Rosgill Group Ltd v Customs and Excise Commissioners

[1997] 3 All ER 1012

Categories:        TAXATION; VAT and Customs and Excise        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        SIR RICHARD SCOTT V-C, HOBHOUSE AND MORRITT LJJ        

Hearing Date(s):        17, 18 MARCH, 23 APRIL 1997

Value added tax – Supply of goods or services – Supply for a consideration – Consideration – Direct link between supply and consideration – Company selling goods through hostesses at parties – Hostess entitled to discount on purchases or cash commission calculated by reference to volume of sales at party – Whether direct link between holding of party and sale of blouse to hostess at discount – Value Added Tax Act 1983, s 10 – Council Directive (EEC) 77/388, art 11A(1)(a).

Value added tax – Value of supply of goods or services – Consideration not wholly consisting of money – Company selling goods through hostesses at parties – Goods sold at discount to hostesses as reward for holding party – Value of supply of such goods – Value of holding of party to supplier – Value Added Tax Act 1983, s 10(3).

The appellant company sold ladies’ and children’s clothing at parties arranged by local organisers who recruited hostesses to hold the parties in their own homes. In return for holding such a party the hostess was entitled to either a discount on her own purchases from the company or a smaller cash commission. The amount of the discount or commission was calculated by reference to the aggregate retail value of the goods sold at the party by the organiser. In one particular cases, following the sale of goods to the value of £66·98, the hostess was entitled to a discount of £7·23 or cash commission of £2·89. She chose to purchase a blouse, the retail price of which was £27·99, at the discount price of £20·76. Under art 11A(1)(a)a of Council Directive (EEC) 77/388 the taxable amount for value added tax purposes was ‘everything’ which constituted the consideration. The commissioners ruled that for the purposes of s 10b of the Value Added Tax Act 1983 the consideration for the supply of the blouse included the services supplied by the hostess to the company in holding the party in her home and that the value of those services was the amount of the discount, so that the company was liable to value added tax on £27·99. The value added tax tribunal dismissed the company’s appeal and the company appealed to the Court of Appeal.

Held – (1) The concept of consideration in art 11A of the directive and s 10 of the 1983 Act had to be construed as a matter of Community law and accordingly required the national courts to determine whether there was a direct link between the supply of goods and that which was alleged to be consideration for it. In the instant case, the hostess had held a party at her house which had contractually entitled her to purchase a blouse at the reduced rate of £20·76. Since she could not have purchased the blouse at that reduced rate if she had not rendered that service to the company, the requisite direct link between the provision of that service and the purchase of the blouse at the reduced rate was

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present. It followed that the consideration given by the hostess for the supply to her of the blouse consisted in part of money and in part of her service to the company in holding the party at her house (see p 1016 c to f, p 1017 f to j, p 1018 d, p 1019 g, p 1020 c to e, p 1021 j, p 1022 h and p 1024 h, post); Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA Case 154/80 [1981] ECR 445 applied; Argos Distributors Ltd v Customs and Excise Comrs Case C-288/94 [1996] STC 1359 and Elida Gibbs Ltd v Customs and Excise Comrs Case C-317/94 [1997] All ER (EC) 53 distinguished; Customs and Excise Comrs v Pippa-Dee Parties Ltd [1981] STC 495 and Naturally Yours Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1988] STC 879 considered.

(2) For the purposes of s 10(3) of the 1983 Act, the value of non-monetary consideration was its subjective value to the supplier, which had to be assessed in the light of the events that had actually happened. In return for hosting the party, the hostess had decided to purchase the blouse at a reduced rate rather than take the cash commission. In those circumstances, the company had attributed the value of the reduction, ie £7·23, to the hostess’s non-monetary consideration. It followed that the company had supplied the blouse in consideration not only of the cash payment of £20·76, but also of the service of holding the party, to which it had attributed a value of £7·23. Accordingly, the appeal would be dismissed (see p 1018 e, p 1019 b to e g, p 1020 f to h and p 1024 a to e h, post).

Notes

For meaning of consideration, see 49(1) Halsbury’s Laws (4th edn reissue) para 86.

Cases referred to in judgments

Argos Distributors Ltd v Customs and Excise Comrs Case C-288/94 [1996] STC 1359, ECJ.

Customs and Excise Comrs v Pippa-Dee Parties Ltd [1981] STC 495.

Elida Gibbs Ltd v Customs and Excise Comrs Case C-317/94 [1997] All ER (EC) 53, ECJ.

Empire Stores Ltd v Customs and Excise Comrs Case C-33/93 [1994] 3 All ER 90, [1994] ECR I-2329, ECJ.

Naturally Yours Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1988] STC 879, [1988] ECR 6365, ECJ.

Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA Case 154/80 [1981] ECR 445.

Cases also cited or referred to in skeleton arguments

Boots Co plc v Customs and Excise Comrs Case C-126/88 [1990] STC 387, [1990] ECR I-1235, ECJ.

Customs and Excise Comrs v Westmorland Motorway Services Ltd [1997] STC 400.

Appeal

Rosgill Group Ltd appealed direct to the Court of Appeal pursuant to s 26 of the Finance Act 1985 with leave granted by Bingham MR on 13 February 1996, from a decision of the Manchester Value Added Tax Tribunal (chairman: C P Bishopp) dated 24 April 1995 ([1995] V & DR 155) upholding a decision of the Commissioners of Customs and Excise that the value of a specimen transaction, namely the supply of a blouse to Mrs J Leaver at a discount as a reward to her for holding a party at her home at which goods were sold, was its retail value. The facts are set out in the judgment of Sir Richard Scott V-C.

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Andrew Park QC and Hugh McKay (instructed by Shakespeares, Birmingham) for Rosgill.

Stephen Richards and Andrew Macnab (instructed by the Solicitor for the Customs and Excise) for the commissioners.

Cur adv vult

23 April 1997. The following judgments were delivered.

SIR RICHARD SCOTT V-C. This is a test case in which Rosgill Group Ltd (Rosgill) and the Commissioners of Customs and Excise hope to obtain an authoritative ruling on a point of law regarding value added tax (VAT). The commissioners made a ruling in a sample case in order that Rosgill might appeal against the ruling. In a decision dated 24 April 1995 the Manchester Value Added Tax Tribunal dismissed Rosgill’s appeal (see [1995] V & DR 155). Pursuant to s 26 of the Finance Act 1985 and to leave granted on 13 February 1996 by Bingham MR, Rosgill’s appeal from the tribunal’s decision has been made direct to this court.

The issue in the case arises out of Rosgill’s use of a ‘party-plan’ system in order to sell ladies’ and children’s clothing. The system involves organisers, hostesses and customers. An organiser identifies a hostess, usually a housewife, and persuades the hostess to give a party in her home for her friends at which Rosgill’s goods will be on offer for sale. The hostess is responsible for inviting the guests and for supplying them with whatever refreshments she, the hostess, thinks appropriate. The organiser attends the party and is responsible for persuading those present to purchase Rosgill’s goods. The hostess, provided sales are made at the party, becomes entitled at her choice either to a cash commission from Rosgill or to purchase goods from Rosgill at a price less than the catalogue price. The amount of the commission and the amount of the reduction are dependent on the volume of sales made at the party. The greater the volume of sales, the larger will be the commission and the greater the price reduction.

Rosgill is accountable to the commissioners for VAT on the goods sold at these parties. In the event that a hostess elects to purchase goods at the reduced price, Rosgill must account for VAT on those goods. Rosgill contends that VAT should be calculated by reference to the reduced price actually paid by the hostess. The commissioners contend that VAT should be calculated by reference to the catalogue price. An alternative is that VAT should be calculated by reference to the sum of the reduced price actually paid and the amount of the cash commission for which the hostess could have elected.

The facts that have given rise to the issue in this test case are very simple.

The hostess was Mrs J Leaver. She gave a party at her home on 10 April 1993. The party was, from a sales point of view, not much of a success. Only two garments were sold. Their total price was £66·98. The sales entitled the hostess either to a cash commission of £2·89 or to a reduction of £7·23 off the catalogue price of goods she wished to purchase. These figures derive from tables published by Rosgill for the purpose of its party-plan sales. The hostess chose the price reduction alternative. She purchased a blouse, the catalogue price of which was £27·99. So the price she paid was £20·76 ie £27·99 less £7·23. In one of Rosgill’s internal accounting documents recording the transaction the £7·23 is referred to as ‘hostess commission’; in another it is referred to as ‘hostess gift

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allowance’. These documents were not in evidence before the tribunal but with the agreement of both parties have been placed before us.

Additional facts not before the tribunal but, with the agreement of the commissioners, placed before us are, first, that the blouse cost Rosgill £8·00 to produce and, second, that Rosgill had or could obtain sufficient stocks of the blouses (for £8·00 each) to meet all orders for them from customers. So Rosgill did not, by agreeing to sell the blouse to the hostess for £20·76, deprive itself of a sale to some other member of the public.

Rosgill has accounted to the commissioners for VAT in respect of the goods sold at the party for £66·98. It accepts its liability to account for VAT on the sale of the blouse to the hostess. The question is as to the sum on which VAT for the sale of the blouse should be calculated.

VAT is chargeable under the Value Added Tax Act 1983. Section 2(1) of the 1983 Act provides:

‘Tax shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.’

Rosgill is a ‘taxable person’. The blouse was supplied to the hostess in the course or furtherance of Rosgill’s business. Section 2(3) of the 1983 Act provides: ‘Tax on any supply of goods or services … becomes due at the time of supply.' Section 10 of the 1983 Act (as amended by the Finance (No 2) Act 1992) provides (so far as is relevant) as follows:

‘(1) For the purposes of this Act the value of any supply of goods or services shall … be determined in accordance with this section … and for those purposes subsections (2) to (4) below shall have effect …

(2) If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the tax chargeable, is equal to the consideration.

(3) If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the tax chargeable, is equivalent to the consideration.’

It is relevant to notice that sub-s (3) as originally enacted provided that ‘the value of the supply shall be taken to be its open market value.’ The current wording, which came into effect on 1 August 1992, directs attention not to the open market value of the goods but, instead, to the value of the consideration given for the goods.

But, of course, sub-s (3) applies only where the consideration for the goods is not wholly in money. The first contention of Mr Andrew Park QC, for Rosgill, is that the consideration given by the hostess for the blouse was wholly in money, namely, £20·76. If that is right, sub-s (3) never comes into play and VAT is calculated by reference simply to the £20·76 actually paid to Rosgill. The first question for decision on this appeal, therefore, is whether the consideration given by the hostess for the blouse was simply the £20·76 or whether the consideration was also the holding of the party. If the latter is the right conclusion, the second question is how that element of the consideration should be valued.

It is common ground that United Kingdom legislation on VAT, imposed pursuant to obligations under Community law, should be construed so far as possible in accordance with Community law. Council Directive (EEC) 77/388 (the Sixth Directive), issued on 17 May 1977, was aimed at ‘the harmonization of

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the laws of the Member States relating to turnover taxes’. Article 11A of the Sixth Directive provides (so far as is relevant to this case):

‘1. The taxable amount shall be: (a) in respect of supplies of goods and services … everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies … 3. The taxable amount shall not include … (b) price discounts and rebates allowed to the customer and accounted for at the time of the supply …’

The case law of the Court of Justice of the European Communities has established that the concept of ‘consideration’ in art 11A (and, consequently, in s 10 of the 1983 Act), must be approached as a matter of Community law and not as a matter of the domestic law of the individual member states.

In Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA Case 154/80 [1981] ECR 445 at 454 (para 12) the Court of Justice commented:

‘… a provision of services is taxable … when the service is provided against payment and the basis of assessment for such a service is everything which makes up the consideration for the service; there must therefore be a direct link between the service provided and the consideration received …’

In Naturally Yours Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1988] ECR 6365 at 6389 (para 12) the Court of Justice, after referring to the Aardappelenbewaarplaats case and to the requirement of a ‘direct link’ between the service provided and the consideration received, commented:

‘Such a direct link must also exist between the supply of goods and the consideration received within the meaning of Article 11A1(a) of the Sixth Directive.’

Mr Park, for Rosgill, argued that in the present case the only consideration given by the hostess for the blouse was £20·76. While it was true that she had allowed her house to be used for the party, and indeed had invited the guests to the party, there was no sufficient ‘direct link’ between her doing so and the supply to her of the blouse to justify treating the holding of the party as part of the consideration for the supply of the blouse. It was, of course, accepted that, viewed as a matter of causation, the hostess could not have bought the blouse for £20·76 unless she had held the party at her house. But since her ability to purchase the blouse for only £20·76 was dependent on the volume of purchases made at the party by others, there was absent, Mr Park submitted, the requisite direct link between her holding the party and her purchase of the blouse. But the decided cases are, in my opinion, strongly in favour of the commissioners on this point.

In Customs and Excise Comrs v Pippa-Dee Parties Ltd [1981] STC 495 at 502, also a ‘party-plan’ case, Ralph Gibson J said:

‘The question which the tribunal should have posed to itself is: for what consideration provided by the hostess did the taxpayer company supply the garment under the terms of that entire contract? It is plain that it was not for the amount of the cash commission only plus any additional payment. If the service of providing the party had not been provided the garment could not be sold for that sum because, as has been demonstrated, there was no agreement for sale at a reduced price.’

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The Naturally Yours Cosmetics case, too, had involved a ‘party-plan’ scheme for obtaining sales. The goods to be sold were cosmetic products. As a reward to the hostess for organising the party, the organiser, a self-employed beauty consultant, gave the hostess a pot of face cream as a gift. The pot had been supplied by the cosmetics company to the beauty consultant for £1·50, instead of at the normal wholesale price of £10·14. The Court of Justice concluded that the consideration given by the beauty consultant for the pot of cream consisted not only of the £1·50 but also in part of her services in arranging the party.

Empire Stores Ltd v Customs and Excise Comrs Case C-33/93 [1994] 3 All ER 90, [1994] ECR I-2329 involved a retail mail order business scheme under which an individual who persuaded a friend to purchase an article in the Empire Stores catalogue became entitled to receive an article without charge. The first question for decision was whether the individual who had received the article without charge had given consideration for it by persuading the friend to purchase an article. The second question was as to the value to be placed on that consideration for VAT purposes. On the first question the Court of Justice held ([1994] 3 All ER 90 at 104–105, [1994] ECR I-2329 at 2352 (paras 13, 15)):

‘13. It is clear from the description of the schemes used by Empire Stores to attract new customers … that the supply of the article without extra charge is made in consideration of the introduction of a potential customer and not in return for the purchase by that customer of goods offered in Empire Stores’ sales catalogue …

15. The finding is not invalidated by the fact that the article is supplied only if the new customer is approved by Empire Stores and places and pays for an order. As the Advocate General (Van Gerven) states in para 15 of his opinion, the fact that the supply of the article is dependent on additional conditions does not detract from its being consideration for the services received by Empire Stores.’

The approach in these cases, followed by the tribunal in the present case, is, in my view, fatal to Mr Park’s submission. Under art 11A(1)(a) of the Sixth Directive the taxable amount is made up of ‘everything’ obtained by the supplier from the purchaser. The hostess did not simply pay the £20·76. She also held the party at her house. In holding the party she was rendering a service to Rosgill. The service was of value to Rosgill since it was at such parties that Rosgill made, or endeavoured to make, sales of its goods. The requisite ‘direct link’ between the provision by the hostess of this service to Rosgill and her purchase of the blouse at a reduced price was, in my judgment, present. There was undoubtedly a causative link: the purchase would not have happened if the service had not been provided. There was also a contractual link: the hostess’s purchase of the blouse at the reduced price of £20·76 was in exercise of a contractual right that she had acquired under the agreement whereby she had agreed to hold the party at her house. On holding the party she acquired contractual rights against Rosgill, which in the events which happened, entitled her to purchase the blouse. It is true that her contractual right to purchase garments at reduced prices was conditional on a sufficient volume of sales being made at the party. It is true, also, that a contract of sale and purchase relating to the specific blouse did not come into existence until, at the end of the party when the volume of sales made was known, she elected against taking the cash commission and chose instead to purchase the blouse. None of these uncertainties seems to me to invalidate the conclusion that the consideration she gave for the blouse included the service she had provided to Rosgill in holding the party at her house.

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Mr Park placed reliance on two decisions of the Court of Justice, Argos Distributors Ltd v Customs and Excise Comrs Case C-288/94 [1996] STC 1359 and Elida Gibbs Ltd v Customs and Excise Comrs Case C-317/94 [1997] All ER (EC) 53. These were not ‘party-plan’ cases. Each was a case in which discounts enabling goods to be purchased at below list prices were allowed by the taxpayer company. In the Argos Distributors case, vouchers were distributed to company employees or agents and to customers. The vouchers could be exchanged in full or part payment for goods at the company’s stores. In the Elida Gibbs case, goods were sold by a manufacturer at normal wholesale prices but were accompanied by coupons. Purchasers could, on presenting the coupons to the manufacturer, obtain a refund of part of the price that had been paid. In each case the Court of Justice held that VAT should be calculated on the discounted price, not the full price. These cases do not, however, seem to me of assistance in the present case. In neither case did the purchaser provide the supplier of goods with any additional consideration. There was nothing equivalent to the service provided to the supplier in the Pippa-Dee case by the ‘party-plan’ hostess, in the Naturally Yours case, by the beauty consultant, and in the Empire Stores case by the introducer.

In my judgment the consideration given by the hostess for her blouse consisted in part of money, the £20·76, and in part of her service to Rosgill in holding the party at her house.

The second question is how, for VAT purposes, that non-monetary consideration is to be valued.

It is now settled that, for the purposes of s 10(3) of the 1983 Act, the value of non-monetary consideration is its subjective value to the supplier. So what was the value to Rosgill of the hostess’s service in holding the party at her house?

Mr Park has argued, first, that the value was nil. This improbable proposition is based on the facts that Rosgill’s sale of the blouse to the hostess was at a price, £20·76, which was considerably in excess of the £8·00 it cost Rosgill to produce the blouse, and that Rosgill did not, by so selling the blouse, forgo the sale of a blouse for £27·99. In my judgment, however, this approach is fallacious. The value of the party to Rosgill is not to be measured by concentrating on the financial implications of the sale of the blouse to the hostess. The party represented for Rosgill an opportunity for making sales. The value of the party to Rosgill depended on the volume of sales made. The tables produced by Rosgill show the amount of the cash commission and the amount of the price reduction to which hostesses would become entitled in the event of given volumes of sales being made. These tables demonstrate Rosgill’s view of the value of the parties to Rosgill and make Mr Park’s submission that the value should be taken to be nil wholly unrealistic.

Mr Park’s alternative submission was that the value of the party to Rosgill should be taken to be the amount of the cash commission which Rosgill were prepared to pay the hostess, namely, £2·89. This submission does, in my opinion, adopt an approach that is realistic and subjective. The value that the supplier has itself attributed to the additional non-monetary consideration that has been received is likely to be a reliable subjective indication of the ‘amount in money … equivalent to the consideration’. However, in the present case, there are two such indications and a choice must be made between them. On the one hand there is the cash consideration of £2·89. On the other hand there is the price reduction of £7·23. Rosgill was prepared, having regard to the sales made at the party, either to pay the hostess £2·89 in cash or to allow her a price reduction of

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£7·23 in return for her service in holding the party at her house. Of course, if she had not elected to purchase a garment, she would simply have received £2·89 and no question of VAT would have arisen. But Rosgill is in business to sell clothes and, from Rosgill’s point of view, it no doubt makes sense to allow a reduction in price substantially in excess of the cash commission it is prepared to pay for the holding of a party.

