the field of employment contracts, it seems clear from the decision in Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713, [1978] QB 761 that there is, at least in general, no term to be implied into a contract of employment that the employer will behave reasonably.

Furthermore, it seems clear beyond doubt that, as a matter of contract, an employer is not obliged to act reasonably in deciding to dismiss an employee and is not obliged to give reasons or to act in accordance with the rules of natural justice in connection with such dismissal (see Ridge v Baldwin [1963] 2 All ER 66 at 71–72, [1964] AC 40 at 64–66 per Lord Reid and Malloch v Aberdeen Corp [1971] 2 All ER 1278 at 1281–1282, 1286, 1292, 1294, 1297–1298, [1971] 1 WLR 1578 at 1581, 1586, 1593, 1595–1596, 1599 per Lord Reid, Lord Morris of Borth-y-Gest, Lord Guest, Lord Wilberforce and Lord Simon of Glaisdale).

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I turn now to term (b). I do not consider that it is right to imply such a term. It is neither necessary to imply such a term for the contract of employment to function, nor is it obvious that the parties would have envisaged such a term. Indeed, one can easily conceive of cases where it would be inappropriate to put to the employee the matters the subject of the investigation which gave rise to the suspension. I have in mind cases where the employee may have been alleged to have victimised or threatened other employees, who may have gone in confidence to the employer to complain, or cases where information has been given to the employer by the police on a strictly confidential basis, because the employee should not be told that the police are carrying out investigations.

In any event, it seems to me that term (b) is getting close to alleging that the rules of natural justice should apply between employer and employee to the extent that the employer should not be entitled to make a decision which may substantially affect the employee without first informing the employee that the decision is about to be made. I do not consider it right to import the rules of natural justice, which are connected with judicial decisions and some administrative decisions, into the purely contractual relationship of employer and employee. There is no precedent for it, and indeed the argument that any such rules should be applied appears to me to be inconsistent with the observations in the House of Lords in the two cases to which I have referred. I have in mind particularly the reasoning of Lord Wilberforce in Malloch v Aberdeen Corp in the passage to which I have made reference.

Quite apart from this, it seems to me wholly unrealistic to contend that the plaintiffs were unaware of the reason for their suspension. They were suspended on the very day that they were charged, and they were suspended by the employee of the defendant who, as I understand it, actually collected them from the police station. If they had had any doubts about the reasons for their suspensions, I cannot but believe that they would have taken the matter up with the defendant, either through their solicitors or through their trade union. Furthermore, it seems to me that, on a fair reading, the letters of 5 November 1987, which they each received, informed them of the reason. In any event, I find it very hard to see what damage the plaintiffs can say they suffered from any breach of the implied term, if, contrary to my view, there was such an implied term and there was a breach of it.

I turn then to term (c). I decline to imply this term effectively for the same reason as I decline to imply term (b).

Even if term (c) is to be implied, I am by no means satisfied that the plaintiffs were not given the opportunity to make representations within a reasonable time. For reasons which I shall develop a little more fully later in this judgment, it does not seem to me that the defendant was unreasonable in waiting until all the Calthorpe House employees had been interviewed about the incident before interviewing the plaintiffs.

Quite apart from this, even if there was a breach of term (c), I do not consider that the plaintiffs have established any damage as a result. It will be recalled that, when they were eventually interviewed in March 1988, they refused to say anything about the incident. On the balance of probabilities, it seems to me that, if they had been interviewed immediately after they pleaded not guilty in the magistrates’ court in November 1987, they would have adopted exactly the same position: they had retained the same solicitors who were acting for them in March 1988, and who had advised them then to say nothing. Even if the plaintiffs had adopted a different attitude in November 1987 and given their version of what happened at the Wilmington Arms, I do not think that the defendant would have

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taken a different view from that which it did, namely not to lift the suspension until it had interviewed all the relevant Calthorpe House employees and had considered the effect of their evidence.

I turn then to terms (d) and (e). Bearing in mind the authorities to which I have referred, there is some apparent force in the contention that there should be no implied term that the right of suspension in cl 7 of the contract will be exercised reasonably. However, I do not think that the authorities are by any means conclusive of the issue.

The mere fact that there is no general obligation on an employer to act reasonably seems to me, in the end, not to take matters much further. One is here concerned with the proper construction of cl 7, and whether there is an implied term that the defendant will exercise its power thereunder reasonably, and not with a general principle. Equally, the fact that an employer does not have to act reasonably when exercising his express or implied right to determine a contract of employment does not seem to me to lead to the conclusion that the right to suspend in cl 7 of this contract, on its true construction, can be exercised unreasonably. Quite apart from this general point, it is worth bearing in mind that the employer/employee relationship continues during (and quite probably after) the period of suspension, whereas dismissal determines it forever.

I was referred to White v Reflecting Roadstuds Ltd [1991] IRLR 331. I have to say that I find it a difficult case. As in United Bank Ltd v Akhtar [1989] IRLR 507 the Employment Appeal Tribunal was there concerned with an employer exercising his purported right under a mobility clause in an employment contract. The judgment of the Employment Appeal Tribunal in White v Reflecting Roadstuds Ltd, which was given by Wood J, states, in terms, that the decision in United Bank Ltd v Akhtar did not decide that it was an implied term that the mobility clause would be implemented reasonably by an employer, and indeed it was said (at 335) that any such finding would have been contrary to the approach of the Court of Appeal in Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713, [1978] QB 761. That is an observation upon which the defendant justifiably relies in the present case. However, Wood J went on to say that such a clause could not be implemented capriciously or if ‘there were no reasonable or sufficient grounds for the view that [the employee] required to be moved’ (at 335).

I have some difficulty in fully comprehending the distinction between implying a term that the exercise of a discretion should be effected reasonably, on the one hand, and, on the other hand, implying a term that the exercise of a discretion must only be on reasonable grounds. So far as there is a distinction, it seems to me that the judgment in White v Reflecting Roadstuds Ltd assists the plaintiffs’ argument as to the implication of a term that the right to suspend under cl 7 in the instant case must only be exercised on reasonable grounds, just as much as it may be said that it assists the defendant’s contention that there is no general implication of reasonableness into cl 7 (at 335).

I have come to the conclusion that the plaintiffs’ argument on reasonableness is correct, at least to the extent that there is to be implied into cl 7 a term that the defendant’s right to suspend will not be exercised on unreasonable grounds. (That is not precisely how terms (d) or (e) are pleaded, but I do not think anything hangs on that.)

In the first place, it appears to me significant that cl 7 entitles the defendant to suspend not only on full pay (as happened in the instant case), but on no pay. In my judgment, the fact that the defendant could suspend without pay for an indeterminate period does support the plaintiffs’ contention that some sort of

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reasonableness implication is appropriate. Secondly, I think the plaintiffs derive some support for their contention that the power to suspend should be subject to some sort of reasonableness implication from observations of the Employment Appeal Tribunal in A Dakri & Co Ltd v Tiffen [1981] ICR 256 esp at 260. The defendant urges on me that I should prefer the approach of the Scottish Employment Appeal Tribunal in Kenneth MacRae & Co Ltd v Dawson [1984] IRLR 5, where it was held that there was no implied term in the contract there under consideration that any suspension would be for a reasonable period. However, doing the best I can with that report, it appears to me that the suspension clause in that case was quite clear in its terms, to the effect that the suspension could be for whatever period the employer wanted. Thirdly, it seems to me that the conclusion I have reached is consistent with the approach of the Employment Appeal Tribunal in White v Reflecting Roadstuds Ltd [1991] IRLR 331 at 335.

The defendant argues in the instant case that there is no need to imply a reasonableness term, because the employee can always rely upon the term implied into all contracts of employment that the employer will not act so as to render the performance of the contract by the employee intolerable: see eg per Browne-Wilkinson J in Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666 at 670. In my judgment, there is very little difference between a provision such as cl 7 being subject to an ‘intolerability implied term’ and being subject to a ‘reasonableness implied term’. It is also said on behalf of the defendant that by implying any sort of reasonableness term, the court would be stepping into the arena of the employer/employee relationship. However, in my view, in holding that an employer’s contractual discretionary right is subject to an implied term that it will only be exercised on reasonable grounds, the court is not putting itself in a position where it will substitute its own judgment for that of the employer. The court is merely holding that the employer cannot exercise his power under the relevant contractual provision on unreasonable grounds. The band of reasonableness may be wide, and it is only if the employer goes outside that band that the court can interfere.

Accordingly, in so far as terms (d) and (e) are based on reasonableness, the plaintiffs succeed to the extent that I judge it right to imply a term that the defendant will only exercise its right to suspend under cl 7 on reasonable grounds and will only continue that suspension so long as there are reasonable grounds for doing so. However, I do not think that the plaintiffs succeed any further than this on terms (d) and (e). In the first place, to go any wider on reasonableness would, I think, be to fall foul of the approach of the Court of Appeal in Western Excavating (ECC) Ltd v Sharp, as explained by Wood J in White v Reflecting Roadstuds Ltd [1991] IRLR 331 at 335. So far as the obligation to act in accordance with the principles of natural justice is concerned, I do not consider the plaintiffs can succeed. I have already rejected an application of those principles to the contractual right to suspend so far as terms (a) and (b) are concerned, and my observations apply to terms (d) and (e).

So far as fairness is concerned, if that involves balancing the interests of the employer and employee, I can see no warrant for implying such an obligation on the defendant in the exercise of its powers under cl 7. It is getting close to alleging an obligation to act in accordance with natural justice. In any event, it seems to me that any obligation to act fairly runs into two further problems. First, it falls foul of the general principles upon which terms are implied into contracts: I do not see it as necessary or obvious that such a term be implied. Secondly, it involves

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a severe risk of the court having to descend into the decision-making process and involving itself more closely than is appropriate in the administrative and organisational decisions of the defendant as employer.

However, having decided that there is an implied term upon which the plaintiffs can rely in principle, I have reached the conclusion that the defendant was not in breach of it. In other words, I do not consider that it can be fairly said that the suspensions or their continuance were effected by the defendant on other than reasonable grounds. Further, if there is an implied term that the defendant would only exercise its power to suspend reasonably, I consider that such an implied term was satisfied in the instant case. It is true that the suspensions were for a substantial time, namely six months, and anyone must have sympathy with the plaintiffs in this connection. However, I have to ask myself whether the defendant had reasonable grounds for effecting the suspension in the first place, and whether there were reasonable grounds for continuing it for the six-month period. So far as the initial decision to suspend is concerned, it seems to me that it was made on reasonable grounds. The alleged offences against the three plaintiffs were serious; the very fact that the police had charged them with the offences suggested that there was definite evidence that they might have been guilty. It was certainly not unreasonable for the defendant to be concerned about the suitability of the plaintiffs to continue working in close proximity with many other employees at Mount Pleasant, bearing in mind the nature of the allegations made against them. The fact that the victims were other Post Office workers, and that the plaintiffs had been wholly or partially dressed in Post Office uniforms in a public place at the time of the alleged offences were also factors which could perfectly properly have been taken into account by the defendant when deciding to suspend the plaintiffs.

So far as the length of suspension is concerned, counsel for the defendant was clearly right to point out that one should look at events as they occurred, and not with the wisdom of hindsight. The six-month period looks a long time in retrospect, but that is not, in my judgment, how one should judge the length of the suspension. The first five or six weeks’ delay was due to Mr Curtis waiting to see whether the plaintiffs pleaded guilty or not, on the basis that if they pleaded guilty it would be unnecessary to carry out investigations. That seems to me to be wholly justifiable. Thereafter, he very promptly initiated the first interviews. The next three-week delay was caused by assimilating the inconclusive nature of the evidence gathered from the first four Calthorpe House employees and awaiting the return from leave of the two Calthorpe Houses employees interviewed in early December. There then followed a delay of some twelve weeks, owing to the difficulty which Mr Curtis had in finding Mr Sheddon, who he believed to be a very important witness. Bearing in mind Mr Curtis’s understandable, indeed correct, assessment of the evidence he had obtained by early December 1987, it was a perfectly rational opinion for him to form that Mr Sheddon was an essential witness. Whilst the counsel of perfection, particularly with wisdom of hindsight, might suggest that Mr Curtis could have found Mr Sheddon earlier, it does not seem to me that the steps that he took in tracking down Mr Sheddon justify adverse criticism. Certainly, the fact that Mr Sheddon’s evidence provided completely unhelpful is not something which Mr Curtis could reasonably have foreseen.

In my opinion, having gathered the evidence together, Mr Curtis was clearly justified in forming the view that, having done his best to collate all the evidence from sources other than the plaintiffs, there was insufficient evidence to conclude that the plaintiffs were responsible for the violence which occurred at the

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Wilmington Arms. The delay which followed the interview with Mr Sheddon was not long, and was partially caused by the plaintiffs’ solicitors writing to Mr Curtis and explaining that they had advised the plaintiffs not to talk to the defendant about the incident, which led Mr Curtis seeking the advice of the Post Office solicitors. Thereafter, having interviewed the plaintiffs and obtained assurances about their future conduct, he reinstated them.

In my view, that was not an unreasonable course for the defendant to take. To put it more accurately, the defendant, as it seems to me, had reasonable grounds for continuing suspension from 7 October to 5 April. On the face of it, the point made by counsel for the plaintiffs that nothing had really changed between the date upon which the plaintiffs were suspended and the date upon which they were reinstated is a good one: on both dates they stood charged with serious offences, and on both dates the defendant had no clear idea whether they were guilty or not. Accordingly, it is argued on behalf of the plaintiffs, it cannot have been reasonable for the defendant to suspend the plaintiffs initially and continue the suspension for six months. Although initially attracted by that argument, I have come to the clear conclusion that it should be rejected. Mr Curtis was quite rightly embarking on an exercise which it is appropriate for an employer to undertake when considering whether or not to dismiss an employee who is suspected of an offence: see the decision of the Employment Appeal Tribunal in British Home Stores Ltd v Burchell [1980] ICR 303. He was aware that before he could take any disciplinary action with regard to the plaintiffs, he had to be satisfied in his own mind that they were more likely than not guilty of the offences of which they stood charged. He carried out as thorough an investigation as reasonably could have been expected of him, at the end of which he was by no means satisfied on the evidence he had got that the plaintiffs were in fact responsible for the offences of which they stood charged. Accordingly, he decided that the right course to take was to reinstate them and await the outcome of the criminal proceedings.

I am fortified in the conclusion I have reached by another point made by counsel for the defendant. He contended that it would have been perfectly proper for the defendant simply to suspend the plaintiffs on the date they were charged, with a view to awaiting the outcome of the criminal proceedings. While he may have put the point a little high, there is some force in his additional point that that is what the plaintiffs’ solicitors themselves were inviting the defendant to do in their letter of 19 February 1988. However, in this connection it seems to me that the essential point is that it would have been difficult to say that the defendant had exercised its power of suspension under cl 7 on unreasonable grounds or in an unreasonable way if it had suspended the plaintiffs from the moment that they were charged until their acquittal without making inquiries, on the basis that the investigations envisaged by cl 7 were, as it were, being carried out by the Crown in the criminal proceedings.

Accordingly, I am of the view that the plaintiffs’ claim fails on liability.

In case this matter goes further, and because I have heard full argument on the point, I turn to the plaintiffs’ claim for damages, should they have succeeded on liability. It involves consideration of a point of principle, which I do not find entirely easy. It is the defendant’s contention that, even if the plaintiffs succeed on liability, they cannot succeed in damages, because, as they were suspended on full pay, the plaintiffs’ only loss arises from their inability to work overtime, and they had no right to work overtime.

In my judgment, unless the plaintiffs can establish a right to work overtime, and therefore to receive overtime payments, they could not succeed in recovering

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any damages in this action even if they succeeded on liability. On the face of it, the decision of the Court of Appeal in Chaplin v Hicks [1911] 2 KB 786, [1911–13] All ER Rep 224 might suggest that damages based on the loss of a chance can be awarded even if the chance is to recover a sum to which the plaintiff is not strictly entitled. However, I think that, as explained in Lavarack v Woods of Colchester Ltd [1966] 3 All ER 683 at 691, [1967] 1 QB 278 at 295 per Diplock LJ, the decision in Chaplin v Hicks, as properly analysed, does depend upon the fact that the plaintiff had a legal right to the sum which, as a result of the defendant’s breach of contract, she lost the prospect of obtaining. It also seems to me that the decisions of the Court of Appeal in Lavarack v Woods of Colchester Ltd itself and in Gunton v Richmond Upon Thames London Borough [1980] 3 All ER 577, [1981] Ch 448 are consistent with this view.

In those circumstances, can the plaintiffs establish a right, as opposed to an obligation, to work overtime? I have already referred to cl 3 of the plaintiffs’ contract, which refers to an obligation, and does not refer to a right on the employee to work overtime. Accordingly, in order to succeed on damages, the plaintiffs have to rely on an implied term, and it is in this connection that term (a) comes into focus. In the absence of authority, I would find it difficult to imply a term that the plaintiffs had a right to work overtime.

Having said that, the plaintiffs’ contention on this aspect does receive a degree of assistance from authority. Counsel for the plaintiffs cited Devonald v Rosser & Sons [1906] 2 KB 728, [1904–7] All ER Rep 988, but I think that case is fairly easily distinguishable, on the basis that the employee was entitled to be paid only in respect of work actually done; given that he had to make himself available for the employer full time, if the employer required it, it is easy to understand how the court was prepared to imply an obligation on the employer to provide work. A case of more assistance on this point to the plaintiffs is Bauman v Hulton Press Ltd [1952] 2 All ER 1121. There, the plaintiff was to receive a fixed sum and also a payment in respect of specific items of work done for the defendant. Streatfeild J held that there was an implied obligation to provide that plaintiff with work. I think that case is distinguishable from the instant case, principally for three reasons. First, it does appear that the fixed rate of pay received by the plaintiff was a much lower proportion of the total receipts he can reasonably have expected from commissions. In other words, the fixed rate of pay was little more than a retainer. Secondly, the case appears to have turned essentially on the juridical nature of the relationship between the plaintiff and the defendant rather than what the implied rights and obligations of the parties were once the nature of the relationship had been established (at 1122). Thirdly, the terms of the contract between the parties were very different from the terms in the instant case (at 1122). Accordingly, I do not think that that case can be decisive of the issue in the instant case.

The third, and perhaps the most formidable, authority cited on behalf of the plaintiffs on this aspect is the decision in Langston v Amalgamated Union of Engineering Workers [1974] 1 All ER 980, [1974] 1 WLR 185. In the first round of this case it seems to me that the furthest one can go is to say that the Court of Appeal held that, on the facts of the case, it was arguable that it was a breach of contract for the employer to suspend the employee on full pay, because he was obliged to provide the employee with work. However, when the matter was sent back to the National Industrial Relations Court (see Langston v Amalgamated Union of Engineering Workers (No 2) [1974] ICR 510), it seems to me that part of the ratio is, on the face of it, of considerable assistance to the plaintiffs in the instant case; and the observations of the court do support the proposition that, because of the

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fact that he would thereby earn overtime, the plaintiff did have an implied right to be provided with work, and in particular with overtime, by the employer (see esp at 522 per Sir John Donaldson P).

In light of that decision, it is with some diffidence that I have reached the conclusion that, even if they had succeeded on liability, the plaintiffs would nonetheless have failed to establish any claim to damages. In seeking to establish terms (b) to (e), counsel for the plaintiffs quite rightly emphasised that one should be careful of having too much regard to previous instance where the court had implied terms or declined to imply terms, on the basis that each contract must be construed in light of its own particular provisions. It seems to me that that must apply to term (a) as well. None of the reports of the decisions at the various stages in Langston’s case indicate what the terms of the contract in that case were. Nor do any of the reports indicate whether the employee in that case had been employed by the employer and provided with overtime by him prior to entering into the contract of employment which was being considered.

In the instant case, I have to construe the particular contract of employment which the parties have signed. I think there are a number of reasons to support the contention that there is no implied provision to the effect of term (a). First, the contact specifically deals with overtime in cl 3, and imposes an obligation on the employee to work overtime if the employer requires it, but signally omits any concomitant obligation on the employer to provide overtime work on any basis whatever to the employee. Secondly, it does not provide for the employee to work at any particular place, and indeed provides that the employee may be required to work somewhere other than the initial place of employment. The parties must have appreciated that different amounts of overtime might be available at different places, and I think this provision is more consistent with the defendant’s contention that there is no obligation to provide overtime. Thirdly, the nature of the plaintiffs’ case on term (a) effectively involves an implied obligation on the defendant to act fairly or equitably between the various employees in apportioning overtime. I have already indicated that I consider that the court should be slow to imply an obligation on an employer to act fairly or in accordance with the rules of natural justice in carrying out a discretionary power under a contract of employment. Fourthly, there is no suggestion that the plaintiffs had been employed by the defendant prior to 1984, so it cannot be suggested on behalf of the plaintiffs that there was some sort of course of dealing prior to the contract which would have given rise to the argument that both parties were aware that overtime at Mount Pleasant was allocated by the defendant between employees on an equitable basis in practice (as I understand has remained the case at all times since before 1984). Fifthly, cl 2 of the contract provides what the plaintiff is entitled to by way of pay, and it seems to me that to accede to the plaintiffs’ case on this issue would not merely be adding an implied employer’s obligation in respect of overtime to an express employee’s obligation in respect of overtime in cl 3, but it would also be adding an implied obligation on the employer to make payments to the employee to an express obligation in cl 2 of the contract so far as basic pay is concerned. Sixthly, it seems to me that a provision such as term (a) is neither necessary nor obvious.

In these circumstances, I must dismiss the claims of all three plaintiffs.

Action dismissed.

Hazel Hartman   Barrister.

Re Hartlebury Printers Ltd (in liq) and others

[1993] 1 All ER 470

Categories:        EMPLOYMENT; Industrial relations        

Court:        CHANCERY DIVISION        

Lord(s):        MORRITT J        

Hearing Date(s):        13, 16, 20 MARCH 1992        

Redundancy – Employer’s duty to consult appropriate trade union – Employer ‘proposing to dismiss [employees] as redundant’ – Proposing – Consultation with union required to take place ‘at the earliest opportunity’ – Company – Winding-up order – All employees automatically made redundant without union consultation when company wound up by court – Whether administrators under duty to consult union before making application to court which resulted in winding up – Whether administrators ‘proposing to dismiss [employees] as redundant’ – Whether administration order a ‘special circumstance’ relieving corporate employer from duty to consult union on proposed redundancies – Employment Protection Act 1975, ss 99, 100, 101 – Insolvency Act 1986, s 130 – Council Directive (EEC) 75/129.

Between January 1989 and April 1990 the defendant company suffered trading losses in excess of £15m and it became apparent to the directors that without fundamental reorganisation the business would cease to be viable by the end of May 1990. The company accordingly entered into negotiations with a prospective purchaser in an attempt to secure its long-term future but was advised to seek an administration order to protect it from creditors during the period of the negotiations. Accordingly, on 31 May 1990 an administration order was made in respect of the company and administrators were appointed. The viability of the administration depended, inter alia, on the company maintaining its orders from customers. Prior to the commencement of the administration the directors considered mitigating the costs of the administration by reducing manning but that was judged inappropriate given the need to maintain a viable operation. Subsequently it became apparent that the conditions for the viability of the administration were not being met because of lost orders. On 25 June the prospective purchaser of the company indicated that its new business structure would involve the dismissal of some employees. The employee’s union was informed of that fact by the administrators and on 29 June it approved 28 proposed redundancies. However, as a result of the failure to arrange further funding for the administration, the administrators applied to the court for directions recommending that the administration continue for the time being in the hope that the company could be rescued. The application was heard on 3 July, when the judge directed that the company be compulsorily wound up. The effect of the winding-up order was to make all 136 employees redundant. The union applied to an industrial tribunal for a protective award under s 101a of the Employment Protection Act 1975 and applied to the court for leave under s 130(2)b of the Insolvency Act 1986 to commence and/or pursue those proceedings. The union contended that for the purposes of ss 99c and 100d of the 1975 Act the company was ‘an employer proposing to dismiss as redundant’ the company’s employees when the administration order was applied for or that the

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administrators were likewise ‘proposing to dismiss as redundant’ the company’s employees when the winding-up order was made and that in both cases there had been a failure to consult ‘from the earliest opportunity’ as required by s 99(3) of that Act. The union further contended that, construing ss 99 and 100 of the 1975 Act in accordance with Council Directive (EEC) 75/129e, which envisaged that the duty to consult arose when an employer was ‘contemplating’ redundancies, the administrators must have contemplated when they decided to apply to the court for directions that the discharge of the administration order and the winding up of the company would result in the redundancies. The administrators contended, inter alia, that, where a company was in administration, that in itself was a ‘special circumstance’ within s 99(8) of the 1975 Act exempting them from the consultation requirements in s 99(3) and that the proposal for the winding up was made by the administrators not as agents for the company but as officers of the court.

Held – (1) On the true construction of ss 99 and 100 of the 1975 Act an employer ‘proposing to dismiss [employees] as redundant’ did not include an employer who was merely thinking about the possibility of redundancies since ‘contemplating’ in Council Directive (EEC) 75/129 was to be equated with ‘proposing’ and an employer who was merely thinking about the possibility of redundancies could not be said to be ‘proposing to dismiss as redundant’ any employees. Accordingly, the fact that the administrators recognised the possibility of redundancies if the court did not accept their suggestion that the administration should continue but instead wound up the company was not sufficient to give rise to an obligation to consult. It followed that there was no prima facie breach of duty (see p 478 d to f, post).

(2) An administration order was not in itself a ‘special circumstance’ within s 99(8) of the 1975 Act thereby relieving a company employer from the duty to consult the appropriate trade union on proposed redundancies. Whether a company in administration was relieved from that requirement depended on the circumstances of the case when considered in the light of the duties and responsibilities of the administrator, and a combination of those circumstances together with the existence of an administration order might give rise to special circumstances within s 99(8) when neither would when taken in isolation. On the facts, however, since the company when in administration had not proposed to dismiss as redundant all its employees, the questions of whether there were special circumstances and whether there were any reasonably practicable steps open to the administrators did not arise. The union’s application would therefore be dismissed (see p 480 a to g, post); Clarks of Hove Ltd v Bakers’ Union [1979] 1 All ER 152 considered.

Notes

For the effect of a winding-up order, see 7(2) Halsbury’s Laws (4th edn reissue) para 1489.

For an employer’s duty to consult trade unions about proposed redundancies, see 16 Halsbury’s Laws (4th edn reissue) para 381, and for cases on the subject, see 20 Digest (reissue) 446–448, 3674–3680.

For the Employment Protection Act 1975, ss 99, 100, 101, see 16 Halsbury’s Statutes (4th edn) (1990 reissue) 180, 182, 183.

For the Insolvency Act 1986, s 130, see 4 Halsbury’s Statutes (4th edn) (1987 reissue) 811.

Page 472 of [1993] 1 All ER 470

Cases referred to in judgment

Atlantic Computer Systems plc, Re [1990] BCLC 729; rvsd in part [1992] 1 All ER 476, [1992] Ch 505, CA.

Capita Finance Group Ltd v Rothwells Ltd (1989) 15 ACLR 348, NSW SC.

Clarks of Hove Ltd v Bakers’ Union [1979] 1 All ER 152, [1978] 1 WLR 1207, CA.

Cases also cited

Association of Patternmakers and Allied Craftsman v Kirvin Ltd [1978] IRLR 318, EAT.