The value to Rosgill of the non-monetary consideration has to be assessed in the light of the events that actually happened; first, there were sales of £66·98; second, the hostess made the decision to purchase the blouse at a reduced price rather than to take the cash commission of £2·89. In these combined events Rosgill attributed a value of £7·23 to the hostess’s non-monetary consideration. It is not to the point that if the hostess had decided to accept the cash commission of £2·89 that sum would have been the measure of the value placed by Rosgill on the non-monetary consideration. But in that event the blouse would not have been supplied and no question of VAT on the supply would have arisen. Rosgill’s attribution of £7·23 to the value is reinforced by the contents of Rosgill’s internal documents. In the document recording the sales made at the party, the £7·23 is referred to as ‘hostess commission’. In a ‘delivery notification’ document the £7·23 is referred to as ‘hostess gift allowance’. If the question is asked: ‘What was the £7·23 commission for?’ or ‘What was the £7·23 gift allowance for?’, the answer can only be: ‘The holding of the party’. On the facts of this case, therefore, Rosgill has itself attributed a value of £7·23 to the non-monetary consideration it received from the hostess. It supplied the blouse in consideration not only of the payment of £20·76 but also of the holding of the party to which it attributed a value of £7·23. Accordingly, in my judgment, s 10(3) of the 1983 Act requires VAT to be calculated on the sum of £20·76 and £7·23. The tribunal came, in my judgment, to the correct conclusion and I would dismiss this appeal.

Mr Park suggested that we might wish to refer the question arising in this case to the Court of Justice for a preliminary ruling. In my opinion, however, such a reference is not necessary in order to enable this court to give judgment. The principles of law to be applied are, in my view, sufficiently settled by previous decisions of the Court of Justice. Such difficulties as there are in this case derive from the application of settled principles to the particular facts. It is, in my view, for the national court to resolve these difficulties.

HOBHOUSE LJ. I agree with the judgments of the Sir Richard Scott V-C and Morritt LJ and that this appeal should be dismissed.

I add a few further words out of respect for the persuasive argument of Mr Andrew Park QC for the appellant. The apparent difficulties which his argument raised did not in my judgment take sufficient account of certain characteristics of the value added tax (VAT) scheme. It is a tax which is payable by the consumer of goods and services but is collected by the registered supplier of those goods or services. It is the registered supplier who is assessed and is liable to account to the commissioners for the tax. The supplier in the present case is Rosgill Group Ltd (Rosgill) and the consumer, the person to whom the relevant goods were supplied, was the hostess. The legislation recognises that the supply may be for a consideration which is wholly in money (a sale) or for something other than money (a barter) or for a combination of the two. The complication arises from the fact that a barter may involve a taxable supply in both directions. Here the hostess supplied a service (the provision of a ‘party’) to Rosgill and Rosgill supplied an article (the blouse) to the hostess. If the hostess had been registered

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for VAT, the VAT content of the barter element would have balanced out for Rosgill. The hostess would be accountable for the VAT payable on her supply to Rosgill (of the service) and would have given Rosgill a VAT invoice which Rosgill could then use as a credit in its VAT return. The value taken for this supply would then be the value for the barter element in the supply of the blouse by Rosgill to the hostess for the tax on which Rosgill then had to account to the authorities. No problem would arise; nor would Rosgill have anything to gain by finding a problem. The interest of Rosgill in limiting its liability in respect of the supply of the blouse arises from the fact that the hostess was not registered for VAT and Rosgill has paid no VAT on her supply to it. There is nothing anomalous in the liability of Rosgill for VAT on the full value of their supply of the blouse to the hostess.

On the first question argued, whether the supply of the blouse was for a consideration not wholly consisting of money, the answer is that on any view it was. Even viewed in domestic English law terms, part of the quid pro quo for the supply was her supply of the service of providing a party. She had a legally enforceable contract with Rosgill that if she provided a party she would be entitled to a ‘hostess commission’ assessed by reference to the value of the goods sold at the party. She was entitled to take her commission in the form either of cash or of the supply of goods to her at a reduced cash price. Had she been denied her commission, she could have sued for it. She elected to take the supply of the blouse at a reduced price. Each supply was the consideration or part of the consideration for the other. But, of course, the word ‘consideration’ is not being used in the domestic English law sense but in the wider sense used by civil lawyers. The term has, in the present context, been stated to require no more than a ‘direct link’ (see Staatssecretaris van Financiën v Coöperatieve Aardappelen- bewaarplaats GA Case 154/80 [1981] ECR 445). There unquestionably was such a link here.

The second question involved the value of the barter element in the supply of the blouse. The value is that which the parties put on it, attributed to it, in the actual transaction between them. It is not a valuation exercise but simply the giving of an answer to a factual question, which is normally a simple exercise. In the present case the answer is provided by the parties’ own documentation. The party report, which records the sales made at the party and the hostess’s election together with the amount of the ‘hostess commission’ to be deducted from the cash payable for the blouse, states that it is £7·23. Similarly the delivery notification states ‘hostess allowance £7·23’. This is the value which the parties put on the service she had supplied for the purpose of valuing the barter element in the consideration for the supply of the blouse. Therefore the tax inclusive value of the supply of the blouse was £27·99 being the sum of the cash amount, £20·76, and the barter element valued at £7·23. I add for the sake of completeness that I wish expressly to adopt what Morritt LJ has said about the effect of the judgments on this point of the Court of Justice of the European Communities in Empire Stores Ltd v Customs and Excise Comrs Case C-33/93 [1994] 3 All ER 90, [1994] ECR I-2329 and Naturally Yours Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1888] STC 879, [1988] ECR 6365.

The tribunal arrived at the right conclusion. The appeal should be dismissed.

MORRITT LJ. At a party held in the home of Mrs Leaver on 10 April 1993 orders for clothing to be supplied by Rosgill (the Supplier) at an aggregate price (inclusive of value added tax (VAT)) of £66·98 were placed by those present. As

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the hostess at such party Mrs Leaver thereby became entitled in accordance with the Supplier’s hostess scheme then in force to either a cash commission of £2·89 or a discount of £7·23 off the list prices for clothing offered for sale at the party. She chose the discount and ordered a blouse for which the list price was £27·99. She was invoiced for £27·99, credited with £7·23 and required to pay the balance of £20·76. It is agreed that the cost of the blouse to the Supplier was £8·00 and that the Supplier had sufficient stocks of that blouse to meet all foreseeable demand.

These simple facts have given rise to considerable argument as to how the supply of the blouse to Mrs Leaver should be treated for the purposes of VAT. For the Supplier it is contended that the only consideration for the blouse was the sum of £20·76 Mrs Leaver actually paid. The VAT attributable to a VAT-inclusive price of that amount is £3·09 and that has been accounted for in the normal way. Thus, it is claimed, there is no more to pay. The Commissioners of Customs and Excise disagree. They contend that the consideration for the blouse included the services supplied by Mrs Leaver to the Supplier in holding the party in her home. They claim that the value of those services was the amount of the discount Mrs Leaver chose, namely £7·23. The riposte of the Supplier is twofold. First it is submitted that the value of such consideration is zero because, as the blouse only cost them £8·00 and Mrs Leaver paid £20·76 in cash for it, her services cost them nothing. Second it is claimed that the value of those services cannot exceed the maximum cash sum the Supplier was prepared to pay for them, namely £2·89.

The relevant charging provisions were contained in the Value Added Tax Act 1983 (now the Value Added Tax Act 1994). Section 10 provided:

‘… (2) If the supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the tax chargeable, is equal to the consideration.

(3) If the supply is for a consideration not consisting or not wholly consisting of money, its value shall be taken to be such amount in money as, with the addition of the tax chargeable, is equivalent to the consideration.’

It is common ground that those provisions can and should be construed so as to give effect to Council Directive (EEC) 77/388 (the Sixth Directive) on the harmonisation of the laws of the member states relating to turnover taxes. The relevant article of that directive is art 11A, which, in part, provides:

‘1. The taxable amount shall be: (a) … everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies … 3. The taxable amount shall not include … (b) price discounts and rebates allowed to the customer and accounted for at the time of supply …’

It is common ground that decisions of the Court of Justice establish that the word ‘consideration’ must be approached as a matter of Community law and not by reference to the domestic law of any particular member state. That approach requires the court of the member state to ascertain whether there is ‘a direct link’ between the relevant supply and that which is alleged to be consideration for it. Such consideration must be capable of being expressed in money and is to be assessed at its subjective value, that is its value to the recipient rather than by reference to objective criteria (see Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats GA Case 154/80 [1981] ECR 445).

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The Supplier submits that there is no direct link between the services of Mrs Leaver in holding the party and the supply of the blouse to her because, although she could not have been entitled to any commission or discount but for holding the party, the amount of the commission or discount depended entirely on how much, if anything, was bought at the party. The argument is reinforced by reference to the fact that VAT is a turnover tax so that to find further consideration in the form of the service provided by Mrs Leaver would, so it is submitted, artificially increase the turnover from that which was actually paid, namely £87·74 (£66·98 + £20·76) to £94·97 (£87·74 + £7·23).

I cannot accept this argument. It is correct that there must be a direct link but this requirement does not exclude the possibility that other links are necessary as well. This point was clearly made by the Court of Justice in Empire Stores Ltd v Customs and Excise Comrs Case C-33/93 [1994] 3 All ER 90, [1994] ECR I-2329. That case concerned the provision of a ‘free gift’ to anyone who introduced a new customer who bought something from the Empire Stores’ mail order catalogue. The issue was whether the service provided to Empire Stores by the person effecting the introduction was supplied for the consideration constituted by the free gift. Entitlement to the free gift depended on making the introduction, approval by Empire Stores of the person introduced and a purchase by that person. In paras 15 and 16 of the decision of the court it is stated:

‘15. The finding [that the supply of the article without extra charge was made in consideration of the introduction] is not invalidated by the fact that the article is supplied only if the new customer is approved by the Empire Stores and places and pays for an order. As the Advocate General (Van Gerven) states in para 15 of his opinion, the fact that the supply of the article is dependent on additional conditions does not detract from its being consideration for the services received by Empire Stores. Indeed in the “introduce-a-friend scheme” those additional conditions must be satisfied by the new customer and not by the person whose service is being rewarded by the supply of the article.

16. The link between the supply of the article without extra charge and the introduction of a potential customer must be regarded as direct, since if the service is not provided no article is due from or supplied without extra charge by Empire Stores.’ (See [1994] 3 All ER 90 at 104–105, [1994] ECR I-2329 at 2352.)

It is true that in the case of Mrs Leaver her commission or discount depended on whether anything and if so how much was bought by the other customers whereas in the Empire Stores case the value of the free gift was not similarly variable. But in my judgment the existence of a further condition as to value is no ground for distinguishing the Empire Stores case. In my view it is clear that there was a direct link between the supply of the blouse, the services of Mrs Leaver and her entitlement to the commission or discount.

Accordingly the question arises whether the consideration is capable of being assessed in money and if so at how much. The first contention of the supplier centres on paras 17, 18 and 19 of the judgment of the Court of Justice in the Empire Stores case, where the court stated (see [1994] 3 All ER 90 at 105, [1994] ECR I-2329 at 2352–2353):

‘17. Moreover, since the services provided to Empire Stores are remunerated by the supply of goods the value of the services can unquestionably be expressed in monetary terms.

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18. As for the determination of that value, which is the substance of the second question, the court held in Naturally Yours Cosmetics [1988] STC 879 at 894, [1988] ECR 6365 at 6390, at para 16, that the consideration taken as the taxable amount in respect of a supply of goods is a subjective value, since the taxable amount is the consideration actually received and not a value estimated according to objective criteria.

19. Where that value is not a sum of money agreed between the parties, it must, in order to be subjective, be the value which the recipient of the services constituting the consideration for the supply of goods attributes to the services which he is seeking to obtain and must correspond to the amount which he is prepared to spend for that purpose. Where, as here, the supply of goods is involved, that value can only be the price which the supplier has paid for the article which he is supplying without extra charge in consideration of the services in question.’

The Supplier submits that as the blouse, for which Mrs Leaver paid £20·76 in cash, only cost the Supplier £8·00 the services which she supplied cost the Supplier nothing. In my view that submission reveals a misreading of the principles established by the decisions of the Court of Justice. The court in the Empire Stores case, as indicated in para 18, was applying the principles established in Naturally Yours Cosmetics Ltd v Customs and Excise Comrs Case 230/87 [1988] STC 879, [1988] ECR 6365. That case involved the provision to the beauty consultant of a pot of cream for her to give it away to the hostess as a reward to the latter. The beauty consultant was charged £1·50 if she gave it away to the hostess but £10·14, the normal wholesale price, if she did not. In paras 15 to 17 of the judgment of the court it is stated (see [1988] STC 879 at 894, [1988] ECR 6365 at 6390):

‘15. The national court further asks whether that service must be regarded as part of the consideration for the supply of goods even though it does not constitute monetary consideration and, if so, how the value of the service is to be determined in cases such as that of the beauty consultant in the present proceedings.

16. From the aforesaid judgment in the Coöperatieve case it is clear, first that the consideration must be capable of being expressed in monetary terms and, second, that it is a subjective value, since the basis of assessment is the consideration actually received and not a value estimated according to objective criteria.

17. In the present case, the parties to the contract have reduced the wholesale price of the pot of cream by a specific amount in exchange for the supply of a service by the beauty consultant which consists in procuring hostesses to arrange sales parties by offering them the pots of cream as gifts. In those circumstances, it is possible to ascertain the monetary value which the two parties to the contract attributed to that service; that value must be considered to be the difference between the price actually paid and the normal wholesale price.’

The difference between the Naturally Yours Cosmetics and Empire Stores cases is that in the former the pot of cream had a wholesale value which the beauty consultant was required to pay if, instead of giving it to the hostess, she kept it for herself but in the latter the gifts were not included in the catalogue at all (see para 3 of Advocate General da Cruz Valaça’s opinion ([1988] STC 879 at 885, [1988] ECR 6365 at 6374)). Thus in the latter case there was no value attributed

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by the parties to the service in question. In such circumstances the only available monetary value was the cost to the provider.

In this case the parties have attributed a value to the consideration for the services, namely the commission or the discount. In those circumstances it seems to me that cost of the blouse to the Supplier is immaterial. The services were part of the consideration for the blouse and the parties attributed values to those services.

The question is which of those two values should be taken. The Supplier contends that the only value which can be taken is the cash sum the Supplier was prepared to pay, namely £2·89. I do not agree. That is not the value the parties put on the services in the events which happened, namely the choice by Mrs Leaver of a discount off the price of the blouse she wanted to buy rather than the payment of a cash commission. To take as the measure of value of the services the amount attributed to an alternative which was not chosen would not only fail properly to apply the principle expressed in the Naturally Yours Cosmetics case but would provide too ready a means for the artificial reduction of the value of the consideration.

The commercial substance of the agreement between Mrs Leaver and the Supplier was that she would be remunerated for her services in holding the party in her home in one of two alternative ways to be quantified by the application of a formula to the value of the goods bought by those attending the party. One alternative, the cash commission, would have no VAT consequences. The other does because the blouse was supplied in consideration of the payment of £20·76 in cash and the remuneration for Mrs Leaver’s services quantified by the appropriate formula at £7·23.

There remains the issue whether this court should refer questions to the Court of Justice for a preliminary ruling under art 177 of the EU Treaty. This court may make such a reference if it considers it necessary to enable it to give judgment. But the reference which may be made must concern matters of Community law of the nature described in art 177. There is a distinction to be drawn between cases where there is a doubt as to the correct principle of Community law to be applied and cases where there is no doubt as to the correct principle but some uncertainty as to its proper application to the facts. The latter question is one for the national court alone.

In this case there is no real doubt as to the principles to be applied. They are contained in the Sixth Directive and the decisions of the Court of Justice to which I have referred. In those circumstances I do not consider that it is either possible or necessary to seek a preliminary ruling.

For these reasons and the further reasons given by Sir Richard Scott V-C, with which I agree, I would dismiss this appeal.

Appeal dismissed. Leave to appeal refused.

Susan J Murphy  Barrister.

Volume 4

R v Arnold

[1997] 4 All ER 1

Categories:        CRIMINAL; Criminal Law        

Court:        COURT OF APPEAL, CRIMINAL DIVISION        

Lord(s):        POTTER LJ, OWEN J AND JUDGE MARTIN TUCKER QC        

Hearing Date(s):        21 FEBRUARY, 27 JUNE 1997        

Criminal law – Theft – Property belonging to another – Accused expanding business by means of franchising to agents – Agents depositing bills of exchange with accused for 180 days – Agreement that bills would be held as security and after 180-day period presented for payment and proceeds immediately repaid or recredited to agents – Accused discounting bills within 180-day period and agents losing their money – Whether bills of exchange belonging to accused or agents – Whether accused having intention to permanently deprive agents – Theft Act 1968, ss 5(3), 6(1).

The appellant was the sole proprietor of a business, AFF, which supplied sandwiches to shops and garages. In 1993 he decided to expand AFF further by means of franchising to agents. Under the franchise plan, prospective agents were required to deposit with AFF a 180-day ‘avalized’ bill of exchange (ie one guaranteed by the bank of the agent, the bank’s signature rendering it liable on the bill as a primary party), the documents being supplied by AFF. Two such agents each signed and handed over a bill for £5,000 and £8,000 respectively, believing, on the basis of what the appellant had informed them, that the bills would be retained by AFF as security until the 180-day maturity date whereupon they would be presented for payment and the proceeds immediately repaid or recredited to them against their delivery of another such bill. However, on receipt of the completed bills, AFF discounted them in breach of the previous agreement and understanding. As a result, at the end of the 180-day period, AFF did not present or receive the proceeds of the bills and was unable to transfer such proceeds to the agents either against another bill or at all and the agents subsequently lost their money. The appellant was charged with, inter alia, two counts of theft of a valuable security (ie the bills of exchange) contrary to s 1(1)a of the Theft Act 1968. At the trial, the recorder directed the jury that it was open to them to find that the bills constituted ‘property belonging to another’ for the purposes of s 1(1) by virtue of s 5(3)b of the 1968 Act. The appellant was convicted and sentenced to eight months’ imprisonment on each count concurrent. He appealed against his conviction contending (i) that s 5(3) did not apply where the person receiving the property was throughout the owner of it (which AFF was in relation to the paper constituting the bill), and (ii) that if the agents were the owners of the bills under s 5(3), the recorder should have directed the jury that he lacked the intention of permanently depriving them of the bills because he intended that the bills would be returned to them when they were

Page 2 of [1997] 4 All ER 1

presented to, and paid by, their respective banks; the fact that by the time of their return they would have lost their value and essential identity as valuable securities was not sufficient to sustain a charge of theft.

Held – (1) Section 5(3) of the 1968 Act covered property received from another under an obligation short of actual trusteeship. Accordingly, provided that the obligation was one which clearly required the recipient to retain and deal with that property or its proceeds in a particular way, there was no good reason to introduce words of limitation in relation to the interest of the transferor, save that at the time of the handing over of the property he had lawful possession of it in circumstances which gave him a legal right vis-à-vis the recipient to require that it be retained or dealt with in a particular way for his benefit. Furthermore, the position was no different where the recipient was throughout the ‘true owner’, if by agreement (whether made earlier or at the time) he had recognised a legal obligation to retain or deal with the property in the interest and/or for the benefit of the transferor, but subsequently, in knowing breach of that obligation, misappropriated it to his own unfettered use (see p 9 f to p 10 a, post).

(2) Where a defendant had appropriated a valuable security handed over on the basis of an obligation that he would retain or deal with it for the benefit of the transferor, s 6(1)c of the 1968 Act applied if the intention of the transferee at the time of the appropriation was that the document should find its way back to the transferor only after all the benefit to the transferor had been lost or removed as a result of its use in breach of such obligation. Since, in the instant case, the agents were to be regarded as the owners of the bills pursuant to s 5(3), as the appellant had agreed to hold them by way of security to the agents’ accounts, it followed that he had intended to treat the bills as his own or to dispose of them regardless of the agents’ rights within the meaning of s 6(1), and so had the necessary intention of permanently depriving them of the bills. The appeal would therefore be dismissed (see p 14 b c and p 15 a to d, post); R v Danger (1857) 7 Cox CC 303 distinguished.

Notes

For the meaning of property belonging to another and the intention to deprive the owner permanently, see 11(1) Halsbury’s Laws (4th edn reissue) paras 548–549, and for cases on the subject, see 14(2) Digest (2nd reissue) 246–252, 267–268, 7672–7704, 7847–7852.

For the Theft Act 1968, ss 1, 5, 6, see 12 Halsbury’s Statutes (4th edn) (1997 reissue) 489, 493, 494.

Cases referred to in judgment

A-G’s Reference (No 1 of 1985) [1986] 2 All ER 219, [1986] QB 491, [1986] 2 WLR 733, CA.

DPP v Huskinson [1988] Crim LR 620, DC.

New London Credit Syndicate Ltd v Neale [1898] 2 QB 487, CA.

Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, [1992] 3 WLR 1032, HL.

R v Cahill [1993] Crim LR 141, CA.

R v Danger (1857) 7 Cox CC 303, CCR.

R v Downes (1983) 77 Cr App R 260, CA.

Page 3 of [1997] 4 All ER 1

R v Dubar [1995] 1 All ER 781, [1994] 1 WLR 1484, C-MAC.

R v Duru [1973] 3 All ER 715, [1974] 1 WLR 2, CA.

R v Fernandes [1996] 1 Cr App R 175, CA.

R v Ghosh [1982] 2 All ER 689, [1982] QB 1053, [1982] 3 WLR 110, CA.

R v Governor of Brixton Prison, ex p Stallmann [1912] 3 KB 424, [1911–13] All ER Rep 385, DC.

R v Grubb (1915) 11 Cr App R 153, [1914–15] All ER Rep 667, CCA.

R v Hall [1972] 2 All ER 1009, [1973] QB 126, [1972] 3 WLR 381, CA.

R v Lloyd, R v Bhuee, R v Ali (1985) 81 Cr App R 182, CA.

R v Mainwaring, R v Madders (1981) 74 Cr App R 99, CA.

R v Preddy, R v Slade, R v Dhillon [1996] 3 All ER 481, [1996] AC 815, [1996] 3 WLR 255, HL.

R v Smith [1924] 2 KB 194, CA.

R v Warner (1970) 55 Cr App R 93, CA.

Wakeman v Farrar [1974] Crim LR 136, DC.

Cases also cited or referred to in skeleton arguments

Heilbut Symons & Co v Buckleton [1913] AC 30, [1911–13] All ER Rep 83, HL.

Maillard v Page (1870) LR 5 Exch 312.

New London Credit Syndicate Ltd v Neale [1898] 2 QB 487, CA.

R v Brewster (1979) 69 Cr App R 375, CA.

R v Hayes (1976) 64 Cr App R 82, CA.

R v McHugh (1993) 97 Cr App R 335, CA.

R v Robertson [1977] Crim LR 629.

R v Wain [1995] 2 Cr App R 660, CA.

R v Wills (1990) 92 Cr App R 297, CA.

Appeal against conviction and sentence

The appellant, Lyndon Ewart Arnold, appealed with leave against conviction and sentence in the Crown Court at Truro before Mr Recorder Dunkels QC and a jury on 24 May 1996 on two counts of theft of a valuable security, namely two bills of exchange for £5,000 and £8,000 respectively. He was sentenced to concurrent terms of eight months’ imprisonment. The facts are set out in the judgment of the court.

Michael Cousens (assigned by the Registrar of Criminal Appeals) for the appellant.

Brian Lett (instructed by the Crown Prosecution Service, Truro) for the Crown.

Cur adv vult

27 June 1997. The following judgment of the court was delivered.

POTTER LJ. On 24 May 1996 in the Crown Court at Truro before Mr Recorder Dunkels QC and a jury, the appellant, Lyndon Ewart Arnold, was convicted following a retrial on indictment of two counts (1 and 5) each alleging theft of a valuable security, namely a bill of exchange, for £5,000 and £8,000 respectively. He was acquitted on count 2, which alleged theft of a further bill and count 3 was left on the file on the usual terms. A not guilty verdict was entered on count 4, which had charged an obtaining of property by a deception.

The appellant was indicted on counts 1–4 with a co-defendant, Stephen Williams, who had pleaded guilty to those counts.

Page 4 of [1997] 4 All ER 1

On 2 July 1996 the appellant was sentenced to eight months’ imprisonment on each of counts 1 and 5 concurrent.

He appeals against conviction and sentence by leave of the single judge.

The appellant was the sole proprietor of Arnold’s Fresh Foods (AFF), a business which supplied sandwiches to shops and garages. By October 1993 the turnover of the business was almost £1m. It was undercapitalised and under pressure from its bankers. In 1993 the appellant took on Stephen Williams as a self-employed consultant. It was decided between them to expand the business further by means of franchising to agents. Under the franchise plan, the prospective agents would be required to deposit with AFF a six month ‘avalized’ bill of exchange (ie one guaranteed by the bank of the agent, the bank’s signature rendering it liable on the bill as a primary party) to the value of £5,000. Two agents, Mr Jones and Mr Humphreys, gave evidence that they each signed and handed over a 180-day bill in the sum of £5,000 and £8,000 respectively, on the terms of a letter (in the case of Mr Jones signed by the appellant) describing the obligations of the parties in relation to the security afforded by the bills, the effect of which was later confirmed to them by the appellant when they asked questions about it.

The relevant terms of the letter were as follows:

‘Re: Bank Guarantee  An “Avalised” bill of exchange is required … due to the size of investment made by Arnold’s … in respect to launching the successful applicant … and to protect Arnold’s from any fraudulent activity that may result in a financial loss. Due to the low value of the bank guarantee requested by Arnold’s “£5,000” the maximum maturity date allowed by the main clearing banks is 180 days from issue. Therefore the bill of exchange will have to be rolled every 6 months or 180 days from issue. Should the Agent breach any of the terms and conditions of the Agency agreement then he/she will automatically forfeit the said bank guarantee. The bank guarantee will always be held in place by Arnold’s as security against their sizeable collateral investment in launching the Agent in starting his business free of charge … When the bill of exchange matures the funds will be transferred to Arnold’s and will immediately be transferred back to the client on receipt, subject to receiving a renewel [sic] of the said bank guarantee.’

Mr Jones’ and Mr Humphreys’ evidence was to the effect that, on the basis of what they were informed by the appellant, they understood and intended that the bills would be retained by AFF as security until the 180-day maturity date, when they would be presented for payment and the proceeds immediately repaid or recredited to the agent against his delivery of another such bill.

The process by which the bills of exchange were created appears to have been as follows.

In negotiating the agency, a good deal of documentation was supplied by AFF to the agents, including pro forma bills which, once agreement had been reached, would be required to be completed. On the pro forma bills, AFF was shown as drawer in the sum of the amount of the proposed security payable to the order of AFF, on a date 180 days after the date of the bill, at the bank of the agents. The agent was shown as the drawee and acceptor with a space for his signature in that capacity. The name of the agent’s bank was also inserted ‘Pour Aval’ for the account of the drawee/acceptor. Once the agreement was completed, AFF sent to each of the agents a form of bill typed in accordance with the pro forma under

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the letterhead of AFF and signed for AFF as drawer, with a request to the agent to sign it as drawee and acceptor, and to procure the signature of the agent’s bank by way of Aval and to return it to AFF. This was duly done by each agent.

Following receipt of the completed bills, AFF, in breach of the previous agreement and understanding that it would hold the bills only as security for the 180-day period prior to presentation at the agent’s bank, discounted them pursuant to arrangements with a discount house already made for the purpose of financing AFF’s business to ease its cash flow difficulties. As a result, at the end of the 180-day period, AFF did not itself present or receive the proceeds of the bills and was unable to transfer such proceeds to the agents either against another bill or at all. Instead the factors, as holders in due course, duly presented the bills without obligation of any kind to reimburse the agents, who lost their money.

When giving evidence, the appellant disputed that the agents had been told that the bills were a form of security. However, he agreed at interview that the agents were never told the bills would be discounted. It is plain that the jury were satisfied that, at the time of discounting, the appellant was well aware that it was done contrary to the arrangement contained in the letter quoted above and the confirmation of that arrangement which the agents said they had received orally. It is clear also that the jury rejected the appellant’s assertion that he believed that, in any event, he was entitled to discount the bills at the time he did so. However, the argument in this case has not principally turned on the question of whether or not the appellant acted honestly, assuming the other ingredients of the charge of theft are established, but whether or not the circumstances of the case justify a charge of theft at all.

At the close of the prosecution case, counsel for the appellant submitted that there was no case to answer on counts 1 and 5 because the owner of each of the bills was at all material times AFF. He pointed out that the form of the bill was created by AFF and sent to the agents on a piece of AFF’s own writing paper for the specific purpose of the agents adding their signature, procuring the signature of their banks and returning the completed bills to AFF. In those circumstances, it was submitted that the basic definition of theft in s 1(1) of the Theft Act 1968, which requires appropriation of ‘property belonging to another’, was not fulfilled because the piece of paper which was the bill remained the property of AFF throughout, the agent merely having temporary possession of it for the limited purpose of dealing with it as previously arranged. The recorder ruled against that submission on the basis that it was open to the jury to find that the terms of s 5(3) of the 1968 Act were satisfied.

Section 5(3) provides:

‘Where a person receives property from or on account of another, and is under an obligation to the other to retain and deal with that property or its proceeds in a particular way, the property or proceeds shall be regarded (as against him) as belonging to the other.’

In making his ruling, the recorder said:

‘… in my judgment there is no precondition of ownership by the person who delivers the property. For there to be theft, assuming that all other ingredients of the offence are satisfied, the property concerned has to belong to another, and s 5(3) determines in this situation whether the property belongs to another as between the deliverer and the recipient of the property, if the circumstances give rise to an obligation to retain or deal with

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that property in a particular way. And, in my judgment, here there is evidence from which a jury could conclude that each of the bills of exchange belonged to the acceptor when they returned them to Arnold’s, having signed them and had them avalized by their bank. That is, belong, in the sense defined in s 5 of the Act.’

In dealing with the ingredients of the charge of theft for the purposes of the indictment, the recorder directed the jury in accordance with that ruling. Ground (a) of the grounds of appeal avers that he was wrong to do so.

Counsel also submitted to the recorder that, even if the defendant could be guilty of theft on the basis of the recorder’s ruling, the agents’ ‘extrinsic evidence’ (as counsel put it) as to AFF’s obligation not to negotiate the bill within the 180-day period was inadmissible and the jury should be directed to ignore it. Counsel relied on the rule that the negotiable nature of a bill of exchange cannot be lost by reference to outside circumstances where no limitation or qualification appears on the face of the bill. He submitted, on the basis of New London Credit Syndicate Ltd v Neale [1898] 2 QB 487, that the bills spoke for themselves and, without an indorsement restricting their use, were negotiable instruments which the drawer was entitled to use as he wished. That submission has been repeated as ground (b) of the grounds of appeal.

Suffice it to say, such a submission seems to us, as it seemed to the recorder, misconceived. The rule of civil evidence that no oral evidence is admissible to contradict, vary, or subtract from an agreement in writing does not affect the question of whether negotiation, as opposed to retention, by the drawer of a bill of exchange amounts to breach of some parallel contractual or fiduciary obligation between himself and the drawer as to how the bills would be dealt with. In any event, as between immediate parties, delivery of a bill may be shown to be conditional (see s 21(2) of Bills of Exchange Act 1881). We say no more on that aspect.

There are additional grounds of appeal as follows: (c) that the recorder misdirected the jury by stating in the course of his summing up that there was no dispute that the bills of exchange had been appropriated at the time they were discounted; (d) that the recorder misdirected the jury in failing to give the defence an opportunity to address the jury on the particular basis of dishonesty which he left to them in the summing up; (e) that the recorder misdirected the jury when he directed them that the bill would be kept so that it was available to provide funds at the end of six months to repay the agent; (f) the recorder misdirected the jury by failing to deal adequately and fairly with the overall state of the business at the time it was alleged that the appropriations had taken place.

In the course of argument during the appeal a further ground was raised, which we permitted to be argued, namely: (g) that the recorder was wrong in failing to treat separately the requirement that the defendant must be shown both to have acted ‘dishonestly’ and that he must have had ‘the intention of permanently depriving’ the agents of the bills (see s 1 of the 1968 Act). Had he done so, it is submitted that the jury would have held, or been likely to hold, that no such intention existed.

We turn to those grounds of appeal in order.

As developed before us, the arguments of Mr Cousens, for the appellant, have been as follows:(a) He concedes that, taken simply at face value, the words of s 5(3) are apt to cover any situation where a person, A, has received property (in the sense of a physical transfer of its possession or custody) from B, under an

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accompanying obligation to B to retain and deal with it or its proceeds in a particular way. However, he submits that its wording cannot have been intended, and should not be interpreted, to include a situation where A is throughout the owner of the property concerned, which has only temporarily been in B’s possession, being returned in circumstances where B acquires and/or retains no proprietary right to it whilst in his hands. It is Mr Cousens’ submission that a mere contractual obligation that A will retain or otherwise deal with his own property in a particular way for the benefit of B is insufficient to ground a charge of theft.

For this proposition, he relies on a number of authorities which are not directly in point, but which he suggests give more than a fair wind to his argument. That argument is to the following effect.

Mr Cousens submits that, in the context of the history and development of the law of theft, the operation of s 5(3) of the 1968 Act is limited, or intended to be limited, to situations which had previously been the subject of piecemeal addition to the corpus of law prior to the passing of the 1968 Act. Such additions were aimed at rendering criminal dishonest appropriations for their own benefit by persons, such as agents, brokers and solicitors, frequently entrusted with the money or other property of clients on terms that it would be applied or dealt with in a particular manner. Since, in the nineteenth century, the common law of theft was essentially an offence against possession (the physical asportation of an item of moveable property), it did not recognise equitable interests as the proper subject matter of theft. Thus it was necessary, by a combination of judicial development in certain cases and statutory intervention in others, to extend the law to cover misappropriations by various classes of fiduciary. The history of this development is helpfully and succinctly summarised in an article by Sir John Smith ‘Obtaining cheques by deception or theft’ [1997] Crim LR 396 at 397–398.

Against this background, Mr Cousens submits that the wording of s 5, including sub-s (3), should be read as no more than a codification of the previous law designed to rationalise by restatement the previous case law and statutory provisions as to what, for the purposes of the law of theft, should be regarded as ‘property belonging to another’, and not to extend the law beyond its previous confines.

In support of that submission he has relied on a number of argumentative and speculative passages by distinguished academic writers in textbooks and journals as to the intended ambit of s 5(3), as well as a number of dicta in decided cases which do not purport to be definitive but which, in the context of various situations under examination, refer back to the previous law in terms which Mr Cousens argues show a restrictive approach. By way of example, he referred us to A-G’s Reference (No 1 of 1985) [1986] 2 All ER 219, [1986] QB 491. In that case, the court considered the position of the employee of a publican receiving money from customers for goods which he had himself secretly obtained and sold to them for his own profit from his employer’s premises. The question was whether the moneys were received subject to a constructive trust in favour of the employer and, if so, whether the constructive trust gave the employer a proprietary right or interest in the secret profit within the ambit of s 5(1) of the 1968 Act.

It was held that any argument based on s 5(3) was misconceived because it could not be said that the moneys received were ever received ‘on account of the employer’, whose remedy was for no more than the secret profit made by the

Page 8 of [1997] 4 All ER 1

employee from his unauthorised venture. In the course of his judgment, Lord Lane CJ said ([1986] 2 All ER 219 at 222, [1986] QB 491 at 501):

‘It seems to us that s 5(3) was designed to replace the old provisions relating to larceny by a servant and embezzlement by the simpler and all embracing words of s 5(3), namely “who receives property from or on account of another …” Section 17 of the 1916 Act was in almost identical terms to s 68 of the Larceny Act 1861.’

In relation to the argument based on s 5(1), it was held that if (which the court did not accept) the duty to account for the secret profit gave rise to a trust properly so-called, it was not such a trust as fell within the ambit of s 5(1), the position being ‘so far from the understanding of ordinary people as to what constitutes stealing [that] it should not amount to stealing’. Mr Cousens recognises that the passage which describes larceny by a servant and embezzlement as covered by the ‘all embracing words’ of s 5(3) was not intended to be definitive of their ambit. Indeed, it is part of his submission (as we accept) that the subsection is plainly designed also to include the ground covered by s 20(iv) of the Larceny Act 1916 and its predecessor, s 1 of the Larceny Act 1901 (see eg R v Grubb (1915) 11 Cr App R 153, [1914–15] All ER Rep 667 and R v Smith [1924] 2 KB 194. See also the report of the Criminal Law Revision Committee on Theft and Related Offences (Cmnd 2977 (1966)) para 35).

Mr Cousens also relies on observations in Blackstone’s Criminal Practice (6th edn, 1996) at B4.21 to the effect that it is doubtful whether, in view of the substantial overlap between s 1 and s 5(3), the latter was a necessary provision, because the ‘owner’ of property who hands it over will usually have retained an equitable interest which is a proprietary interest sufficient to satisfy the requirement in s 5(1) that the property belongs to another.

Mr Cousens has referred us also to the statement in the report (p 127):

‘Subsection (3) provides for the special case where property is transferred to a person to retain and deal with for a particular purpose and he misapplies it or its proceeds. An example would be the treasurer of a holiday fund. The person in question is in law the owner of the property; but the subsection treats the property, as against him, as belonging to the persons to whom he owes the duty to retain and deal with the property as agreed. He will therefore be guilty of stealing from them if he misapplies the property or its proceeds.’

He has also sought to rely on the principle stated in Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593 in order to refer us to a passage in 289 HL Official Report (5th series) cols 211–223 at cols 212–213 in which Lord Stonham, the minister presenting the Bill to the House of Lords, stated that the structure of the Bill was ‘in all essentials the draft Bill which the Criminal Law Revision Committee annexed to their Report’. Assuming (which in our view is not the case) that the wording of s 5(3) of the 1968 Act is ambiguous or obscure or that its literal meaning would tend to obscurity, we do not consider that the observations and introductory comments of Lord Stonham, which were made in the most general terms and include no specific reference to s 5(3), are of substantial assistance in this case. We note in passing that Lord Stonham also said (col 215):

‘The idea of dishonest appropriation, which underlies the new offence of theft, corresponds to the idea of “fraudulent conversion” in s 20 of the

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Larceny Act 1916 … It is as if fraudulent conversion were widened to include the whole of larceny and embezzlement under the umbrella of theft; but the new offence will also include as theft conduct which may not be criminal under the present law …’ (Our emphasis.)

Similarly, we do not think that the short passage we have quoted from the report is in terms which assist on the question of whether or not the person to whom the obligation is owed must be a person who, immediately prior to the transfer, himself had a proprietary interest in the property transferred.