Barrow Borough Transport Ltd, Re [1990] Ch 227.

Bristol Airport plc v Powdrill [1990] 2 All ER 493, [1990] Ch 744, CA.

Charnley Davies Ltd, Re (No 2) [1990] BCLC 760.

Currie v Consolidated Kent Collieries Corp Ltd [1906] 1 KB 134, CA.

Francovich v Italy Joined cases C-6/90 and C-9/90 [1992] IRLR 84, CJEC.

Hamish Armour v Association of Scientific Technical and Managerial Staffs [1979] IRLR 24, EAT.

Marleasing SA v Comercial Internacional de Alimentación SA Case C-106/89 [1990] ECR I-4135.

Sovereign Distribution Services Ltd v Transport and General Worker’ Union [1990] ICR 31, EAT.

Spiller-French (Holdings) Ltd v Union of Shop Distributive and Allied Workers [1980] 1 All ER 231, EAT.

Union of Shop Distributive and Allied Works v Leancut Bacon Ltd (in liq) [1981] IRLR 295, EAT.

Summons

By summonses dated 8 January 1991 addressed to Ian Napier Carruthers and David Robert Wilton of Messrs Cork Gully, the joint liquidators of Hartlebury Printers Ltd, Hartlebury Reprographics Ltd and Optoscan Ltd, the applicant, the Graphical Paper and Media Union, applied pursuant to s 130(2) of the Insolvency Act 1986 for an order that the union be at liberty to commence and/or continue proceedings against each of the respondent companies before an industrial tribunal in relation to complaints made to the tribunal by the National Graphical Association (1982) and the West Midlands Graphical Society for a declaration and protective award pursuant to s 10 of the Employment Protective Act 1975 in relation to the companies’ alleged breaches of s 99 of that Act. The facts are set out in the judgment.

Ingrid Simler (instructed by Kershaws) for the applicant.

Mark Phillips (instructed by Wragge & Co, Birmingham) for the liquidators.

Cur adv vult

20 March 1992. The following judgment was delivered.

MORRITT J. By these three summonses the Graphical Paper and Media Union seeks leave pursuant to s 130(2) of the Insolvency Act 1986 to commence and/or continue proceedings against Hartlebury Printers Ltd, Hartlebury Reprographics Ltd and Optoscan Ltd, each of which was compulsorily wound up on 3 July 1990. On 14 September 1990 the union applied to an industrial tribunal for a declaration and protective award pursuant to s 101 of the Employment Protection Act 1975

Page 473 of [1993] 1 All ER 470

on the ground that each of the three companies had dismissed all its respective employees as redundant without complying with its duty to consult the union as imposed by s 99 of the 1975 Act. Those are the proceedings which the union wishes to continue or, if necessary, to commence.

The relevant provisions of s 99 are as follows:

‘(1) An employer proposing to dismiss as redundant an employee of a description in respect of which an independent trade union is recognised by him shall consult representatives of that trade union about the dismissal in accordance with the following provisions of this section …

(3) The consultation required by this section shall begin at the earliest opportunity, and shall in any event begin—(a) where the employer is proposing to dismiss as redundant 100 or more employees at one establishment within a period of 90 days or less, at least 90 days before the first of those dismissals takes effect; or (b) where the employer is proposing to dismiss as redundant 10 or more employees at one establishment within a period of 30 days or less, at least 30 days before the first of those dismissals takes effect …

(5) For the purposes of the consultation required by this section the employer shall disclose in writing to trade union representatives—(a) the reasons for his proposals; (b) the numbers and descriptions of employees whom it is proposed to dismiss as redundant; (c) the total number of employees of any such description employed by the employer at the establishment in question; (d) the proposed method of selecting the employees who may be dismissed; and (e) the proposed method of carrying out the dismissals, with due regard to any agreed procedure, including the period over which the dismissals are to take effect …

(7) In the course of the consultation required by this section the employer shall—(a) consider any representations made by the trade union representatives; and (b) reply to those representations and, if he rejects any of those representations, state his reasons.

(8) If in any case there are special circumstances which render it not reasonably practicable for the employer to comply with any of the requirements of subsections (3), (5) or (7) above, the employer shall take all such steps towards compliance with that requirement as are reasonably practicable in those circumstances.

(9) This section shall not be construed as conferring any rights on a trade union or an employee except as provided by sections 101 to 103 below.’

Section 126(1) incorporates the definition of ‘employer’ contained in s 30(1) Trade Union and Labour Relations Act 1974 which, so far as relevant, provides:

‘ “employer” … (a) where the reference is to an employer in relation to an employee means the person by whom the employee is (or in a case where the employment has ceased, was) employed and (b) in any other case means a person regarded in that person’s capacity as one for whom one or more workers work or have worked or normally work or seek to work …’

Section 100 of the 1975 Act provides:

‘(1) An employer proposing to dismiss as redundant—(a) 100 or more employees at one establishment within a period of 90 days or less; or (b) 10 or more employees at one establishment within a period of 30 days or less shall notify the Secretary of State, in writing, of his proposal—(i) in a case falling within paragraph (a) above, at least 90 days before the first of those

Page 474 of [1993] 1 All ER 470

dismissals takes effect; and (ii) in a case falling within paragraph (b) above, at least 30 days before the first of those dismissals takes effect, and where the notice relates to employees of any description in respect of which an independent trade union is recognised by him, he shall give a copy of the notice to representatives of that union …

(6) If in any case there are special circumstances rendering it not reasonably practicable for the employer to comply with any of the requirements of subsections (1) to (5) above, he shall take all such steps towards compliance with that requirement as are reasonably practicable in those circumstances.’

Section 105(1) renders an employer who fails to comply with s 100 liable to a fine.

Section 101, so far as relevant, provides:

‘(1) An appropriate trade union may present a complaint to an industrial tribunal on the ground that an employer has dismissed as redundant or is proposing to dismiss as redundant one or more employees and has not complied with any of the requirements of section 99 above.

(2) If on a complaint under this section a question arises as to the matters referred to in section 99(8) above, it shall be for the employer to show—(a) that there were special circumstances which rendered it not reasonably practicable for him to comply with any requirement of section 99 above; and (b) that he took all such steps towards compliance with that requirement as were reasonably practicable in those circumstances.

(3) Where the tribunal finds a complaint under subsection (1) above well-founded it shall make a declaration to that effect and may also make a protective award in accordance with subsection (4) below.

(4) A protective award is an award that in respect of such descriptions of employees as may be specified in the award, being employees who have been dismissed, or whom it is proposed to dismiss, as redundant, and in respect of whose dismissal or proposed dismissal the employer has failed to comply with any requirement of section 99 above, the employer shall pay remuneration for a protected period …’

The amount of any such award is dealt with in s 101(5) and payment thereof may be enforced by an employee pursuant to s 103 by a complaint to an industrial tribunal. If the employer is insolvent the employee is entitled to recover the amount due to him from the redundancy fund and the Secretary of State is subrogated to the employee’s rights against the employer (see ss 122 and 125 of the Employment Protection (Consolidation) Act 1978).

The three companies in question formed part of the Hartlebury Group. There is no relevant factual distinction between them and I shall refer to each of them as ‘the company’. The group carried on business as printers. Between January 1989 and April 1990 it sustained trading losses in excess of £15m and had lost one of its major customers. The position by mid-April 1990 was that it was evident to the directors that without a fundamental reorganisation of the group’s debt structure the business was not viable and the group would founder by the end of May 1990 through distress proceedings threatened by its landlord. At this stage any operational changes in manning levels or methods of working would not have affected the group’s ability to pay its debts and any associated cost savings would not have been sufficient to avoid the substantial loss caused principally through the interest charges on the group’s burgeoning level of debt.

The directors were negotiating with two prospective purchasers, one of which

Page 475 of [1993] 1 All ER 470

was Times Publishing of Singapore. On 11 May 1990 the group approached Messrs Cork Gully for advice. By a report dated 31 May Cork Gully advised the directors to seek an administration order ‘to provide the protection from creditors needed to allow time for an agreement to be concluded with a third party which would ensure the survival of the business’. On the same day Vinelott J made an administration order in respect of the company for the purposes prescribed by s 8(3)(a), (c) and (d) of the Insolvency Act 1986, namely survival of the company, or the whole or part of its undertaking as a going concern, a voluntary arrangement and the more advantageous realisation of its assets. At about the same time Times Publishing provided a letter of intent to acquire the group’s business which envisaged that six to eight weeks would be required to complete the negotiations. Three factors were fundamental to the success of the negotiations, namely acceptance by unsecured creditors of a voluntary arrangement that would substantially reduce the group’s immediate burden of debt, that the leasing company should accept a substantial write-off of the capital element of the lease liability and hence corresponding reduction in lease payments, and that the landlord should accept revisions to the terms of the tenancy agreement for the Hartlebury premises and in doing so forgo any increase at the next rent review in September 1990.

The viability of the administration depended on the company maintaining its orders and being under no liability to make payments to the lessors for the printing equipment as part of the costs of the administration. In addition, the administrators obtained an indemnity for £250,000 from Schroeder Ventures Ltd to cover the costs of the administration and thought that the group had £500,000-worth of assets subject to floating charges which, by virtue of s 19(4) of the 1986 Act, would be available to pay the expenses of the administration.

Immediately prior to the commencement of the administration consideration was given to mitigating the costs of the administration by reducing manning. After a detailed review, this was judged to be inappropriate because it would have had no significant effect on the trading losses and because there was limited scope for reduced manning if a viable operation was to be retained. In addition, it could have restricted the options available to Times Publishing and the costs of the redundancy settlements would have exceeded the anticipated savings under the period of the negotiations.

On 1 June 1990 at meetings of the company’s employees the administrators explained the reasons for and implications of the administration order. On 14 June, at further meetings of the company’s employees the administrators advised them that trading had progressed as expected and that representatives of Times Publishing would be visiting the following week. Each employee was given a letter making it plain that they continued to be employed by the company and that the administrators had not adopted their contracts of employment. On 20 June the administrators explained to a representative of the union the objects of the administration, but by the end of the third week of the administration, namely 20 June, it was apparent that the conditions for the viability of the administration were not being met. First, a number of customers cancelled their orders. Second, it was discovered that the value of the assets of the group, subject to floating charges, was only £100,000. Third, the judgment of Ferris J in Re Atlantic Computer Systems plc [1990] BCLC 729 suggested that leasing charges would be payable as expenses of the administration. By the week commencing 25 June 1990 expenditure was exceeding income at the rate of £200,000 per week. The indemnity cover from Schroeder Ventures Ltd, which had been increased to £350,000, would be exhausted by 1 July.

Page 476 of [1993] 1 All ER 470

On 25 June Times Publishing gave the first indication that the structure of the business it was interested in acquiring would involve dismissing some of the employees. The union was so informed and on 27 June one of the administrators met a representative of the union to advise him of the terms proposed by Times Publishing which would involve 28 redundancies in the group. The proposals and redundancies were approved by the union on 29 June.

On 27 June the administrators wrote to Schroeder Ventures Ltd setting out the financial situation in the administration and stating that unless arrangements for further funding were concluded by 9 am, Friday 29 June, the administrators would have to apply to the court for directions. No such arrangements were made.

On 2 July Mr Carruthers, one of the administrators, swore an affidavit setting out the history of the administration. In paras 24, 25 and 26 he stated:

‘24. Based on progress to date I believe that the opportunity still remains for the purposes laid down in section 8(3)(a), (b) and (d) of the Act to be achieved. The principal difference between the present position in the administration and that envisaged at the time the administration petitions were presented is that the cushion provided by floating charge assets to meet any unexpected deterioration in the group’s position is almost non-existent. Had this position been known at the time the petitions were presented it is unlikely that I would have recommended the appointment of administrators.

25. In summary, achievements to date include (i) progress made in the negotiations with Times Publishing (ii) constructive discussions with creditors and leasing companies, and (iii) the financial support already provided by Schroeders and the indication which they have given that further support will be provided.

26. The administrators are concerned that the insufficiency of floating charge assets leaves little scope for unforeseen circumstances to be dealt with. Nevertheless it is our view that the administration should be allowed to continue at least for the time being in the hope that the purposes for which the orders were made might be achieved.’

The application came before Scott J on 3 July. The order he made directed the administrators to present a petition for the winding up of the company and dispensed with its advertisement. Scott J ordered that upon presentation of the petition the administration order should be discharged, the administrators be released, the company be wound up and the administrators be appointed liquidators of the company. The effect of the winding-up order was to discharge all the company’s employees. In respect of the respective companies there were 48, 47 and 41 employees.

In the complaint to the industrial tribunal Mr Lowe, the union’s representative, states:

‘I contend that there has been a failure to consult in accordance with statutory provisions and claim a protective award. [Subsequently, after setting out some of the facts to which I have referred, he continued:] I contend that (a) previously agreed redundancies could have been implemented to rationalise the Company, (b) there was time to consult and discuss and possibly agree further redundancy measures to maintain a going concern (c) discussions with the third party were still progressing, eventually a third party did purchase part of the assets of Hartlebury Group establishing a new trading company, (d) we had been led to believe that the approval of revised

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terms and conditions along with redundancies would secure the ongoing business.’

It is common ground that, given the numbers of the company’s employees made redundant by the winding-up order the minimum period of consultation required was at least 30 days before the first of the dismissals took effect: see s 99(3)(b) of the 1975 Act. But the union contends that that subsection requires consultation to begin at the earliest opportunity. The case for the union is that prior to the administration order the directors must have contemplated or seriously considered the possibility of redundancies but did not then make any attempt to consult the union. The union does not suggest that there was any failure to consult with regard to the proposals to make 28 employees redundant because those proposals were not implemented, but the union does contend that when the administrators decided to apply to the court they must then have contemplated the redundancies which resulted from the discharge of the administration order and the winding up of the company.

The administrators dispute both these contentions. They contend that at neither stage did the company propose to dismiss any of its employees as redundant. They claim that the powers and duties imposed on them by Pt II of the 1986 Act necessarily excludes s 99 of the 1975 Act. They claim that an administration order in relation to an employer is always a ‘special circumstance’ within s 99(8) of the 1975 Act and that there were no steps towards compliance which in the circumstances were reasonably practicable.

The claims of the union and any derivative rights of the employees are only justifiable before the industrial tribunal. Thus this is not a case where the rights sought to be enforced can be determined in the liquidation. In those circumstances I should grant leave if I am satisfied that the claim the union wishes to advance has some prima facie merit and prospect of success. As Rogers CJ Comm D said in Capita Finance Group Ltd v Rothwells Ltd (1989) 15 ACLR 348 at 349 in relation to a provision of the Companies (New South Wales) Code 1981 in identical terms to s 130(2) of the Insolvency Act 1986:

‘It is necessary to understand the rationale which buttresses the requirement for showing the existence of a prima facie case. The provisional liquidators and liquidator respectively are entitled to be protected from involvement in court proceedings which may be perhaps only of a nuisance nature or which may be thought to be totally devoid of any substance. The resources of the company in liquidation should not be frittered away in defending baseless claims.’

The first point to consider is when, in accordance with s 99 of the 1975 Act, the duty to consult arises. Part IV of the Act was enacted to comply with the Council Directive (EEC) 75/129. Article 2(1) provides:

‘Where an employer is contemplating collective redundancies, he shall begin consultations with the workers’ representatives with a view to reaching an agreement.’

Article 3(1) corresponds with s 100 of the 1975 Act and provides:

‘Employers shall notify the competent public authority in writing of any projected collective redundancies. This notification shall contain all relevant information concerning the projected collective redundancies and the consultations with workers’ representatives provided for in Article 2, and particularly the reasons for the redundancies, the number of workers to be

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made redundant, the number of workers normally employed and the period over which the redundancies are to be effected.’

Thus the directive distinguishes between redundancies which are contemplated and those which are projected. Sections 99 and 100 of the 1975 Act apply to ‘an employer proposing to dismiss as redundant’.

The union contends that both those sections should be construed to give effect to the directive so that the duty under s 99 arises when an employer has redundancies in contemplation. That it is the duty of the court, if possible, to construe United Kingdom legislation so as to comply with the United Kingdom’s obligations under an EEC directive is not in doubt. But that must be achieved, if at all, by proper processes of construction, not so far as the court is concerned by the equivalent of legislation.

Dealing first with the directive, it seems to me that the word ‘projected’ in art 3 is used in the sense of ‘then intended’ after the processes of consultation with the union have been completed. Thus the contemplation referred to in art 2(1) is something less than intention. Nevertheless, the range of mental states included within the word is wide. It would extend from merely ‘thinking about’ to ‘having in view or expecting’. In the latter sense, but not the former, the word would equate with the verb ‘to propose’.

Approaching that problem from the wording of s 99 I think it is clear, not least from sub-s (5), that the phrase ‘an employer proposing to dismiss as redundant’ cannot include one who is merely thinking about the possibility of redundancies. Thus I cannot construe the word ‘proposing’ to embrace the full range of possible meanings of the word ‘contemplating’ but I can construe ‘contemplating’ in a sense equivalent to ‘proposing’. Article 2(1) of the directive has not, so far as I know, been construed by the Court of Justice of the European Communities. Thus, I assume, because it is for the Court of Justice and not for me to decide, that s 99 does comply with the United Kingdom’s obligations.

As the union accepts, the onus is on them to establish a prima facie breach of duty. There is no evidence before me and no allegation of fact in the complaint to suggest that prior to the making of the administration order the company was proposing to dismiss as redundant any employee. In those circumstances I do not give leave in respect of that part of the union’s case.

The administrators, as responsible insolvency practitioners, are greatly concerned at the suggestion that the duty imposed on the employer by ss 99 and 100 of the 1975 Act must be observed by them given their status, functions and responsibilities under Pt II of the 1986 Act. An administrator is an officer of the court. He has the powers conferred by Sch 1, which include the power to dismiss the company’s employees. In exercising his powers he is deemed to act as the company’s agent: see s 14(1) and (5). By s 17 he is required to manage the affairs of the company in accordance with the directions of the court or, where his proposals have been approved by the creditors, in accordance with those proposals. Section 18 requires him to apply to the court for the discharge of the administration order if he considers that the purposes for which it was made cannot be achieved, or if the creditors require him to do so. He may pay the remuneration of the company’s employees out of assets subject to a floating charge but such remuneration is not charged on those assets unless the contract of employment was adopted by him (see s 19(4) and (5)). If the company is subsequently wound up remuneration, within prescribed limits, due at the date of the administration order ranks as a preferential debt but remuneration earned during the period of the administration, though provable, is not preferential: see s 387(3)(a) of the 1986 Act.

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It is accepted that the company is the employer, but it is submitted that the proposal is that of the administrators not as agents for the company but as officers of the court. It is contended that the duty imposed by s 99 of the 1975 Act on the company and the duties imposed on the administrators by the 1986 Act are so mutually repugnant that they cannot exist side by side. If the duty imposed by s 99 was absolute and the administrators were bound to adopt the suggestions of the union then there would be much more force in this submission. But the provisions of s 99(7) and (8) show that the duty is not absolute and that the administrators may, for stated reasons, and after proper consideration, reject the union’s views. If, in exercise of his statutory powers the administrator dismisses an employee he does so as agent for the company. The administrators contend that such agency only arises on the exercise of the power. But the exercise of the power must include the necessary preliminaries to its exercise. If administrators propose to dismiss an employee it seems to me that their proposal must be the proposal of the company and therefore of the employer.

I cannot construe either the 1986 Act or the 1975 Act to reach the conclusion the administrators seek. Nor do I see any justification for a strained construction which I was invited to adopt, given the provisions of s 99(7) and (8). In the last resort I was invited to conclude that the 1986 Act impliedly repealed or amended s 99 of the 1975 Act so as to exclude an employer which is a company in administration. This seems to me to be wholly unjustified. Not only is it not necessary because of s 99(7) and (8) but it would be quite inconsistent with the principle that if possible United Kingdom legislation should be construed so as to conform with the obligations of the United Kingdom. It is true that art 1(2)(d) of Council Directive (EEC) 75/129 excludes workers affected by the termination of an establishment’s activities where that is the result of a judicial decision, but this cannot exclude any company in administration. Thus the implied repeal for which the administrators contend would give rise to a breach of the United Kingdom’s obligations. Accordingly, in my judgment, ‘an employer proposing to dismiss as redundant’ does include cases where the employer is a company in administration and the administrator proposes the dismissals.

The administrators then contended that if a company employer is in administration that per se is a special circumstance within s 99(8). A similar point arose in Clarks of Hove Ltd v Bakers’ Union [1979] 1 All ER 152, [1978] 1 WLR 1207. In that case the company dismissed all its employees and called in a receiver on the same day. The industrial tribunal considered that insolvency did not constitute special circumstances. Appeals to the Employment Appeal Tribunal and the Court of Appeal were in each case allowed. In the Court of Appeal Geoffrey Lane LJ, in reference to the decision of the industrial tribunal, said ([1979] 1 All ER 152 at 159, [1978] 1 WLR 1207 at 1215):

‘What they said, in effect, was this, that insolvency is, on its own, neither here nor there. It may be a special circumstance, it may not be a special circumstance. It will depend entirely on the cause of the insolvency whether the circumstances can be described as special or not. If, for example, sudden disaster strikes a company, making it necessary to close the concern, then plainly that would be a matter which was capable of being a special circumstance; and that is so whether the disaster is physical or financial. If the insolvency, however, was merely due to a gradual run-down of the company, as it was in this case, then those are facts on which the industrial tribunal can come to the conclusion that the circumstances were not special. In other words, to be special the event must be something out of the ordinary, something uncommon; and that is the meaning of the word “special” in the context of this Act.’

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Thus the circumstances must be special in the sense of being out of the ordinary. Moreover, as s 99(8) makes plain, they must be such as to render it not reasonably practicable for the employer to comply with any of the requirements of sub-s (3), (5) or (7)

In my judgment it is plain that an administration order does not per se render it impracticable for the company employer to comply with those requirements. It may or may not, depending on the other circumstances of the case. Those circumstances would have to be considered in the light of the duties and responsibilities of the administrator. A combination of those circumstances and the existence of an administration order may well give rise to special circumstances within s 99(8) when neither would when taken in isolation. Thus I do not accept any of the submissions of the administrators which seek to put a company in administration in a different position to any other employer. But the questions remain whether the company in administration ever did propose to dismiss as redundant all its employees; if it did, whether the circumstances were special; and, if they were, whether there were any steps towards compliance with the requirements of s 99 which were reasonably practicable in the circumstances. I have already quoted the relevant paragraphs from the affidavit of the administrators in support of the application to Scott J on 3 July. In my judgment, para 26 shows quite clearly that the administrators were not proposing the redundancies that resulted from the winding up of the company. Their proposal was indeed the exact opposite. The redundancies occurred because of the decision of the court. They did not stem from any proposal of the administrators. The union does not challenge the honesty of the deponent but they contend that I should give leave so that in the industrial tribunal they may cross-examine the administrator as to his real state of mind. But in my judgment this will not do. The affidavit is accepted as truthful. It did not contain proposals for redundancy. The fact, if it be one, that the administrators recognised the possibility of redundancies if the court did not accept their suggestion that the administration should continue but wound up the company is not, in my judgment, sufficient to give rise to an obligation to consult. Thus, in my judgment, the questions of whether there were special circumstances and whether there were any reasonably practicable steps open to the administrators do not arise.

In all these circumstances I do not think that the proceedings the union wishes to pursue in the industrial tribunal have any legal merit and I dismiss this application.

Application dismissed.

Hazel Hartman   Barrister.

Stoke-on-Trent City Council and another v B & Q plc

[1993] 1 All ER 481

(Case C-169/91)

Categories:        EUROPEAN COMMUNITY; Free movement of goods        

Court:        COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES        

Lord(s):        JUDGES DUE (PRESIDENT), KAKOURIS, RODRÍGUEZ IGLESIAS, MURRAY (PRESIDENTS OF CHAMBERS), MANCINI, JOLIET, DÍEZ DE VELASCO, KAPTEYN AND EDWARD        

Hearing Date(s):        ADVOCATE GENERAL VAN GERVEN        

2 JUNE, 8 JULY, 16 DECEMBER 1992

European Economic Community – Imports – Reduction in volume of imports – Quantitative restriction on imports from another member state – Measures having equivalent effect – Prohibition on Sunday trading – Opening of do-it-yourself store on Sundays – Substantial proportion of goods sold in store imported from other member states – Prohibition affecting sale of domestic and imported products – Prohibition on Sunday trading having effect of reducing imports from other member states – Whether prohibition proportionate to objective of statute – Whether restriction according with national or regional socio-cultural characteristics – Whether prohibition contravening Community law – Shops Act 1950, s 47 – EEC Treaty, art 30.

The appellant regularly traded at its do-it-yourself stores and garden centres in the United Kingdom on Sundays in the respondent councils’ areas selling items which were not exempted from the prohibition on Sunday trading contained in s 47a of and Sch 5 to the Shops Act 1947. A proportion of the goods sold were imported from member states of the European Economic Community (the EEC). The appellant lost 23% of its turnover when its stores were closed on Sundays and the Sunday trading restrictions also affected trade between the United Kingdom and the rest of the EEC generally. The respondent councils sought injunctions to restrain the appellant from opening its stores on Sundays in contravention of the 1947 Act. The appellant contended that s 47 was unenforceable because by preventing it from selling on Sunday goods imported from other member states s 47 infringed art 30b of the EEC Treaty, which prohibited quantitative restrictions on imports between member states and all measures having equivalent effect, and that the restriction on Sunday trading contained in s 47 was contrary to Community law because it was disproportionate to the object of ensuring that working and non-working hours were so arranged as to accord with national or regional socio-cultural characteristics. The judge held that s 47 did not infringe art 30 of the EEC Treaty and that the councils were entitled to the injunctions sought. The appellant appealed directly to the House of Lords, which referred to the Court of Justice of the European Communities for a preliminary ruling under art 177 of the EEC Treaty a number of questions on the interpretation of art 30 and the effect of a recent ruling of the court thereon.

Held – Since national rules restricting the opening of shops on Sundays pursued an aim which was justified under Community law, namely to ensure that working and non-working hours were so arranged as to accord with particular national or regional socio-cultural characteristics, it was for member states to

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make choices relating to the particular national or regional socio-cultural characteristics in compliance with the requirements of Community law, in particular the principle of proportionality. Moreover, since the restrictive effects on trade of national rules prohibiting shops from opening on Sundays affected the sale of both domestic and imported products and therefore did not make the marketing of products from other member states more difficult than the marketing of national products and since the restrictive effects were not excessive when the national interest in attaining the aim of the legislation was weighed against the Community interest in ensuring the free movement of goods, the prohibition on quantitative restrictions on imports and all measures having equivalent effect laid down in art 30 of the EEC Treaty did not apply to such legislation. Accordingly, art 30 of the EEC Treaty was to be interpreted as meaning that the prohibition that it laid down did not apply to s 47 of the 1950 Act (see p 518 f to h and p 519 b to d g, post).

Torfaen BC v B & Q plc Case 145/88 [1990] 1 All ER 129, Union départementale des syndicats CGT de l’Aisne v SIDEF Conforama Case C-312/89 [1991] ECR I-997 and Criminal proceedings against Marchandise Case C-332/89 [1991] ECR I-1027 applied.