Finally, we reject Mr Cousens’ submission that the 1968 Act was intended or should be construed as a codifying statute. Indeed its long title and radically restated text suggest the reverse. The former commences: ‘An Act to revise the Law of England and Wales as to theft and similar or associated offences’.

So far as concerns the question of overlap between the provisions of s 5(3) and other parts of s 5, (particularly sub-s (1)), there is no doubt that such overlap exists to a very substantial extent. None the less, it seems to us clear that the structure of s 5 is essentially intended to be cumulative in effect. In this respect we have found assistance from the commentary on s 5 contained in Parry Offences against Property (1989) paras 1.21–1.40. In broad terms, the structure of s 5 is as follows.

Section 5(1) provides for the most obvious example of property belonging to another, namely property in which that other has a proprietary interest. It is plain from the wording that an equitable proprietary interest will suffice, so that beneficiaries of a trust, properly so-called, are protected, albeit the question of whether particular property is indeed the subject of such a trust may not be straightforward (see A-G’s Reference (No 1 of 1985)). Section 5(1) also provides that ‘property shall be regarded as belonging to any person having possession or control of it’ thereby confirming much of the old basis of the law of theft.

Section 5(2) specifically makes provision in respect of property subject to a trust. It largely overlaps with s 5(1), but is also apt to cover the position of a charitable trust without identifiable beneficiaries.

Section 5(3) is in terms which cover property received from another under an obligation short of actual trusteeship. If it were not intended to go wider than what has gone before, its provisions would be otiose. As previously indicated, it is apparently intended to cover the former offences of embezzlement, larceny by a servant and fraudulent conversion, but there seems to us no good reason so to limit it in the light of the clear and widely framed terms of the subsection.

So far as its limits are concerned, it is of course well-established that the obligation of the recipient must be a legal as opposed to a moral or social obligation (see R v Hall [1972] 2 All ER 1009, [1973] QB 126, Wakeman v Farrar [1974] Crim LR 136 and DPP v Huskinson [1988] Crim LR 620). However, provided the obligation is one which clearly requires the recipient of the property to retain and deal with that property or its proceeds in a particular way for the benefit of the transferor, we see no good reason to introduce words of limitation in relation to the interest of the transferor, save that at the time of handing over the property to the recipient he should lawfully be in possession of it in circumstances which give him a legal right vis-à-vis the recipient to require that the property be retained or dealt with in a particular way for the benefit of the transferor.

Nor do we consider that the position must be different where the recipient is throughout the ‘true owner’ if by agreement (whether made earlier or at the time) he recognises a legal obligation to retain or deal with the property in the

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interest and/or for the benefit of the transferor, but subsequently, in knowing breach of that obligation, misappropriates it to his own unfettered use. That is particularly so in a case such as this, where the value and, indeed, the very character of the property as a ‘valuable security’ derives from an act of the transferor performed in consideration of the obligation recognised by the owner.

Given: (1) that the law of theft has long recognised that the true owner may steal his own property in circumstances where the person from whom he steals it has a right to its immediate possession; (2) the continuing development of the law of theft away from its restrictive ambit as an offence against possession; and (3) the statutory intention of the 1968 Act to revise and clarify the law of theft, it does not seem to us that it is either right or desirable to do other than take and apply the words of s 5(3) as they stand. We therefore reject the criticism made of the recorder’s ruling.

We would only add by way of postscript under ground (a) that, in so far as the words quoted from the recorder’s ruling may suggest that the question of whether or not, following completion and return to AFF, the bills ‘belonged’ to the agents for the purpose of s 5(3) was a jury matter, they are misleading. The functions of judge and jury with regard to s 5(3) have been explained by this court in R v Mainwaring, R v Madders (1981) 74 Cr App R 99 at 107 (approved in R v Dubar [1995] 1 All ER 781, [1994] 1 WLR 1484):

‘Whether or not an obligation arises is a matter of law, because an obligation must be a legal obligation. But a legal obligation arises only in certain circumstances, and in many cases the circumstances cannot be known until the facts have been established. It is for the jury, not the judge, to establish the facts, if they are in dispute. What, in our judgment, a judge ought to do is this: If the facts relied upon by the prosecution are in dispute he should direct the jury to make their findings on the facts, and then say to them: “if you find the facts to be such-and-such, then I direct you as matter of law that a legal obligation arose to which s 5(3) applies.”’

In fact, when it came to his summing up, the recorder dealt with the issues faithfully in accordance with R v Mainwaring.

Ground (c)

When directing the jury on the ingredients of the offence, having dealt correctly with the question of whether or not, (according to their findings of fact) the bills of exchange could properly be said to belong to the agents, the recorder said:

‘I now move on to deal briefly with the two elements of theft that are not in dispute. “Appropriation” of that property—in other words, the taking of it. If you find that the bill of exchange belongs to the agent in the way I have described, then it was an appropriation or taking of it by the defendant to discount it or sell it. It was given to the person to whom it is sold and that amounts to an appropriation or taking of it as against the agent, if you find it belongs to the agent.’

Objection is taken by Mr Cousens that, in directing the jury that there was no dispute about the question of appropriation, the recorder was in error. We do not accept that objection. It disregards the context of the recorder’s remarks, namely his exposition of the legal ingredients of the offence. At that stage, he was not dealing with appropriation in the sense of whether or not such appropriation

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was wrongful; later in his summing up when dealing with ‘dishonesty’ and the effect of the evidence overall, he made quite clear that it was the case of the appellant that he considered the bills to be his own property, to deal with as he pleased. In the passage above quoted, the recorder was referring to whether or not there was any dispute that, if the bill was, under s 5(3), to be regarded as belonging to the agent under the agreement as to security, the discounting of it by the appellant amounted to an appropriation vis-à-vis the agent. That was a matter of law, on which there had been no dispute in the recorder’s discussions with counsel.

None the less, whatever the position in that respect, the direction of the recorder was right as a matter of law. ‘Appropriation’ in this context means use by the defendant as his own and for his own purposes in circumstances where, at the time of appropriation, the property properly ‘belongs’ to another for the purposes of s 5(3). There is therefore nothing in this ground of appeal.

Ground (d)

In relation to the question of dishonesty, the recorder first gave to the jury a classic direction in the terms of R v Ghosh [1982] 2 All ER 689, [1982] QB 1053. He went on:

‘The defendant has said that he believed he had the right to sell the bills of exchange. I direct you, as a matter of law, if he had that belief or may have had that belief that he had the right to sell them, then even if he was mistaken in it, then he was not acting dishonestly, and so would not be guilty of theft. Now, in deciding the issue of dishonesty you consider all the evidence in the case. For example, what you find the defendant said to the agents. The relevance of what he may have said or what may have gone unsaid about the state of the business. What you find to have been the defendant’s intention with the money from the bills of exchange—all the evidence. It was suggested by Mr Cousens, on behalf of the defendant, that the prosecution would have to prove that when the defendant discounted the bills of exchange and put the proceeds into the business bank account the business was in irreversible terminal decline and that the prosecution would have to prove that before you could find that the defendant was acting dishonestly. But, as I have said, dishonesty is for you and you may wish to consider whether it would be dishonest if, having led an agent to believe that the bill of exchange would be kept so that it is available to provide funds at the end of six months to repay the agent, then straight away sell it and put the proceeds into an overdrawn account that is at or beyond its permitted limit, in order to help meet cheques that are otherwise not being met by the bank? These are all questions for you to decide.’

Under this head, the recorder is criticised for failing to give the defence an opportunity to address the jury on the particular basis of dishonesty which he left to them; however, little was said on the appeal to support such criticism. Since it is plain that the question of discounting in the face of the alleged agreement to retain the bills as security was the foundation of the prosecution case, it is difficult to see how it could be said that the defence had no opportunity to address the jury about it. Whether or not that is so, we consider that the direction on the question of honesty, in the context of the real issues, as clearly raised and explored in the evidence, was unimpeachable.

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Ground (e)

It is complained it was a misdirection for the recorder, in the passage above quoted, to speak of the defendant leading an agent to believe that the bill would be kept, so that it was available to provide funds at the end of six months to repay the agent. However, the recorder was dealing with the issue of dishonesty in the context of the manner in which the prosecution case was put. Bearing in mind the passage from the letter to agents recited at the outset of this judgment (supported by the evidence of Mr Jones and Mr Humphreys), the summing up does not merit any such complaint.

Ground (f)

The criticism that the recorder dealt inadequately with the overall state of AFF’s business at the time the alleged appropriations took place was but lightly pursued on the appeal. That evidence came principally from the appellant. However his bank manager also gave evidence and there was substantial documentation available as to the state of the bank accounts and the running position of AFF with the debt factors to whom the appellant had turned. We have been told of nothing to show that the evidence was other than fairly summarised by the recorder in his summing up. Further, it is apparent that Mr Cousens, on the day before, had ample opportunity (which he had exercised) to address the jury on the various documents and to make his submissions as to the state of the business and the knowledge and honesty of the appellant. There is nothing in this ground of appeal.

Ground (g)

The reason why the judge failed to treat the requirement that the appellant must be shown to have had the intention of permanently depriving the agents of the bills separately from the requirement that the defendant must be shown to have acted ‘dishonestly’, was because it had been expressly conceded that there was no separate issue as to the intention permanently to deprive. It seems clear that, at trial, Mr Cousens accepted that, if the agents had sufficient interest in the bills to be regarded as their owner for the purposes of the indictment, then there was certainly an intention permanently to deprive them of the bills in the sense defined in s 6(1) of the 1968 Act, which provides:

‘A person appropriating property belonging to another without meaning the other permanently to lose the thing itself is nevertheless to be regarded as having the intention of permanently depriving the other of it if his intention is to treat the thing as his own to dispose of regardless of the other’s rights …’

Mr Cousens said as follows in the course of submissions to the recorder prior to his summing up:

‘In a sense, on the defendant’s own evidence, he intended to permanently deprive the agents of the bill of exchange as soon as he took possession of it. There was no suggestion that he was going to return that bill at any stage … As far as the jury are concerned in deciding whether or not there was an intention permanently to deprive they could, in effect, be directed that there is no issue about that but … in this sort of case the intention permanently to deprive is so closely linked up with the issue of dishonesty that I was proposing to say to the jury that in considering whether or not the defendant

Page 13 of [1997] 4 All ER 1

was dishonest they are entitled to look at the reality of the situation which is the £5,000 rather than the actual bill itself.’

The following exchange then took place:

‘The Recorder. Well I was indeed proposing to say to the jury that there did not appear to be an issue over appropriation at the point of sale, and an intention to permanently deprive the owner, if they find that the owner, in the terms of the Theft Act was still the agent at that time. Dishonesty—there are all sorts of points that can be relied on … But that does not detract from the fact that intention to permanently deprive is not really in issue? Mr Cousens. Well I do not think it is, on the evidence …

The Recorder. … What this case is about is, who owned that piece of paper at the time it was sold, within the terms of the Theft Act, and whether Mr Arnold was dishonest in what he did … What the intentions by people may have been in relation to where the money ended up, clearly, is relevant to the question of dishonesty. Mr Cousens. Yes, well I am grateful, that is really for my purposes all I need, thank you.’

On this appeal, Mr Cousens has sought to reopen the matter on the basis of an argument which he accepts has been triggered by the recent decision of the House of Lords in R v Preddy, R v Slade, R v Dhillon [1996] 3 All ER 481, [1996] AC 815 in which it overruled R v Duru [1973] 3 All ER 715, [1974] 1 WLR 2 and approved the long overlooked case of R v Danger (1857) 7 Cox CC 303. In R v Danger the defendant was charged with obtaining a valuable security by false pretences, having produced to his victim a bill of exchange signed by himself as drawer and payable to himself and, by a false pretence, having induced the victim to sign the bill as acceptor. The court held that, in order to be the subject of a charge of obtaining the property (namely a valuable security) by false pretences, the property obtained must be that of someone other than the defendant. As the victim had no property in the document and the chose in action belonged to the defendant, there was no intention permanently to deprive the owner of anything. (The decision in R v Danger had not been cited in R v Duru).

Under this ground of appeal, Mr Cousens abandons his argument that, for the purposes of the law of theft AFF/the appellant was throughout the owner of the bill and therefore could not steal its/his own property and accepts the position that under s 5(3), at the time of appropriation, the agents were owners of the bills. On that basis, he submits, the recorder should have ruled and directed the jury that the appellant lacked the intention permanently to deprive the owners of the bills because he was content (and should be taken as having intended) that the bills would be returned to, or to the account of, the agents when they were presented to, and paid by, their respective banks. Mr Cousens submits that it is not sufficient to sustain the charge of theft that, by the time of the return of the bills to the agents, they would have lost their value and essential identity as valuable securities, because those are intangible qualities relating to their value as choses in action in respect of which the agents enjoyed no rights, such rights being in AFF as drawer and/or in any subsequent holders in due course, following negotiation of the bills.

Despite the ingenuity of the argument, it does not seem to us that the effect of the decisions in R v Danger or R v Preddy is such as to render invalid the direction of the recorder or the conviction of the appellant on the particular facts of this case. The decision in R v Danger turned on the fact that the bill was at all times

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the property of the defendant and that all he obtained was the signature of the victim who acquired no right, retained no interest, and enjoyed no protection in respect of the bill of a kind recognised by the law of theft. However, at the time of that decision, there was no equivalent to s 5(3) of the 1968 Act; nor, on the facts, was there any bargain between the parties limiting the use or purpose to which the defendant could put the bill of exchange. In this case, as we have already held above, as between the appellant and the agents who were his victims, the latter were to be regarded as the owners of the bills pursuant to s 5(3), on the basis that the appellant had agreed to hold them by way of security to the account of the agents, a position not considered in R v Preddy.

On that basis the appellant, at the time of his appropriation of the bills, plainly intended in the words of s 6(1) ‘to treat the [bills] as his own or to dispose of [them] regardless of the [agents’] rights’.

Mr Cousens has again sought to avoid the application of those words to the position of the appellant by reliance on various published criticisms of the form of s 6(1); see for instance J R Spencer ‘The Metamorphosis of section 6 of the Theft Act’ [1977] Crim LR 653 and the commentary of Sir John Smith on R v Cahill [1993] Crim LR 141 at 142–143. See also the remarks of Edmund Davies LJ in R v Warner (1970) 55 Cr App R 93 at 97 to the effect that it is a misconception to interpret s 6 as watering down s 1 of the 1968 Act. Again, also, Mr Cousens has sought to refer us to various passages in Hansard in which Lord Stonham spoke to the intention behind the use of the words ‘permanently’ in cl 1(1) of the Theft Bill and its relationship with the proposed cl 6. Again, we are unable to derive useful assistance from those references.

It seems to us clear that the approach in Warner’s case referred to above has not always been strictly followed since by this court. In R v Downes (1983) 77 Cr App R 260 it was held that the defendant committed theft when he sold vouchers which belonged to the Inland Revenue and were made out in his name to third parties in circumstances in which he knew that they would be submitted, and thereby returned, to the revenue so as to obtain tax advantages. The court held (at 266) that the wording of the first part of s 6(1) ‘seems quite literally and clearly to cover the admitted facts of the present case’.

Further, although in R v Lloyd, R v Bhuee, R v Ali (1985) 81 Cr App R 182 at 188 Lord Lane CJ observed:

‘Bearing in mind the observations of Edmund Davies L.J. in WARNER ((1970) 55 Cr App R 93), we would try to interpret the section in such a way as to ensure that nothing is construed as an intention permanently to deprive which would not prior to the 1968 Act have been so construed …’

in R v Fernandes [1996] 1 Cr App R 175 at 188, when reviewing, inter alia, the dicta in R v  Warner and R v Lloyd, Auld LJ observed:

‘In our view, section 6(1), which is expressed in general terms, is not limited in its application to the illustrations given by Lord Lane C.J. in Lloyd ((1985) 81 Cr App R 182). Nor, in saying that in most cases it would be unnecessary to refer to the provision, did Lord Lane suggest that it should be so limited. The critical notion, stated expressly in the first limb and incorporated by reference in the second, is whether a defendant intended “to treat the thing as his own to dispose of regardless of the other’s rights”. The second limb of subsection (1), and also subsection (2), are merely specific illustrations of the application of that notion.’

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It seems to us that, in a case where a defendant has appropriated a valuable security handed over on the basis of an obligation that he will retain or deal with it for the benefit or to the account of the transferor, there is good reason for the application of s 6(1) if the intention of the transferee at the time of the appropriation is that the document should find its way back to the transferor only after all benefit to the transferor has been lost or removed as a result of its use in breach of such obligation.

It also seems to us, in such a case, that there is good reason for restricting the effect of R v Danger to factual situations in which the application of its logic is unavoidable (see the comment on it by Phillimore J in R v Governor of Brixton Prison, ex p Stallmann [1912] 3 KB 424, [1911–13] All ER Rep 385 and the discussion by Sir John Smith at [1997] Crim LR 403–404), just as there is good reason, where the factual situation permits, to give effect to the rationale behind R v Duru that the ‘substance’ of a cheque or valuable security lies in the right to present it and obtain the benefit of its proceeds, rather than in its character as a mere piece of paper with a message on it.

Accordingly, ground (g) also fails.

The appeal is dismissed.

Appeal dismissed.

N P Metcalfe Esq  Barrister.

Mainwaring and another v Goldtech Investments Ltd (No 2)

[1997] 4 All ER 16

Categories:        CIVIL PROCEDURE        

Court:        CHANCERY DIVISION        

Lord(s):        ROBERT WALKER J SITTING WITH TAXING MASTER ELLIS AND MR ANTHONY COWEN AS ASSESSORS        

Hearing Date(s):        3 FEBRUARY, 26 MARCH 1997        

Costs – Taxation – Review of taxation – Co-plaintiffs jointly and severally liable for order of costs when taxed – Bills of costs not served on one plaintiff and taxation proceedings continuing in his absence for over three years – Whether taxing master entitled to make order intended to have rerun of taxation – RSC Ord 62, r 30(5).

The plaintiffs, who were litigants in person and shared the same address, commenced proceedings against the defendant claiming unpaid salary and expenses. In 1989, in the course of the proceedings, two orders for costs were made against the plaintiffs jointly and severally. On 30 May 1990 the defendant sought to initiate taxation proceedings pursuant to RSC Ord 62, r 30(3)a and served copies of the bills of costs on the first plaintiff. On 18 September 1992, on an application by the defendant for taxation certificates against the second plaintiff, the Chief Taxing Master held that the defendant had failed to comply with the requirements of r 30(3) as copies of the bills had not been served on the plaintiff. Nevertheless, on 6 September 1994 the defendant obtained the certificates, signed on behalf of the Chief Taxing Master, and on 9 September 1994 served them on the second plaintiff. On 11 March 1996 the second plaintiff issued and served a summons for disallowance of all the costs and on 29 March the defendant sent him copies of the bills, as taxed. On 23 May the Chief Taxing Master in the exercise of his discretion under Ord 62, r 30(5)b ordered: (i) that copies of the bills sent to the second plaintiff on 29 March 1996 should stand as good service as of 23 May 1996 and (ii) that a sum equivalent to the interest accrued from 1 March 1990 until 23 May 1996 should be deducted from the bills of costs, the final figure to be decided by the taxing master at the end of the taxation. The second plaintiff applied to the judge for a review of the master’s decision.

Held – Where, following the making of an order for costs, one of several paying parties was not furnished with a copy of the bill of costs as required by Ord 62, r 30(3) and the taxation proceeded in his absence, by virtue of Ord 60, r 30(4)c the taxation was not a nullity but merely irregular, and the taxing master had power under Ord 60, r 30(5) to set aside the taxation either wholly or in part or make such order as he thought fit. That power included, in an appropriate case, the power to set aside the taxation permanently. The order made by the Chief Taxing Master on 23 May, however, which was intended to have a rerun of the taxation of the bills of costs, was not one that could be made under r 30(5), nor

Page 17 of [1997] 4 All ER 16

was it a reasonable exercise of the master’s discretion. Accordingly, having regard to the fact that more than six years had passed since the orders for costs had been made, that the defendant had been on notice of the failure to serve the second plaintiff for three and a half years and that many hours had already been expended by the Chief Taxation Master in the process, it was in the interest of the parties and in the public interest to make an end of the matter and bring the taxation to an end (see p 19 g h, p 22 c d f and p 24 f to h, post).

Notes

For taxation of costs generally, see 37 Halsbury’s Laws (4th edn) para 726–743.

Cases referred to in judgment

Bromsgrove Medical Products Ltd v Edgar Vaughan & Co Ltd [1997] 2 All ER 56.

Hunt v R M Douglas (Roofing) Ltd [1988] 3 All ER 823, [1990] 1 AC 398, [1988] 3 WLR 975, HL.

Macro (Ipswich), Re, Re Earliba Finance Co Ltd [1996] 1 All ER 814, [1996] 1 WLR 145.

K, Re [1989] CA Transcript 1198.

Royal Bank of Scotland v Allianz International Insurance (17 June 1994, unreported), QBD.

Waterson Hicks v Eliopolous (1996) 140 SJ 149, [1996] CA Transcript 1394.

Case also cited or referred to in skeleton argument

Pauls Agriculture Ltd v Smith [1993] 3 All ER 122.

Review of taxation

The second plaintiff, Robert Lisle, applied for a review of the decision of the Chief Taxing Master on 31 May 1996, whereby on Mr Lisle’s summons to disallow all costs on two bills of costs served on him by the defendant’s solicitors, Messrs Lipkin Gorman, on 29 March 1996, he ordered that (i) the bill of costs (as taxed) sent on that date should stand as good service as of 23 May 1996 and (ii) a sum equivalent to interest accrued should be deducted from that bill. The matter was heard in chambers but judgment was given by Robert Walker J in open court. The facts are set out in the judgment.

The first plaintiff, Zipporah Mainwaring, appeared as Mackenzie friend for Mr Lisle and on her own behalf.

Peter Sheridan QC (instructed by S J Berwin) for Lipkin Gorman.

Cur adv vult

26 March 1997. The following judgment was delivered.

ROBERT WALKER J.

BACKGROUND

This judgment gives my decision on some points of principle raised at a hearing on 3 February 1997. It does not, unfortunately, dispose of all the points raised. The hearing on 3 February was a sequel to a two-day hearing on 30 and 31 July 1996, after which I gave a reserved judgment in open court on 11 October 1996 ([1997] 1 All ER 467). Then as now I sat with assessors, Taxing Master Ellis and Mr Anthony Cowen. The earlier judgment sets out the background to the

Page 18 of [1997] 4 All ER 16

matter at some length, and I do not propose to repeat it now (see [1997] 1 All ER 467). It is sufficient to say that the earlier judgment was on two reviews under RSC Ord 62, r 35 of two decisions of Chief Taxing Master Hurst. The taxations followed hard-fought litigation in consolidated proceedings in which Zipporah Mainwaring and Robert Lisle were the plaintiffs in the original action, and a company called Goldtech Investments Ltd (Goldtech) was the defendant. Their positions were reversed in a second action ordered to stand as a counterclaim. There was fierce interlocutory skirmishing and the matter twice went to the Court of Appeal.

The first of the reviews heard last year was concerned with the taxation of four bills of costs in respect of which Miss Mainwaring was in the position of paying party. The bills were for convenience designated (A), (B), (C) and (D), as follows: (A) costs under an order dated 13 November 1989 of Hoffmann J (declining to order Messrs Lipkin Gorman, as Goldtech’s solicitors, to pay the costs of the consolidated proceedings, in which Miss Mainwaring and Mr Lisle were wholly successful, but against an hopelessly insolvent company); (B) costs under an order dated 24 January 1991 of the Court of Appeal (on appeal from the above order of Hoffmann J); (C) costs (to the extent of half) under an order dated 4 December 1989 of Hoffmann J (restraining Miss Mainwaring from using certain documents which had been handed to her by Master Gowers); (D) costs under an order dated 2 October 1991 of Hoffmann J (refusing Miss Mainwaring’s renewed application for leave to make use of those documents).

The first review was concerned with five specific objections to the Chief Taxing Master’s rulings of those bills (and especially on bill (A)). The second review was concerned with a taxation in respect of which Miss Mainwaring was the receiving party, under an order which the Chief Taxing Master made against Lipkin Gorman on 20 September 1991. I am not concerned with that now.

What I am concerned with is a reference back to me by the Chief Taxing Master of some questions arising out of the first review, and also an application to me (by way of appeal or review) by Mr Lisle. In my judgment on the first review, I remarked parenthetically (at 471):

‘Most of the orders for costs were made against Mr Lisle also, but apparently the bills were not served on him until long after their service on Miss Mainwaring.’

I did not on that occasion go further into Mr Lisle’s position, and I certainly decided nothing about it. On this occasion, however, I must do so. As I have said, Mr Lisle was Miss Mainwaring’s co-plaintiff in the original action forming part of the consolidated proceedings, and her co-defendant in the other action, and the orders for costs that led to bill (A) and bill (C) were made against him as well, so that he and Miss Mainwaring were in principle jointly and severally liable for the costs when taxed.

Part V of Ord 62 deals with procedure on taxation. By r 29 the receiving party must within three months of the order which establishes his entitlement to costs initiate the taxation by producing the requisite document (identified in App I to Ord 62) to the appropriate office—in this case by producing the order to the Supreme Court Taxing Office. The party who initiates the taxation must also lodge his bill of costs, a statement of the parties, and other supporting documents as specified in r 29(7).

By Ord 62, r 30(3) a party whose costs are to be taxed must within seven days after commencing the taxation process send a copy of his bill of costs to every

Page 19 of [1997] 4 All ER 16

other party entitled to be heard on the taxation. As might be expected, that includes any party to the proceedings who has taken any part in the proceedings and is directly liable under a costs order made against him (see r 29(8)(a)). So Mr Lisle was, in relation to bill (A) and bill (C), a party entitled to be heard, and Lipkin Gorman should have served a copy of bill (A) and bill (C) on him within a maximum of three months and one week from the date of the orders awarding costs against Mr Lisle (see rr 29(1) and 30(3)).

However that did not occur. What happened was that on 30 May 1990 copies of bill (A) and bill (C) were served, late, on Miss Mainwaring alone. Miss Mainwaring and Mr Lisle have for some time shared the same address—40 Yeomans Row, London SW3 2AH—and it may be conjectured that the service of the bills on Miss Mainwaring would have brought the bills to the notice of Mr Lisle also. But at a hearing before the Chief Taxing Master on 18 September 1992 Lipkin Gorman (acting, apparently, as agents for S J Berwin who were in turn acting for Lipkin Gorman) applied for taxation certificates against Mr Lisle alone. They made that application, as I understand it, because Miss Mainwaring had objected to the bills but Mr Lisle had not. Miss Mainwaring took the point, on Mr Lisle’s behalf, that the bills had not been served on him. After some discussion—indeed, it seems, after something of an altercation—the Chief Taxing Master concluded that ‘if Mr Lisle had not been served, he had not been served’. This was, as I understand it, a ruling that Lipkin Gorman had not complied with Ord 62, r 30(3) because a copy of the bill had not been served on Mr Lisle, a party entitled to be heard on the taxation. This was done two and a half years after service on Mr Lisle should have taken place.

It might have been expected that some step would then have been taken in order to resolve, one way or another, the irregularity which was clearly identified on 18 September 1992. The taxation had then been proceeding, in Mr Lisle’s absence, for over two years (during part of which Mr Lisle had, it seems, been seriously ill). Where there is a departure from the proper course of the taxation the position is dealt with by Ord 62, r 30(4) and (5), which are in the following terms:

‘(4) Where, in beginning or purporting to begin any taxation proceedings or at any stage in the course of or in connection with those proceedings, there has been a failure to comply with the requirements of this Order, whether in respect of time or in any other respect, the failure shall be treated as an irregularity and shall not nullify the taxation proceedings or any step taken in those proceedings.

(5) The taxing officer may, on the ground that there has been such a failure as is mentioned in paragraph (4), and on such terms as he thinks just, set aside either wholly or in part the taxation proceedings or exercise his powers under this Order to make such order (if any) dealing with the taxation proceedings generally as he thinks fit.’

I shall consider below what range of choice was properly open to the Chief Taxing Master once the failure to serve Mr Lisle had been established. What actually occurred, surprising as it may be, was that the failure to send a copy of the bill of costs to Mr Lisle was left entirely in the air. On 8 March 1993—three years on from when the taxation should have commenced—there was a further hearing of Miss Mainwaring’s objections. On 6 September 1994 the solicitors obtained taxation certificates from the Supreme Court Taxing Office, signed by Taxing Master Wright on behalf of the Chief Taxing Master, relating to bill (A)

Page 20 of [1997] 4 All ER 16

and bill (C) (there was also a certificate dated 9 August 1994, incorrectly dated 9 August 1992, relating to bill (D), but I need not go into that). The certificates dated 6 September 1994 certified Lipkin Gorman’s bill (A) at £78,892, and Lipkin Gorman’s bill (C) at £2,353·64 (of which half was payable under the costs order). Each certificate ended with the formula ‘objections to the taxation having been lodged by the plaintiff [in the singular] which I have duly considered and allowed in part’ (in bill (A)) or ‘dismissed’ (in bill (C)). The reference to the plaintiff was plainly to Miss Mainwaring. The certificates do not in any way address the position of Mr Lisle, in respect of whom there was (to the solicitors’ knowledge) non-compliance with r 30(3) which had by then been continuing for about four and a half years.

On 9 September 1994 S J Berwin served four taxation certificates on Miss Mainwaring and the same four certificates, separately, on Mr Lisle. On the following day Mr Lisle rejected them (two related to costs orders—on bill (B) and bill (D)—not made against Mr Lisle). S J Berwin did not respond to Mr Lisle then, and the matter went into abeyance again for a further year and a half, until March 1996. On 11 March 1996 Mr Lisle issued and served a summons for disallowance of all the costs. A hearing was fixed for 28 March. On 25 March Mr Lisle swore an affidavit. The hearing on 28 March was adjourned. On 29 March S J Berwin sent copies of bills (A) and (C), as taxed, to Mr Lisle. Further affidavit evidence was sworn on behalf of both sides during April and May.

THE ISSUES TO BE DECIDED

That was the background to Mr Lisle’s summons which was heard by the Chief Taxing Master on 23 May 1996, more than six years after copies of bills (A) and (C) should have been sent to him. At the end of the hearing the Chief Taxing Master ordered: (i) that the copy bills of costs (as taxed) sent to Mr Lisle on 29 March 1996 should stand as good service as of 23 May 1996; and (ii) that a sum equivalent to the interest accrued from 1 March 1990 until 23 May 1996 should be deducted from the bills of costs, the final figure to be decided by the taxing master at the end of the taxation. Mr Lisle was awarded the costs of the summons.

The effect of this order seems to have been intended to set in motion a new process of taxation by which Mr Lisle was bound, but on the basis that Mr Lisle obtained the benefit of all the reductions which Miss Mainwaring had achieved at the numerous hearings on her points in issue and objections which took place during 1992 and 1993. The Chief Taxing Master seems to have concluded that Mr Lisle had not suffered any great prejudice because he had in that way obtained the benefits achieved by Miss Mainwaring’s skill and assiduity.

However Mr Lisle would have obtained that advantage if he had been duly given notice at the outset, and had been bound by the taxation from the outset. Six years had gone by since that should have happened, and for over three and a half years of that period S J Berwin had, as the Chief Taxing Master observed, been clearly on notice. All that seems to have been offered by way of excuse, at the hearing on 23 May 1996, was that Miss Mainwaring had been authorised to represent Mr Lisle in the litigation. But the Chief Taxing Master seems to have rejected that argument, as he had rejected a similar argument when the point first emerged on 18 September 1992.

Having brought the narrative more or less down to date, (or at any rate down to the stage at which I and my assessors became concerned in the matter on the reviews initiated by Miss Mainwaring) I think that I should pause in order to

Page 21 of [1997] 4 All ER 16

identify what are the issues before me. That has not been entirely easy but the issues on which I have now heard argument are (in ascending order of complexity and importance) as follows.

(i) The Chief Taxing Master on 20 November 1996 referred back to me the first review under Ord 62, r 35 (that on which Miss Mainwaring is a paying party) on which I had given judgment on 11 October 1996. The point involved here is, I believe, little more than a procedural misunderstanding.

(ii) There is an issue as to how to give effect to the Chief Taxing Master’s order, given at the hearing on 23 May 1996, as to the adjustment in respect of disallowed interest. The law has got into something of an unnatural tangle about interest on costs, as I shall have to recount. This point may be thought premature (because the Chief Taxing Master directed the adjustment to be made at the end of the taxation of Mr Lisle’s costs). But Miss Mainwaring raised the point at the hearing on 20 November 1996 and there was argument about it. Moreover, it is raised in para 2 of Mr Lisle’s notice of appeal and application dated 26 November 1996. That notice, and the reference back of the first review, are the matters formally before me.

(iii) The reference to the taxation of Mr Lisle’s costs leads to what is the most important issue before me. It appears that it may have been the intention of the order of 23 May 1996 to direct what I might call a rerun of the taxation of bills of costs (A) and (C), with Mr Lisle getting the benefit of reductions already secured by Miss Mainwaring but also having the right to put forward new points in issue of his own. If that was indeed the intention, and if that order stands, then Mr Lisle’s application for a review of the Chief Taxing Master’s decision on 20 November 1996 (dismissing Mr Lisle’s objections to the amount allowed in respect of counsel’s fees) will have to proceed. I and my assessors have not yet heard any submissions about that part of the matter. But Mr Lisle seeks leave to appeal out of time against the Chief Taxing Master’s order of 23 May 1996, and so the order is challenged. Even if it were not challenged on appeal, it would be necessary to consider any possible irregularity apparent on its face.

Having identified these points in ascending order of importance, I propose to deal with them in descending order of importance. The issue of separate taxations does, it seems to me, go to the most basic principles underlying the rules and practice as to taxation of costs. Basic principles can sometimes be overlooked in the heat of controversy.

Order 62, Pts IV and V

The solicitors for a receiving party prepare and lodge a bill of costs. In the simplest case (a single plaintiff wholly successful against a single defendant, and no interlocutory orders for costs to be taxed and paid forthwith), there will be one or more orders for costs (since even in the simplest case, there will usually be some interlocutory orders for costs, though not requiring immediate taxation) but a single bill of costs to be prepared and lodged, and to be copied to the defendant as paying party.

If (by way of variation on the above example), the plaintiff succeeds against several defendants with different interests, there may well be several orders for costs which affect the defendants in different ways (for instance one defendant may have failed in resisting an injunction which other defendants submitted to, or another defendant may have been unsuccessful in applications for particulars or discovery which other defendants were not involved in). Nevertheless, there will in the end normally be only one bill of costs. The defendants may not each

Page 22 of [1997] 4 All ER 16

be liable for every item, but each is a party entitled to be heard on the taxation of the costs with which that party is concerned and each should receive a copy of the relevant bill of costs, under provisions in Pt V of Ord 62 which I have already referred to.

It seems to me reasonably clear from the general scheme of Ord 62, Pts IV and V that one of the basic principles (underlying the detailed provisions that I have already referred to) is that normally there should be a single process of taxation of the costs of proceedings, culminating in a single final certificate issued by the taxing officer under Ord 62, r 22. That final certificate will show what amount is receivable by each receiving party and what amount is payable by each paying party. This analysis is supported by what Ferris J said in Re Macro (Ipswich), Re Earliba Finance Co Ltd [1996] 1 All ER 814 at 818, [1996] 1 WLR 145 at 149.

What then is to happen if, for whatever reason, one of several paying parties is not furnished with a copy of a bill of costs, and the taxation proceeds in his absence? The starting point must be Ord 62, r 30(4) and (5), the terms of which I have already set out. A taxation that has proceeded in a paying party’s absence is not a nullity, but it is irregular, and the taxing officer has a wide discretion whether to set aside the taxation proceedings permanently, or to set them aside and start again, or to take some less drastic action to deal fairly with the irregularity.

On this point, Miss Mainwaring (making submissions both on her own behalf and on behalf of Mr Lisle as the two paying parties) referred to the decision of the Court of Appeal in Waterson Hicks v Eliopolous (1996) 140 SJ 149, where it is noted rather than reported. The case ultimately turned on the ostensible authority of a costs draftsman, and on ratification. I cannot get any help from the note as to the width of a taxing officer’s discretion under Ord 62, r 30(5) in a situation where one or some of the paying parties have not had notice of the taxation.

On its face, r 30(5) is expressed in wide terms. Taxation proceedings may be set aside ‘either wholly or in part’. I see no reason in principle why that should not include, in an appropriate case, permanently setting aside taxation proceedings as against one or some only of the paying parties. After such an order there would still be a single process of taxation, but the paying parties would have been reduced in number. Were the taxing officer’s powers more restricted, absurd results might follow. Imagine the case of an action brought by 100 plaintiffs (not now such an unusual event) who fail in the action and all become jointly and severally liable under an order for costs in favour of a single defendant. The defendant wishes to proceed to taxation and (having lost track of one single plaintiff, through no fault of that plaintiff) decides to proceed against the 99 who can be served, consciously not giving notice to the hundredth, who is thought not to be worth pursuing. Three years later, just before the end of the taxation, the hundredth plaintiff reappears, having inherited a fortune or won a lottery. Fairness and common sense suggest to me that it would be absurd for the receiving party to be able to bring the hundredth plaintiff into the taxation at that stage, especially if the consequence was that the whole process had to be rerun in order to hear new objections from a single paying party. But it would also be absurd if the 99 plaintiffs who had had notice of the taxation, and had taken part in it over three years, could receive a windfall benefit, possibly by having the whole taxation proceedings set aside.

When this point was put to Miss Mainwaring in the course of her submissions she pointed out that she and Mr Lisle are jointly and severally liable under the costs orders (in relation to bill (A) and bill (C)) and that the setting aside of the

Page 23 of [1997] 4 All ER 16

taxation proceedings as against Mr Lisle only would not necessarily release him from all liability, because he might face a claim from her for contribution. I have not heard full adversarial argument as to whether the Civil Liability (Contribution) Act 1978 applies as between litigants who are jointly liable under an order for costs made against them. I will assume for present purposes that it does. On that assumption, the permanent setting aside of taxation proceedings against one or some only of several paying parties might leave outstanding claims for contribution, so that the setting aside of the taxation proceedings did not wholly release from all liability the paying party or parties apparently benefited by the order to set aside. That might sometimes add greatly to the taxing officer’s problems in deciding what was the fair order to make under r 30(5). It is a matter of conjecture whether Miss Mainwaring (if she ends up as effectively the only paying party) would decide to pursue any right of contribution that she may have against Mr Lisle. What is not a matter of conjecture—since the solicitors’ action in pursuing taxation against Mr Lisle indicates their views on the matter—is that the receiving party would prefer to have a certificate directly enforceable against both Miss Mainwaring and Mr Lisle.