Notes

For general restrictions on Sunday trading, see 47 Halsbury’s Laws (4th edn) paras 632–644, and for cases on the subject, see 47(1) Digest (Reissue) 564–568, 2994–3017.

For the free movement of goods in the European Economic Community and justifications for restrictions between member states, see 52 Halsbury’s Laws (4th edn) paras 12.55–12.111.

For the Shops Act 1950, s 47, Sch 5, see 19 Halsbury’s Statutes (4th edn) (1990 reissue) 424, 447.

For the EEC Treaty, arts 30, 177, see 50 Halsbury’s Statutes (4th edn) 276, 325.

Cases cited

Aragonesa de Publicidad Exterior SA v Departmento de Sanidad y Seguridad Social de la Generalitat de Cataluña Joined cases C-1/90 and C-176/90 OJ 1991 C220, p 8, CJEC.

Blesgen v Belgium Case 75/81 [1982] ECR 1211.

Bond van Adverteerders v Netherlands Case 352/85 [1988] ECR 2085.

Bonfait BV v Ministère Public Case C-269/89 [1990] ECR I-4169.

Buet v Ministère public Case 382/87 [1989] ECR 1235.

Cinéthèque SA v Fédération nationale des cinémas français Joined cases 60 and 61/84 [1985] ECR 2605.

Debus v Ministère Public Joined cases C-13/91 and C-113/91 OJ 1992 C167, p 5, CJEC.

Delattre, Criminal proceedings against Case C-369/88 [1991] ECR I-1487.

Denkavit Futtermittel GmbH v Land Baden-Württemberg Case C-39/90 [1991] ECR I-3069.

Direction générale des impôts v Forest Case 148/85 [1986] ECR 3449.

Drei Glocken GmbH v USL Centro-Sud Case 407/85 [1988] ECR 4233.

EC Commission v Belgium Case C-249/88 [1991] ECR I-1275.

EC Commission v Belgium Case C-287/89 [1991] ECR I-2233.

EC Commission v Belgium Case C-1/90 [1991] ECR I-2023.

EC Commission v France Case 269/83 [1985] ECR 837.

EC Commission v Italy Case 103/84 [1986] ECR 1759.

EC Commission v Italy Case 63/86 [1988] ECR 29.

Page 483 of [1993] 1 All ER 481

EC Commission v Italy Case 56/87 [1988] ECR 2919.

EC Commission v Netherlands Case C-353/89 OJ 1991 C224, p 3, CJEC.

Elliniki Radiophonia Tiléorassi-Anonimi Etairia v Dimotiki Etairia Pliroforissis Case C-260/89 [1991] ECR I-2925.

Freistaat Bayern v Eurim-Pharm GmbH Case C-347/89 [1991] ECR I-1747.

GB-INNO-BM v Confédération du Commerce Luxembourgeois Case C-362/88 [1990] ECR I-667.

Groener v Minister of Education Case C-379/87 [1989] ECR 3967.

Hauptzollamt Bremen-Freihafen v Drünert Case 167/84 [1985] ECR 2235.

Iannelli & Volpi SpA v Meroni Case 74/76 [1977] ECR 557.

Irish Creamery Milk Suppliers Association v Ireland, Doyle v An Taoiseach Joined cases 36 and 71/80 [1981] ECR 73.

Krantz (H) GmbH & Co v Ontvanger der Directe Belastingen Case C-69/88 [1990] ECR I-583.

Marchandise, Criminal proceedings against Case C-332/89 [1991] ECR I-1027.

Ministre des Finances v Richardt Case C-367/89 [1992] 1 CMLR 61, CJEC.

Miro BV, Criminal proceedings against Case 182/84 [1985] ECR 3731.

Monteil and Samanni, Criminal proceedings against Case C-60/89 [1991] ECR I-1547.

Nino, Criminal proceedings against Joined cases C-54/88, C-91/88 and C-14/89, [1990] ECR I-3537.

Oebel, Summary proceedings against Case 155/80 [1981] ECR 1993.

Oehlschläger v Hauptzollamt Emmerich Case 104/77 [1978] ECR 791.

Oosthoek’s Uitgeversmaatschappij BV, Criminal proceedings against Case 286/81 [1982] ECR 4575.

Pall Corp v PJ Dahlhausen & Co Case C-238/89 [1990] ECR I-4827.

Portugal v Morais Case C-60/91 [1992] 2 CMLR 533, CJEC.

Procureur de la République v Association de défence des brûleurs d’huiles usagées Case 240/83 [1985] ECR 531.

Procureur du Roi v Dassonville Case 8/74 [1974] ECR 837.

Procureur du Roi v Debauve Case 52/79 [1980] ECR 833.

Quietlynn Ltd v Southend-on-Sea BC Case C-23/89 [1990] 3 All ER 207, [1991] 1 QB 454, [1991] 2 WLR 611, [1990] ECR I-3059, CJEC.

Reading BC v Payless DIY Ltd Case C-304/90 OJ 1992 C17, p 6, CJEC.

Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein Case 120/78 [1979] ECR 649.

Rochdale BC v Anders Case C-306/88 [1988] 3 All ER 490; on reference [1993] 1 All ER 520n, CJEC.

SARPP v Chambre Syndical des Raffineurs et Conditionneurs de Sucre de France Case C-241/89 [1990] ECR I-4695.

Schäfer Shop BV v Ministervan Economische Zaken Case 12/88 [1989] ECR 2937.

SCP Boscher Studer et Fromentin v SA British Motors Wright Case C-239/90 [1991] ECR I-2023.

Sheptonhurst v Newham BC Case C-350/89 [1991] ECR I-2387.

Société Générale Alsacienne de Banque SA v Koestler Case 15/78 [1978] ECR 1971.

Society for the Protection of Unborn Children Ireland Ltd v Grogan Case C-159/90 [1991] 3 CMLR 849, CJEC.

Steen v Deutsche Bundespost Case C-332/90 [1992] 2 CMLR 406, CJEC.

Stichting Collectieve Antennevoorziening Gouda v Commissariaat voor de Media Case C-288/89 OJ 1991 C224, p 3, CJEC.

Stoke-on-Trent City Council v B & Q plc, Norwich City Council v B & Q plc [1991] 4 All ER 221, [1991] Ch 48, [1991] 2 WLR 42.

Torfaen BC v B & Q plc Case 145/88 [1990] 1 All ER 129, [1990] 2 QB 19, [1990] 2 WLR 1330, [1989] ECR 3851, CJEC.

Page 484 of [1993] 1 All ER 481

Union départementale des syndicats CGT de l’Aisne v SIDEF Conforama Case C-312/89 [1991] ECR I-997.

Union Laitière Normande v French Dairy Farmers Ltd Case 244/78 [1979] ECR 2663.

van der Haar and Kaveka de Meern BV, Criminal proceedings against Joined cases 177 and 178/82 [1984] ECR 1797.

Webb, Criminal proceedings against Case 279/80 [1981] ECR 3305.

Wurmser, Criminal proceedings against Case 25/88 [1989] ECR 1105.

Reference

By order dated 20 May 1991 the House of Lords referred to the Court of Justice of the European Communities for a preliminary ruling under art 177 of the EEC Treaty three questions (set out at p 517 j to p 518 c, post) on the interpretation of art 30 of the EEC Treaty which concerned the applicability of art 30 to s 47 of the Shops Act 1950. The questions were raised in the course of two appeals pending before the House of Lords brought by B & Q plc in which Stoke-on-Trent City Council and Norwich City Council were respondents from the decision of Hoffmann J ([1991] 4 All ER 221, [1991] Ch 48) on 18 July 1990 whereby he granted the respondents injunctions restraining B & Q plc from opening or causing to be opened on Sundays its do-it-yourself shops for the serving of customers in contravention of s 47 of the Shops Act 1950. Stoke-on-Trent City Council, Norwich City Council, B & Q plc, the United Kingdom and the Commission of the European Communities submitted written observations to the court. Oral argument was presented to the court by Stuart Isaacs QC and Neil Calver (instructed by Sharpe Pritchard, agents for S W Titchener, Stoke-on-Trent and R M Auton, Norwich) on behalf of the two councils, by David Vaughan QC, Gerald Barling QC, Nicholas Davidson and David Anderson (instructed by Hepherd Winstanley & Pugh, Southampton) for B & Q plc, by the Attorney General (Rt Hon Sir Nicholas Lyell QC) and Nicholas Paines (instructed by the Treasury Solicitor) for the United Kingdom, and by R Wainwright, legal adviser, and A Ridout, a national civil servant seconded to the commission’s legal department, on behalf of the commission. The language of the case was English. The facts are set out in the report for the hearing presented by the Judge Rapporteur.

The Judge Rapporteur (M Díez de Velasco) presented the following report for the hearing.

I—FACTS AND PROCEDURE

1. The House of Lords is seised of two consolidated appeals between Stoke-on Trent City Council and B & Q plc, and between Norwich City Council and B & Q plc, concerning the applicability of art 30 of the EEC Treaty to s 47 of the Shops Act 1950.

2. Section 47 of the 1950 Act provides:

‘Every shop shall, save as otherwise provided by this Part of this Act, be closed for the serving of customers on Sunday: Provided that a shop may be open for the serving of customers on Sunday for the purposes of any transaction mentioned in the Fifth Schedule to this Act.’

Schedule 5 to the Act contains a list of items which may be sold in shops on Sundays, such as intoxicating liquors, certain foodstuffs, tobacco, newspapers and other products of everyday consumption.

3. After the judgment of the court in Torfaen BC v B & Q plc Case C-145/88 [1990] 1 All ER 129 at 156–157, [1990] 2 QB 19 at 53, in which the court held that—

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‘art 30 of the Treaty must be interpreted as meaning that the prohibition which it lays down does not apply to national rules prohibiting retailers from opening their premises on Sunday where the restrictive effects on Community trade which may result therefrom do not exceed the effects intrinsic to rules of that kind’,

the respondent local authorities each issued proceedings against the appellant (B & Q) for a final injunction to enforce compliance with s 47 of the 1950 Act in B & Q’s Stoke-on-Trent and Norwich stores. On 18 July 1990 the High Court held (in the judgment appealed against before the House of Lords) that the local authorities were entitled to final injunctions (see [1991] 4 All ER 221, [1991] Ch 48).

4. B & Q was granted leave to appeal directly to the House of Lords pursuant to Pt II of the Administration of Justice Act 1969, on the ground that a point of law of general public importance was involved.

5. The factual and expert evidence adduced by B & Q included the following matters. (a) B & Q operates the largest chain of do-it-yourself (DIY) stores and garden centres in the United Kingdom, with more than 250 stores in England, Wales and Scotland selling a wide range of DIY and gardening items; the majority of goods sold in B & Q’s stores are not listed in Sch 5 to the 1950 Act. (b) B & Q’s stores are ‘mixed’ shops within the meaning of s 50 of the 1950 Act and are therefore entitled to be open on Sundays for the serving of customers with items included in Sch 5. Many of B & Q’s shops have in the past regularly opened on Sundays for the sale of both Sch 5 goods and non-Sch 5 goods. (c) During B & Q’s financial year 1988–89 total purchases from all sources was £490m at manufacturers’ prices. Of this £59m was spent on purchasing goods from other member states of the EEC. (d) The average loss of sales when B & Q stores were closed for trading on Sundays is about 23%. This loss of turnover is across the whole range of B & Q’s goods to a greater or lesser extent and, save to a very small degree, is not recovered over the remaining six days. (e) Comparisons of the sales turnover of shops that were closed on Sundays with that of shops open on Sundays during the same period showed that the total sales per square foot of shops that opened on Sundays were significantly greater than the total sales per square foot of those shops that were closed on Sundays. (f) Losses caused by Sunday closure do not just affect imports by individual businesses, but have an effect on the United Kingdom’s trade. The reduction of imports into the United Kingdom from other EEC member states resulting from enforcement of the Sunday trading restrictions currently in force in England and Wales would, as at 1990, be likely to be in the order of £670m across all ranges of retail goods. The equivalent figure for the DIY and garden sector alone is about £150m per annum.

6. For their part, the local authorities accepted in the High Court that Sunday trading restrictions do have a restrictive effect upon trade between the United Kingdom and the rest of the EEC sufficient to satisfy the criteria laid down by the Court of Justice in Procureur du Roi v Dassonville Case 8/74 [1974] ECR 837. In that connection the local authorities’ own expert witness confirmed that a once and-for-all increase in retail sales of 1% to 2% would be a possible assumption if the Sunday trading restrictions were lifted. He also noted, however, that even a 2% increase in consumer spending on retail goods would only increase imports from the rest of the Community by 0.5% to 0.8%, namely less than 1%.

7. After delivery of the judgment appealed against in the national proceedings, the court in two judgments of 28 February 1991 held that art 30 of the Treaty must be interpreted as meaning that the prohibition which it lays down does not apply to national legislation prohibiting the employment of staff on Sundays

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(Union départementale des syndicats CGT de l’Aisne v SIDEF Conforama Case C-312/89 [1991] ECR I-997) or on Sundays after 12 noon (Criminal proceedings against Marchandise Case C-332/89 [1991] ECR I-1027).

8. Before the House of Lords it became apparent that the parties are at issue on two specific points, namely: (a) the interpretation and effect of the judgment of the Court of Justice in the Torfaen case and in particular the nature of the task reserved to the national court in determining whether the effects of national rules remain within the limits of the effects intrinsic to trading rules; and (b) the possible application of the principles laid down in the Conforama and Marchandise judgments, cited above, to the United Kingdom legislative situation.

9. In the light of the foregoing considerations, the House of Lords requested the court to give a preliminary ruling on the following questions:

‘1. Whether the effect of the Court of Justice’s rulings in Case C-312/89 Conforama and C-332/89 Marchandise is to determine that the prohibition contained in Article 30 of the EEC Treaty does not apply to national rules, such as those in issue in Case 145/88, Torfaen Borough Council v. B & Q plc, which prohibit retailers from opening their premises on Sunday for the serving of customers with certain goods;

2. If not whether it is nevertheless immediately apparent, whether or not evidence is adduced, that the restrictive effects on intra-Community trade which may result from national rules such as those in Question 1 above do not exceed “the effects intrinsic to rules of that kind”, as that phrase is used in the ruling of the Court of Justice in Case 145/88;

3 If not, on what criteria and by reference to what, if any, factual or other evidence the national court must determine the question whether or not the restrictive effects on intra-Community trade which may result from national rules such as those in Question 1 above exceed “the effects intrinsic to rules of that kind” within the meaning of that phrase as used in the ruling of the Court of Justice in Case 145/88.’

10. The order for reference was registered at the court registry on 1 July 1991.

11. In accordance with art 20 of the Protocol on the Statute of the Court of Justice written observations were submitted by B & Q plc, represented by David Vaughan QC, Gerald Barling QC, Nicholas Davidson, Barrister, David Anderson, Barrister, and Anthony Askham, Solicitor, by Stoke-on-Trent City Council and Norwich City Council, represented by Stuart Isaacs QC and Neil Calver, Barrister, by the United Kingdom, represented by Lucinda Hudson, acting as agent, and Nicholas Paines, Barrister, and by the Commission of the European Communities, represented by its legal adviser, R Wainwright, and by A Ridout, acting as agents.

12. Upon hearing the report of the Judge Rapporteur and the views of the Advocate General, the court decided to open the oral procedure without any preparatory inquiry.

II—WRITTEN OBSERVATIONS SUBMITTED TO THE COURT

1. With regard to the first and second questions, B & Q plc, the appellant in the national proceedings, asserts at the outset that the approach of the Court of Justice in Torfaen’s case, cited above, was correct, since Sunday trading rules such as those contained in the 1950 Act are, in the light of available evidence, measures having equivalent effect to quantitative restrictions on trade within the meaning of art 30 and, pursuant to the division of competence underlying art 177 of the EEC Treaty, the Court of Justice correctly entrusted the national court with the task of determining the proportionality or otherwise of the national provisions at issue,

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the current objective of the national Sunday trading rules and whether that objective falls within the permissible range of objectives including that defined by the court as being ‘to ensure that working and non-working hours are so arranged as to accord with national or regional socio-cultural characteristics’ (see [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 53 (para 14)).

According to B & Q plc, since the ascertainment of the objective of the Sunday trading rules in the 1950 Act is a matter of national law which the Court of Justice does not have jurisdiction to determine, particularly where the current objective of the national measure is genuinely in doubt, or is disputed, it should be concluded that the United Kingdom courts are in the best position to decide both what the current objective of the 1950 Act is, and whether or not that objective fits within the range approved by the Court of Justice.

Moreover, to invite the Court of Justice to determine the issue of proportionality would be not only to seek artificially to create some uniformity of law, despite the dramatic variation in laws as between the member states and within the member states, but also to vest the Court of Justice with power to harmonise national laws, which is a function to be performed by the Council of Ministers.

In B & Q’s submission, it is perfectly possible for an identical law to be proportionate in some member states and disproportionate in others. From that standpoint, a decision by the court in the Torfaen case that the 1950 Act satisfied the principle of proportionality (in so far as such a decision would have been possible in art 177 proceedings) might have resolved doubts on this one specific issue, at least in the United Kingdom, and at least until circumstances there had changed sufficiently for another court to make a further preliminary reference. It would however have left the courts in all member states no wiser as to the proportionality of many other national measures, each of which could potentially form the subject of a further preliminary reference under art 177.

Yet a series of isolated decisions on proportionality by the Court of Justice, reached on principles which are less than clear, would tend to produce uncertainty and speculative litigation. It would discourage the active application of Community law principles by the national courts themselves, and would increase the number of references to an already overburdened court.

B & Q further considers that the task allotted to the United Kingdom courts in the Torfaen judgment was not affected by the judgments in the Conforama and Marchandise cases, since there is nothing in those two judgments to suggest that the court wished to depart from the judgment of the Sixth Chamber in the Torfaen case. On the contrary, the judgment in that case appears to be expressly approved on each of the four occasions on which it is mentioned in each judgment (see, for example, the Marchandise judgment [1991] ECR I-1027 at 1040, 1042 (paras 10–12, 19)); the only hint of a difference in approach appears in the judgments in Conforama [1991] ECR I-997 at 1025 (para 12) and Marchandise [1991] ECR I-1027 at 1041 (para 13), where the court states that the restrictive effects on trade ‘which may stem [from the French/Belgian rules] do not seem disproportionate to the aim pursued’ (my emphasis).

Yet that difference is more apparent than real. The use of the word ‘seem’ in the Conforama and Marchandise judgments indicates, consistently with paras 6 and 7 respectively of the judgments (see Conforama [1991] ECR I-997 at 1024; Marchandise [1991] ECR I-1027 at 1039) (where the court emphasises its lack of jurisdiction to rule on the compatibility of national law with the Treaty) and with the very nature of art 177 proceedings, that the Court of Justice is not itself deciléng the proportionality issue and that this remains a question of fact for the national court, as stated in the Torfaen case.

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In fact, the difference in emphasis between the judgment in Torfaen and those in Conforama and Marchandise can be explained by the different national laws, the different types of evidence which were in issue and the differing approach of the parties.

As far as differences in legislation are concerned, B & Q maintains that: (a) the French and Belgian laws at issue in the Conforama and Marchandise cases were entirely general employee protection measures, not restricted to shopworkers, let alone to the performance of particular functions by shopworkers, as is the 1950 Act; (b) whereas the French and Belgian laws only prevent employees from working in shops on Sundays, they have no effect on the smaller owner-run shops which can in both countries remain open all day on Sundays; (c) though exceptions may be made to the general Sunday closing rule in both France and Belgium, those exceptions do not give rise to the bizarre and anomalous results reached by the application of Sch 5 to the 1950 Act. The anomalous nature of the exceptions to s 47 of the 1950 Act, and indeed the existence of the exceptions themselves, are relevant to the proportionality of the Sunday trading rules as a whole; (d) whereas French and Belgian laws apply across the whole territory of those states, albeit with a limited scope (at least in France) for local authorities to permit regional derogations, the strict rule in force in England and Wales has no counterpart in Scotland, where Sunday trading remains wholly deregulated.

As regards the differences in factual evidence B & Q emphasises that both Mr Advocate General Van Gerven and the court in the Conforama and Marchandise cases indicated that on the basis of the evidence in those cases only a potential effect on trade between member states was shown. In the Torfaen case, on the other hand, even before the evidence of the effect on trade had been fully developed (which did not occur until after the court’s judgment) the national court had found as a fact that there was an absolute reduction in imports as a result of the enforcement of the 1950 Act. In this connection and as the Advocate General remarked, the questions themselves asked the Court of Justice to assume that there was an actual effect on the volume of goods imported from other member states. These differences are highly significant. Had the court in the Conforama and Marchandise cases been faced with the type of evidence available to it in the Torfaen case, then, even allowing for the differences in the national laws, it must be considered unlikely that it would have expressed the preliminary views which it did.

As regards the difference in approach of the parties, B & Q points out that in the Torfaen case it was envisaged by both sides that the Court of Justice would decide the main issue of whether art 30 of the EEC Treaty had any application to the 1950 Act and that, if it so held, any remaining issues of fact could be dealt with by the national court by means of further evidence. Indeed, in the Torfaen case the local authority expressly reserved for a later stage the right to adduce in the national court evidence relating to issues such as proportionality. Thus, for example, there was no attempt at the stage of the art 177 reference in the Torfaen case to quantify the overall effect of the 1950 Act on trade between the United Kingdom and the rest of the Community. On the other hand, in the Conforama and Marchandise cases, all parties, including the Commission, expressly requested the court to express its views on the issue of proportionality. In that situation the court would have been entitled to assume that it had been put in possession of all facts and matters relevant to proportionality. In those circumstances it is hardly surprising that the court felt able to express a view (although it manifestly did not determine the issue).

Nevertheless, if, notwithstanding all the foregoing, the Court of Justice wished to depart from the line taken in the Torfaen case and form a view as to the

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objective of the provisions of the 1950 Act, on the basis of the available evidence and as to the application to those provisions of the principle of proportionality, it should express the view that those provisions seem incompatible with art 30 of the EEC Treaty.

According to B & Q, irrespective of the fact that there are strong arguments for saying that no discernible objective can be attributed to the Sunday trading restrictions in question, those rules are disproportionate since the ‘objective’ of s 47 of the 1950 Act cannot possibly have sufficient importance to outweigh a reduction in intra-Community trade of around 1bn ECU per annum.

B & Q considers that the importance of the objective may be regarded as less where the restriction is subject to many exceptions. Thus, the exceptions to s 47 of the 1950 Act have the effect that many shops, such as B & Q, are permitted to open on Sunday for the sale of much of their stock. Similarly, the fact that the whole of Scotland is exempt from the restriction is a further indication of the degree of importance attached to the objective (whatever it may be) of s 47. In the same way, the total absence of any analogous restriction for workers in all industrial and commercial sectors other than retailing has a bearing on the importance of the aim.

In any event, it would be difficult to find a measure whose enforcement is given lower priority than s 47. A significant number of local authorities do not enforce it at all; none enforces it fully; those authorities which do attempt to enforce the restrictions do so only against a few, usually the largest traders in the area. The vast majority of retail establishments are left to decide whether to open on Sunday or not.

In B & Q’s view, it is also relevant to take into account other negative effects of the law in addition to the restrictions on inter-state trade, such as the loss of employment, particularly part-time employment opportunities, which enforcement of s 47 would entail; and indeed the fact that Sunday has become the most important trading day for non-essential, leisure items, such as garden and DIY products. Other days of the week could not compensate for the loss of such revenue.

B & Q concludes its observations on the first and second questions by pointing out that, contrary to the situation in 1950, a very large proportion of shop workers employed on Sundays are now part-time workers. Although part-time workers need to be protected, the measures designed to protect full-time workers (particularly in the context of weekend working) are not appropriate for part-time workers, given that it is at the weekend in particular that part-time jobs are available in the retail sector.

Even if (which is not the case) the objective of the Sunday trading rules were held to extend beyond the protection of shopworkers (for example to the protection of what some regard as the ‘traditional’ English and Welsh Sunday), all the available evidence suggests that none of the alternative measures, or even the introduction of total deregulation as in Scotland, would adversely affect the present level of achievement to any perceptible degree. This is because, on the one hand, the existence of ‘mixed’ shops, such as the stores of B & Q, means that even under the existing law many shops are entitled to open on Sunday for the sale of some of their goods and, on the other hand, the Scottish experience shows that even with total deregulation, in the ordinary event, only 15% to 20% of shops choose to open on Sunday.

Since the third question asked by the House of Lords is, in B & Q’s view, no more than a shortened version of the second question referred to the court in Reading BC v Payless DIY Ltd Case C-304/90 it refers to its written observations in that case.

In the light of the foregoing, B & Q proposes that the court should answer the

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questions put by the House of Lords as follows: First question: No; Second question: No; Third question: B & Q refers to its answers to questions 1, 2 and 4 raised by the court making the reference in the Reading case Case C-304/90.

2. Stoke-on-Trent City Council and Norwich City Council (the councils), the respondents in the national proceedings, after reviewing the relevant provisions of the 1950 Act and their origin, begin by recalling the difficulties caused by the Torfaen judgment to legal writers who, very correctly in their view, pointed out the ambiguities of the court’s approach in that case.

That approach is unsatisfactory because it is difficult to see what was the distinction between the national legislation in issue in the Torfaen case and that in issue in Quietlynn Ltd v Southend-on-Sea BC Case C-23/89 [1990] 3 All ER 207, [1991] 1 QB 454. In the latter case, the court ruled that national provisions prohibiting the sale of lawful pornographic items from unlicensed pornographic establishments could in no way be assimilated to a measure having an effect equivalent to a quantitative restriction on imports, though it was apparent from the first question submitted to the court in that case that, just as in the Torfaen case, the court was asked to proceed on the basis that the effect of the national rules was to have restricted the retailer from selling goods imported from other member states and so to have resulted in less imported goods from member states being sold than would otherwise have been the case.

However, in the councils’ submission, those difficulties and ambiguities have been resolved by the court’s rulings in the Conforama and Marchandise cases, cited above. In connection with the reply to be given to the first question the councils point out that, in both cases, the court: (a) found that national rules prohibiting Sunday employment in the retail sector were not designed to control trade between member states; (b) stated that rules of that type applied to domestic and imported products alike, and that, as it had already said in the Torfaen case, the marketing of products imported from other member states was not therefore made more difficult than the marketing of domestic products; (c) summarised the Torfaen ruling, stating that the national rules in issue there were similar to those in issue in the instant cases; (d) concluded first that, in those circumstances, rules such as those at issue, like those in the Torfaen case, pursued an aim which was justified with regard to Community law; (e) concluded, secondly, that the restrictive effects which such measures might have on trade did not seem disproportionate to the aim pursued.

In the councils’ submission, since national rules such as s 47 of the 1950 Act are materially indistinguishable from the legislation at issue in the Conforama and Marchandise cases, it is clear that the court’s rulings in those cases are determinative in their favour of the first question referred to the court by the House of Lords.

As to the second and third questions raised by the House of Lords, the councils point out that they both involve a consideration of the phrase ‘the effects intrinsic to rules of that kind’, used in the Torfaen judgment [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 53 (para 17) and reflected in paras 15 and 16 thereof. That phrase appears to have its origin in art 3 of Commission Directive (EEC) 70/50 of 22 December 1969, which provides that national measures governing the marketing of products come within the prohibition of art 30 where the restrictive effects exceed the effects intrinsic to trade rules, which is the case, in particular, where the restrictive effects on the free movement of goods are out of proportion to their purpose (the so-called ‘balancing test’) or when the same objective can be attained by other means which are less of a hindrance to trade (the so-called ‘necessity test’).