I summarise, therefore, what I take to be the relevant principles relevant here. There is to be a single process of taxation, culminating in one final certificate under r 22. But a taxing officer may (at any rate before a final certificate is issued) set aside the taxation proceedings under r 30(5), and may in appropriate circumstances (which will be exceptional) do so in relation to one or some only of several paying parties. I should for completeness add that a taxing officer has power, under Ord 62, r 22(1)(e), to set aside a taxation certificate in order to extend time under r 33(2); but that power is not in point here.

The order of 23 May 1996

I must now go back to the order which the Chief Taxing Master made on 23 May 1996. That was one of a very small number of hearings attended by Mr Lisle without the support of Miss Mainwaring. The solicitors appeared by leading counsel. There seems to be no note (agreed or otherwise) of the hearing. The actual terms of the substantive order were—

‘(1) that the copy bills of costs (as so far taxed) sent to Robert Lisle on 29 March 1996 stand as good service as of the 23 May 1996 (2) that a sum equivalent to the interest accrued from 1 March 1990 until 23 May 1996 be deducted from the bills of costs, the final figure to be decided by the Taxing Master at the end of the of the taxation.’

So the first paragraph of the order does not spell out that the intention was to have a ‘rerun’ of the taxation of bill (A) and bill (C), with Mr Lisle alone having the opportunity to raise further objections and if he thought fit to go to a further review under Pt VI of Ord 62. But it seems to be common ground that that was the intention, and that is confirmed by the course of subsequent events, including Mr Lisle’s notice of appeal and application seeking reductions in the amount allowed for counsel’s fees. Nor does the second paragraph of the order spell out whether it was intended to operate for the benefit of Mr Lisle alone; that is not common ground, but it seems to me likely that that was the intention, since a certificate as to Miss Mainwaring’s costs had been issued on 6 September 1994 (but was subject to review under r 35).

The situation facing the Chief Taxing Master on 23 May last was a very unusual and contentious one. He had (depending on the view which he took of the facts)

Page 24 of [1997] 4 All ER 16

a wide range of choice open for the exercise of his discretion. At one extreme (had he accepted the failure to give notice to Mr Lisle as the merest formality in view of the paying parties’ shared address), he might have waived the irregularity on the ground that no injustice had been occasioned. But the Chief Taxing Master did not take that view of the facts, and I am not asked to differ from him on that.

Towards the other extreme, the Chief Taxing Master could (if I am right in my view of r 30(5) and subject to the question of jurisdiction) have permanently and entirely set aside the taxation proceedings as against Mr Lisle, leaving the completed process of taxation and the certificates of 6 September 1994 intact as against Miss Mainwaring. The most extreme course of all (and to my mind probably outside the range of reasonable choice) would have been to set aside the taxation permanently and entirely as against both paying parties. The only justification for an order in those terms would have been a conviction that that was the only way of doing justice to Mr Lisle (because of likely contribution claims against him); and in the circumstances of this case, that seems to me to be a very steep and high hill to climb.

I have referred above to the question of jurisdiction. It is arguable (but was not argued before me) that after Taxing Master Wright had signed final certificates in September 1994, the taxing officer had fully discharged his function, and that subject to any correction under the slip rule, the Chief Taxing Master had no power to make any further order in the matter. It seems unlikely that r 30(5) confers a free-standing jurisdiction (after an irregularity has occurred) regardless of whether or not a final taxation certificate has been issued. Moreover, the decision of Chadwick J in Bromsgrove Medical Products Ltd v Edgar Vaughan & Co Ltd [1997] 2 All ER 56, although decided on r 33 rather than r 30(5), supports the finality of a certificate. But I need not decide the point and as I have not heard full argument on it I shall not do so.

The first difficulty about the order that was actually made is, as I have said, in being sure what its effect was intended to be. But on my understanding of it, and for reasons which I have already set out, I consider that it was not an order that could be made under r 30(5), wide though that paragraph is. Moreover (if I am wrong on that), I consider that it was, with all respect to the Chief Taxing Master, not a reasonable exercise of his discretion. More than six years had passed since the orders for costs had been made. For three and a half years the solicitors had been on notice of the failure to serve Mr Lisle. Dozens of hours of the Chief Taxing Master’s time had already been taken up in the taxation process. In the interests of the parties and in the public interest, it was time to make an end of the matter.

It seems to me that I can and must regard the order of 23 May 1996 (assuming it to have been made with jurisdiction) as open for reconsideration. I propose to exercise my own discretion as to what order should be made instead, rather than remitting the matter to the Chief Taxing Master. I have already given an indication of the way in which I am disposed to exercise my discretion. But at the hearing on 3 February 1997, when time ran out, I said that I would give the parties an opportunity of addressing me further as to the exercise of my discretion, if that issue arose after my ruling on jurisdiction; and so I shall hear further submissions if both or either of the parties should wish to make them.

Page 25 of [1997] 4 All ER 16

Interest

As I am reconsidering the Chief Taxing Master’s order I need not reach a final view as to the precise extent and effect of his order as to interest. But I have heard submissions and I should briefly express my view.

Under ss 17 and 18 of the Judgments Act 1838 as construed by the House of Lords in Hunt v R M Douglas (Roofing) Ltd [1988] 3 All ER 823, [1990] 1 AC 398, an order for costs carries interest at the judgment rate (in this case, 15%) from the date of the order (not merely from the completion of the taxation). So as Garland J said in Royal Bank of Scotland v Allianz International Insurance (17 June 1994, unreported):

‘The 1838 Act is an admirable incentive to the early payment of judgment debts but tends to be a disincentive to the early completion of taxation because the rate of interest exceeds commercial rates. The receiving party may have nothing to lose and something to gain by leisurely progress. Interest under the statute cannot be disallowed or the rate reduced: a result has to be achieved by reducing the capital sum to such a figure that when interest is added back, the sum of the two, when subtracted from the original combined figure for costs plus interest, equals the deduction sought to be made.’

Garland J then went on to consider what adjustment should be made for the paying party having the use of the money during the period of delay. Such an adjustment was no doubt appropriate in the case before him, which was between a bank and an insurance company. It may not be appropriate in every case, especially as the disallowance of interest may have a penal element and does not depend of proof of prejudice to the paying party (see Re K [1989] CA Transcript 1198).

Garland J’s explanation can be put algebraically. If B is the amount of the taxed bill, the entitlement to interest will be (at a level 15% rate of simple interest)—

B x 15N

       100

where N is the number of years between the costs order and final payment. So the sum finally payable, if no interest is disallowed, will be—

B x (1 + 15N)

               100

In order effectively to disallow all interest and arrive at B as the sum finally payable, it is necessary to calculate the amount of the bill to be allowed at a figure A such that—

A x (1 + 15N) = B

               100

Miss Mainwaring put forward an alternative formula (though she did not express it algebraically) that is—

A = B x (1 – 15N)

                      100

Under the first formula A is half B after six and two-thirds years; under the second formula, A is zero after six and two-thirds years.

Page 26 of [1997] 4 All ER 16

The first formula is in line with the judgment of Garland J and was probably what the Chief Taxing Master intended. But it is clear from the authorities as a whole that the exercise of this disciplinary jurisdiction in cases of culpable delay is not solely or even primarily a matter of applying a formula. The process embodied in the formula provides a guide (though views will differ as to whether it is helpful to express it algebraically). The guide may be useful for a delay of less than a year (as in the case before Garland J) where the intention is simply to disallow interest. For a period not exceeding two years the disparity between the results produced by the two formulae is fairly small: Miss Mainwaring’s formula produces a figure for A of 85 (against about 87) after one year and 70 (against about 77) after two years. Any longer delay will in most cases be wholly inexcusable and deserving of more drastic action than a mere disallowance of interest, so that Miss Mainwaring’s formula would then be more appropriate if it were a choice between formulae (but as I have said, it is not).

The previous review

In my judgment last year I thought I had made it clear that I was not remitting to the Chief Taxing Master the matter of assistant solicitors’ and articled clerks’ hours (see [1997] 1 All ER 467 at 474). However at the hearing on 20 November 1996 it seems to have been supposed that I had done so, and the Chief Taxing Master has now referred the matter back to me. I shall therefore now make it abundantly clear that I order the certificate issued on 6 September 1994 in relation to bill (A) (which remains in force in relation to Miss Mainwaring) to be amended by the deduction from the preparation item (ie part A of the bill) of an amount representing the hours of assistant solicitors’ and articled clerks’ time which I disallowed multiplied by the appropriate expense rates as allowed (including the appropriate uplift as allowed for care and conduct). If there is any dispute as to that amount, each side should produce to the court a calculation showing how its figure has been arrived at.

CONCLUSION

I think it extremely unlikely that I shall be persuaded, at any future hearing, to entertain the points which Mr Lisle now seeks to raise in relation to the quantum of counsel’s fees in 1989, or to disturb the past orders as to the costs of the taxation proceedings. The taxation must now be brought to an end. But I will if either party wishes hear further submissions either as to the exercise of discretion on the application heard on 23 May 1996, or as to the amount to be deducted from the sum certified in respect of bill (A) in consequence of the previous review. Any application for a further hearing should be made within 14 days of receipt of this judgment. If any application is made, the amendment of bill (A) will be deferred until the application has been disposed of.

I regret that it has taken some time to prepare this judgment. The process of consultation with assessors necessarily takes time. In this case I have received invaluable assistance from my assessors which I gratefully acknowledge, although the responsibility for the judgment is mine.

Order accordingly.

Celia Fox  Barrister.

T v Child Support Agency and another

[1997] 4 All ER 27

Categories:        FAMILY; Family Proceedings, Children        

Court:        FAMILY DIVISION        

Lord(s):        CAZALET J        

Hearing Date(s):        14 APRIL, 22 MAY 1997        

Paternity – Declaration of paternity – Appeal against declaration – Family proceedings court making declaration that appellant was father of child – Subsequent medical evidence confirming that appellant could not be father of child – Whether appellant able to appeal to High Court against declaration – Child Support Act 1991, s 27.

The High Court does not have power to entertain an appeal from a declaration of paternity made by the family proceedings court under s 27a of the Child Support Act 1991, since no right of appeal is conferred by that Act either expressly or pursuant to powers delegated to the Lord Chancellor under s 45(1)(b)b. However, if following a s 27 declaration medical evidence establishes conclusively that a person cannot be the father of a child, the court can, in the absence of any other available relief, make a declaration to that effect under RSC Ord 15, r 16c (see p 31 h j, p 32 b, p 35 d e and p 36 j, post).

Re J S (a minor) [1980] 1 All ER 1061 distinguished.

Notes

For appeals from magistrates’ courts to the High Court generally, see 29 Halsbury’s Laws (4th edn) para 473.

For the Child Support Act 1991, ss 27, 45, see 6 Halsbury’s Statutes (1992 reissue) 665, 679.

Cases referred to in judgment

E (a minor) (child support: blood test), Re [1994] 2 FLR 548, CA.

Hager v Osborne [1992] 2 All ER 494, [1992] Fam 94, [1992] 2 WLR 610.

J S (a minor), Re [1980] 1 All ER 1061, [1981] Fam 22, [1980] 3 WLR 984, CA.

P v P (periodical payment: appeal) [1995] 1 FLR 563.

R v West Sussex Quarter Sessions, ex p Albert and Maud Johnson Trust Ltd [1973] 3 All ER 289, [1974] QB 24, [1973] 3 WLR 149, CA.

Appeal

T appealed from the decision of the Teesside Family Proceedings Court on 7 August 1996 declaring pursuant to s 27 of the Child Support Act 1991 that he was the father of the child, H, and, further or in the alternative, applied for a declaration pursuant to RSC Ord 15 that he could not be the father of H by reason of DNA tests carried out on 3 March 1997. The respondents were: the Child Support Agency and the mother of H. The facts are set out in the judgment.

Valerie McMinn (instructed by Punch Robson, Middlesbrough) for the appellant.

Christine Harmer (instructed by Askews, Middlesbrough) for the Child Support Agency.

Andrew McFarlane (instructed by the Official Solicitor) as amicus curiae.

The mother did not appear.

Page 28 of [1997] 4 All ER 27

CAZALET J. This is an appeal against a declaration of paternity in regard to a child, H, who was born on 7 December 1994 and is now aged about two and a half years. The appellant is T and the first respondent is L, who is the mother of H. The second respondent is the Child Support Agency. Following an invitation made by the court on 14 April 1997 the Official Solicitor appears as amicus curiae.

The appellant appeals against the declaration made by the Teesside Family Proceedings Court on 7 August 1996 that he is the father of H. He further, and in the alternative, asks that this court make a declaration pursuant to RSC Ord 15 that he cannot be the father of H by reason of DNA tests carried out by Cellmark Diagnostics on 3 March 1997.

For reasons which will become apparent in the course of this judgment the parties are now agreed as to the manner in which this appeal and the application for a declaration from this court should proceed. They, with the support of the Official Solicitor as amicus, ask the court to order by consent as follows: (1) that this appeal is dismissed on the ground that there is no statutory provision which allows the High Court to entertain an appeal from a decision of the family proceedings court under s 27 of the Child Support Act 1991; and (2) that there be a declaratory judgment under Ord 15, r 16 to the effect that H cannot be the father of H in view of the DNA tests carried out by Cellmark Diagnostics on 3 March 1997.

Because the very unusual circumstances of this case have highlighted the fact that there appears to be no right of appeal against a declaration of paternity made by the family proceedings court under s 27 of the 1991 Act I have thought it appropriate to state my reasons both for making the order proposed by the parties dismissing the appeal, and for making the declaration as sought.

History

It is not in dispute that the mother and the appellant had a relationship from 1992 until April/March 1994. The mother said in evidence before the justices that shortly after she and the appellant had broken off relations, her relationship with another man began. She discovered that she was pregnant about six weeks into this new relationship. At the time she was told by her midwife that her pregnancy was nine weeks advanced. This latter statement, the mother said, made it clear to her that the appellant must be the father of H.

Following the birth of H, the child support officer, after the appellant had denied paternity, interviewed the mother. The mother said that she was willing to undergo a DNA test. On 6 April 1995 the appellant was interviewed by the child support officer. The appellant agreed that he could be the father of H; he asked for there to be DNA tests as there was an absence of clarity about the relevant dates. He was aware that the mother had started a new relationship shortly after his relationship with her had come to an end.

On a further interview by the child support officer on 13 April 1995 the mother stated that she was now certain that the appellant was the father. She raised the question of a private DNA test for speed and economy. The Child Support Agency subsequently wrote to the appellant explaining the possibility of a cheap form of DNA testing. The appellant did not follow this proposal through. Accordingly, on 13 May 1996 the Child Support Agency made an application to the Teesside Magistrates’ Court for a declaration of paternity under s 27 of the 1991 Act.

The appellant was properly served with notice of that hearing. On 7 August 1996 the mother’s application for the declaration came on for hearing. The

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appellant failed to attend the hearing and, as he had been duly served, the court, as it was entitled so to do, proceeded with the case and heard the mother’s evidence. She recited the factual position, as I have indicated she understood it to be. She said that she had no doubt that the appellant was the father of H. Consequent on hearing her uncontested evidence the justices found the appellant to be the father of H and made the declaration in such terms.

Notice of appeal having been lodged, the appeal, on 28 October 1996, came before Bennett J, sitting in the Family Division of the High Court in Newcastle. At that hearing both parties agreed to invite the court to adjourn the appeal with a direction for blood tests to be taken and for the DNA report to be filed. The court made the order as sought. The appropriate samples from the appellant, the mother and the child were taken. On 3 March 1997 Cellmark Diagnostics made their report. This was to the effect that the appellant could not be the father of H.

On 14 April 1997 a direction was made that the Official Solicitor be invited to act as amicus curiae. The Official Solicitor helpfully accepted that invitation and so the appeal and application now come before me. I consider, first, the appeal.

The appeal

It has been long established that the right to appeal from justices to the High Court can only exist if created by statute (Ord 55, r 1); an appeal (using the term broadly) by way of case stated can be made pursuant to s 111 of the Magistrates’ Courts Act 1980 and ss 28 and 28A of the Supreme Court Act 1981. The appeal here has not been brought by way of case stated, although for the reasons later given in this judgment, I consider that any such appeal would have failed.

Miss McMinn, on behalf of the appellant, has at the outset of this hearing properly conceded that, on the law as it currently stands, no right of appeal against the declaration made by the family proceedings court in this case is available to the appellant. Both the Child Support Agency and the Official Solicitor support that view.

Section 27(1) to (4) of the Act, under which the declaration was made, provides as follows:

‘(1) Where—(a) a child support officer is considering whether to make a maintenance assessment with respect to a person who is alleged to be a parent of the child, or one of the children, in question (“the alleged parent”); (b) the alleged parent denies that he is one of the child’s parents; and (c) the child support officer is not satisfied that the case falls within one of those set out in section 26(2), the Secretary of State or the person with care may apply to the court for a declaration as to whether or not the alleged parent is one of the child’s parents.

(2) If, on hearing any application under subsection (1), the court is satisfied that the alleged parent is, or is not, a parent of the child in question it shall make a declaration to that effect.

(3) A declaration under this section shall have effect only for the purposes of this Act.

(4) In this section “court” means, subject to any provision made under Schedule 11 to the Children Act 1989 (jurisdiction of courts with respect to certain proceedings relating to children) the High Court, a county court or a magistrates’ court.’

The declaration made by the justices was made pursuant to s 27(2) of the Act. Accordingly, since the declaration was not made under the Children Act 1989, no

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right of appeal to this court arises pursuant to s 94(1) of the 1989 Act since this latter section, which gives a right of appeal from justices, is expressly confined to appeals in respect of orders, or refusals to make orders, under that Act. Indeed, the supplementary notice of application for leave to appeal in this case is headed, ‘In the Matter of Appeal under Section 45 of the Child Support Act 1991’.

I turn now to s 45 of the Act upon which section the appellant initially based his appeal. Section 45 provides as follows:

‘(1) The Lord Chancellor or, in relation to Scotland, the Lord Advocate may by order make such provision as he considers necessary to secure that appeals, or such class of appeals as may be specified in the order—(a) shall be made to a court instead of being made to a child support appeal tribunal; or (b) shall be so made in such circumstances as may be so specified.

(2) In subsection (1), “court” means—(a) in relation to England and Wales and subject to any provision made under Schedule 11 to the Children Act 1989 (jurisdiction of courts with respect to certain proceedings relating to children) the High Court, a county court or a magistrates’ court …

(3) Schedule 11 to the Act of 1989 shall be amended in accordance with subsections (4) and (5).

(4) The following sub-paragraph shall be inserted in paragraph 1, after sub-paragraph (2)—“(2A) Sub-paragraphs (1) and (2) shall also apply in relation to proceedings—(a) under section 27 of the Child Support Act 1991 (reference to court for declaration of parentage); or (b) which are to be dealt with in accordance with an order under section 45 of that Act (jurisdiction of courts in certain proceedings under that Act)”.

(5) In paragraphs 1(3) and 2(3), the following shall be inserted after “Act 1976”—“(bb) section 20 (appeals) or 27 (reference to court for declaration of parentage) of the Child Support Act 1991;”.

(6) Where the effect of any order under subsection (1) is that there are no longer any appeals which fall to be dealt with by child support appeal tribunals, the Lord Chancellor, after consultation with the Lord Advocate may by order provide for the abolition of those tribunals.

(7) Any order under subsection (1) or (6) may make—(a) such modifications of any provision of this Act or of any other enactment; and (b) such transitional provision, as the Minister making the order considers appropriate in consequence of any provision made by the order.’

The review or appeal process under the Act works as follows. Section 18 of the Act permits a person aggrieved by a maintenance assessment made by a child support officer to seek a review. Section 20 of the Act deals with the route which such a review will take and provides:

‘(1) Any person who is aggrieved by the decision of a child support officer—(a) on a review under section 18; (b) to refuse an application for such a review, may appeal to a child support appeal tribunal against that decision.