The councils submit that, since the court in the Torfaen case correctly recognised that a trade rule may have some restrictive effect on the free movement of goods

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which is within limits permitted by Community law, sense can be made of the phrase only if the ‘intrinsic’ effects of a trading rule are taken to mean those effects which are regarded by Community law as proportionate.

They submit in that connection that Community law offers no single approach to the question of proportionality. In fact, both the court’s case law, where the necessity test has been used as the sole test in the application of the proportionality principle in many art 30 cases, and the Treaty itself (for example, arts 109, 115 and 226) afford examples where the balancing test is not taken into consideration in the application of the proportionality principle.

As regards specifically the rules at issue, the councils submit that the test laid down in paras 15 and 16 of the Torfaen ruling only requires that national rules such as s 47 satisfy the necessity test. That follows from the fact that the first sentence of para 15 of the Torfaen ruling expressly refers only to the necessity test, and from the fact that paras 15 to 17 of that ruling, read as a whole, must be interpreted as meaning that the question whether the restrictive effect of such measures on the free movement of goods exceed the effects intrinsic to trade rules is to be determined by reference only to the necessity test.

Moreover, the necessity test is the only one applicable to the particular measure in issue in the present case; there is no economic meaning to a general test of proportionality or disproportionality in the context of the aim of s 47 measured against the effects on intra-Community trade. In fact, though some intangible things may be capable of valuation, quantities can only be meaningfully compared if it is possible to measure them in the same units.

On the second question, which seeks to ascertain whether it is immediately apparent, whether or not evidence is adduced, that the restrictive effects on intra-Community trade which may result from national rules such as those in issue do not exceed ‘the effects intrinsic to rules of that kind’, the councils submit that the proportionality of national rules such as s 47 is immediately apparent and that, for that reason, evidence in relation thereto is unnecessary.

They observe that in the Conforama and Marchandise cases the court, according to them, was conscious of the ambiguities in the language of the Torfaen judgment and significantly omitted from its rulings the words ‘… where the restrictive effects on Community trade which may result therefrom do not exceed the effects intrinsic to rules of that kind’. The reason why the court did so was precisely that it was immediately apparent, and did not require evidence to establish, that the restrictive effects of national rules such as s 47 do not exceed the effects intrinsic to rules of that kind. In other words, it would be odd and illogical for the approach taken by the court towards national rules such as s 47 to be different from that which it took in the Conforama and Marchandise cases towards national rules of the kind in issue in those cases.

As to the argument based on the use by the court in the Conforama and Marchandise cases of the word ‘seem’ in the phrase ‘the restrictive effects on trade which may stem from such rules do not seem disproportionate to the aim pursued’ (the Conforama judgment [1991] ECR I-997 at 1025 (para 12) and the Marchandise judgment [1991] ECR I-1027 at 1041 (para 13)), an argument according to which the court left it to the national court to rule on the question of proportionality, the councils submit that such an argument would not be seriously sustainable. In particular, any such argument (1) seeks to read too much into the single word ‘seem’, (2) would be contrary to the whole tenor of the rulings, (3) would mean that the court had rejected the Commission’s argument, which the Advocate General in para 7 of his opinion supported (see [1991] ECR 997 at 1012), that the assessment of the need for and proportionality of specific legislation cannot be left to the national courts, and (4) completely ignores the

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actual answers given by the court in the Conforama case [1991] ECR I-997 at 1025 (para 13) and in the Marchandise case [1991] ECR I-1027 at 1041 (para 14).

In any event, on the evidence summarised by the first instance court, s 47 must be deemed to be proportionate, since the restrictive effect of that provision on Community trade was minimal.

As regards the third question as to what criteria and by reference to what, if any, factual or other evidence, the national court must determine the question whether or not the restrictive effects on intra-Community trade which may result from national rules such as those in issue exceed ‘the effects intrinsic to rules of that kind’, the councils submit, first, that it is well established that it is for the national law of a member state to determine the procedural conditions which govern actions in the national courts in order to enforce a right conferred by Community law and, secondly, that under Community law there is no requirement for the determination of the substantive question to be made by reference to evidence of any nature.

In that connection, the councils submit that the reference in para 16 of the Torfaen ruling to a ‘question of fact’ cannot mean that the court was imposing on the national court a requirement to adduce factual evidence in circumstances where the national court, in accordance with its own rules of procedure and evidence, would not require the adduction of such evidence in order to resolve the question of the proportionality of the national rules in question. Moreover, the Conforama and Marchandise rulings make no reference to any question of fact.

In the above circumstances, the councilr invite the court to rule, as follows:

‘The effect of the Court of Justice’s rulings in the Conforama case Case C-312/89 and the Marchandise case Case C-332/89 is to determine that the prohibition contained in art 30 of the EEC Treaty does not apply to national rules, such as those in issue in Torfaen BC v B & Q plc Case 145/88, which prohibit retailers from opening their premises on Sunday for the serving of customers with certain goods.’

In the event that, contrary to the councils’ submission, the court answers question 1 in the negative, the councils invite the court to rule on question 2 as follows:

‘The restrictive effects on intra-Community trade which may result from national rules such as those in question 1 above do not exceed the effects intrinsic to rules of that kind.’

If, contrary to the councils’ submissions, the court answers question 2 in the negative, the councils invite the court to rule on question 3 as follows:

‘The question whether or not the restrictive effects on intra-Community trade which may result from national rules such as those in question 1 above exceed the effects intrinsic to rules of that kind must be determined by the national court (1) by reference to the sole criterion whether the objective of the national rules can be attained by other means which are less of a hindrance to trade and (2) in accordance with its own rules of procedure and evidence.’

3. The United Kingdom begins its observations by referring to the unsatisfactory state of affairs existing in the United Kingdom as a result of differing interpretations of the Torfaen decision, with the result that different United Kingdom courts have reached different conclusions about a matter as fundamental as the validity of an Act of Parliament and the effect of a provision of the EEC Treaty. It considers in that regard that although it is true that to some extent that

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situation has arisen as a result of the impression received by national courts that there must be a doubt to be resolved as to the compatibility of the United Kingdom legislation with the EEC Treaty, it is nevertheless the case that that view was not shared by Mr Advocate General Van Gerven in his opinion in the Conforama and Marchandise cases or by the court in its judgments in those cases.

Similarly it stresses that in spite of important differences of detail as between the Belgian and French legislation highlighted by the Conforama and Marchandise cases in their written observations in the cases concerning them, and the many derogations therein from the general principle, the decision adopted by the court in those cases could not have been clearer, inasmuch as art 30 of the Treaty does not apply to national legislation prohibiting the employment of staff on Sundays.

In his opinion concerning those cases, Mr Advocate General Van Gerven referred extensively to the court’s judgment in the Torfaen case and made it clear that he regarded the United Kingdom legislation as being, from the point of view of art 30, indistinguishable from the French and Belgian legislation. Referring to the Torfaen judgment, he stated ([1991] ECR I-997 at 1009 (para 5)):

‘Whereas Case C-145/88 was concerned with a general prohibition on Sunday trading, these cases are concerned with a prohibition on employing workers on Sundays. In my view that distinction is not of great importance: as regards the application of Article 30 of the Treaty the effects on intra-Community trade resulting from the two types of legislation are very similar.’

He also considered that—

‘legislation of the kind at issue in these cases, which is not designed to govern patterns of trade between Member States or to partition the market, can easily be regarded as remaining within the limits of what is necessary.’ (See [1991] ECR I-997 at 1016 (para 13).)

In the United Kingdom’s view, the reasoning underlying the Conforama and Marchandise judgments, in which the court followed the Advocate General’s opinion, is perfectly applicable to national legislation of the kind in issue.

It stresses that in the judgments cited the court held that national rules governing the opening hours of retail premises reflect certain political and economic choices in so far as their purpose is to ensure that working and non-working hours are so arranged as to accord with national or regional socio-cultural characteristics, which in the present state of Community law is a matter for the member states; and the lawfulness of such rules, it says, remains subject to the requirement that the obstacles to intra-Community trade do not exceed what is necessary in order to ensure the attainment of the objective in view.

In its view, the latter criteria would, for example, prohibit rules which placed imported products at a disadvantage compared to domestic goods, or contained some restriction totally foreign to the objective pursued. In the United Kingdom’s submission, that is also what the court had in mind in the Torfaen judgment when it referred to the effects exceeding those intrinsic to rules of this kind. However, the United Kingdom legislation does not place imported products at any disadvantage compared to domestic goods, nor does it contain any provisions foreign to the objective which it is pursuing. There are therefore no grounds upon which it could be said that the law goes beyond what is necessary to ensure the objective in view.

In any event, the court did not take up what had already been held in the Torfaen judgment whereby it is for the national courts to determine whether national legislation such as that at issue remains within the limits laid down, and

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expressly stated that the restrictive effects on trade which may stem from such rules do not seem disproportionate to the aim pursued.

The United Kingdom is of the view that the only arguments raised in support of the proposition that the legislation has effects exceeding those intrinsic to trading rules fall into two categories. First, it is sometimes argued that it is not permissible for member states to make Sunday a non-working or non-trading day. The second type of argument accepts that member states are entitled to make Sunday a non-working or non-trading day, but asserts that member states ought to have created more exceptions to the prohibition. Apart from the fact that such arguments are of little relevance since they are all inconsistent with the discretionary power reserved to member states in the matter, the United Kingdom considers that to accept the second type of argument would involve accepting that the objective of the United Kingdom legislation is at least in part ‘illegitimate’. In such a situation a court would be forming its own view of what ‘accords with national or regional socio-cultural characteristics’ in the United Kingdom, contrary to the reasoning in both the Torfaen case and in the Conforama and Marchandise cases.

As to the factual or other evidence on the basis of which the national court must determine whether the effects of the national rules at issue in the present case exceed the effects intrinsic to rules of that kind, the United Kingdom is of the opinion that the relevant criteria are those which relate to the question whether the legislation places imported products at a disadvantage compared to domestic goods or has restrictive effects upon imports which are totally foreign to the objective pursued. But those criteria are not relevant if they are invoked in support of an argument that a member state has misjudged or wrongly evaluated its objectives or that a lesser degree of restriction upon Sunday trading would be sufficient for social or cultural purposes.

In particular it considers that, since the function of the courts is to review the acts of the legislature but not to substitute their own policies or values, it is not appropriate to speak of what may have been the ‘true’ intention of the United Kingdom Parliament in adopting the legislation at issue, or of the wisdom of the result achieved by it. Since the court has left it to the member states to make the evaluation of national and regional socio-cultural characteristics relevant to the arrangement of working hours, and to set working hours which accord with those characteristics, it maintains that the legislation at issue is merely the expression of a power of evaluation left to member states in the pursuit of an aim held by the court to be justified under Community law. On the other hand, if the legislation had discriminated against imports or contained restrictions foreign to that objective, it would not have passed the judge’s test.

As regards balancing the estimated additional sales of imported goods against the objectives of the legislation, the United Kingdom doubts the utility of estimates of the effect of the legislation upon imports which would take place in the absence of the legislation.

First, it is extremely difficult, if not impossible, to make a reliable estimate: B & Q’s calculations were drawn from a time when their shops were open on Sundays whilst many of their competitors were closed.

Secondly, those estimates appear not to take into account the fact that the extra money which would be spent on the additional Sunday purchases would be unavailable for spending on other imported goods or services, such as foreign holidays. It is not clear how to compensate for that factor.

Thirdly, even if a reliable figure could be produced, it is impossible to make a meaningful comparison between the social interests protected by the legislation

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and a figure for the value of imports. It could not sensibly be said, for example, that the law would be disproportionate if its abolition could increase spending on imported goods by, say, £10 per person or 1%, but acceptable if its abolition would only increase such spending by £5 per person or 0.5%.

4. The Commission, taking together the three questions asked by the national court, begins by emphasising that it is true that national rules pursuing economic and social policies, which have a direct effect on the sale of goods, are likely to affect the sale of imported goods and therefore the import of such goods. Nevertheless, rules of that kind prohibiting retailers from opening their premises on Sundays constitute measures which are equally applicable to imported and domestic products since they have the same effect on all goods whatever their origin and, consequently, the marketing of products imported from other member states is not rendered more difficult than the marketing of domestic products.

It recalls that in the Torfaen judgment, already cited, the court held that in such a case it was necessary to consider first of all whether rules such as those at issue pursue an aim which is justified with regard to Community law and, secondly, whether the restrictive effects of such rules exceed what is necessary to achieve the aim in view (the proportionality rule).

With regard to the first aspect, the Commission points out that the court has already held that national rules governing the hours of work, delivery and sale in the bread and confectionery industry constitute a legitimate choice of social and economic policy, consistent with the objectives of public interest pursued by the Treaty (see Summary proceedings against Oebel Case 155/80 [1981] ECR 1993) and that national rules prohibiting the employment of workers on Sunday also pursued an aim which was justified in Community law (see the Conforama and Marchandise cases, cited above). Furthermore, in the Torfaen judgment [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 53 (para 14), the court also held:

‘The same consideration [as in the Oebel case] must apply as regards national rules governing the opening hours of retail premises. Such rules reflect certain political and economic choices in so far as their purpose is to ensure that working and non-working hours are so arranged as to accord with national or regional socio-cultural characteristics, and that, in the present state of Community law, is a matter for the member states.’

It may therefore be concluded that s 47 of the 1950 Act pursues an objective which is justified with reference to Community law.

As regards the question of proportionately, the Commission states that, on the basis of art 3 of Commission Directive (EEC) 70/50 of 22 December 1969, pursuant to which the prohibition laid down in art 30 covers national measures governing the marketing of products where the restrictive effect of such measures on the free movement of goods exceeds the effects intrinsic to trade rules, the court held in its Torfaen judgment [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 53 (para 16): ‘The question whether the effects of specific national rules do in fact remain within that limit is a question of fact to be determined by the national court.’

That being so, it considers that in the present case such a question cannot be left to be determined by the national court, since, if the national courts were left to determine such questions, they might reach different conclusions on cases which were similar, not to say identical, in the absence of a unified interpretation by a single court at Community level. On the contrary, the examination of a particular national law must allow it to be concluded whether or not it is contrary to

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Community law and must give to the national judge such elements on the question of interpretation which allow him to decide the case before him. That was what the court did in the Oebel, Conforama and Marchandise cases already cited.

With specific regard to the legislation at issue, the Commission asserts that the restrictive effects on the free movement of goods of a prohibition on Sunday trading, with exceptions for objects of everyday consumption, would not appear to be excessive having regard to the purpose in view. The restrictive effects are in fact quite limited. In the present case the House of Lords has found that there are respectable grounds for thinking that the complete abolition of restrictions on Sunday trading could lead to a once-and-for-all increase of about 1% to 2% in the retail sector. Thus the maximum potential increase in the sales of goods imported from other member states is of the order of 2% and likely to be less.

In its view, the absence of a common approach to Sunday trading in member states does not in itself diminish trade within the Community. Differences between days and hours of the opening of shops may on the contrary increase trade between member states having a common frontier: it is quite conceivable that in frontier areas consumers cross the frontier to buy goods which they cannot buy in their own country on that day.

In its view, the foregoing considerations lead to the conclusion that the prohibition on Sunday trading does not have disproportionate effects on the free movement of goods in relation to its legitimate aim. Moreover, in the light in particular of the exceptions which are provided for the sale of products of everyday consumption, it does not appear that the same objective could be achieved by means which are less of a hindrance to trade. On the other hand the existence of those exceptions cannot, in itself, affect the legality under Community law of the general ban, since, as was observed by Mr Advocate General Van Gerven in his opinion in the Torfaen case [1990] 1 All ER 129 at 153, [1990] 2 QB 19 at 49 (para 32), the effectiveness of a national rule is not relevant for the purposes of art 30 of the EEC Treaty, except in so far as it may be a means of arbitrary discrimination or disguised restriction against goods from other member states, which is not so in the present case.

It points out that those arguments have now effectively been indorsed by the court in its judgments in the Conforama and Marchandise cases, which are fully applicable to the 1950 Act. Although the French and Belgian legislation at issue in those cases concerned national rules prohibiting the employment of workers on a Sunday rather than national rules prohibiting the serving of customers, the principles laid down by the court in those cases are applicable also in the present case. Furthermore, there is nothing to suggest that the proportionality of the rules in question with regard to their objective, which is justified under Community law, should be analysed in any different manner from that applied with regard to rules prohibiting the employment of workers on Sunday.

Having regard to the foregoing, the Commission proposes that the following reply should be given to the questions referred to the court:

‘Article 30 of the EEC Treaty must be interpreted as meaning that the prohibition which it lays down does not apply to national rules prohibiting the opening of shops on Sunday.’

8 July 1992. The Advocate General (Walter Van Gerven) delivered the following opinionc in Rochdale BC v Anders Case C-306/882d, Reading BC v Payless

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DIY Ltd Case C-304/90e and Stoke-on-Trent City Council v B & Q plc Case C-169/91. Mr President, Members of the Court,

1. These cases once again concern the compatibility with the EEC Treaty provisions on the free movement of goods of the prohibition in England and Wales on the operation of a shop on Sundays (hereinafter referred to as the Sunday trading ban or the United Kingdom Sunday trading provisions). Three sets of proceedings are pending before English courts against persons charged with infringements of the Sunday trading ban.

The court addressed these issues for the first time in the Torfaen judgment (see Torfaen BC v B & Q plc Case C-145/88 [1990] 1 All ER 129, [1990] 2 QB 19). The judgments of the court in Union départementale des syndicats CGT de l’Aisne v SIDEF Conforama Case C-312/89 [1991] ECR I-997 (the Conforama case) and Criminal proceedings against Marchandise Case C-332/89 [1991] ECR I-1027 (the Marchandise case), concerning French and Belgian labour legislation prohibiting the employment of workers on Sundays or on Sundays after 12 noon respectively, are closely related.

Legal and factual background

2. Section 47 of the Shops Act 1950 lays down the following prohibition:

‘Every shop shall, save as otherwise provided by this Part of this Act, be closed for the serving of customers on Sunday: Provided that a shop may be open for the serving of customers on Sunday for the purposes of any transaction mentioned in the Fifth Schedule to this Act.’

Schedule 5 contains a list of items which may be sold in shops on Sundays, such as intoxicating liquors, tobacco, newspapers, certain foodstuffs and other products of everyday consumption. Offences against this prohibition are punishable under s 59 of the 1950 Act, which provides:

‘In the case of any contravention of any of the foregoing provisions of this Part of this Act, the occupier of the shop shall be liable to a fine not exceeding level 4 on the standard scale.’

It appears that the maximum amount of the fine for a contravention is £1,000f. The Sunday trading ban does not apply in Scotland.

3. The Sunday trading ban as imposed by the 1950 Act is a matter of controversy in Great Britain. As the House of Lords observes in its order for reference in Stoke-on-Trent City Council v B & Q plc, Norwich City Council v B & Q plc Case C-169/91 (the B & Q case), it is an issue on which feelings run very high. British public opinion is very divided on it: one-third of the population appears to be in favour of retention of the law, and two-thirds are in favour of abolition or amendment, though without any agreement as to the form which such amendment should take. Since 1936 the United Kingdom Sunday trading

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provisions have withstood many attempts by private members Bills in Parliament, and in one case even by the government, to secure their abolition or amendment. It should be added that for some time the law has to a considerable extent been disregarded, and that contraventions are not systematically prosecuted.

The judgment in the Torfaen case seems to have given rise to divergent interpretations by national courts. Both in Great Britain (with regard to the Sunday trading ban) and in France (with regard to the legislation at issue in the Conforama judgment) this has led to acquittal in some cases and conviction in others. Even after the judgments in the Marchandise and Conforama cases, great uncertainty continues to prevail at least in Great Britain with regard to the compatibility of the 1950 Act with Community law. This has recently led the High Court of Justice to stay proceedings brought by local authorities for contravention of the Act, since it is of the opinion that in order to resolve those cases the situation under Community law must first be clarified. For the same reasons the United Kingdom has pressed the court to give a ruling in the B & Q case as a matter of priority.

4. The earliest of the three cases, Rochdale BC v Anders C-306/88, concerns proceedings brought by Rochdale Borough Council against Stewart John Anders. Mr Anders is charged with opening his shop at Dale Mill on Sundays for transactions other than those mentioned in Sch 5 to the 1950 Act. Rochdale Borough Council has applied to the High Court of Justice, Queen’s Bench Division, for an injunction restraining Mr Anders himself and his servants or agents from opening the shop on Sundays for the serving of customers, save for the transactions listed in Sch 5 to the 1950 Act (see [1988] 3 All ER 490). Mr Anders admits the contravention of the Sunday trading ban, but contends that the ban conflicts with Community law since it constitutes a measure having equivalent effect prohibited under art 30 of the Treaty and is not justified under any of the exemptions contained in art 36 or on any other basis.

The High Court referred to the court four questions for a preliminary ruling (see [1988] 3 All ER 490 at 494). After being made aware of the judgments in the Torfaen, Conforama and Marchandise cases it decided to maintain only the fourth question. It is worded as follows:

‘If the prohibition referred to in Question 1 [the Sunday trading ban] contravenes Article 30 and is not justified under Article 36, is it totally unenforceable against a trader in the Member State or only unenforceable to the extent that it prohibits transactions involving goods manufactured in or imported from other Member States?’

5. Reading BC v Payless DIY Ltd Case C-304/90 involves 20 informations laid by Reading Borough Council against five defendants in the national proceedings (Payless DIY Ltd, Wickes Building Supplies Ltd, Great Mills (South) Ltd, Homebase Ltd, on the one hand, and B & Q plc on the other); all are alleged to have opened their shop premises on Sundays for transactions other than those listed in Sch 5 to the 1950 Act. (The observations submitted by Payless DIY Ltd are supported by Wickes Building Supplies Ltd, Great Mills (South) Ltd and Homebase Ltd.) Whilst the parties are agreed that the Sunday trading ban constitutes a measure having equivalent effect, opinions differ as to whether it is justified. Reading and Sonning Magistrates’ Court has asked the Court of Justice to give a preliminary ruling on the following questions, which to a large extent concern the scope of the Torfaen judgment:

‘1. Where the legislation of a Member State prohibits retail premises from opening on Sundays for the personal serving of customers with the objective

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of ensuring so far as possible that shopworkers do not have to work on Sundays, with a view to maintaining what many regard as the traditional English Sunday, is such an objective one that is justified with regard to Community law within the meaning of paragraphs 12 to 14 of the judgment in Case 145/88 Torfaen Borough Council v B & Q plc ([1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 52–53)?

2. When applying the test laid down by the Court of Justice in paragraph 15 of the judgment in Torfaen (the proportionality test) to such legislation: (a) Is the national court required to apply the criteria set out in Article 3 of Directive 70/50? (b) If so, does the national measure have to satisfy each of the criteria identified in the indents in the second paragraph of Article 3? (c) Is it the function of the national court to examine the facts (as proved by evidence) and come to its own conclusion regarding the applicability of those criteria, or is the function of the national court limited to deciding whether or not a national legislature acting reasonably could have adopted the legislative measure in question having regard to those criteria? (d) When assessing the restrictive effects of the national legislation on the free movement of goods, and also when comparing the restrictive effect on trade (if any) of the various different means that might be used to achieve the objective of the legislation, must the national court look only at the extent to which the effects on imported goods exceed the effects on domestic goods or can it look at the totality of the restrictive effects on intra-Community imports? (e) Is the relevant restrictive effect on trade to be examined in relation to: the overall effect on intra-Community trade in goods and/or services; or the effect on the sectors in which the undertaking in question operates; or the effect on that undertaking? (f) How is a national court to compare the restrictive effects on the free movement of goods arising from the national legislation with the objective of that legislation?

3. Has Article 36 of the EEC Treaty any and if so what application to a national measure such as that in question?

4. Is the answer to any of the above questions affected by the existence of exceptions to the legislative prohibition on Sunday trading?’

6. In the most recent case, the B & Q case, the House of Lords asks a number of questions intended to clarify the relationship between the judgments in the Conforama and Marchandise cases and the Torfaen judgment. The defendant in the main proceedings is once again (as in the Torfaen case and now in the Payless case) B & Q plc, one of the largest operators of do-it-yourself shops and garden centres in the United Kingdom. The majority of the garden and do-it-yourself items sold in its shops are not mentioned in Sch 5 to the 1950 Act. Following the court’s judgment in the Torfaen case, Stoke-on-Trent City Council and Norwich City Council brought proceedings against B & Q for a final injunction to enforce compliance with the Sunday trading ban. On 18 July 1990 the High Court held that the local authorities were entitled to that injunction, but did not order it since B & Q gave appropriate undertakings (see [1991] 4 All ER 221, [1991] Ch 48). B & Q nevertheless appealed to the House of Lords on the basis that a point of law of general public importance was involved, namely the function of the national courts in assessing the Sunday trading ban in relation to the principle of proportionality.

Before the House of Lords it became apparent that there are two main points at issue between the parties: the interpretation and effect of the Torfaen judgment—in particular the nature of the task reserved to the national court in determining ‘the effects intrinsic to trading rules’—and the application of the

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Conforama and Marchandise judgments to the United Kingdom legislative situation.

The House of Lords requested the court to give a preliminary ruling on the following three questions:

‘1. Whether the effect of the Court of Justice’s rulings in Case C-312/89 Conforama and C-332/89 Marchandise is to determine that the prohibition contained in Article 30 of the EEC Treaty does not apply to national rules, such as those in issue in Case 145/88 Torfaen Borough Council v. B & Q plc, which prohibit retailers from opening their premises on Sunday for the serving of customers with certain goods;

2. If not, whether it is nevertheless immediately apparent, whether or not evidence is adduced, that the restrictive effects on intra-Community trade which may result from national rules such as those in Question 1 above do not exceed “the effects intrinsic to rules of that kind”, as that phrase is used in the ruling of the Court of Justice in Case 145/88;

3. If not, on what criteria and by reference to what, if any, factual or other evidence the national court must determine the question whether or not the restrictive effects on intra-Community trade which may result from national rules such as those in Question 1 above exceed “the effects intrinsic to rules of that kind” within the meaning of that phrase as used in the ruling of the Court of Justice in Case 145/88.’

7. In my remarks I shall rearrange the questions referred to the court in the following manner. First of all I shall deal with the first question submitted by the House of Lords on the significance of the Conforama and Marchandise judgments for the United Kingdom Sunday trading provisions. In doing so I shall begin by examining the points of difference between the Torfaen judgment and the Conforama and Marchandise judgments and then place these three judgments in the context of the court’s recent case law on the applicability in principle of art 30 (paras 8 to 17, post). Before embarking on the questions relating to the assessment of justification and proportionality, I shall first examine who is to carry out that assessment, the Court of Justice or the national court (paras 18 to 20, post). I shall then deal with the first question from the magistrates’ court on the justification under Community law of the Sunday trading ban (paras 21 to 25, post). The question of proportionality then arises, in relation to which I shall deal with the second and third questions raised by the House of Lords, and the numerous sub-questions contained in the second question submitted by the magistrates’ court (paras 26 to 32, post). Finally, I shall deal, in so far as may be necessary, with the magistrates’ court’s remaining questions, together with the sole question still before the court in Rochdale BC v Anders Case C-306/88 (paras 33 and 34, post).