(2) Except with leave of the chairman of a child support appeal tribunal no appeal under this section shall be brought after the end of the period of 28 days beginning with the date on which notification was given of the decision in question.

(3) Where an appeal under this section is allowed, the tribunal shall remit the case to the Secretary of State, who shall arrange for it to be dealt with by a child support officer.

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(4) The tribunal may, in remitting any case under this section, give such directions as it considers appropriate.’

Returning to the provisions of s 45(1)(a) it is clear, in my view, that the purpose of that subsection is to allow the Lord Chancellor, by the appropriate order, to substitute a court—that is to say, the High Court, county court or magistrates’ court—for the child support appeal tribunal in cases specified by him. Subsection (1)(b), to which I will return in a moment, may give the Lord Chancellor additional and wider powers than this.

As to s 45(1)(a) all parties before me have maintained that its provisions relate to internal appeals against findings made by child support officers. In my view that must clearly be so, those internal appeals being appeals arising under s 20 of the Act. Under the Child Support Appeals (Jurisdiction of Courts) Order 1993, SI 1993/961, the court and not the child support appeal tribunal is directed to be the appellate tribunal for the hearing of appeals against determinations of parentage by a child support officer. Under art 3(1)(s) of the Children (Allocation of Proceedings) Order 1991, SI 1991/1677, any such appeal must be begun in the magistrates’ court. Appeals against the child support officer in regard to other matters of assessment must go to the child support appeal tribunal as provided for by s 20 of the Act.

It is apparent that s 45(1)(a) is directed towards permitting by order an appeal under s 20 of the Act from a child support order to lie to a court, rather than to the child support appeal tribunal. The appeal with which the subsection is concerned is against the officer’s decision, and not a declaration of the court.

In this case, the child support officer did not decide the issue of paternity, but referred it, as he was entitled, to the court for resolution. Accordingly, as the appeal sought here is from a decision of the court and not from the officer it does not come within the ambit of s 45(1)(a).

Although the wording of s 45(1)(b) of the Act is not wholly clear in regard to the extent of the Lord Chancellor’s powers under it, in the context of s 45(1), read as a whole, the consensus of those appearing before me is that the subsection should be broadly construed and that the powers that it confers on the Lord Chancellor are not limited to the circumstances arising under s 45(1)(a). But, as they have indicated, that construction has its difficulties.

Furthermore, as can be seen, sub-ss (3), (4) and (5) of s 45 enable the Lord Chancellor to allocate the commencement of proceedings under the Act between different courts, with consequential amendments being made to Sch 11 to the Children Act 1989, that Schedule being concerned with the jurisdiction of courts in regard to proceedings relating to children.

However, reverting to s 45(1)(b) of the Act, I am told that no specific order has been made by the Lord Chancellor, pursuant to any such powers as he may have arising under the subsection ordering that there shall be a right of appeal, or process of appeal, from a declaration of paternity such as has been made in the instant case by the family proceedings court. In passing I would point out that, following s 27(4) an application for a s 27 declaration could have been brought pursuant to the provisions of Sch 11 to the Children Act 1989 in the High Court, county court or magistrates’ court. If, as in this case, such an application is started in the family proceedings court then a transfer up from the family proceedings court to a county court, and then on to the High Court, if appropriate, is a course which is available in the appropriate case (see the 1991 order, arts 7 and 12).

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In contrast to the position before the magistrates, if such an application is determined by a county court judge, or a High Court judge, there is a right of appeal to the Court of Appeal (see s 77 of the County Courts Act 1984 and s 16 of the Supreme Court Act 1981).

However, because, as I have indicated, there is, in respect of a declaration of paternity made by magistrates pursuant to s 27 of the Act, no statutory right of appeal which has been granted either expressly or pursuant to any powers delegated under s 45(1)(b) of the Act, I am satisfied that this appeal by the appellant against the declaration of paternity made by the family proceedings court must be dismissed.

Before turning to the application for a declaration, it is clearly appropriate to consider whether there is any alternative route by which the justices’ declaration could be directly challenged.

Case stated

Proceedings under s 27 of the Act are made ‘family proceedings’ pursuant to s 35(1) of the 1980 Act. In the absence of any statutory right of appeal against a declaration of parentage made under s 27 of the Act it must follow that such a declaration is an ‘order, determination or other proceeding of the court’ within the meaning of s 111 of the Magistrates’ Courts Act 1980.

Section 111 provides, inter alia, that any person ‘who was a party to any proceedings before a magistrates’ court or is aggrieved’ by the order may question that order, determination or other proceeding on the ground that it is wrong in law or in excess of jurisdiction. Such a challenge must be made by way of case stated and not by way of an appeal as in the present case. These two separate appellate avenues are entirely different and are not interchangeable (see P v P (periodical payments: appeal) [1995] 1 FLR 563 per Bracewell J). There are strict procedural requirements in regard to the obtaining of a case stated (see Ord 56, r 5(8)). None of these procedural steps have been complied with in the present case. Indeed, fundamental to such an application is the requirement to apply for a case to be stated within 21 days of the decision. This is the time limit set by s 111(2) of the 1980 Act and it is a period which cannot be extended (Ord 56, r 5(3)). So, if any attempt were now to be made to proceed by way of case stated, it would be doomed to failure through being out of time. Furthermore, even if the case stated were to be properly constituted procedurally before the court today there could not, in my view, be shown to have been an error of law or an act in excess of jurisdiction for the following reasons:

(1) The justices were fully entitled to proceed in the absence of the appellant who had been given proper notice of the hearing date, and who had neither requested an adjournment nor supplied any acceptable basis for the granting of an adjournment.

(2) Having received the sworn and unchallenged evidence of the mother the justices were quite entitled on that evidence to make the findings of fact which they did. Any question as to a request by the appellant for DNA tests, or as to any other factual matter as has been raised in the notice of appeal, should have been raised at that hearing. No such matters were raised. Furthermore, the justices were not obliged to order blood tests. Although s 20 of the Family Law Reform Act 1969 confers a discretion upon the court to order such testing, the statute makes it clear that the court may so order only upon an application by a party, and not of its own motion. No such application was made to the justices and on

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the evidence put before them they were, in my view, fully entitled to regard such as unnecessary, given the mother’s unchallenged testimony.

(3) In the circumstances, it cannot be shown that the justices either reached a conclusion on the facts for which there was no proper evidential support, or otherwise made a determination which no reasonable tribunal could have reached. This is of significance since an error of law does include the making of decisions of fact which have no evidential basis or which no reasonable bench could have reached (see The Supreme Court Practice 1997 para 56/5/11).

It follows from the above that no error of law or act in excess of jurisdiction could have been shown in this case such as to have permitted a case to have been stated on the appellant’s behalf.

Judicial review

In R v West Sussex Quarter Sessions, ex p Albert and Maud Johnson Trust Ltd [1973] 3 All ER 289, [1974] QB 24 the Court of Appeal was concerned with a planning appeal. An application was made to admit fresh evidence which had been discovered after the hearing had been completed. I need not go further into the facts. I read from the headnote ([1973] 3 All ER 289):

‘… certiorari would not lie to quash a decision of an inferior tribunal merely on the grounds that fresh evidence, relevant to the issue in a case, had been discovered after trial; the limits of certiorari were well established; they did not extend beyond defects or irregularities at the trial; in the appellants’ case there was no defect or irregularity in the proceedings before quarter sessions.’

Then, giving one of the two majority judgments, Orr LJ said ([1973] 3 All ER 289 at 299, [1974] QB 24 at 39–40):

‘Whenever, as in the present case, a new legal process is introduced, it is for Parliament to decide whether there shall be a full right of appeal or only the supervisory relief afforded by certiorari, which may be combined, as it has been in the present case, with a limited right of appeal by way of case stated, and thus to lay down when and in what respect finality is to be imposed on the proceedings. If experience shows that, in proceedings comparable to those with which we are now concerned, the relief provided is sufficient to do justice, the remedy in my judgment is not to transform the character of certiorari but to grant a full right of appeal. I would add, however, that the present case does not, in my judgment, demonstrate the need for any such reform.’

In the light of the dicta in that case and because the magistrates, in the instant case, cannot be criticised for the way in which they conducted the matter before them I do not consider that any proceeding by way of judicial review could have been raised successfully against the decision of the justices in this case.

Other possible ways of attacking the declaration

It must be a matter of real concern that an appellant can find himself in a situation whereby after a declaration has been made by the justices that he is the father of a particular child there is no way in which he can challenge this declaration when subsequently it is conclusively demonstrated that he is not the father of that child.

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The Official Solicitor has made reference to s 44(1) of the Act, which reads as follows:

‘A child support officer shall have jurisdiction to make a maintenance assessment with respect to a person who is—(a) a person with care; (b) an absent parent; or (c) a qualifying child, only if that person is habitually resident in the United Kingdom.’

In regard to para (b), the Official Solicitor contends that being ‘an absent parent’ is a precedent fact which must be established before an assessment can be made. A ‘parent’ is defined by s 54 of the Act as meaning ‘any person who is in law the mother or father of the child’. The words ‘absent parent’ have the meaning given to them by s 3(2) of the Act which refers to the ‘parents of any child’. Accordingly, the Official Solicitor asserts that, notwithstanding the s 27 declaration made on 7 August 1996, it must, as a result of the subsequent DNA tests, be accepted by any child support officer who further considers this matter for the purpose of an assessment, as a matter of fact and, therefore, law, that the appellant is not the father of H. In the circumstances, that alleged parent cannot be regarded as an absent parent in respect of H, so the child support officer would not for this reason have jurisdiction to make a maintenance assessment against the appellant.

The Official Solicitor goes on to point out that where there is a dispute concerning the paternity, the Act establishes a scheme under which a child support officer is prevented from making a maintenance assessment in respect of the alleged parent unless the case falls into one of the cases set out under s 26(2) of the Act. The s 26(2) cases all relate to court declarations, or orders, which establish paternity. Where there is no such declaration or order, and paternity is disputed, the child support officer may refer the matter to the court under s 27. In the case of the court then making a declaration under s 27 the effect is to bring the parent in on Case D of s 26(2). Coming within Case D means that the embargo upon making a maintenance assessment created by s 26(1) is removed. It does not mean, contends the Official Solicitor, that the child support officer is bound to go on to make a maintenance assessment. If by the time the child support officer comes to consider making such assessment it is clear that the alleged parent is not in fact the parent, he, having regard to s 44(1) and the meaning of ‘absent parent’, would not have jurisdiction to proceed, notwithstanding the s 27 declaration.

I have serious doubts as to whether that submission is properly made. The Child Support Agency contend that whilst it may be sound common sense the difficulty arises in the wording of s 54 of the Act in which ‘parent’, in relation to any child, means ‘any person who is in law the mother or father of the child’. Here there is a declaration by the court that the appellant is the father of this child. It seems to me that that then is likely to be regarded as conclusive in regard to paternity being established under the Act.

Counsel on behalf of the Child Support Agency has none the less gone on to point out that even if the child support officer does have power to make such an assessment notwithstanding the fact that the DNA results are before him, it might well be that the Child Support Agency would be fully prepared to assist the appellant by taking the somewhat artificial route of making an assessment, thereby enabling the appellant, if he were so minded, to seek a review of that assessment under s 18 of the Act and then, following the outcome of that, to appeal, in any event, pursuant to s 20. That would lead to the appeal being heard

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before the justices and when the matter came back before the justices then that court would have before it the results of the DNA test, would reach the conclusion that the appellant was not the father of the child concerned, and make the appropriate orders, in effect discharging the declaration of paternity currently in being. In fact, there may be some jurisdictional difficulty in enabling the magistrates’ court in those proceedings to discharge the earlier order of its fellow justices. This point has not been developed before me, but in any event the finding of the lower court would be in clear conflict with the earlier declaration and to that extent would reduce the impact of that earlier declaration. Even so it could be that the earlier and conflicting declaration would still stand and would inevitably so stand unless the Child Support Agency was prepared to co-operate in following this somewhat contrived course. Furthermore, even if the Child Support Agency did not pursue an assessment against the appellant in the light of the later DNA test the stigma of the earlier declaration would still stand against the appellant; furthermore, other redress sought against the true father might be inhibited.

Declaration

I turn now to the application for a declaration. It is clear that it is not open to a person in the appellant’s situation to seek a declaration under Pt III of the Family Law Act 1986, to the effect that he is not the father of H. However, all parties contend that this court does have jurisdiction under Ord 15, r 16 to make the declaration sought. Order 15, r 16, states as follows:

‘No action or other proceeding should be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the Court may make binding declarations of right whether or not any consequential relief is or could be claimed.’

The court has a discretionary power as to whether to make a declaration. Under the notes to that order reference is made to the circumstances in which the court has seen fit so to exercise its discretion; I go to The Supreme Court Practice 1997 vol 1, para 15/16/3, which states:

‘… In wardship proceedings the Court has no jurisdiction either under its inherent powers or otherwise, to grant a bare declaration of paternity, for such a declaration is not directly relevant to the issues normally dealt with in such proceedings, and even if it did have a discretionary jurisdiction to make a declaration of paternity, the Court ought not to exercise such discretion to make such a declaration, since to do so might adversely affect the child’s interests, and in any event, the evidence of paternity would have to be conclusive or very nearly so (Re J. S. (a minor) ([1980] 1 All ER 1061, [1981] Fam 22).)’

In my view, as all parties agree, this case is readily distinguishable from the decision in Re J S. Here the essential issue is as to paternity and although the declaration could adversely affect the child’s interests I bear in mind that the evidence which is now before the court is conclusive in establishing that the appellant is not the father. Indeed, that strong weight of the evidence must be a vital criterion in any application for a declaration in such a case as this. Furthermore, if in fact some other avenue were to be open to an applicant entitling him to some other form of redress, this court would then be extremely slow in permitting the recourse to the obtaining of a declaration.

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I go further to The Supreme Court Practice 1997 vol 1 para 15/16/4. It is there provided that a declaration of legitimacy cannot be made under the rules; it can only be made on petition under s 45 of the Matrimonial Causes Act 1973. In fact, that is an erroneous reference to s 45 of the Magistrates’ Courts Act 1973 because that section was repealed in April 1988 and replaced by s 56 of the Family Law Act 1986. It is clear, on analysis, that the appellant in this case does not come within the class of individuals who are permitted to apply under that particular section. The appellant’s position can be further distinguished on the ground that he seeks a declaration to the effect that he is not the father of the child, in contrast to the declarations there referred to, namely those sought as to paternity. Although the text in Rayden Divorce and Family Matters (16th edn, 1991) para 26(16), does not refer specifically to declarations as to paternity provision is there made that where the declaration sought is not within Pt III of the Family Law Act 1986—which, as I have indicated, is the case here—then an application may be made for such by way of originating summons. I should also make the point that, in my view, res judicata does not here apply. In Hager v Osborne [1992] 2 All ER 494, [1992] Fam 94 it was held that res judicata does not apply to paternity issues.

In this case, the appellant can be said to have been fortunate to have had the benefit of a court-directed DNA test following a s 27 declaration. In other comparable cases it could well be that a person who is the subject of a s 27 declaration would not be in this position and would become the subject of a maintenance assessment, despite his continued denial of paternity and without any DNA testing being permitted or ordered. Although under s 18 of the Act that alleged parent could then seek a review of the maintenance assessment and, if the assessment remained in force, seek to appeal under s 20 of the Act to the family proceedings court on the issue of paternity pursuant to the 1993 order, there is, as the Official Solicitor has pointed out, inherent danger in the use of such a route by way of challenge to an earlier s 27 declaration since that appeal is likely to come back before the same family proceedings court who, having made the earlier declaration, could well require some very powerful persuasion to induce it to reopen the matter and allow a DNA test.

In Re E (a minor) (child support: blood test) [1994] 2 FLR 548 the Court of Appeal upheld the decision of Stuart-White J in which he held that proceedings under s 27 amounted to civil proceedings for the purposes of s 20(1) of the Family Law Reform Act 1969, thereby empowering the court to direct scientific tests for the purposes of determining paternity. Although it could be argued that the fact there has already been a declaration by the same court can provide grounds for transferring the case up to the county court nevertheless such grounds do not easily fit into the list of factors supporting such transfer as appear in art 7 of the 1991 order.

One further point should be made. Under s 27(3) of the Act, as amended by s 20 of the Child Support Act 1995, the declaration of parentage made in this case by the justices is a declaration only for the purposes of that Act. It is not a declaration to the world in general. Of course, any declaration this court might be minded to make would be a full declaration and not so confined.

In my view, and bearing in mind the absence of other available relief to the appellant, I consider that this court should exercise its discretion to make the declaration as sought by the appellant and I accordingly propose to make that declaration.

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Possible redress in a similar future case

Should there be a right of appeal from a s 27 declaration made by a family proceedings court? The absence of such a right of appeal would seem on the face of it to constitute a lacuna under the Act. Although the wording of s 45(1)(b) is not wholly clear as to how wide the Lord Chancellor’s powers are under it, the consensus of those before me is that it is broadly based in its meaning and is not limited to applications only within the provision of s 45(1)(a). Whilst it may be that after due deliberation the Lord Chancellor has decided not to exercise such powers as he may have under s 45(1)(b) and make provision for appeals of the nature of the one that has been put before this court, I consider it to be appropriate for this court to draw attention to the absence of a right to appeal from a declaration of paternity made pursuant to s 27 of the Act by the family proceedings court so that this matter may be considered by the Lord Chancellor or, if need be, Parliament in the light of the facts of this particular case.

It is also worth bearing in mind that in the present case the High Court, by consent on a directions hearing, made the vital direction for DNA tests in the seemingly erroneous belief that the High Court had jurisdiction to entertain the appellant’s appeal. If that direction for blood testing had not been made then the appellant would have been saddled with the existing s 27 declaration and no effective route to challenge that decision. In the absence of DNA tests being ordered and of the mother consenting thereto no other direction could have taken the matter further.

Appeal dismissed. Declaration granted.

Carolyn Toulmin  Barrister.

Jameson and another (executors of Jameson (decd)) v Central Electricity Generating Board (Babcock Energy Ltd, third party)

[1997] 4 All ER 38

Categories:        TORTS; Negligence, Statutory Duty: QUANTUM        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        NOURSE, AULD LJJ AND SIR PATRICK RUSSELL        

Hearing Date(s):        14, 15, 16 OCTOBER 1996, 13 FEBRUARY 1997        

Tort – Concurrent tortfeasors – Discharge – Deceased before his death agreeing to accept sum in ‘full and final settlement and satisfaction’ of personal injury claim – Sum accepted less than full value of claim – Executors bringing dependency claim against concurrent tortfeasor under Fatal Accidents Act 1976 – Whether payment made in full satisfaction of claim – Whether action against concurrent tortfeasor barred.

Contribution – Third party proceedings – Claim ‘in respect of the same damage’ – Employee contracting fatal disease from exposure to asbestos at place of work – Executors bringing dependency claim under Fatal Accidents Act 1976 against occupier of building for negligence and breach of statutory duty – Defendant occupier joining employer as third party – Whether third party liable in respect of same damage as defendant – Whether ‘same damage’ under dependency claim meaning damage causing fatal disease or damages recoverable by former dependants – Civil Liability (Contribution) Act 1978, s 1(1).