Comparison of the Torfaen judgment and the Conforama and Marchandise judgments

8. Both Payless DIY (Case C-304/90) and B & Q (Case C-169/91) argue that a distinction must be drawn between the French and Belgian labour provisions at issue in the Conforama and Marchandise cases respectively and the United Kingdom Sunday trading provisions at issue in the Torfaen case (and in these cases). The former provisions are said to be of a very general nature, aimed at the protection of employees, so that the general rule is that workers may not be employed on Sundays. In England and Wales, on the other hand, the population is free to choose whether or not to work on Sundays, with the exception of the staff of retailers. The French and Belgian laws prevent workers from being employed in shops on Sundays, and thus have no effect on small owner-run shops, which can

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in both France and Belgium remain open all day on Sundays. Though the French and Belgian provisions contain exceptions, these do not give rise to such inconsistent results as the exceptions to the United Kingdom Sunday trading ban. Finally, the French and Belgian laws apply across the whole territory of those states, albeit with a limited possibility in France for local authorities to permit regional derogations. However, s 47 of the 1950 Act does not apply in Scotland.

9. As I stated in my opinion in the Conforama and Marchandise cases, I do not consider the above-mentioned points of difference between the national provisions in question to be decisive in regard to the application of art 30 of the Treaty. What is important is the effect of the provisions in both cases on intra-Community trade, and that is very similar (see [1991] ECR I-997 at 1009 (para 5)). In both cases specific legislation, relating either to labour law or to trade regulation, results in a large number of trading outlets within the territory in which the legislation concerned is applicable being closed on Sundays. Notwithstanding the differences in scope and conditions between the provisions in question, it follows from their general tenor that they have a definite (and pro rata) impact on sales of both national and imported products.

In view of the importance of this point I should like to add the following observation. A comparative examination of the situation in the other member states leads to the conclusion that the closing of shops on Sundays is general within the Community (for a comparative law review, see amongst others, Askam Burke and Ramsden EC Sunday Trading Rules (1990). See also EC Commission Measures taken in the field of commerce by the Member States of the European Communities (1985)). Such a review reveals numerous differences in geographical and temporal scope (in certain member states shops must already shut on Saturday afternoon, in others only on Sunday afternoon), detailed rules of application (including derogations from the primary rule) and legal basis (statutory provision relating to trade regulation or to labour law, administrative decree, collective labour agreement, decision of a trade association, or even custom). In every member state the sale of national and imported products is therefore impeded to a greater or lesser extent as a result of the closure of shops on Sunday. It seems to me a hopeless task to differentiate between the national or even regional provisions or customs in the matter in the member states in order to determine whether or not one situation or another falls under the prohibition contained in art 30 of the Treaty. A certain degree of generalisation in the assessment of these rules and practices therefore seems to me, in the context of the free movement of goods, to be entirely justified.

10. B & Q also seeks to demonstrate that these judgments must be distinguished on account of differences between the facts underlying them. It argues that if in the Conforama and Marchandise cases the court had had before it the evidence which was available in the Torfaen case, even having regard to the differences between the national provisions concerned, it would most probably have come to a different conclusion.

On this point I can be brief. In my opinion in the Conforama and Marchandise cases I stated that the facts of the Conforama case, as expressly stated by the national court, were analogous to those of the Torfaen case: both cases involved undertakings operating in a sector which deals to a large extent in products imported from other member states and in which a considerable proportion of sales is made on Sundays, so that closure on Sundays has the effect of reducing the volume of sales and thus the volume of imports from other member states (see para 5 of my opinion ([1991] ECR I-997 at 1009–1010)). I therefore see no reason to distinguish the Torfaen case from the Conforama and Marchandise cases on account of factual differences either.

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The applicability in principle of art 30 of the EEC Treaty and the court’s recent case law

11. The first question raised by the House of Lords seeks to obtain a definite answer with regard to the consequences of the court’s judgments in the Conforama and Marchandise cases for the United Kingdom Sunday trading rules. In those judgments the court concluded that—

‘it must therefore be held that the prohibition contained in Article 30 of the Treaty, properly construed, does not apply to national legislation prohibiting the employment of staff on Sundays [after 12 noon].’ (See the Conforama judgment [1991] ECR I-997 at 1025 (para 13); the Marchandise judgment [1991] ECR I-1027 at 1041 (para 14), with the added phrase in square brackets.)

This judgment caused confusion in Great Britain inasmuch as it departed from the formula used in the Torfaen case. In that judgment the court stated ([1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 53 (para 17)):

‘… art 30 of the Treaty must be interpreted as meaning that the prohibition which it lays down does not apply to national rules prohibiting retailers from opening their premises on Sunday where the restrictive effects on Community trade which may result therefrom do not exceed the effects intrinsic to rules of that kind.’

In addition the court stated ([1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 53 (para 16)):

‘The question whether the effects of specific national rules do in fact remain within that limit is a question of fact to be determined by the national court.’

12. According to B & Q, it follows from those judgments, as was rightly emphasised in the Torfaen case, that the prohibition contained in art 30 of the EEC Treaty is in principle applicable: the Sunday trading ban contained in the 1950 Act does amount to a measure having equivalent effect within the meaning of art 30. The court was therefore right to leave it to the national court to assess the proportionality of the rules, the actual objective pursued by them and their justification under Community law.

On the other hand, the city councils of Stoke-on-Trent and Norwich and the United Kingdom submit that it follows from the Conforama and Marchandise cases that the prohibition contained in art 30 is not applicable to national rules which as in the Torfaen case, prohibit retailers from opening their shops on Sundays for the sale of certain goods to customers. The city councils argue that as regards the reply to that question the United Kingdom Sunday trading rules cannot be distinguished from the provisions at issue in the Conforama and Marchandise cases. The ruling in those cases is thus fully applicable to the United Kingdom Sunday trading rules. The United Kingdom goes on to take the view that the proportionality test applied by the court in those cases is equally applicable to the United Kingdom Sunday trading rules at issue in the Torfaen case.

The Commission also considers that the prohibition contained in art 30, in accordance with the judgments in the Conforama and Marchandise cases, is not applicable to the United Kingdom Sunday trading rules.

13. It seems to me that the Conforama and Marchandise judgments and the Torfaen judgment are not in conflict as regards the applicability in principle of art 30 to provisions such as the United Kingdom Sunday trading ban. The

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different formulation of the court’s judgment results merely from the fact that in the first-mentioned cases the court itself assessed the issue of proportionality (see the Conforama judgment [1991] ECR I-997 at 1025 (para 12), the Marchandise judgment [1991] ECR I-1027 at 1041 (para 13)), whilst in the Torfaen case it referred that question to the national court. If the court had been of the view in the Conforama and Marchandise cases that the French and Belgian labour provisions did not fall within the scope of art 30 at all, it could have said so straight away. As I have stated, there is a difference between the various judgments in regard to the application of the proportionality test. In this connection it is necessary to provide the referring courts with terms of reference concerning the criteria to be applied and by whom they are to be applied. Only then can the consistency of the court’s case law on the free movement of goods be safeguarded. It is not acceptable that with regard to the same legislation attracting criminal sanctions for infringements national courts should decide in one case that it is valid under Community law (resulting normally in conviction of the person who has infringed the law) and in another that the law is invalid (normally leading to acquittal).

14. A study of the court’s recent case law on the free movement of goods reveals, in my view, the following guiding principles.

In the first place, it is clearly established that the court’s broad Dassonville (Procureur du Roi v Dassonville Case 8/74 [1974] ECR 837) and Cassis de Dijon (Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein Case 120/78 [1979] ECR 649) formula continues to apply with undiminished scope. The starting point for the court’s analysis continues to be the finding that ‘all trading rules … which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade’ are to be regarded as measures having equivalent effect prohibited by art 30 (see the judgment in Procureur du Roi v Dassonville Case 8/74 [1974] ECR 837 at 852 (para 5). For recent applications of this formula see, inter alia, the judgments in SCP Boscher Studer et Fromentin v SA British Motors Wright Case C-239/90 [1991] ECR I-2023 (para 13), EC Commission v Belgium Case C-287/89 [1991] ECR I-2233 (para 16) and Aragonesa de Publicidad Exterior SA v Departmento de Sanidad y Seguridad Social de la Generalitat de Cataluña Joined cases C-1/90 and C-176/90 (OJ 1991 C220, p 8) (para 9) ‘even though the hindrance is slight and even though it is possible for imported products to be marketed in other ways’ (see judgments in Criminal proceedings against van de Haar and Kaveka de Meern BV Joined cases 177 and 178/82 [1984] ECR 1797 at 1812–1813 (para 13), EC Commission v France Case 269/83 [1985] ECR 837 at 846 (para 10) and EC Commission v Italy Case 103/84 [1986] ECR 1759 at 1773 (para 18)). The only qualification of that rule remains, as a matter of principle, the Cassis de Dijon ‘rule of reason’: in the absence of common rules (relating to the manufacture of the products in question, or to their marketing) obstacles to free movement within the Community resulting from disparities between national laws must be accepted in so far as those provisions may be recognised as being necessary in order to satisfy mandatory requirements (see the judgment in Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein Case 120/78 [1979] ECR 649 at 662 (para 8); see most recently, inter alia, the judgments in GB-INNO-BM v Confédération du Commerce Luxembourgeois Case C-362/88 [1990] ECR I-667 at 686 (para 10), SARPP v Chambre Syndical des Raffineurs et Conditionneurs de Sucre de France Case C-241/89 [1990] ECR I-4695 at 4723–4724 (para 31) and Pall Corp v P J Dahlhausen & Co Case C-238/89 [1990] ECR I-4827 at 4848 (para 12)); moreover, the laws must be necessary and proportionate to the objective pursued, and if a member state has the choice of several different means of attaining the same objective it is under an obligation to use that which is least restrictive of intra-Community

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trade (cf more recently, inter alia, the judgment in Drei Glocken GmbH v USL Centro-Sud Case 407/85 [1988] ECR 4233 at 4278 (para 10); judgments in Buet v Ministère public Case 382/87 [1989] ECR 1235 at 1252 (para 13); Bonfait v Ministère Public Case C-269/89 [1990] ECR I-4169 at 4180 (para 11); SARPP judgment Case C-241/89 [1990] ECR I-4695 at 4723–4724 (para 31); Pall judgment Case C-238/89 [1990] ECR I-4827 at 4848 (para 12)). Furthermore, the court’s judgment in Criminal proceedings against Oosthoek’s Uitgeversmaatschappij BV Case 286/81 [1982] ECR 4575, in which the Cassis de Dijon formula was applied to legislation relating to the manner in which a product is marketed (in addition to rules on the composition, labelling and presentation of the product itself), has recently been repeatedly reaffirmed; thus art 30 applies to legislation which restricts intra-Community trade because, by restricting or prohibiting certain forms of advertising and certain means of sales promotion, it may adversely affect marketing opportunities for imported products (see the judgment in Criminal proceedings against Oosthoek’s Uitgeversmaatschappij BV Case 286/81 [1982] ECR 4575 at 4587–4588 (para 15); that rule was recently reaffirmed in Buet v Ministère Public Case 382/87 [1989] ECR 1235 at 1251 (paras 7 to 8), GB-INNO-BM v Confédération du Commerce Luxembourgeois Case C-362/88 [1990] ECR I-667 at 686 (para 7), the SARPP case Case C-241/89 [1990] ECR I-4695 at 4723 (para 29), SCP Boscher Studer et Fromentin v SA British Motors Wright Case C-239/90 [1991] ECR I-2023 at 2038 (para 14) and the Aragonesa case Joined cases C-1/90 and C-176/90 (OJ 1991 C220, p 8) (para 10); see also the judgments in Criminal proceedings against Delattre Case C-369/88 [1991] ECR I-1487 at 1539 (para 50) and Criminal proceedings against Monteil and Samanni Case C-60/89[1991] ECR I-1547 at 1570 (para 37)).

15. Moreover, the court’s recent case law shows that, in examining whether national legislation pursues an objective justified under Community law, the court is sympathetic to legislation which reflects lawful socio-economic or socio-cultural policy choices which are consistent with the public interest objectives pursued in the Treaty. Illustrations of this may be found in the Oebel and Cinéthèque judgments. Summary proceedings against Oebel concerned national legislation which sought to improve working conditions (protection of workers in small and medium-sized bakeries against permanent night work which might damage their health) and the protection of small family businesses against ruinous competition from larger industrial undertakings (see the judgment in Summary proceedings against Oebel Case 155/80 [1981] ECR 1993 at 2006 (para 4), and the facts of the judgment (at 1998), where the German government explains this second objective). In Cinéthèque SA v Fédération nationale des cinémas français Joined cases 60 and 61/84 [1985] ECR 2605 at 2626 (para 23) the court held that national legislation providing for a temporary ban on the distribution of films in video-cassette form, in order to encourage the production of films—irrespective of their origin—and thus to protect the film industry, was pursuing an objective justified under Community law.

This approach may also be found in the court’s case law with regard to the provision of services: I am thinking here particularly of the judgments in Société Générale Alsacienne de Banque SA v Koestler Case 15/78 [1978] ECR 1971 at 1981 (para 5) (where the court deemed acceptable legislation barring the legal recovery of gaming debts for ‘reasons founded on the social order’, that is to say reasons of an ethical and political nature), Procureur du Roi v Debauve Case 52/79 [1980] ECR 833 at 857 (para 16) (in which a prohibition on cable television advertising was held to be acceptable in order to guarantee pluralism in the media), Bond van Adverteerders v Netherlands Case 352/85 [1988] ECR 2085 at 2136 (para 38) and

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Criminal Proceedings against Webb Case 279/80 [1981] ECR 3305 at 3325 (Paras 18 and 19) (where the court held a licence requirement for the provision of manpower in the territory of a member state to be justified in the interests of ‘good relations on the labour market’ and the protection of the ‘lawful interests of the workforce concerned’).

16. Finally, with regard more specifically to the proportionality test, it seems that the court regards that test as satisfied where national legislation clearly has no connection, or merely a very indirect or uncertain one, with imports from other member states or the national legislation in question does not impede imports and exports. (There are various illustrations of this: see the judgment in Criminal proceedings against Oebel, cited above; the judgments in Blesgen v Belgium Case 75/81 [1982] ECR 1211; Direction générale des impôts v Forest Case 148/85 [1986] ECR 3449; H Krantz GmbH & Co v Ontvanger der Directe Belastingen Case C-69/88 [1990] ECR I-583; Quietlynn v Southend-on-Sea BC Case C-23/89 [1990] 3 All ER 207, [1991] 1 QB 454; and Sheptonhurst v Newham BC Case C-350/89 [1991] ECR I-2387. In connection with the freedom to provide services there was recently a hint of this idea in Society for the Protection of Unborn Children Ireland Ltd v Grogan Case C-159/90 [1991] 3 CMLR 849 at 872 (para 24): the link between the provision of information in one member state on the clinical termination of pregnancies in another member state and the pregnancy termination service itself (carried out by a provider of services completely independent of the providers of the information, themselves established in the first member state) was held by the court to be too tenuous for a constitutional prohibition applicable in the first member state on the provision of information to be regarded as a restriction on the freedom to provide services within the meaning of art 59 of the Treaty.

There is not likely to be any such sufficient link with the restrictions on imports mentioned in art 30, so it may be inferred from Cinéthèque Joined cases 60 and 61/84 [1985] ECR 2605 at 2627 (para 21), Krantz Case C-69/88 [1990] ECR I-583 at 597 (para 10) and Quietlynn Case C-23/89 [1990] 3 All ER 207 at 221, [1991] 1 QB 454 at 470 (para 11), if the legislation in question is clearly not intended to regulate trade between member states. Thus legislation whose application is restricted to the marketing of products in the local retail trade or in shop premises (regulation of delivery times of bread to individual customers and retailers in Summary proceedings against Oebel, prohibition on the sale ‘for consumption on the premises’ of beverages of a high alcohol content in Blesgen v Belgium Case 75/81 [1982] ECR 1211; prohibition on the sale of sex articles without a licence in Quietlynn Ltd v Southend-on-Sea BC) may not be deemed to be a measure having equivalent effect because it clearly cannot obstruct intra-Community trade.

Moreover, it is clear from those and other judgments that the court will apply the proportionality test itself where, having regard to the information provided by the referring court, there is no possible dispute in that respect. (See, inter alia, the recent judgments in Buet, GB-INNO-BM, Boscher and Aragonesa, already referred to; cf also the judgments in SARPP Case C-241/89 [1990] ECR I-4695 at 4721 (para 21); Freistaat Bayern v Eurim-Pharm GmbH Case C-347/89 [1991] ECR I-1747 at 1770–1772 (paras 27 to 35); Denkavit Case C-39/90 [1991] ECR I-3069 at 3108 (para 24); Debus v Ministère Public Joined Cases C-13 and C-113/91 (OJ 1992 C167, p 3) (paras 24 and 25). Illustrations can also be found in other areas of Community law: see, for example, with regard to the provision of services, the recent judgment in Stichting Collectieve Antennevoorziening Gouda v Commissariaat voor de Media Case C-288/89 (OJ 1991 C224, p 3) (paras 23 and 24).)

17. The Torfaen, Conforama and Marchandise judgments must be seen in the context of this recent case law. All three judgments implicitly but clearly assume

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that the rules in question are to be regarded as trading rules under the Dassonville formula. Furthermore, in each of those cases the court states that the rules in question are not intended to govern the flow of trade between member states (see the Torfaen judgment Case C-145/88 [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 53 (para 14 in fine), the Conforama judgment Case C-312/89 [1991] ECR I-997 at 1024 (para 8) and the Marchandise judgment Case C332/89 [1991] ECR I-1027 at 1040 (para 9)), that they apply to imported and domestic products without distinction and that the marketing of products imported from other member states is not made more difficult than the marketing of domestic products (see the Torfaen judgment (para 11), the Conforama judgment (para 9) and the Marchandise judgment (para 10)). In addition, it is expressly stated in the three judgments that the compatibility of the rules in question with art 30 depends on whether the obstacles to trade caused by the rules exceed what is necessary in order to attain the objective in view (proportionality test) and whether that objective is justified under Community law (justification test) (see the Torfaen judgment (para 12), the Conforama judgment (para 10) and the Marchandise judgment (para 11)).

Finally, the court discusses both these tests. With regard to the justification test, the court accepts in all three cases that the provisions in issue pursue an objective which is justified under Community law; they reflect certain political and economic choices, inasmuch as they seek to ensure that working and nonworking hours are so arranged as to accord with national or regional socio-cultural characteristics, the assessment of which, in the present state of Community law, is a matter for the member states (see the Torfaen judgment (para 14), the Conforama judgment (para 11) and the Marchandise judgment (para 12)). As regards the proportionality test, however, a considerable difference is to be observed between the three judgments, as I have already stated (see para 13 above): unlike its approach in the Torfaen judgment (see the quotation in para 11 above), the court itself applied the proportionality test in Conforama (para 12) and Marchandise (para 13) as follows:

‘It must further be stated that the restrictive effects on trade which may stem from such rules do not seem disproportionate to the aim pursued.’

It appears from the foregoing that the court itself replies to the question whether the objective pursued by national legislation is justified under Community law and that in the Torfaen case it gave an affirmative reply in relation to the United Kingdom Sunday trading rules (see para 22, post). On the other hand, the court has not yet given a clear ruling on the question who is to apply the proportionality test.

Who is to apply the justification and proportionality tests under Community law?

18. This question of principle is not as such submitted by the national courts. Nevertheless it is of decisive importance. As may be seen in particular in the preliminary question formulated in Reading BC v Payless DIY Ltd Case C-304/90, the English courts have inferred from the Torfaen judgment that at least the assessment of the proportionality of the United Kingdom Sunday trading rules is a matter for them. B & Q goes still further in its interpretation of the Torfaen case: besides the proportionality test, the determination of the actual objective of the legislation and the examination of the question whether that objective falls within the objectives held to be justified under Community law by the court are, it says, matters for the national courts. Those, it argues, are questions of national law which fall outside the jurisdiction of the Court of Justice, in particular where the objective of the legislation is open to doubt or is disputed.

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Reading Borough Council, Stoke-on-Trent City Council, Norwich City Council, the United Kingdom and the Commission, on the other hand, consider that the justification and proportionality under Community law of a national measure cannot be left to the national courts. If it were, the uniform application of Community law would be placed at risk.

19. It is clear that, in the context of a reference for a preliminary ruling, it is the joint task of the court and the national courts to determine whether a national measure is compatible with Community law. The court’s view as a matter of principle on this point is abundantly clear, and is reiterated at the beginning of the judgments in Conforama [1991] ECR I-997 at 1024 (para 6) and Marchandise [1991] ECR I-1027 at 1039 (para 7):

‘It must be observed in limine that although the Court has no jurisdiction, in preliminary reference proceedings, to rule on the compatibility of a national provision with the Treaty, it is nevertheless empowered to provide the national court with all the criteria for the interpretation of Community law which will enable the latter to assess that compatibility for the purpose of giving judgment in the case before it.’

In my view, the collaboration between the court and the national courts may be stated as follows. First, the national court must, in the formulation of its question, provide the court with all the necessary factual information and the national legal framework, so that the court is afforded the possibility of making a ruling with full knowledge of the facts. (The court has repeatedly emphasised that the need to arrive at a useful interpretation of Community law makes it essential to define the legal context within which the interpretation requested must be placed: see the judgments in Union Laitière Normande v French Dairy Farmers Ltd Case 244/78 [1979] ECR 2663 at 2681 (para 5) and Irish Creamery Milk Suppliers Association v Ireland Joined cases 36 and 71/80 [1981] ECR 735 at 748 (para 6).) The court cannot, however, rule on the correctness of that information or legal framework. (That is settled case law: see, inter alia, the judgments in Oehlschläger v Hauptzollamt Emmerich Case 104/77 [1978] ECR 791 at 797 (para 4) and Hauptzollamt Bremen-Freihafen v Drünert Case 167/84 [1985] ECR 2235 at 2246 (para 12).) The court must then provide the national court with all relevant information with regard to Community law, including the criteria to be used in assessing the issues of justification and proportionality. Finally, it is for the national court, on the basis of the reply given to it by the court, to assess the compatibility or incompatibility of national legislation with Community law and to determine the necessary consequences under national law.

20. With regard specifically to the assessment of justification and proportionality under Community law, the collaboration outlined above in general terms takes the following form.

As regards the assessment of justification, it is for the national court, with the assistance of the parties, to identify as clearly as possible the policy objectives pursued by national legislation and to bring them to the court’s knowledge. (On the question whether it is desirable for there to be contact between the court and national courts where certain elements are missing from the preliminary reference, I would refer to T Koopmans ‘The technique of the preliminary question—a view from the Court of Justice’ in Schermers et al (eds) Article 177 EEC: Experiences and Problems (1987) p 327 at p 333: ‘It would be a great help if the Court of Justice could make contact with the referring court if it should discover that some elements of information are missing. Rules of procedure applicable to the national courts make it impossible, however, for most of them

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to reopen the case after having suspended it when they put their questions to the Court of Justice. In particular, national rules on litigation before civil and criminal courts—as opposed to administrative courts or tribunals—are normally too strict to permit an exchange of information after the order for a reference has been made. On the other hand, it is for the court to decide finally whether the objectives thus identified are consistent with an objective pursued by Community law or—where they fall within areas which in the current state of Community law are within the competence of the member states—whether Community law is in any way opposed to the objectives pursued by the national measure.

With regard to the assessment of proportionality, it is in my view for the court, and for the court alone, clearly and imperatively to indicate in its case law the criteria to be used in that assessment (see paras 28 to 31, post). It is then the joint task of the court and the national court to apply those criteria drawn from existing case law to the concrete legal and factual context. In that connection the national court, in its order for reference, must give the fullest possible description of the legislation in issue (legal basis, scope, detailed rules and practice governing its application) and its restrictive effect on intra-Community trade. If it appears from the findings of the national court and the arguments submitted to the court that there is no room for any doubt, the court itself—as I have already stated (see para 16 above)—will state the results of the assessment under Community law. That indeed is what was done in the Conforama and Marchandise cases. If the court has not itself made an assessment on the basis of the information provided to it (it may be inferred from judgments such as those recently delivered in Schäfer Shop BV v Minister van Economische Zaken Case 12/88 [1989] ECR 2937 at 2962–2963 (para 23) and Ministre des Finances v Richardt Case C-367/89 [1992] 1 CMLR 61 at 81 (para 25) that the court does refer the assessment of proportionality more frequently to the national court), then the national court, where necessary after further examination of the legislative and factual context, and in the light of the court’s reply to the preliminary question, must arrive at its own decision regarding the application of the proportionality requirement.

The requirement of an objective which is justified under Community law

21. In its first question Reading and Sonning Magistrates’ Court seeks to determine whether the objective underlying the United Kingdom Sunday trading provisions is justified under Community law within the meaning of paras 12 to 14 of the Torfaen judgment Case C-145/88 [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 52–53. The magistrates’ court considers that that objective is to ensure ‘so far as possible that shopworkers do not have to work on Sundays, with a view to maintaining what many regard as the traditional English Sunday’.

According to Reading Borough Council and the United Kingdom, that question was answered in para 13 of the Torfaen judgment, and it is sufficient that one of the objectives of the Sunday trading provisions should be justified under Community law for those provisions to be compatible as a whole with Community law. The Commission, too, considers that the court in the Torfaen case, as in the Conforama and Marchandise cases, gave an affirmative reply to the question whether the legislation in question pursued an objective justified under Community law.

B & Q, on the other hand, contends that the question put by the magistrates’ court is based on a false premise. The objective of s 47 of the 1950 Act is limited to protecting full-time shop workers. If the question were whether that objective is justified under Community law, the answer would be in the affirmative, provided that the legislation in practice attains that objective and satisfies the

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proportionality requirement. Payless DIY adds that, in so far as the Sunday trading ban reflects ‘certain political and economic choices’ made by the United Kingdom Parliament, s 47 is certainly no longer in accord with ‘national or regional socio-cultural characteristics’ in England and Wales. As a result of the increase in part-time working in the retail sector there is little need for legislative protection of part-time workers by means of the Sunday trading ban, since in their case there can be no suggestion of overworking or exploitation by the employer.

22. Like Reading Borough Council, the United Kingdom and the Commission, I am of the opinion that the question raised by the magistrates’ court has already been answered in the Torfaen case itself. It is sufficient in that connection to read the relevant grounds of the judgment (paras 13 and 14). In so far as there might still have been some doubt after the Torfaen case with regard to the justification under Community law of that objective, it was entirely removed by the judgments in the Conforama and Marchandise cases. There the court expressly stated that—

‘legislation such as the legislation at issue pursues an aim which is justified with regard to Community law. The Court has already held, in its judgment of 23 November 1989 in the Torfaen case, that national rules governing the opening hours of retail premises reflect certain political and economic choices in so far as their purpose is to ensure that working and non-working hours are so arranged as to accord with national or regional socio-cultural characteristics, and that, in the present state of Community law, is a matter for the Member States.’ (See the Conforama judgment [1991] ECR I-997 at 1025 (para 11) and the Marchandise judgment [1991] ECR I-1027 at 1040–1041 (para 12).)

It follows unambiguously from those judgments that the United Kingdom Sunday trading provisions pursue an objective justified under Community law, regard being had to the policy choices underlying those provisions. There the matter could rest, were it not for the fact that in judicial pronouncements and academic writing in the various member states doubts have been expressed concerning the import of these judgments in relation to the grounds of justification recognised by the Treaty or by the court. I should therefore like to make a few general observations.

23. The question arises whether, in addition to the grounds of justification exhaustively enumerated in art 36 of the EEC Treaty and the specific ‘mandatory requirements’ under art 30 of the EEC Treaty which have hitherto been recognised in the court’s case law (effectiveness of fiscal controls, fairness of commercial transactions, consumer protection, environmental protection), the court also recognises a general, less specific category of grounds of justification, that is to say, in the terms of the Torfaen, Conforama and Marchandise cases, those ‘which reflect certain political and economic choices … [in accordance] with national or regional socio-cultural characteristics, [the assessment of which,] in the present state of Community law, is a matter for the Member States’. (With regard to the freedom to provide services the court has for some considerable time recognised the protection of workers as an ‘imperative public interest requirement’ justifying a restriction on intra-Community trade: that occurred for the first time in Criminal proceedings against Webb Case 279/80 [1981] ECR 3305 at 3325 (para 19); cf most recently the judgments in Gouda’s case Case C-288/89 (OJ 1991 C224, p 3) (para 14), and in EC Commission v Netherlands Case C-353/89 (OJ 1991 C224, p 3) (para 18).)

Before answering that question I should make the following remark. It seems to me that certain further special mandatory requirements may be added to the

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list of mandatory requirements inherent in art 30 of the EEC Treaty (which may be relied upon solely in order to justify non-discriminatory national provisions). I have in mind requirements which are consistent with specific objectives or interests which may be derived from other provisions of the Community Treaties—particularly after the amendments made by the Single European Act—relating more specifically to economic and social policy (for example, the improvement of working conditions), economic and social cohesion, research and technical development and the protection and enhancement of the environment. (In some cases the court does not await recognition of an objective in a Treaty provision in order to regard it as an imperative requirement. For example, the court regarded environmental protection as an essential Community objective well before the entry into force of the Single European Act: see the judgment in Procureur de la République v Association de défence des brûleurs d’huiles usagées Case 240/83 [1985] ECR 531 at 549 (para 13). In the Webb judgment Case 279/80 [1981] ECR 3305, too, the protection of workers was also recognised, this time in connection with the freedom to provide services, as an ‘imperative public interest requirement’, some considerable time before the entry into force of the Single European Act.)

The question, then, is whether there is also a place for a general ground of justification for national provisions which reflect political and economic choices in keeping with national or regional socio-cultural characteristics. As the court’s case law now stands an affirmative answer cannot as such be inferred from the judgments concerning such provisions. In Summary proceedings against Oebel Case 155/80 [1981] ECR 1993 at 2008 (para 12), in which the court regarded the national provisions in question as ‘a legitimate element of economic and social policy’, the court immediately added: ‘consistent with the objectives of public interest pursued by the Treaty’, and pointed out that the intention of the legislation was ‘to improve working conditions in a manifestly sensitive [production] industry’. In the Torfaen case [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 52–53 (paras 13 and 14) the court expressly recognised, referring to Summary proceedings against Oebel, that national measures relating to the opening hours of shops are also consistent with the objectives of public interest pursued by the Treaty. Subsequently, it was confirmed in the Marchandise case [1991] ECR I-1027 at 1042 (para 19) that in these measures the ‘objective is worker protection’. In other words, in those judgments the court is consciously making a connection with specific mandatory requirements already recognised in the case law.

24. It is not my intention in these remarks to preclude the possibility that there may well be a place for a ground of justification generally concerning ‘national rules which reflect certain political and economic choices in keeping with national or regional socio-cultural characteristics’. I am thinking of provisions adopted in policy areas which in the current state of Community law (still predominantly economically orientated) lie outside the competence of the Community and are thus not consistent with an essential Treaty objective, but are not contrary to one either. Examples are national provisions concerning questions of a purely political, moral or religious nature or the protection of the cultural and linguistic identity of a people, whose assessment is undoubtedly, to take the words of the Sunday trading judgments, ‘in the present state of Community law … a matter for the Member States’. (With regard to the relationship between a policy for promoting a national language as an expression of national identity and culture and freedom of movement for workers, see the judgment in Groener v Minister of Education Case C-379/87 [1989] ECR 3967.) Nevertheless, here too, in

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order to prevent an undesirable proliferation of grounds of justification, I consider that as close a connection as possible must be sought with the grounds provided for in art 36 of the EEC Treaty (indeed, it is far from hypothetical that such provisions may be able to rely on the grounds mentioned in that provision of ‘public morality, public policy or public security [or] the protection of national treasures possessing artistic … value’), the objectives of Community law recognised in the European treaties and the fundamental rights which form part of the Community legal order, in the light of which those grounds and objectives must be construed. (See, in relation to the freedom to provide services (arts 66 and 56 of the EEC Treaty), the judgment in Elliniki Radiophonia Tiléorassi-Anonimi Etairia v Dimotiki Etairia Pliroforissis Case C-260/89 [1991] ECR I-2925 at 2964 (para 45). With regard to the freedom to provide services the court has held, moreover, in the recent judgments on the Netherlands ‘Mediawet’ that a national cultural policy, connected, through the operation of a pluralistic broadcasting system, with the protection of freedom of expression, may constitute an imperative public interest requirement justifying a restriction on the freedom to provide services: see the Gouda judgment Case C-288/89 (OJ 1991 C224, p 3) (para 23); EC Commission v Netherlands C-353/89 (OJ 1991 C224, p 3) (para 30).)

However that may be, it must in any event be correct that (i) it is in the final analysis for the court—desirable though it may be for the national court to make its own view known to the court—to determine whether the objective is justified and (ii) that a national measure whose objective is justified under Community law must still be assessed against the principle of proportionality. This assessment serves to ensure that a measure which is justified in itself does not nevertheless conflict with the principle of the free movement of goods.

25. The foregoing general observations permit me to share the view formed by the court in the Sunday trading cases with regard to the justification under Community law of Sunday trading rules. Whatever may be the reasons for the enactment and retention of the United Kingdom Sunday trading ban, it seems to be clear, as was confirmed by the United Kingdom at the hearing, that those provisions are intended to ensure that shopworkers should not (or as little as possible) have to work on Sundays. That gives them, inter alia, the possibility of devoting that day to family or friends in non-occupational activities. In so far as such an objective is aimed at social protection, as the court has held, it is consistent with one of the objectives of Community law, that is to say the improvement of working conditions and the protection, by means of regular rest periods, of the health of shopworkers. The fact that a specific day, Sunday is chosen for that purpose reflects a choice in keeping with a national or regional socio-cultural preference in a policy area outside the sphere of competence of the Community; subject to application of the proportionality test, I cannot see why it should be contrary to Community law.

The Community proportionality requirement

26. In its second question the House of Lords seeks to determine whether it is immediately apparent, whether or not evidence is adduced, that a measure such as the Sunday trading ban is proportionate to the objective pursued which is justified under Community law. In the event that the reply to that question should be in the negative, the House of Lords seeks in its third question to ascertain on what criteria and by reference to what evidence the national court must determine whether the restrictive effects of the legislation under examination exceed the effects intrinsic to rules of that kind. The first three sub-questions and the sixth sub-question of the second question submitted by the Reading and

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Sonning Magistrates’ Court are along the same lines. The first sub-questions once again concern the criteria to be applied by national courts; more specifically they concern the question whether and to what extent the criteria mentioned in art 3 of Commission Directive (EEC) 70/50 are applicable. The third sub-question seeks to ascertain to what extent the national court, in its assessment of the proportionality requirement, must abide by the conclusion of the national legislature. In the sixth sub-question the national court asks how a national court is to compare the restrictive effects of the legislation with the objective pursued by that legislation.

27. As I have already stated (see para 20 above), it is ultimately for the national court to assess the proportionality of the national measure in question. I do not think there are any measures in respect of which it is prima facie clear, that is to say without any evidence being adduced, that they satisfy the proportionality test. However, as I have observed, the information provided to the court by the national court in its reference for a preliminary ruling may be so clear and uncontested with regard to the absence or near absence of any restrictive effect of the legislation on intra-Community trade that the result of the proportionality test is obvious and can be stated by the court itself.

The reply to the third sub-question raised by the Reading and Sonning Magistrates’ Court follows from that. In my view the national court may not automatically accept the view of the national legislature or limit itself to deciding whether the national legislature, in the light of the proportionality requirement, could reasonably have adopted the legislative provisions in question. (That approach appears to have been taken in the judgment of the High Court of Justice, Chancery Division, in Stoke-on-Trent City Council v B & Q plc [1991] 4 All ER 221, [1991] Ch 48.) I think that is clear from the court’s case law, in particular the judgment in Criminal proceedings against Miro BV Case 182/84 [1985] ECR 3731. In that judgment the court expressly rejected an argument put forward by the German government to the effect that it was for the national legislature to assess the need for a prohibition on the use of the name ‘Jenever’, and that the national courts were bound to follow that assessment (at 3744 (para 14)):

‘As regards the latter argument, it must be stated that neither Article 30 of the Treaty nor indeed Article 36 reserves certain matters to the exclusive jurisdiction of the Member States. When in order to satisfy mandatory requirements recognized by Community law national legislation creates obstacles to the fundamental principle of the free movement of goods, it must observe the limits laid down by Community law. It is for the Court, which interprets Community law in the final instance, and for the national courts, which reach their decisions on the basis of that interpretation, to ensure that those limits are observed. In the final analysis the German Government’s argument amounts to a repudiation of review by the Court and therefore runs counter to the uniformity and effectiveness of Community law. It must therefore be rejected.’

28. That brings me to the questions on the criteria to be applied by the national courts, and where appropriate by the Court of Justice, in assessing proportionality. I shall begin by dealing with the questions on the significance of art 3 of Commission Directive 70/50 in the application of the proportionality test. The starting point is para 15 of the Torfaen judgment, in which express reference was made to that directive. For the sake of clarity I shall reproduce the text of the relevant provision of the directive:

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‘This directive also covers measures governing the marketing of products which deal, in particular, with shape, size, weight, composition, presentation, identification or putting up and which are equally applicable to domestic and imported products, where the restrictive effect of such measures on the free movement of goods exceeds the effects intrinsic to trade rules.

This is the case, in particular, where:—the restrictive effects on the free movement of goods are out of proportion to their purpose;—the same objective can be attained by other means which are less of a hindrance to trade.’

29. The magistrates’ court asks first of all whether the national court is required to apply the criteria set out in art 3 of Commission Directive 70/50. According to Reading Borough Council that is certainly so. By expressly referring in the Torfaen case to the above-mentioned provision and by adopting its wording, the court, it argues, indicated that art 3 of Commission Directive 70/50 accurately reflects the scope of art 30. In my opinion that interpretation goes too far. Since the expiry of the transitional period (that is to say since 1 January 1970) Commission Directive 70/50 has played a modest role: the prohibition imposed by art 30 of the EEC Treaty has since then had direct effect and thus ‘its implementation does not require any subsequent intervention of the Member States or Community institutions’ (see the judgment in Iannelli & Volpi SpA v Meroni Case 74/76 [1977] ECR 557 at 575 (para 13). In any event the directive was regarded by the Commission mainly as a set of guidelines. A Mattera Le Marché Unique Européen. Ses règles, son fonctionnement (2nd edn, 1990) p 42 confirms that ‘the objective of the Commission was to lay down an “authoritative point of reference” based on its experience acquired in investigating numerous cases of “measures having equivalent effect”, in order to enable Member States to be better acquainted with the extent of their obligations in the matter’). In its case law the court thus refers to Commission Directive 70/50—in particular to the list of categories of measures having equivalent effect contained in art 2(3)—only where the wording of the directive tallies with its settled case law. (I think that is clearly to be seen in the judgments in EC Commission v Italy Case 56/87 [1988] ECR 2919 at 2928 (para 7) and EC Commission v Belgium Case C-249/88 [1991] ECR 1-1275 (para 7 in fine), where it is stated: ‘This interpretation of Article 30 [that is to say that provided for in art 2(3)(c) to (e) of Directive 70/50] is confirmed by the Court’s settled case law’.) To a certain extent that may be compared with the court’s reference to the general programmes adopted by the Council on the right of establishment and the freedom to provide services, to which it sometimes has regard, since they ‘provide useful guidance with a view to the implementation of the provisions of the Treaty’ (see, inter alia, the recent judgment in EC Commission v Italy Case 63/86 [1988] ECR 29 at 52 (para 14)).

The criteria for the assessment of proportionality under Community law must therefore be found in the court’s case law. That, I think, also provides the answer to the next question raised by the magistrates’ court, namely whether a national measure must satisfy each of the criteria mentioned in art 3(2) of Directive 70/50; here again it is the court’s case law that is decisive, and not that provision of the directive.

30. What, then, are the criteria for applying the proportionality requirements at Community law, as they may be deduced from the court’s case law? As was emphasised twice in the Torfaen judgment [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 52–53 (paras 12, 15), the starting point is that the restrictive effects of national legislation on intra-Community trade may not exceed what is necessary

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in order to ensure the attainment of the objective justified under Community law. There are two aspects to that, which may be summarised as follows.

First of all, it must be determined whether the national measure in question is objectively necessary in order to further the attainment of the objective pursued by it. That means that the measure must be relevant (effective), that is to say of such a nature as to afford effective protection of the public interest involved (cf the wording adopted by the court in Criminal proceedings against Wurmser Case 25/88 [1989] ECR 1105 at 1128 (para 13)), and must be essential in order to attain the objective, which implies that the competent legislator does not have an equally effective alternative available to it which would have a less restrictive effect on the free movement of goods. (The criterion set out in the last indent of the second sub-paragraph of art 3 of Commission Directive 70/50 is to the same effect as this latter aspect of the necessity test.) Secondly, even if the national measure is effective and essential with regard to the objective pursued, it must be determined whether the restriction caused thereby to intra-Community trade is in relation, that is to say proportionate, to that objective. (In other words this is an application of the test mentioned in the first indent of the second sub-paragraph of art 3 of Commission Directive 70/50.) It may be seen from the foregoing that the proportionality test in the broad understanding of the term essentially contains both a dual necessity criterion (relevance and indispensability of the measure) and a proportionality criterion in the strict sense.

31. That brings me to the last sub-question (f) of the second question submitted by the magistrates’ court. In it the national court seeks additional information on the manner in which the restrictive effects on the free movement of goods arising from national legislation must be compared with the objective pursued by that legislation.

That request for clarification is also implicit in the third-question submitted by the House of Lords. Here we are concerned with the crux of the proportionality test. It may be seen from the analysis of the proportionality requirement set out above that that assessment comprises various comparisons: first, it must be examined whether the means provided for in the legislation are relevant, that is to say have a causal connection with the objective pursued. Then it must be examined whether the measure in question is essential, that is to say the objective could not equally well be attained by means of other measures less restrictive of the free movement of goods. That entails comparing two possible measures in the light of the objective pursued. Finally, it must be determined whether the restriction on trade caused by the measure in question is not disproportionate to its objective, which implies the comparison of a specific restriction on trade with the objective pursued.

Each of these comparisons entails the balancing of points of comparison which are not, or not fully, quantifiable. That is particularly true of the last-mentioned comparison, in which two conflicting values are weighed against each other, namely the greatest possible freedom of intra-Community trade and the objective pursued by the national legislation in question. Such a comparison naturally implies an assessment which cannot be made solely on the basis of quantifiable data, but that does not mean that the assessment is impossible. More specifically, in the present cases I think it is clear that the obstacles to intra-Community trade caused by the United Kingdom Sunday trading provisions go no further than is necessary and are not excessive, regard being had to the objective pursued by the legislation. The fact that the legislation, as is expressly confirmed by the magistrates’ court in its reference for a preliminary ruling, affects domestic and imported products without distinction and pro rata and does not seriously hamper

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sales through the same channels on the week as a whole (which is confirmed by the forecast mentioned by the magistrates’ court to the effect that the removal of the ban would have only a limited effect on total imports from other member states, that is to say about 0.8%) can only support my conclusion, as has already been acknowledged by the court in the Conforama and Marchandise cases: this is legislation which is not discriminatory, is not intended to regulate trade and whose effects on intra-Community trade are not such as to lead to partitioning of the market.

32. Again in relation to the application of the proportionality test, the Reading and Sonning Magistrates’ Court referred to the court two supplementary sub-questions (points (d) and (e) of the second question). In the first place the court is asked whether the national court, in assessing the effects of the legislation in question, may take account of the totality of the restrictive effects on intra-Community imports or only of the restrictive effects on imported goods compared to domestic goods. The answer to that is that in its case law the court does not restrict itself to the discriminatory effect of national legislation on imported goods, but takes account in its assessment of all restrictions on intra-Community trade caused by the legislation. Even in cases where it is clear that a national measure is applicable without distinction to domestic and imported products and the court finds that there is no question of any intention to partition markets or manipulate trade flows, it takes as the criterion for the purposes of the proportionality test the totality of the restrictions caused to intra-Community trade (in particular in the Cinéthèque judgment Joined cases 60 and 61/84 [1985] ECR 2605 at 2626 (para 22) and the Torfaen judgment Case 145/88 [1990] 1 All ER 129 at 156, [1990] 2 QB 19 at 52 (para 12).

These authorities also seem to me to provide an answer to the other question submitted by the magistrates’ court, that is to say the market to be taken into consideration in assessing the restrictive impact of the measure in question. Should this be all intra-Community trade in goods or services, the sector in which the undertaking in question operates or even the undertaking itself? The final decision must, I think, be based on as complete as possible a set of uncontested empirical data on the actual effects of a specific measure on the totality of intra-Community trade. It seems to me to be an impossible task to define the ‘relevant market’ in a given sector, (series of) products or undertaking. To decide otherwise would entail the risk that a measure could be considered disproportionate, and therefore contrary to Community law, in respect of one specific industrial sector, product or group of products, or undertaking, but not of others.

Remaining questions

I do not need to go into the third question submitted by the Reading and Sonning Magistrates’ Court, that is to say whether the United Kingdom Sunday trading rules fall within the sphere of application of art 36 of the Treaty: the legislation at issue constitutes a non-discriminatory measure covered by the ‘rule of reason’ inherent in art 30 of the Treaty. Even if it is considered that the United Kingdom Sunday trading provisions in part pursue a public health objective inasmuch as they envisage rest periods for a significant section of the population (see para 25 above) (cf my opinion in the Torfaen case [1990] 1 All ER 129 at 153, [1990] 2 QB 19 at 48 (para 30)), in relation to non-discriminatory national measures that ground of justification performs the same function as the mandatory requirements inherent in art 30 of the EEC Treaty (see the Aragonesa judgment Joined cases C-1/90 and C-176/90 (OJ 1991 C220, p 8) (para 13), and my opinion in that case (para 14). Moreover, the assessment of proportionality in the context

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of art 36 of the EEC Treaty is conducted in the same manner as described above in relation to art 30 of the EEC Treaty.

I have already, on a previous occasion, replied as follows to the fourth and final question submitted by the magistrates’ court, that is to say the importance to be attached to the fact that the United Kingdom Sunday trading rules provide for exceptions (see my opinion in the Torfaen case Case C-145/88 [1990] 1 All ER 129 at 153–154, [1990] 2 QB 19 at 49–50 (para 32); it was already clear in the Torfaen case that there were significant doubts as to the effectiveness of the United Kingdom Sunday trading rules: see [1990] 1 All ER 129 at 154, [1990] 2 QB 19 at 49 (para 32)). Although I accept that the question of the justification at Community law of a national measure must be decided in the light of the intrinsic characteristics of the measures and their actual application, objections based on the allegedly uneven or inconsistent application of the legislation within the same member state may well afford a cause of action under national law but, as long as there is no question of deliberate discrimination or disguised restrictions on trade between member states, not under Community law.

34. I thus come to the last question, namely the sole remaining question submitted by the High Court in Rochdale BC v Anders Case C-306/88. It is asked in the event (which has not arisen) that the national measure in question should be found to contravene art 30 of the Treaty. In such a case, does the prohibition imposed by Community law extend to the application of the legislation to domestic products? According to Rochdale Borough Council, the answer to that must be in the negative: were the court to declare the Sunday trading provisions to be incompatible with art 30 of the EEC Treaty and not justified under art 36, the provisions would become inapplicable only to products imported from other member states. This approach seems to me to be quite impractical. In the case of simple products the distinction is already difficult to draw (how does one prove for example that a specific kind of fruit which is also grown in Great Britain is or is not imported?), and in the case of composite products, for example machines, cars etc, this method of proceeding is entirely unrealistic. Nevertheless, it must be accepted that Community law is not applicable to a purely domestic situation. (This has been repeatedly affirmed by the court, in particular with regard to freedom of movement for workers (see, most recently, the judgment in Steen v Deutsche Bundespost Case C-332/90 [1992] 2 CMLR 406), freedom of establishment (see, inter alia, the judgment in Criminal proceedings against Nino Joined cases C-54/88, C-91/88 and C-14/89 [1990] ECR I-3537) and freedom to provide services (see the recent judgment in Portugal v Morais Case C-60/91 [1992] 2 CMLR 533).) The extent to which partial incompatibility of the measure in question with Community law affects the overall validity of the measure within a member state is a question of national law.

Conclusion

35. On the basis of the foregoing considerations I propose that the court should reply to the questions referred to it in the present cases as follows.

In Rochdale BC v Anders Case C-306/88: The prohibition contained in art 30 of the EEC Treaty is not applicable to a purely domestic situation in a member state. It is for national law to determine the effect of a finding that a measure is incompatible with art 30 of the EEC Treaty on the application of that measure to domestic products.

In Reading BC v Payless DIY Ltd Case C-304/90: Legislation of a member state which prohibits shops from opening on Sundays pursues an objective which is justified under Community law.

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In Reading BC v Payless DIY Ltd Case C-304/90 and Stoke-on-Trent City Council v B & Q plc Case C-169/91: (1) As a matter of principle it is for the national court, on the basis of the criteria laid down in the case law of the Court of Justice and the reply given to it by the court following a reference for a preliminary ruling, to determine the proportionality of a national measure under Community law. In that connection it must in particular investigate whether the measure, regard being had to its intrinsic characteristics and actual application, is objectively necessary in order to facilitate the realisation of its objective, that is to say it contributes to the attainment of the objective and the legislature has no equally effective alternative at its disposal which would have less restrictive effects on intra-Community trade. In addition, the national court must, on the basis of as complete as possible a set of undisputed empirical data, investigate whether the restrictions on intra-Community trade as a whole occasioned by the measure are in proportion to the objective pursued which is justified under Community law. (2) In so far as the information on the relevant legislation and the facts provided to the Court of Justice by the national court in the preliminary reference procedure is sufficient—and thus not in the absence of evidence—the court may itself apply the proportionality test, in which case it is for the national court where the measure is held to be disproportionate, to declare it to be incompatible with Community law and determine the consequences under national law of that declaration.

16 December 1992. THE COURT OF JUSTICE delivered the following judgment.

1. By order of 20 May 1991, which was received at the court on 1 July 1991, the House of Lords referred to the court for a preliminary ruling under art 177 of the EEC Treaty a number of questions on the interpretation of art 30 of the Treaty.

2. The questions were raised in two sets of proceedings brought by Stoke-on-Trent City Council and Norwich City Council against B & Q plc (B & Q).

3. In those proceedings, the two prosecuting authorities accuse B & Q of contravening ss 47 and 59 of the Shops Act 1950 by opening their shops on Sundays for commercial transactions other than those listed in Sch 5 to that Act.

4. Schedule 5 to the 1950 Act contains a list of items which, by way of exception, may be sold in shops on Sundays. They include, in particular, intoxicating liquors, certain foodstuffs, tobacco, newspapers and other products of everyday consumption.

5. In the proceedings before the House of Lords, before which the cases are pending at last instance, it became apparent that the parties differed as to the interpretation to be given to the court’s judgments in, on the one hand, Torfaen BC v B & Q plc Case C-145/88 [1990] 1 All ER 129, [1990] 2 QB 19 and, on the other, Union départementale des syndicats CGT de l’Aisne v SIDEF Conforama Case C-312/89 [1991] ECR I-997 (Conforama) and Criminal proceedings against Marchandise Case C-332/89 [1991] ECR I-1027 (Marchandise).

6. In view of the dispute as to the proper interpretation of the above-mentioned judgments, the House of Lords stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling:

‘1. Whether the effect of the Court of Justice’s rulings in Case-312/89 Conforama and C-332/89 Marchandise is to determine that the prohibition contained in Article 30 of the EEC Treaty does not apply to national rules,

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such as those in issue in Case 145/88 Torfaen Borough Council v. B & Q plc, which prohibit retailers from opening their premises on Sunday for the serving of customers with certain goods;

2. If not, whether it is nevertheless immediately apparent, whether or not evidence is adduced, that the restrictive effects on intra-Community trade which may result from national rules such as those in Question 1 above do not exceed “the effects intrinsic to rules of that kind”, as that phrase is used in the ruling of the Court of Justice in Case 145/88;

3. If not, on what criteria and by reference to what, if any, factual or other evidence the national court must determine the question whether or not the restrictive effects on intra-Community trade which may result from national rules such as those in Question 1 above exceed “the effects intrinsic to rules of that kind” within the meaning of that phrase as used in the ruling of the Court of Justice in Case 145/88.’

7. Reference is made to the report for the hearing for a fuller account of the facts of the cases pending before the national court, the relevant legislation, the procedure and the written observations submitted to the court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the court.

The first question

8. The national court’s first question seeks to determine whether it follows from the court’s judgments in the Conforama and Marchandise cases that the prohibition laid down in art 30 of the Treaty does not apply to national legislation such as that in question. That same legislation was also the subject of the court’s judgment in the Torfaen case, cited above.

9. In those three judgments the court found that the various bodies of national legislation concerning the closing of shops on Sundays were not intended to regulate the flow of goods.

10. It is also apparent from those judgments that such legislation may indeed have adverse repercussions on the volume of sales of certain shops, but that it affects the sale of both domestic and imported products. The marketing of products from other member states is not therefore made more difficult than the marketing of national products.

11. Furthermore, in the above-mentioned judgments the court recognised that the legislation at issue pursued an aim which was justified under Community law. National rules restricting the opening of shops on Sundays reflected certain choices relating to particular national or regional socio-cultural characteristics. It was for the member states to make those choices in compliance with the requirements of Community law, in particular the principle of proportionality.

12. As far as that principle is concerned, the court stated in its judgment in the Torfaen case that such rules were not prohibited by art 30 of the Treaty where the restrictive effects on Community trade which might result from them did not exceed the effects intrinsic to such rules and that the question whether the effects of those rules actually remained within that limit was a question of fact to be determined by the national court.

13. In its judgments in the Conforama and Marchandise cases, however, the court found it necessary to make clear, with regard to similar rules, that the restrictive effects on trade which might result from them did not appear to be excessive in relation to the aim pursued.

14. The court considered that it had all the information necessary for it to rule

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on the question of the proportionality of such rules and that it had to do so in order to enable national courts to assess their compatibility with Community law in a uniform manner since such an assessment cannot be allowed to vary according to the findings of fact made by individual courts in particular cases.

15. Appraising the proportionality of national rules which pursue a legitimate aim under Community law involves weighing the national interest in attaining that aim against the Community interest in ensuring the free movement of goods. In that regard, in order to verify that the restrictive effects on intra-Community trade of the rules at issue do not exceed what is necessary to achieve the aim in view, it must be considered whether those effects are direct, indirect or purely speculative and whether those effects do not impede the marketing of imported products more than the marketing of national products.

16. It was on the basis of those considerations that in its judgments in the Conforama and Marchandise cases the court ruled that the restrictive effects on trade of national rules prohibiting the employment of workers on Sundays in certain retailing activities were not excessive in relation to the aim pursued. For the same reasons, the court must make the same finding with regard to national rules prohibiting shops from opening on Sundays.

17. It must therefore be stated in reply to the first question that art 30 of the Treaty is to be interpreted as meaning that the prohibition which it lays down does not apply to national legislation prohibiting retailers from opening their premises on Sundays.

The second and third questions

18. In view of the answer given to the first question, it is unnecessary to give a ruling on the second and third questions.

Costs

19. The costs incurred by the United Kingdom and the Commission of the European Communities, which have submitted observations to the court, are not recoverable. Since these proceedings are, so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings before the national court, the decision on costs is a matter for that court.

On those grounds, the court, in reply to the questions referred to it by the House of Lords by order of 20 May 1991, hereby rules that art 30 of the Treaty is to be interpreted as meaning that the prohibition which it lays down does not apply to national legislation prohibiting retailers from opening their premises on Sundays.

Mary Rose Plummer   Barrister.

Note

Rochdale Borough Council v Anders

[1993] 1 All ER 520

(Case C-306/88)

Categories:        CIVIL PROCEDURE        

Court:        COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES        

Lord(s):        JUDGES DUE (PRESIDENT), KAKOURIS, RODRÍGUEZ IGLESIAS, MURRAY (PRESIDENTS OF CHAMBERS), MANCINI, JOLIET, DÍEZ DE VELASCO, KAPTEYN AND EDWARD        

Hearing Date(s):        ADVOCATE GENERAL VAN GERVEN        

2 JUNE, 8 JULY, 16 DECEMBER 1992

After judgment was given by Caulfield J sitting in the Queen’s Bench Division at Manchester on 23 May 1988 in Rochdale BC v Anders [1988] 3 All ER 490 four questions were referred by that court to the Court of Justice of the European Communities for a preliminary ruling pursuant to art 177 of the EEC Treaty (see [1988] 3 All ER 490 at 494). On 16 December 1992 the Court of Justice, having heard the opinion of the Advocate General at the sitting on 8 July 1992 and after having given its judgment in Stoke-on-Trent City Council v B & Q plc Case C-169/91 [1993] 1 All ER 481, gave its judgment in the Rochdale BC case, in which it stated that it had been informed by the Queen’s Bench Division that in view of the judgment of the Court of Justice in Torfaen BC v B & Q plc Case 145/88 [1990] 1 All ER 129, [1990] 2 QB 19 the first three questions had become devoid of purpose but that a decision on the fourth question was still required. The Court of Justice pointed to its answer in the Stoke-on-Trent City Council case, which was concerned with rules substantially similar to those in question in the Rochdale BC case, and said that it followed that it was likewise unnecessary to reply to the fourth question. The decision of the Court of Justice in the Rochdale BC case accordingly does not call for a fuller report.

Mary Rose Plummer   Barrister.

K and another v P and others (J, third party)

[1993] 1 All ER 521

Categories:        CIVIL PROCEDURE        

Court:        CHANCERY DIVISION        

Lord(s):        FERRIS J        

Hearing Date(s):        1, 5 MAY, 22, 23 JUNE 1992        

Practice – Third party proceedings – Defence – Illegality – Action by plaintiff against defendant based on conspiracy and fraud – Defendant issuing third party notice against plaintiff’s accountant alleging negligence and breach of contract and claiming contribution in respect of damages if payable – Third party applying to have notice struck out – Whether illegality a valid defence to claim for contribution – Civil Liability (Contribution) Act 1978, ss 1(1), 2(1)(2), 6(1).

In the course of an action brought by the plaintiffs against six defendants claiming damages for fraud and conspiracy to defraud arising out of various property transactions, the third defendant, who had been the plaintiffs’ financial adviser, issued a third party notice against the third party, who was the plaintiffs’ accountant, under s 1(1)a of the Civil Liability (Contribution) Act 1978, which provided that ‘any person liable in respect of any damage … may recover contribution from any other person liable in respect of the same damage’. The notice claimed an indemnity from the third party against any damages payable by the third defendant to the plaintiffs on the basis that the accountant had acted in breach of contract or negligently in failing to advise the plaintiffs properly or at all in regard to the transactions. The master dismissed the third party’s application to have the notice struck out. The third party appealed, contending that a party who was held merely to have been negligent could not be required to contribute to damages payable by a party who had been guilty of fraud. The question arose whether the common law maxim ex turpi causa non oritur actio afforded a defence to a claim under the 1978 Act.

Held – The common law maxim ex turpi causa non oritur actio was not available as a defence to a claim for contribution to damages under the 1978 Act since the specific purpose of that Act was to enable claims for contribution to be made as between parties who had no claim to contribution under the general law and the only necessary ingredients of the statutory cause of action under the Act were that a person or persons, viz the plaintiffs, had a cause of action against a third party in respect of the same damage as gave rise to the plaintiffs’ cause of action against the defendant. It was clear that to permit the ex turpi causa defence to be relied on as an answer to such a claim would narrow to a substantial extent the deliberately wide wording of s 6(1)b of the 1978 Act, which made a person liable in respect of any damage if the person who suffered the damage was entitled to recover compensation from him in respect of that damage ‘whatever the legal basis of his liability, whether tort, breach of contract … or otherwise’. Accordingly, it was irrelevant that the plaintiffs’ cause of action against the defendants arose from conspiracy or fraud while their cause of action against the third party arose from breach of a contractual or tortious duty of care. Moreover, under s 2(1) and (2)c of the 1978 Act all the factors which, in relation to common law claims, were relevant to the ex turpi causa defence could be taken into account when assessing the amount of the contribution, even to the extent of assessing a nil contribution.

Page 522 of [1993] 1 All ER 521

Since it was impossible to say, with the degree of certainty necessary to make a striking-out order, that the third party would inevitably be exempted from making contribution under s 2(2) of the 1978 Act, it followed that the third party notice could not be struck out and the appeal would therefore be dismissed (see p 528 c d j to p 529 b and p 530 a to e, post).

Notes

For third party proceedings, see 37 Halsbury’s Laws (4th edn) paras 254–260, and for cases on the subject, see 37(2) Digest (Reissue) 404–413, 2481–2532.

For the maxim ex turpi causa non oritur actio, see 12 Halsbury’s Laws (4th edn) para 1136, and for cases on the subject, see 1(1) Digest (2nd reissue) 57–58, 469–475.

For the Civil Liability (Contribution) Act 1978, ss 1, 2, 6, see 13 Halsbury’s Statutes (4th edn) (1991 reissue) 578, 580, 583.

Cases referred to in judgment

Chettiar v Chettiar [1962] 1 All ER 494, [1962] AC 294, [1962] 2 WLR 548, PC.

Euro-Diam Ltd v Bathurst [1988] 2 All ER 23, [1990] 1 QB 1, [1988] 2 WLR 517, CA.

Saunders v Edwards [1987] 2 All ER 651, [1987] 1 WLR 1116, CA.

Thackwell v Barclays Bank plc [1986] 1 All ER 676.

Tinsley v Milligan [1992] 2 All ER 391, [1992] Ch 310, [1992] 2 WLR 508, CA.

Weld-Blundell v Stephens [1920] AC 956, [1920] All ER Rep 32, HL.

Summons

J, the third party in an action brought by the plaintiffs against the defendants claiming damages for conspiracy to defraud in respect of a number of property transactions carried out by the defendants on the plaintiffs’ behalf, appealed from the order of Master Munrow dated 3 October 1991 dismissing his application by summons dated 6 June 1991 for an order that the third party notice claiming an indemnity or alternatively a contribution from J in respect of J’s alleged failure properly to advise the plaintiffs in relation to the transactions, be struck out. The appeal was heard and judgment was given in chambers. The case is reported, with an edited version of the judgment, by permission of Ferris J. The facts are set out in the judgment.

Peter Roth (instructed by Warner Cranston) for the third party.

Steven Whitaker (instructed by Lester Maddrell & Co, Cheltenham) for the third defendant.

The plaintiff and the other defendants did not appear.

Cur adv vult

23 June 1992. The following judgment was delivered.

FERRIS J. This is an appeal by the third party, an accountant, from an order of Master Munrow made on 3 October 1991 dismissing his application that a third party notice served upon him by the third defendant in the main action should be struck out.

In order to understand the nature of the application it is necessary first to consider the plaintiffs’ claim against the third defendant. This is not as straightforward as it ought to be because the statement of claim is long and complex and in some respects obscure. There are six defendants altogether,

Page 523 of [1993] 1 All ER 521

including the third defendant, and separate claims are made against three groups of defendants.

The first plaintiff is a distinguished musician. The second plaintiff is his brother. In about 1971 the first plaintiff established a music school (the centre). For about the first twelve years of its existence the centre was carried on as an unincorporated organisation. The second plaintiff became its administrator in 1980. It seems that the centre flourished and that by the early 1980s it had over 300 pupils and 31 part-time teachers. It outgrew its premises and in 1982 the plaintiffs decided to acquire and convert other premises (the bakery) to become the new premises of the centre.

The third defendant appears to have come on to the scene in about 1982 as a financial adviser in connection with the proposal to acquire and develop the bakery for the purposes of the centre. It is said that he advised that the centre should be incorporated and a company (CMC) was duly formed on 29 April 1983. Presumably CMC took over the running of the centre soon after that. The third defendant became the managing director of CMC at or soon after its incorporation. It is said that, at the third defendant’s instance, it was proposed to raise finance for CMC from a lender (BMT) and that the third defendant became managing director because BMT would prefer to deal with a man having a proven business record than with a musician.

In para 5 of the statement of claim the plaintiffs allege that various defendants, including the third defendant—

‘conspired amongst themselves and others to defraud the Plaintiffs, and with intent to injure the Plaintiffs, by a scheme for extracting moneys from the Plaintiffs by way of inflated valuations and percentage fees and commission payments based upon such inflated valuations and by otherwise exposing the Plaintiffs to liabilities, and calculated to make a profit for themselves … and/or companies in which the same were interested … by false representations, including forged and/or fraudulently altered and/or concealed loan application documentation by [the third defendant].’

The overt acts of the alleged conspiracy are said to be set out in the statement of claim. So far as the third defendant is concerned they can, I think, be summarised as follows. (1) The third defendant fraudulently altered in a number of material respects an application which had been signed on behalf of CMC by the first plaintiff for a loan on the security of the bakery. (2) The third defendant concealed from the plaintiffs the true impact of arrangements made between CMC and two companies which I will describe simply as Crescent and Highdene in which, unknown to the plaintiffs, the third defendant was personally interested. (3) In May 1983 BMT, to which the application signed by the first plaintiff and altered by the third defendant had been submitted, offered CMC a loan of £185,500 on the security of the bakery. This was £80,000 in excess of the loan asked for in the application in its unaltered form. The plaintiffs say that they accepted this loan on behalf of CMC on the advice of the third defendant. (4) The third defendant concealed from the plaintiffs what is said to have been a false and fraudulent overvaluation of the bakery made in June 1983 by another of the alleged conspirators in order to support an even higher level of loan by BMT. (5) On 24 June 1983 BMT offered to lend CMC £420,000 on the security of the bakery in substitution for its previous offer to lend £185,500. On 27 June 1983 this offer was purportedly accepted by CMC, the acceptance being signed by the third defendant and, on the face of it, by the plaintiffs. It is said that neither of the plaintiffs actually signed this acceptance, their apparent signatures being forgeries made by a person or persons unknown on behalf of the conspirators or their connected companies. (6) In August 1983 the third defendant claimed from CMC a commission of £16,000 for himself and £8,000 for Highdene in respect

Page 524 of [1993] 1 All ER 521

of certain commercial arrangements, not involving the bakery, negotiated between CMC and BMT. It is said that this claim led the other directors of CMC to investigate the third defendant’s activities and to dismiss him as a director of CMC. (7) Between May and July 1983 the third defendant caused the first plaintiff to sign in blank some cheques drawn on CMC’s bank account by fraudulently representing that these cheques would be used to pay small and urgent bills of CMC. It is said that in fact the third defendant used six of these cheques to pay to himself and certain other parties sums amounting to about £30,000, allegedly in connection with the financing of the centre.

Although these allegations, if made good, clearly amount to wrongdoing on the part of the third defendant in relation to a number of individual matters, they do not convey to my mind a particularly comprehensible account of a conspiracy or of systematically fraudulent conduct. The rest of the statement of claim does not make matters much clearer. It contains allegations which do not directly involve the third defendant. These include allegations against various solicitors of negligence in connection with the execution by CMC and the plaintiffs of a legal charge in favour of BMT to secure a loan of £420,000, the giving of personal guarantees by the plaintiffs in respect of this indebtedness and subsequent proceedings brought by BMT in which a possession order was made in respect of the bakery and a money judgment was given against the plaintiffs as guarantors for a sum of nearly £375,000. It seems, although the statement of claim does not set out the matter in any systematic way, that CMC drew down the full loan of £420,000 and subsequently defaulted in its payments to BMT. It does not appear precisely how the £420,000 was expended by CMC. After obtaining the possession order in respect of the bakery, BMT sold it for about £183,000. Bankruptcy proceedings appear to have been taken against the plaintiffs by BMT. Receiving orders were made against them in the county court but, on appeal, these orders were, it is said, rescinded on terms which are not stated but which are said to have been fulfilled.

The plaintiffs’ underlying complaint seems to be that CMC borrowed more than it needed and spent more of the borrowed money than it could afford to spend, with the result that there was a loss for which the plaintiffs have been held personally liable as guarantors. But how this complaint lines up with the alleged conspiracy and fraudulent conduct is not clear to me. I have not, of course, had the advantage of having the plaintiffs’ claim explained to me by their own counsel.

The plaintiffs claim damages from a number of defendants, including the third defendant, under the following heads: (1) general damages for conspiracy; (2) exemplary damages on the basis that the acts complained of were calculated to make a profit for the conspirators or their companies and constituted a cynical disregard for the plaintiffs’ rights; (3) damages for deceit as an alternative to damages for conspiracy.

The general damages for conspiracy and the alternative damages for deceit are claimed to include the following: (a) moneys ‘expended upon the CMC’ by the plaintiffs after the commencement of the company; (b) legal costs in fighting BMT; (c) the stain and stigma of bankruptcy; (d) loss of earnings by the plaintiffs; (e) the effect upon the health of the first plaintiff; (f) loss of reputation of the first plaintiff; (g) distress and suffering; (h) loss of opportunity to develop the centre; (i) other consequential loss. The want of grammatical sense in this summary reflects, I fear, a similar defect in the statement of claim itself.

The prayer for relief so far as the third defendant is concerned seeks damages for conspiracy to defraud, exemplary damages, an indemnity in respect of any liabilities to BMT under what is described as ‘the said deed’, which presumably

Page 525 of [1993] 1 All ER 521

means the legal charge or other instrument containing the personal guarantee given by the plaintiffs, damages for deceit and interest.

From this analysis of the statement of claim it is clear that all the plaintiffs’ claims against the third defendant are based upon allegations of fraud of one kind or another and that no relief is claimed on any basis which does not involve fraud.

The third party notice with which I am concerned is dated 9 November 1990. After referring to the action it continues as follows:

‘The Third Defendant denies the Plaintiffs’ claim against him but if contrary to his contentions he is held liable to the Plaintiffs, he claims against you to be indemnified against the Plaintiffs’ claims and the costs of this action, alternatively contribution to such extent of the Plaintiffs’ claims as the Court may think fit, on the grounds that (1) At all material times, you were the accountants retained by and advising the Plaintiffs and each of them in respect of the proposed transaction (and in particular the financial aspects thereof) in relation to which the said alleged liability of the Plaintiffs and each of them to [BMT] was incurred; (2) In about the period from January to September 1983, you acted in breach of contract and negligently towards the Plaintiffs and each of them in that you failed to advise them properly or at all with regard to the said proposed transaction and the financial aspects thereof and in particular failed to explain the full nature and extent thereof to the Plaintiffs and each of them and/or failed to advise the Plaintiffs as to the commercial prudence of the same and/or the risks inherent in proceeding with the same and/or failed to warn them not to enter into the same. (3) That insofar as any financial information was or may have been communicated by The Third Defendant he did so in reliance upon information supplied by you.’

No third party directions have been sought, so that there is no order that the notice shall stand as a statement of claim in the third party proceedings. Nevertheless the third party and his advisers seem to have acted as if such a direction had been given, for a document expressed to be a defence and counterclaim of the third party has been served. I do not need to refer to this.

On 6 June 1991 there was issued on behalf of the third party a summons seeking an order that the third party notice be struck out pursuant to RSC Ord 18, r 19 and the inherent jurisdiction of the court. It was this summons which was dismissed by the master, from whose decision this appeal is brought.

I say at once that, as Mr Roth accepted on behalf of the third party, Ord 18, r 19 appears to be inapplicable because a third party notice is not a pleading. But there is no doubt that the court has an inherent jurisdiction to strike out any proceeding which is an abuse of its process; and it is such an abuse to commence and maintain a proceeding which has no prospect whatever of success. The test is, of course, a strict one. If there is any doubt about the ultimate outcome, the proceeding must be left on foot.

Before the master the attack on the third party notice was, I understand, based on somewhat technical issues, such as the want of particularity in the allegations made against the third party, the fact that there is no assertion that he was part of the conspiracy in which the third defendant is said to have joined and an argument that the third defendant and the third party are not on any view liable to the plaintiffs in respect of the same damage, so that the case is not within s 1(1) of the Civil Liability (Contribution) Act 1978, which I shall mention in some detail later. It was not, I think, surprising that the master rejected these arguments. Any complaint of want of particularity could and should be dealt with by

Page 526 of [1993] 1 All ER 521

appropriate directions in the third party proceedings. Moreover it is difficult, if not impossible, to determine whether the third defendant and the third party are liable in respect of the same damage until there has been a trial in order to determine what, if any, damage they are each liable for.

On this appeal Mr Roth, on behalf of the third party, advanced arguments of a more fundamental nature than those advanced before the master. He contended that, as the plaintiffs’ claim against the third defendant is based exclusively on conspiracy and fraud, the third defendant will only be held liable to the plaintiffs if he is found guilt of serious dishonesty. In contrast, it is not said by the third defendant or by anyone else that the third party was guilty of any form of dishonesty. If he is liable to the plaintiffs at all it can only be on the basis of professional negligence. Mr Roth contended that it is inconceivable that a party who has been held to be merely negligent should be required to contribute to the damages payable by a party who has been found guilty of fraud. It is rather as if a burglar, when sued for the recovery of the stolen property or its value, sought contribution from a security guard who, by falling asleep while on duty, had made the burglary possible. It was said, with obvious force, that no such claim could ever succeed. The maxim ex turpi causa non oritur actio and its related rules would be applicable.

It is evident that the third defendant and the third party are not, on any view of the case, joint contractors or joint tortfeasors or in a relationship where contribution is available under equitable principles. The sole basis of the third defendant’s claim for contribution is the 1978 Act, of which the material provisions for present purposes are s 1(1), which needs to be read in conjunction with s 6(1), and s 1(1) and (2). Section 1(1) provides:

‘Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).’

Section 6(1) provides:

‘A person is liable in respect of any damage for the purposes of this Act if the person who suffered it (or anyone representing his estate or dependants) is entitled to recover compensation from him in respect of that damage (whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise).’

Section 2, so far as material, provides:

‘(1) Subject to subsection (3) below, in any proceedings for contribution under section I above the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person’s responsibility for the damage in question.

(2) Subject to subsection (3) below, the court shall have power in any such proceedings to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity …’

Section 2(3) is not material for present purposes.

It appears to me that the arguments which I have heard involve the consideration of three separate questions, namely: (1) does the ex turpi causa maxim and its related rules (which I will refer to as ‘the ex turpi causa defence’) afford a defence to a claim for contribution under the 1978 Act? (2) if the ex turpi causa defence is capable of so applying, can it be said, with the degree of certainty

Page 527 of [1993] 1 All ER 521

necessary for a striking-out order to be made, that the defence will exclude any contribution from the third party in the circumstances of this case? (3) leaving aside the ex turpi causa defence, can it be said with the necessary degree of certainty that the court will, under s 2(1) and (2) of the 1978 Act, exempt the third party from liability to make contribution even if he has been negligent in the performance of some duty of care owed to the plaintiffs?

(1) Is the ex turpi causa defence available as an answer to a claim to contribution under the 1978 Act?

The defence is, of course, one which is part of the common law, not statute, being founded upon public policy. For an application of the defence in a case where a claimant, in order to make good his claim, was obliged to assert his own fraudulent purpose, I was referred to Chettiar v Chettiar [1962] 1 All ER 494, [1962] AC 294. The defence has been considered in a number of recent cases in which it has been held that it is to be applied in a flexible and pragmatic way. There were cited to me Thackwell v Barclays Bank plc [1986] 1 All ER 676, Saunders v Edwards [1987] 2 All ER 651, [1987] 1 WLR 116, Euro-Diam Ltd v Bathurst [1988] 2 All ER 23, [1990] 1 QB 1 and, by means of a note from counsel after the conclusion of argument, Tinsley v Maligan [1992] 2 All ER 391, [1992] Ch 310. In the Euro-Diam case ([1988] 2 All ER 23 at 28–29, [1990] 1 QB 1 at 35) Kerr LJ summarised the relevant principles. I quote the following from that summary, but for the sake of brevity I omit some of the references to authority and the elaboration of point (3) and the whole of point (4), which seem to me not to assist in the present case:

‘(1) The ex turpi causa defence ultimately rests on a principle of public policy that the courts will not assist a plaintiff who has been guilty of illegal (or immoral) conduct of which the court, should take notice. It applies if, in all the circumstances, it would be an affront to the public conscience to grant the plaintiff the relief which he seeks because the court would thereby appear to assist or encourage the plaintiff in his illegal conduct or to encourage others in similar acts: see para (2)(iii) below. The problem is not only to apply this principle, but also to respect its limits, in relation to the facts of particular cases in the light of the authorities. (2) The authorities show that in a number of situations the ex turpi causa defence will prima facie succeed. The main ones are as follows. (i) Where the plaintiff seeks to, or is forced to, found his claim on an illegal contract or to plead its illegality in order to support his claim … For that purpose it makes no difference whether the illegality is raised in the plaintiff’s claim or by way of reply to a ground of defence … (ii) Where the grant of relief to the plaintiff would enable him to benefit from his criminal conduct … (iii) Where, even though neither (i) nor (ii) is applicable to the plaintiff’s claim, the situation is nevertheless residually covered by the general principle summarised in (i) above. This is most recently illustrated by the judgment of Hutchison J in Thackwell v Barclays Bank plc [1986] 1 All ER 676 at 687, 689, as approved by this court in Saunders v Edwards [1987] 2 All ER 651 at 660, 666, [1987] 1 WLR 1116 at 1127, 1134, and in particular per Nicholls LJ (see [1987] 2 All ER 651 at 664, [1987] 1 WLR 1116 at 1132). (3) However, the ex turpi causa defence must be approached pragmatically and with caution, depending on the circumstances: see eg per Bingham LJ in Saunders v Edwards [1987] 2 All ER 651 at 666, [1987] 1 WLR 1116 at 1134.’

On behalf of the third party, Mr Roth contended that this is a clear case. The fact that the claim is made in third party proceedings in the context of a denial by the third defendant that he has conspired against the plaintiffs or defrauded them

Page 528 of [1993] 1 All ER 521

must not be allowed to conceal the fact that the claim for contribution from the third party necessarily asserts the contrary, albeit on a contingent basis. The position is equivalent to that which would exist if the third defendant were claiming contribution by means of a separate action after being held liable to the plaintiffs. In such an action the third defendant would have to plead that he had inflicted loss on the plaintiffs by conspiracy or fraud and had been required to compensate the plaintiffs for such loss. He would then have to plead that the loss was attributable to the third party’s professional negligence in failing to draw the attention of the plaintiffs to what the third defendant and others were doing. It would not, however, be possible for the third defendant to suggest that the third party was in any way guilty of any illegal conduct. A claim formulated in this way would, it was said, be a clear case for the application of the ex turpi causa defence, falling squarely within point (2)(i) of Kerr LJ’s summary.

In opposition to this, Mr Whitaker, on behalf of the third defendant, pointed out that this is not a case where the third defendant is himself asserting against the third party a cause of action in contract or tort. What the third defendant is asserting is a statutory cause of action under the 1978 Act, the only necessary ingredients of which are that a person or persons, namely the plaintiffs, have against the third party a cause of action in respect of the same damage as gives rise to that person or person’s cause of action against the third defendant. It does not matter that the plaintiffs’ cause of action against the third defendant arises from conspiracy or fraud whereas their cause of action against the third party arises from breach of a contractual or tortious duty of care.

Mr Whitaker relied upon the wording of s 6(1) of the 1978 Act, which says that a party is liable in respect of any damage, and so potentially in the position of being able to claim or having to make contribution, ‘whatever the legal basis of his liability, whether tort, breach of contract, breach of trust or otherwise’. He pointed out that the 1978 Act replaced s 6 of the Law Reform (Married Women and Tortfeasors) Act 1935, which created a right of contribution between joint tortfeasors ‘where damage is suffered by any person as a result of a tort (whether a crime or not)’. The concluding words show that a claim to contribution might arise under the 1935 Act out of tortious conduct committed by two or more persons even though one or both of them may have committed a crime in the course of such conduct. In relation to such a claim the ex turpi causa defence could have had no application. The 1978 Act extends the potential for contribution beyond joint tortfeasors to joint contractors, joint trustees and others who are, liable in respect of the same damage. Although there is no reference to crime in the 1978 Act which corresponds to the reference in s 6 of the 1935 Act, it is hardly to be supposed that Parliament, while creating a considerable extension of the right of contribution in cases other than cases of tort, nevertheless intended to narrow the right to contribution previously given to tortfeasors by the 1935 Act. Apart from other considerations, it is manifest that the words of s 6(1) of the 1978 Act are intended to be interpreted widely, hence the use of the words ‘whatever the basis of his liability’ and the emphasis added by the word ‘otherwise’ at the end of the enumerated causes of action.

Mr Whitaker also referred me to some passages in the speeches of Viscount Finlay and Lord Dunedin in Weld-Blundell v Stephens [1920] AC 956 at 966–968, 976, [1920] All ER Rep 32 at 37–38, 42. These passages contain observations, about the absence of a right of contribution between tortfeasors, but they relate to the law as it stood before 1935. While they provide a context in which to appraise the changes made by the 1935 Act, which was I think the purpose for which Mr Whitaker cited them, I did not find them of direct assistance.

I do, however, accept the other parts of Mr Whitaker’s argument. In my

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judgment the ex turpi causa defence is not available as an answer to a claim for contribution under the 1978 Act. The specific purpose of that Act, as of the 1935 Act before it, was to enable claims for contribution to be made as between parties who had no claim to contribution under the general law. To permit the ex turpi causa defence to be relied upon as an answer to such a claim would, in my view, narrow to a substantial extent the deliberately wide wording of s 6(1) of the 1978 Act and would, in effect, make a claim for contribution subject to a condition precedent which is not to be found in the Act. Moreover, s 2(1) and (2) give the court ample power to fix the amount of the contribution at a level, including a zero level, which takes account of all the factors which, in relation to common law claims, are relevant to the ex turpi causa defence.

(2) If it were available in respect of a claim under the 1978 Act, would the ex turpi causa defence clearly exclude a claim to contribution by the third defendant in this case?

In view of the answer that I have given to the first question this second question does not arise and it would be unwise for me to attempt to answer it on a hypothetical basis. However, I would say that, on a striking-out application, I would find it difficult to hold with certainty that the ex turpi causa defence, assuming it to be available, would exclude a claim to contribution under the 1978 Act unless I were also satisfied, with the same degree of certainty, that there must be exemption from contribution under s 2(2). Whether I am so satisfied is the third question, to which I now turn.

(3) Can it be said with certainty that the court will, under s 2(2), exempt the third party from liability to make a contribution?

The question for the consideration of the court at the stage when the amount of contribution has to be assessed is how much, if anything, ought to be recoverable by the third defendant from the third party ‘having regard to the extent of [the third party’s] responsibility for the damage in question’ (see s 2(1) of the 1978 Act). In considering whether at this stage it is possible to say that the answer to this question must be ‘nothing’ I must assume that the third defendant will be found guilty of conspiracy or fraud as alleged by the plaintiffs and also that the third party will be found to be negligent as regards the plaintiffs in the respects mentioned in the third party notice.

In so far as the plaintiffs are seeking to recover from the third defendant money which he has obtained for his own benefit or for the benefit of companies which are, in effect, his alter ego, I can see that the third party would have an overwhelming argument that it cannot be just and equitable to require him to contribute to whatever the third defendant is ordered to pay to the plaintiffs. Contribution, if ordered, would enable the third defendant or his fellow conspirators to retain part of the proceeds of their conspiracy or fraud. Similar considerations would, it appears to me, be applicable to any claim that the third party should contribute to any exemplary damages which the third defendant may be ordered to pay to the plaintiffs, for exemplary damages would never be recoverable by the plaintiffs direct from the third party. Indeed, it may well be that a claim for contribution in respect of exemplary damages is not within s 1(1) on the facts of this case, so that one never gets to s 2 in relation to such a claim.

However, as I understand it, the plaintiffs’ claim against the third defendant goes well beyond a claim to recover the benefits actually obtained by conspiracy or fraud. It extends, it seems, to a claim for compensation in respect of all the loss which the plaintiffs say that they have suffered as a result of the transaction concerning CMC and the bakery, including the amounts which the plaintiffs

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have had to pay as guarantors and compensation for loss of earnings, loss of reputation and mental anguish. If, as I must assume for present purposes, the plaintiffs have a good cause of action in professional negligence against the third party, then it must be at least possible, if not indeed likely, that the damages recoverable by the plaintiffs from the third party would include damages under at least some of these heads. I can see that the third party would have a cogent argument that even if he were liable to compensate the plaintiffs in respect of these matters it would not be just and equitable to require him to make a contribution to the third defendant’s liability. But what the court has to consider is the third party’s responsibility for the damages in question. Once it is assumed that the third party would be liable to the plaintiffs for damages of a particular kind, it must follow that he has some responsibility for those damages. In order to carry out the exercise required by s 2(1) it would be essential, in my judgment, to evaluate the relative responsibilities of the third defendant and the third party. I do not see how this can be done without a trial of both the action and the claim to contribution. Certainly I feel unable at this stage to say, with the degree of certainty necessary to make a striking-out order, that the third party will inevitably be exempted from making contribution under s 2(2).

(4) Conclusion

In the result, although I have considerable sympathy with the third party in the position in which he finds himself and I think it may well be the case that the third defendant will fail to obtain contribution from him, I do not consider that this will inevitably be so. Accordingly it would not be right to strike out the third party notice on the ground that the claim to contribution is doomed to failure. I therefore dismiss this appeal.

Appeal dismissed.

Jacqueline Metcalfe   Barrister.

R v Birmingham City Council, ex parte Ferrero Ltd

[1993] 1 All ER 530

Categories:        CONSUMER; Consumer protection: ADMINISTRATIVE        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        FOX, RUSSELL AND TAYLOR LJJ        

Hearing Date(s):        30 APRIL, 1, 23 MAY 1991        

Judicial review – Availability of remedy – Alternative remedy available – Alternative remedy by way of appeal – Consumer protection – Local authority issuing suspension notice in respect of unsafe product – Manufacturer having statutory right of appeal – Manufacturer applying for judicial review of notice – Whether judicial review appropriate when alternative statutory remedy available – Consumer Protection Act 1987, ss 14, 15.

Consumer protection – Consumer safety – Suspension notice – Suspected contravention of safety provisions – Consultation with trader – Whether enforcement authority under duty to consult trader before serving suspension notice – Consumer Protection Act 1987, s 14.

The respondents manufactured chocolate eggs, each of which contained a plastic capsule which itself contained a kit which could be assembled to make a small toy

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representing well-known cartoon characters, one of which was known as the ‘Pink Panther’. In October 1989 a little girl accidentally swallowed part of a ‘Pink Panther’ toy and died from asphyxiation as a result. The appellant local authority, through its trading standards officer, issued a suspension notice under s 14a of the Consumer Protection Act 1987 prohibiting the supply of eggs containing the ‘Pink Panther’ toy for a period of six months. Despite attempts by the respondents to persuade it to do so, coupled with offers of undertakings, the local authority declined to withdraw the notice. The respondents applied for judicial review by way of an order of certiorari quashing the local authority’s decisions to issue the notice and to refuse to withdraw it, contending, inter alia, that the council had acted unfairly in failing to consult them before issuing the suspension notice. The judge granted the relief sought. The local authority appealed, contending, inter alia, (i) that the judge had erred in entertaining the respondents’ application and granting relief when they had a statutory right of appeal under s 15b of the 1987 Act, which provided that a person having an interest in any goods in respect of which a suspension notice was in force could apply to a magistrates’ court for an order setting aside the notice, and (ii) that the local authority had not acted unfairly in failing to consult the respondents before issuing the notice.

Held – Where there was an alternative remedy and especially where Parliament had provided a statutory appeal procedure it was only exceptionally that judicial review would be granted. In determining whether an exception should be made and judicial review granted it was necessary for the court to look carefully at the suitability of the statutory appeal in the context of the particular case and to ask itself what, in the context of the statutory provisions, was the real issue to be determined and whether the statutory appeal procedure was suitable to determine it. Given that the statutory emphasis under the 1987 Act was on consumer safety, that the Act aimed at withholding goods from the public if there was reasonable suspicion that they were unsafe and that the suspension prohibiting supply was to remain in force until the goods were cleared of danger even if the process by which the enforcement authority reached its decision was flawed, and given that the appeal to the magistrates’ court under s 15 was at least as expeditious, if not more so, than judicial review and was more suited than judicial review to the resolution of issues of fact and that if the goods were shown not to contravene the safety provisions not only would the notice be set aside but the enforcement authority would be required to pay compensation to any person having an interest in the goods even if the enforcement authority had reasonable grounds for its suspicion, an appeal under s 15 was geared exactly to deciding the real issue to be determined, which was whether the goods contravened a safety provision. The fact that the respondents could not have expressed their complaint about the reasonableness of the local authority’s decision on a s 15 appeal was not sufficient reason for granting judicial review. Instead, the respondents should have been left to pursue their appeal under s 15. The local authority’s appeal would therefore be allowed and the judge’s decision to grant judicial review reversed (see p 537 c d g, p 538 a b j to p 539 a c to e g, p 540 d e and p 544 g h, post).

Dicta of Donaldson MR in R v Epping and Harlow General Comrs, ex p Goldstraw [1983] 3 All ER 257 at 262 and of Donaldson MR, May and Glidewell LJJ in R v Chief Constable of the Merseyside Police, ex p Calveley [1986] 1 All ER 257 at 261–262, 263–264, 267 applied.

Per curiam. A local authority is under no duty to consult a trader either before or after the service of a suspension notice since such a duty cannot be implied at

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common law because to do so would frustrate the statutory purpose of achieving consumer safety and enabling the immediate withdrawal from sale of unsafe or dangerous goods; the statutory scheme with its provisions for appeal and compensation is sufficient to achieve justice (see p 543 d e and p 544 h, post); dictum of Lord Reid in Wiseman v Borneman [1969] 3 All ER 275 at 277 applied.

Notes

For the discretion to refuse judicial review where an alternative remedy is available, see 1(1) Halsbury’s Laws (4th edn reissue) para 61.

For suspension orders in respect of goods suspected of contravening safety provisions, see Supplement to 41 Halsbury’s Laws (4th edn) para 664A.

For the Consumer Protection Act 1987, ss 14, 15, see 39 Halsbury’s Statutes (4th edn) 208, 209.

Cases referred to in judgments

Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223, CA.

Birss v Secretary for Justice [1984] 1 NZLR 513, NZ CA.

Cooper v Wandsworth District Board of Works (1863) 14 CBNS 180, 143 ER 414.

Dixon v Commonwealth (1981) 55 FLR 34, Aust Fed Ct.

Hadmor Productions Ltd v Hamilton [1982] 1 All ER 1042, [1983] 1 AC 191, [1982] 2 WLR 322, HL.

John v Rees, Martin v Davis, Rees v John [1969] 2 All ER 274, [1970] Ch 345, [1969] 2 WLR 1294.

Preston v IRC [1985] 2 All ER 327, [1985] AC 835, [1985] 2 WLR 836, HL.

R v Chief Constable of the Merseyside Police, ex p Calveley [1986] 1 All ER 257, [1986] QB 424, [1986] 2 WLR 144, CA.

R v Epping and Harlow General Comrs, ex p Goldstraw [1983] 3 All ER 257, CA.

R v Hallstrom, ex p W [1985] 3 All ER 775, sub nom Ex p Waldron [1986] QB 824, [1985] 3 WLR 1090, CA.

R v Hillingdon London Borough, ex p Royco Homes Ltd [1974] 2 All ER 643, [1974] QB 720, [1974] 2 WLR 805, DC.

R v Paddington Valuation Officer, ex p Peachey Property Corp Ltd [1965] 2 All ER 836, [1966] 1 QB 380, [1965] 3 WLR 426, CA.

R v Secretary of State for Health, ex p US Tobacco International Inc [1992] 1 All ER 212, [1992] QB 353, [1991] 3 WLR 529, DC.

Wiseman v Borneman [1969] 3 All ER 275, [1971] AC 297, [1969] 3 WLR 706, HL.

Appeal

Birmingham City Council appealed from the order dated 7 March 1990 of Hutchison J hearing the Crown Office list on 22 February 1990 whereby on the application of Ferrero Ltd (Ferrero) he granted judicial review by way of an order of certiorari quashing the council’s decision set out in a notice dated 8 November 1989 prohibiting Ferrero for a period of six months from that date from supplying, offering to supply, agreeing to supply or exposing for supply ‘Kinder Surprise’ products comprising milk chocolate egg shells containing a ‘Pink Panther’ toy, or, in the alternative, the council’s decision to continue the prohibition. The court gave leave for the Secretary of State for Trade and Industry to intervene in the appeal. The facts are set out in the judgment of Taylor LJ.

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Anthony Scrivener QC and Ian Croxford (instructed by Sharpe Pritchard, agents for S Dobson, Birmingham) for the council.

Michael Beloff QC and Richard Spearman (instructed by Taylor Joynson Garrett) for Ferrero.

John Laws (instructed by the Treasury Solicitor) for the Secretary of State.

Cur adv vult

23 May 1991. The following judgments were delivered.

TAYLOR LJ (giving the first judgment at the invitation of Fox LJ). Ferrero Ltd (Ferrero) make chocolate eggs called ‘Kinder Surprise’. Each egg contains a plastic capsule containing in its turn a kit from which a small toy can be made. The object is to enhance the attractiveness of the eggs to children. Ferrero have used a variety of different toys in their eggs, many of which represent well-known cartoon characters. In October 1989 a new toy, depicting the ‘Pink Panther’, was introduced. Tragically, a month later, on 5 November 1989, a little girl, just over three years old, swallowed one of the ‘Pink Panther’ feet which had come loose from a toy. It lodged in her throat causing her death, from asphyxiation. Three days later the appellants, Birmingham City Council, through their trading standards office, issued a suspension notice under s 14 of the Consumer Protection Act 1987. The notice prohibited Ferrero for a period of six months from that date from supplying ‘Kinder Surprise’ eggs containing the ‘Pink Panther’ toy. Despite attempts by Ferrero to persuade them coupled with offers of undertakings, the council declined to withdraw the notice.

Ferrero decided to apply for judicial review. They were granted leave, and the matter came before Hutchison J. On 7 March 1990 he granted to Ferrero an order of certiorari and quashed both the decision of the council to issue the notice and their refusal to withdraw it. The council now appeal against those decisions.

Statutory provisions

It is convenient, first, to set out the relevant statutory provisions contained in Pt II of the Consumer Protection Act 1987. Section 10(1) makes it an offence, inter alia, to supply any consumer goods which fail to comply with the general safety requirement. Section 10(2) defines the general safety requirement in the following terms so far as is relevant:

‘For the purposes of this section consumer goods fail to comply with the general safety requirement if they are not reasonably safe having regard to all the circumstances, including—(a) the manner in which, and purposes for which, the goods are being … marketed, the get-up of the goods … and any instructions or warnings which are given … with respect to the keeping, use or consumption of the goods; (b) any standards of safety published by any person either for goods of a description which applies to the goods in question or for matters relating to goods of that description …’

Subsection (3) provides:

‘For the purposes of this section consumer goods shall not be regarded as failing to comply with the general safety requirement in respect of—(a) anything which is shown to be attributable to compliance with any requirement imposed by or under any enactment or with any Community obligation; (b) any failure to do more in relation to any matter than is required by—(i) any safety regulations imposing requirements with respect

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to that matter; (ii) any standards of safety approved for the purposes of this subsection by or under any such regulations and imposing requirements with respect to that matter; (iii) any provision of any enactment or subordinate legislation imposing such requirements with respect to that matter as are designated for the purposes of this subsection by any such regulations.’

Section 11 empowers the Secretary of State to make regulations for the purposes of s 10(3) and other specified safety purposes.

Section 13 deals with prohibition notices and notices to warn and provides as follows, so far as is relevant:

‘(1) The Secretary of State may—(a) serve on any person a notice (“a prohibition notice”) prohibiting that person, except with the consent of the Secretary of State, from supplying, or from offering to supply, agreeing to supply, exposing for supply or possessing for supply, any relevant goods which the Secretary of State considers are unsafe and which are described in the notice; (b) serve on any person a notice (“a notice to warn”) requiring that person at his own expense to publish, in a form and manner and on occasions specified in the notice, a warning about any relevant goods which the Secretary of State considers are unsafe, which that person supplies or has supplied and which are described in the notice.

(2) Schedule 2 to this Act shall have effect with respect to prohibition notices and notices to warn; and the Secretary of State may by regulations make provision specifying the manner in which information is to be given to any person under that Schedule …’

It will be necessary later in this judgment to refer to the terms of Sch 2, which, inter alia, prescribe requirements of consultation in regard to prohibition notices and notices to warn.

The crucial sections for the purposes of this case are ss 14 and 15. Section 14 provides as follows, so far as is relevant:

‘(1) Where an enforcement authority has reasonable grounds for suspecting that any safety provision has been contravened in relation to any goods, the authority may serve a notice (“a suspension notice”) prohibiting the person on whom it is served, for such period ending not more than six months after the date of the notice as is specified therein, from doing any of the following things without the consent of the authority, that is to say, supplying the goods, offering to supply them, agreeing to supply them or exposing them for supply.

(2) A suspension notice served by an enforcement authority in respect of any goods shall—(a) describe the goods in a manner sufficient to identify them; (b) set out the grounds on which the authority suspects that a safety provision has been contravened in relation to the goods; and (c) state that, and the manner in which, the person on whom the notice is served may appeal against the notice under section 15 below …

(4) Where a suspension notice has been served on any person in respect of any goods, no further such notice shall be served on that person in respect of the same goods unless—(a) proceedings against that person for an offence in respect of a contravention in relation to the goods of a safety provision (not being an offence under this section); or (b) proceedings for the forfeiture of the goods under section 16 or 17 below, are pending at the end of the period specified in the first-mentioned notice …

(6) Any person who contravenes a suspension notice shall be guilty of an offence and liable on summary conviction to imprisonment for a term not

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exceeding six months or to a fine not exceeding level 5 on the standard scale or to both.

(7) Where an enforcement authority serves a suspension notice in respect of any goods, the authority shall be liable to pay compensation to any person having an interest in the goods in respect of any loss or damage caused by reason of the service of the notice if—(a) there has been no contravention in relation to the goods of any safety provision; and (b) the exercise of the power is not attributable to any neglect or default by that person …’

Section 15 deals with appeals to magistrates’ courts and provides as follows, so far as is relevant:

‘(1) Any person having an interest in any goods in respect of which a suspension notice is for the time being in force may apply for an order setting aside the notice.

(2) An application under this section may be made—(a) to any magistrates’ court in which proceedings have been brought in England and Wales or Northern Ireland—(i) for an offence in respect of a contravention in relation to the goods of any safety provision; (ii) for the forfeiture of the goods under section 16 below; (b) where no such proceedings have been so brought, by way of complaint to a magistrates’ court …

(3) On an application under this section to a magistrates’ court in England and Wales or Northern Ireland the court shall make an order setting aside the suspension notice only if the court is satisfied that there has been no contravention in relation to the goods of any safety provision …

(5) Any person aggrieved by an order made under this section by a magistrates’ court in England and Wales or Northern Ireland, 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 … and an order so made may contain such provision as appears to the court to be appropriate for delaying the coming into force of the order pending the making and determination of any appeal …’

Section 16 provides for forfeiture and empowers an enforcement authority in England and Wales or Northern Ireland to apply for an order for the forfeiture of any goods on the grounds that there has been a contravention in relation to the goods of a safety provision, such application being required to be made to a magistrates’ court.

Ferrero’s complaints

Ferrero’s case for judicial review was based on several grounds. It was said that the council had failed to consider a British Standard (BS 5665) regarding safety of toys which they had an express duty to consider under s 10(2)(b) of the 1987 Act. Conversely, they had regard to the Toys (Safety) Regulations 1989, SI 1989/1275, made under s 11 of the 1987 Act, which were an irrelevant consideration since they did not come into force until 1 January 1990. Moreover, it was claimed that the council had, in any event, wrongly applied the three provisions in those regulations said to have been breached. It was further contended that the council acted unfairly in failing to consult Ferrero before issuing the notice. Finally, the council were said to have acted irrationally in failing to accede to Ferrero’s request to lift the suspension notice and accept an undertaking instead.

The learned judge found in favour of Ferrero on each of these issues. He dealt finally with the issue which has been in the forefront of the council’s case in this court. That was whether this was an appropriate case for judicial review at all. Again, the learned judge found for Ferrero, and it is to that issue that I now turn.

Page 536 of [1993] 1 All ER 530

Judicial review or appeal?

Should Ferrero have been granted judicial review, or ought they to have pursued their statutory right of appeal under s 15 of the 1987 Act? There is much authority on the approach of this court to judicial review where a statutory appeal procedure has not been exhausted. The learned judge rightly declined Mr Beloff QC’s invitation to adopt the critical view of recent judicial decisions expressed in Wade Administrative Law (6th edn, 1988) pp 712–716, and accepted that he should follow the decisions of this court and the reasoning behind them.

In R v Epping and Harlow General Comrs, ex p Goldstraw [1983] 3 All ER 257 at 262 Donaldson MR said:

‘But it is a cardinal principle that, save in the most exceptional circumstances, that jurisdiction will not be exercised where other remedies were available and have not been used.’

In R v Chief Constable of the Merseyside Police, ex p Calveley [1986] 1 All ER 257 at 261–262, [1986] QB 424 at 433 Donaldson MR, after citing that passage, said:

‘This, like other judicial pronouncement on the interrelationship between remedies by way of judicial review on the one hand and appeal procedures on the other, is not to be regarded or construed as a statute. It does not support the proposition that judicial review is not available where there is an alternative remedy by way of appeal. It asserts simply that the court, in the exercise of its discretion, will very rarely make this remedy available in these circumstances. In other cases courts have asserted the existence of this discretion, albeit with varying emphasis on the reluctance to grant judicial review, Thus in R v Paddington Valuation Officer, ex p Peachey Property Corp Ltd [1965] 2 All ER 836 at 840, [1966] 1 QB 380 at 400, Lord Denning MR, with the agreement of Danckwerts and Salmon LJJ, held that certiorari and mandamus were available where the alternative statutory remedy was “nowhere near so convenient, beneficial and effectual”. In R v Hillingdon London Borough, ex p Royco Homes Ltd [1974] 2 All ER 643 at 648, [1974] QB 720 at 728 Widgery CJ said: “… it has always been a principle that certiorari will go only where there is no other equally effective and convenient remedy”. In R v Hallstrom, ex p W [1985] 3 All ER 775 at 789–790, [1986] QB 824 at 852 Glidewell LJ, after referring to this passage, said: “Whether the alternative statutory remedy will resolve the question at issue fully and directly, whether the statutory procedure would be quicker, or slower, than procedure by way of judicial review, whether the matter depends on some particular or technical knowledge which is more readily available to the alternative appellate body, these are amongst the matters which a court should take into account when deciding whether to grant relief by way of judicial review when an alternative remedy is available.”’

May LJ said ([1986] 1 All ER 257 at 263–264, [1986] QB 424 at 435):

‘I respectfully agree with the Divisional Court that the normal rule in cases such as this is that an applicant for judicial review should first exhaust whatever other rights he has by way of appeal. In Preston v IRC [1985] 2 All ER 327 at 330, [1985] AC 835 at 852 Lord Scarman said: “My fourth proposition is that a remedy by way of judicial review is not to be made available where an alternative remedy exists. This is a proposition of great importance. Judicial review is a collateral challenge; it is not an appeal. Where Parliament has provided by statute appeal procedures, as in the taxing statutes, It will only be very rarely that the courts will allow the collateral

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process of judicial review to be used to attack an appealable decision.” In the same case Lord Templeman, with whose speech all the other Law Lords agreed, said ([1985] 2 All ER 327 at 337, [1985] AC 835 at 862): “Judicial review should not be granted where an alternative remedy is available.”’

Glidewell LJ said ([1986] 1 All ER 257 at 267, [1986] QB 424 at 440):

‘… I also agree that, where application is made for judicial review but an alternative remedy is available, an applicant should normally be left to pursue that remedy. Judicial review in such a case should only be granted in exceptional circumstances.’

These are very strong dicta, both in this court and in the House of Lords as cited, emphasising that where there is an alternative remedy and especially where Parliament has provided a statutory appeal procedure it is only exceptionally that judicial review should be granted. It is therefore necessary, where the exception is invoked, to look carefully at the suitability of the statutory appeal in the context of the particular case. In the present context the statutory provisions are all contained in Pt II of the 1987 Act, and are thus concerned with consumer safety. Section 14 is clearly aimed at providing enforcement authorities with a means of swift, short-term action to prevent goods which have come to their notice from endangering the public. Section 14 is the only provision which enables action to be taken by a local authority against a trader, other than through the courts. The action does not require proof that the goods contravene a safety provision, but merely that the authority has reasonable grounds for suspecting they do. The notice is effective only for six months. It is intended to be an emergency holding operation. The suspension notice has to inform the recipient of his appeal rights (s 14(2)(c)), and the very next section, s 15, sets them out. They provide for application to a magistrates’ court, which can set aside the notice only if satisfied that there has been no contravention of a safety provision. If the goods are not shown to be safe, the notice will remain in place. Conversely, if the goods are shown not to contravene the safety provision, the notice is set aside. Moreover, in that event, even if the enforcement authority had reasonable grounds for their suspicion, they are required to pay compensation to any person having an interest in the goods (s 14(7)).

As one would expect, therefore, the statutory emphasis is on the safety of the consumer. The provisions aim at withholding goods from the public if there is reasonable suspicion that they are unsafe. Unless they are then cleared of the danger, it is right that the suspension should remain, even if the process by which the enforcement authority reached its decision was flawed. It cannot be right that dangerous goods should continue to be marketed simply because of some procedural impropriety by the enforcement authority in the process of deciding to issue a suspension notice. Common sense dictates that protection of the public must take precedence over fairness to the trader. So, if goods are in fact dangerous, it would be nothing to the point to show that, in deciding to issue a suspension notice, the local authority took into account an irrelevant matter or failed to take account of one which was relevant. Parliament has recognised this by making the sole issue, on a s 15 appeal, whether there has in fact been a contravention of the safety provision. Protection is given to the trader by providing for compensation if there has been no contravention.

An appeal under s 15 does not require leave, as judicial review does. It should therefore be capable of being brought on more quickly, which is an important consideration since the notice is only effective for six months. An appeal comes before justices, who can try, as a contested issue of fact on oral evidence, whether

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the goods are in contravention of a safety provision, whereas judicial review normally proceeds on affidavit evidence. A further appeal on the merits can be made by an aggrieved party to the Crown Court.

Accordingly, in the present case, there was available an appeal specifically provided by Parliament to enable a party aggrieved by a suspension notice to challenge it. The appeal was at least as expeditious, if not more so, than judicial review. It was more suited than judicial review to the resolution of issues of fact. The statutory scheme leant in favour of upholding the notice unless the goods were shown to be safe; but, should they turn out on appeal or otherwise to be safe, any aggrieved party was entitled to compensation.

In these circumstances, what prompted the learned judge to decide that this was an exceptional case in which judicial review should be granted, notwithstanding the alternative remedy? He gave his reasons as follows:

‘Mr Mitting QC [for the council] submits that the present is a case in which the applicants ought to have pursued their s 15 remedy. So far from regarding as a difficulty the fact relied on by Mr Beloff that the magistrates can deal with the simple question whether there were grounds for making the order, Mr Mitting submits that this is the crucial factual question, which can most conveniently and simply be determined by that tribunal of fact. Implicit in this argument, however, is his recognition of the problem that a conclusion adverse to the applicants will leave the order in place. It is simply not within the magistrates’ power to determine the issues of whether the order should have been lifted or fairness, or irrationality. Mr Beloff points out that, since Mr Mitting invites me to regard myself as precluded from entertaining this application merely because there is a limited right of appeal to the magistrates, his approach involves that even if the council had been actuated by malice I could not grant relief. This, Mr Beloff submits, is to elevate the ends above the means. It is plain, on any view, that this is a question of discretion, in which I must reach a judgment as to whether the s 15 remedy is a remedy which in the circumstances the applicants ought to have pursued in preference to their present application. I unhesitatingly conclude that it is not. It is true, and I take into account, that if the magistrates were to determine the issue of safety in favour of the applicants, the suspension notice would fall. If however they were to conclude that it had not been established that there had been no contravention in relation to the goods of any safety provision, then the notice would have to remain in place and none of the substantial matters on which I have reached conclusions favourable to the applicants could have been aired. The applicants’ real complaints here are not so much on the issue of breach of or compliance with the general safety requirement; they have to do with the other public law issues which I have considered in this already over-long judgment. Everything points to the exercise of my discretion in favour of the granting of the relief sought.’