In 1988, shortly before his death from malignant mesothelioma, J agreed to accept £80,000 from his former employer, BE, in ‘full and final settlement and satisfaction’ of his claim against it for negligence and breach of statutory duty in causing his fatal disease by exposing him to asbestos at various premises at which he had worked, including those of the defendant, at which BE had undertaken work. Following J’s death the plaintiffs, his executors, issued proceedings under s 1 of the Fatal Accidents Act 1976 for loss of dependency against the defendant as a concurrent tortfeasor in respect of the same exposure to asbestos dust alleging similar, but not identical, negligence and breach of statutory duty. The defendant joined BE as a third party and, on the basis that the parties were concurrent tortfeasors, contended on the trial of certain preliminary issues that it could not be liable since J’s settlement with BE satisfied his claim and had thus discharged any action that he might have had against it as a concurrent tortfeasor. The judge held that the defendant was not released from liability since the sum of £80,000 was significantly less than the full liability value of the claim and that, in the event of the plaintiffs succeeding, the defendant was entitled to maintain proceedings for contribution against BE under s 1(1)a of the Civil Liability (Contribution) Act 1978. The defendant appealed, contending, inter alia, that where a plaintiff agreed to accept a sum ‘in full and final settlement and satisfaction’ from a tortfeasor, the agreement discharged other concurrent tortfeasors, and that the judge had therefore erred in considering whether the figure of £80,000 was full satisfaction on a full liability basis. BE appealed, contending that the defendant was not entitled to seek a contribution from it in respect of the dependency claim because there was no common ‘damage’ for the

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purposes of s 1(1) of the 1978 Act, since the damage in an action under the 1976 Act was not that suffered by the deceased before he died but that suffered by his dependants as a result of the death.

Held – The appeals would be dismissed for the following reasons—

(1) Where a plaintiff settled an action for damages against a tortfeasor, that settlement did not release a concurrent tortfeasor from liability unless it amounted to satisfaction of the full value of the plaintiff’s claim, since the concurrent tortfeasor was the subject of a separate cause of action. In the instant case, although J’s settlement was expressed to be in full and final settlement and satisfaction , those words did not impress the settlement sum when paid with the quality of full satisfaction and the judge had been entitled to find that the settlement figure of £80,000 did not represent the full value of J’s claim against BE. It followed that the plaintiffs were not barred from proceeding with their dependency claim against the defendant as a concurrent tortfeasor (see p 48 f g, p 49 g to j, p 51 a b, p 52 h, p 53 a b and p 64 e f, post).

(2) For the purposes of s 1(1) of the 1978 Act the relevant damage was the alleged wrong causing the injury and death and not the damages that the deceased could have recovered for his injury. It followed that the liability of the defendant and BE was in respect of ‘the same damage’ within the meaning of s 1(1) and that the defendant was entitled to seek a contribution from BE (see p 61 j, p 62 h and p 64 e f, post).

Per curiam. The meaning and effect of the Fatal Accidents Act 1976 are plain. It entitles a deceased’s dependants to claim for loss of dependency after death where his injury and death were caused by a wrongful act, whether or not there was an interval between injury and death and whether or not the injury had disabled him from working before death (see p 60 c, post).

Notes

For settlement or compromise of proceedings, see 37 Halsbury’s Laws (4th edn) para 383–392.

For recovery of contribution, see 45 Halsbury’s Laws (4th edn) para 1237, and for cases on the subject, see 46 Digest (Reissue) 263, 2176–2177.

For the Fatal Accidents Act 1976, s 1, see 31 Halsbury’s Statutes (4th edn) (1994 reissue) 252.

For the Civil Liability (Contribution) Act 1978, s 1, see 13 Halsbury’s Statutes (4th edn) (1996 reissue) 650.

Cases referred to in judgments

Apley Estates Co v de Bernales [1947] 1 All ER 213, [1947] Ch 217, CA.

Ashmore v British Coal Corp [1990] 2 All ER 981, [1990] 2 QB 338, [1990] 2 WLR 1437, CA.

Bird v Randall (1762) 1 Wm Bl 373, 96 ER 210.

Birse Construction Ltd v Haiste Ltd (Watson, third party) [1996] 2 All ER 1, [1996] 1 WLR 675, CA.

Black v Martin (1930) 292 P 577, Mont SC.

British Columbia Electric Rly Co Ltd v Gentile [1914] AC 1034, PC.

British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616, [1933] All ER Rep 320, CA.

Bryanston Finance Ltd v de Vries [1975] 2 All ER 609, [1975] QB 703, [1975] 2 WLR 718, CA.

Page 40 of [1997] 4 All ER 38

Carrigan v Duncan 1971 SLT (Sh Ct) 33, Sh Ct.

Clark v Urquhart, Stracey v Urquhart [1930] AC 28, HL.

Davies v Powell Duffryn Associated Collieries Ltd [1942] 1 All ER 657, [1942] AC 601, HL.

Dering v Uris [1964] 2 All ER 660, [1964] 2 QB 669, [1964] 2 WLR 1298.

Duck v Mayeu [1892] 2 QB 511, [1891–4] All ER Rep 410, CA.

Friends’ Provident Life Office v Hillier Parker May & Rowden (a firm) (Estates and General plc, third party) [1995] 4 All ER 260, [1997] QB 85, [1996] 2 WLR 123, CA.

Gammell v Wilson, Furness v B & S Massey Ltd [1981] 1 All ER 578, [1982] AC 27, [1981] 2 WLR 248, HL.

Gardiner v Moore [1966] 1 All ER 365, [1969] 1 QB 55, [1966] 3 WLR 786.

Headford v Bristol and District Health Authority (1994) Times, 30 November, [1994] CA Transcript 1388.

Hunter v Chief Constable of West Midlands [1981] 3 All ER 727, [1982] AC 529, [1981] 3 WLR 906, HL.

Koursk, The [1924] P 140, [1924] All ER Rep 168, CA.

Lampitt v Poole BC (Taylor, third party) [1990] 2 All ER 887, [1991] 2 QB 545, [1990] 3 WLR 179, CA.

Latham v Des Moines Electric Light Co (1942) 6 NW 2d 853, Iowa SC.

Lisoski v Anderson (1941) 112 P 2d 1055, Mont SC.

Lister (R A) & Co Ltd v E G Thomson (Shipping) Ltd (No 2), The Benarty (No 2) [1987] 3 All ER 1032, [1987] 1 WLR 1614.

Logan v Uttlesford DC [1984] CA Transcript 263.

Lovejoy v Murray (1865) 70 US (3 Wall) 1, US SC.

Morris v Baron [1918] AC 1, HL.

Murray v Shuter [1972] 1 Lloyd’s Rep 6, CA.

Negrich (Negrych) v Werner [1937] 1 WWR 190, Man KB.

Oliver v Ashman [1961] 3 All ER 323, [1962] 2 QB 210, [1961] 3 WLR 669, CA.

Pickett v British Rail Engineering Ltd, British Rail Engineering Ltd v Pickett [1979] 1 All ER 774, [1980] AC 137, [1978] 3 WLR 955, HL.

Pidduck v Eastern Scottish Omnibuses Ltd [1990] 2 All ER 69, [1990] 1 WLR 993, CA.

Pym v Great Northern Rly Co (1863) 4 B & S 396, [1861–73] All ER Rep 180, 122 ER 508, Ex Ch.

Read v Great Eastern Rly Co (1868) LR 3 QB 555.

Townsend v Stone Toms & Partners (a firm) [1981] 2 All ER 690, [1981] 1 WLR 1153, CA.

Townsend v Stone Toms & Partners (a firm) (No 2) (1984) 27 BLR 26, CA.

United Australia Ltd v Barclays Bank Ltd [1940] 4 All ER 20, [1941] AC 1, HL.

Wah Tat Bank Ltd v Chan Cheng Kum [1975] 2 All ER 257, [1975] AC 507, [1975] 2 WLR 475, PC.

Watts v Aldington, Tolstoy v Aldington (1993) Times, 16 December, [1993] CA Transcript 1578.

Williams v Mersey Docks and Harbour Board [1905] 1 KB 804, CA.

Cases also cited or referred to in skeleton arguments

Bell v Galynski [1974] 2 Lloyd’s Rep 13, CA.

Blake v Midland Rly Co (1852) 18 QB 93, 118 ER 35.

Brunsden v Humphrey (1884) 14 QBD 141, [1881–5] All ER Rep 357, CA.

Bryce v Swan Hunter Group plc [1988] 1 All ER 659.

Cooper v Parker (1855) 15 CB 822, 139 ER 650.

Page 41 of [1997] 4 All ER 38

Cutler v McPhail [1962] 2 All ER 474, [1962] 2 QB 292.

Cutts v Head [1984] 1 All ER 597, [1984] Ch 290, CA.

DPP v Turner [1973] 3 All ER 124, [1974] AC 357, HL.

Greater Nottingham Co-op Society Ltd v Cementation Piling and Foundations Ltd [1988] 2 All ER 971, [1989] QB 71, CA.

Gunn v Wallsend Slipway and Engineering Co Ltd (1989) Times, 23 January.

Haigh v Royal Mail Steam Packet Co Ltd (1883) 52 LJQB 640, [1881–5] All ER Rep 177, CA.

Harper v National Coal Board [1974] 2 All ER 441, [1974] QB 614, CA.

Hart v Hall & Pickles Ltd [1968] 3 All ER 291, [1969] 1 QB 405, CA.

Harvey v R G O’Dell Ltd (Galway, third party) [1958] 1 All ER 657, [1958] 2 QB 78.

Henderson v Henderson (1843) 3 Hare 100, [1843–60] All ER Rep 378, 67 ER 313, V-C.

Hewett v Alf Brown’s Transport Ltd [1991] ICR 471; affd [1992] ICR 530, CA.

Indian Endurance, The, Republic of India v India Steamship Co Ltd [1993] 1 All ER 998, [1993] AC 410, HL.

Keenan v Miller Insulation and Engineering Ltd (8 December 1987, unreported), QBD.

King v Hoare (1844) 13 M & W 494, 153 ER 206.

Kohnke v Karger [1951] 2 All ER 179, [1951] 2 KB 670.

Lane v Applegate (1815) 1 Stark 97, 171 ER 413.

McCann v Shephard [1973] 2 All ER 881, [1973] 1 WLR 540, CA.

Mahon v Burke [1991] 2 IR 495, Ir HC.

Marginson v Blackburn BC [1939] 1 All ER 273, [1939] 2 KB 426, CA.

Morrison v Central Electricity Generating Board (15 March 1986, unreported), Crown Ct.

Murray v Shuter [1975] 3 All ER 375, [1976] QB 972, CA.

Nugent v Londonderry Collieries Ltd [1930] 1 KB 159, CA.

Pacific Associates Inc v Baxter [1989] 2 All ER 159, [1990] 1 QB 993, CA.

Peto v Checy (1611) 2 Brownl 128, 123 ER 854.

Rose v Ford [1937] 3 All ER 827, [1937] AC 826, HL.

Saipem SpA v Dredging VO2 BV, The Volvox Hollandia (No 2) [1993] 2 Lloyd’s Rep 315.

Seward v Vera Cruz (owner), The Vera Cruz (1884) 10 App Cas 59, [1881–5] All ER Rep 216, HL.

Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 All ER 791, [1988] QB 758, CA.

Stella, The [1900] P 161, [1900–3] All ER Rep 184.

Stott v West Yorkshire Road Car Co Ltd (Home Bakeries Ltd, third party) [1971] 3 All ER 534, [1971] 2 QB 651, CA.

Talbot v Berkshire CC [1993] 4 All ER 9, [1994] QB 290, CA.

White (Arthur) (Contractors) Ltd v Tarmac Civil Engineering Ltd [1967] 3 All ER 586, [1967] 1 WLR 1508, HL.

Wimpey (George) & Co Ltd v British Overseas Airways Corp [1954] 3 All ER 661, [1955] AC 169, HL.

Appeals

In two separate appeals the defendant, the Central Electricity Generating Board (CEGB), and Babcock Energy Ltd as third party appealed from the decision on preliminary issues of Sir Haydn Tudor Evans sitting as a judge of the High Court in Southampton on 31 March 1995, inter alia, that the plaintiffs, Elizabeth Ann

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Jameson and Alan William Wyatt acting as executors of the estate of David Allen Jameson, deceased, were entitled to maintain their action against the CEGB for damages for loss of dependency on behalf of his widow under s 1 of the Fatal Accidents Act 1976, and that, in the event of the plaintiffs succeeding in their claim, the CEGB was entitled to maintain proceedings against the third party for a contribution under the Civil Liability (Contribution) Act 1978. The facts are set out in the judgment of Auld LJ.

Ian McLaren QC (instructed by Dibb Lupton Allsop, Birmingham) for the CEGB.

William Woodward QC and Elizabeth Hodgson (instructed by Hextall Erskine) for Babcock Energy.

Ronald J Walker QC and Anthony Coleman (instructed by Payne Marsh Stillwell, Southampton) for the plaintiffs.

Cur adv vult

13 February 1997. The following judgments were delivered.

AULD LJ (giving the first judgment at the invitation of Nourse LJ). There are two appeals before the court from a judgment of Sir Haydn Tudor Evans, sitting as a judge of the High Court in the Queen’s Bench Division, given on 31 March 1995. The first is by the defendant, the Central Electricity Generating Board (the CEGB), against a number of rulings made on preliminary issues in favour of the plaintiffs, the executors of the estate of David Allen Jameson, deceased, in their claim against the CEGB for damages for loss of dependency under the Fatal Accidents Act 1976. The second is by the third party, Babcock Energy Ltd (Babcock Energy), against those rulings in the main action and also against the ruling that, in the event of the plaintiffs succeeding in their claim against the CEGB, the CEGB was entitled to maintain proceedings against it for a contribution under the Civil Liability (Contribution) Act 1978.

The issue in the first appeal is whether a ‘full and final’ settlement by a plaintiff with a tortfeasor of a personal injury action bars a dependency claim after his death against a concurrent tortfeasor. The issue in the second appeal is whether, if it does not, the latter tortfeasor can seek a contribution from the tortfeasor who settled with the deceased.

Mr Jameson died on 24 April 1988 at the age of 50 from malignant mesothelioma. Shortly before his death he agreed to accept £80,000 in ‘full and final settlement and satisfaction’ from his former employer, Babcock Energy, of his claim in proceedings against it for negligently and in breach of statutory duty causing that disease by exposing him to asbestos. The sum of £80,000 was significantly less than the full liability value of his claim, reflecting both parties’ appreciation of the uncertainty of the outcome of the litigation if it had proceeded.

Mr Jameson’s claim against Babcock Energy was that the harmful exposure had occurred at various premises at which it had employed him, including those of the CEGB at which Babcock Energy was undertaking work. The fatal disease may have been caused solely by Babcock Energy’s negligence or breach of statutory duty as employer, or solely by the negligence and breach of statutory duty of the CEGB as occupier, or by the respective negligence and breach of statutory duty of both of them. Assuming liability by both, it is accepted by the parties that they are to be regarded as several or concurrent, not joint, tortfeasors.

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After Mr Jameson’s death his executors issued proceedings against the CEGB under the 1976 Act in respect of the same exposure to asbestos dust as for part of the claim in the settled action against Babcock Energy, alleging similar, but not identical, negligence and breach of statutory duty. The executors also claimed on behalf of the estate under the Law Reform (Miscellaneous Provisions) Act 1934, but later abandoned that claim because it was extinguished by the receipt of the settlement sum of £80,000.

The executors of Mr Jameson’s estate cannot claim under the 1976 Act against Babcock Energy as well as the CEGB because, by s 1 of the Act, such a claim would only lie if, but for Mr Jameson’s death, he would have been entitled to maintain an action and recover damages against Babcock Energy. He would not have been so entitled since his settlement with it in his lifetime was an accord and satisfaction which discharged it from further liability to him.

The CEGB denied any culpable responsibility for Mr Jameson’s fatal illness, but maintained that, in any event, it could not be liable because Mr Jameson’s settlement with Babcock Energy had satisfied his claim and had thus discharged any claim that it might have had against the CEGB as a concurrent tortfeasor.

The CEGB joined Babcock Energy as a third party to the claim. Babcock Energy resisted that claim, similarly maintaining that its settlement with Mr Jameson barred the claim against the CEGB as a concurrent tortfeasor. It also maintained that, in any event, a claim under the 1976 Act in such circumstances is not within the provisions of the 1978 Act or that, if it is, the contract between it and the CEGB had expressly excluded liability for contribution.

The relevant facts in a little more detail were as follows. Mr Jameson was exposed to asbestos for relatively short periods in the 1950s while working for Babcock Energy at the CEGB’s and other premises. His last contact with the substance was at the end of 1958, shortly before leaving Babcock Energy’s employment. The disease of malignant mesothelioma was first diagnosed nearly 30 years later, in 1987, when he was 50. The nature of the disease is such that by the time it is manifest it has already severely curtailed expectation of life, and death normally follows within two years. In 1987, shortly after Mr Jameson’s discovery of his fatal illness, he issued proceedings against Babcock Energy, against whom his advisers considered he had a stronger claim than against the CEGB. He alleged breaches of the Factories Act 1937 and of the Building (Safety, Health and Welfare) Regulations 1948, SI 1948/1145, and negligence at common law. Babcock Energy denied liability.

In early 1988 Mr Jameson successfully applied to the court for an order that the issue of liability should be tried first. He knew that he had not long to live and that any damages he might recover by way of judgment in his lifetime would be less than those that might be recovered for Mrs Jameson, his sole dependant, under the 1976 Act after his death. He decided, therefore, that it would be to her advantage for him to obtain judgment on liability before he died, leaving her to reconstitute the action and introduce her dependency claim under that Act after his death.

However, on 30 March 1988, shortly before the date fixed for trial of the issue of liability, Babcock Energy paid £75,000 into court. Then, on 19 April 1988, five days before Mr Jameson’s death, his solicitor, on his behalf, agreed with Babcock Energy’s advisers to settle the action for £80,000 with costs, a sum of damages which included some provision for future loss of income. The view of both parties’ advisers was that the claim, including that for future loss of income, was worth about £130,000 if it were to succeed on liability, a valuation which the

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judge said was reasonable. However, they both clearly took the view that there were weaknesses in the claim. These were mainly on the issue of liability, stemming from the shortness of time during which Mr Jameson had been exposed to asbestos and uncertainty as to whether it had been sufficiently widely known in the 1950s that inhalation of small quantities of asbestos dust could cause injury to health. The judge, therefore, found that the settlement sum was significantly less than the full liability value of the claim, reflecting as it did, both parties’ assessment of the hazards of litigation.

On 29 April 1988, five days after Mr Jameson’s death, the action was stayed, save for the purpose of enforcement, in the form of a Tomlin order. The order provided, so far as material:

‘1. That the Defendant do pay to the Plaintiff the sum of £80,000·00 … in full and final settlement and satisfaction of all causes of action in respect of which the Plaintiff claims in the Statement of Claim …

4. That upon payment by the Defendants of the balance of damages and agreed costs the Defendants be discharged from any further liability in respect of the Plaintiff’s claim in this action.

5. That the record be withdrawn …’

There was no provision in the original settlement agreement or in the order barring a claim against the CEGB or any other party, and no basis that I can see for implying one. Whilst Mr Jameson’s advisers appear to have considered at the time the possibility of such a claim, the judge, having heard evidence from his solicitor on the matter, rejected the suggestion made on behalf of the CEGB that such consideration was in any way improper so as to bar future proceedings against the CEGB.

In the present proceedings, by agreement between the parties the judge considered a number of questions of law, leaving for later determination, if necessary, consideration of the issue of liability on the facts. The questions of law in the main action were: (1) the effect of Mr Jameson’s settlement with Babcock Energy on his executors’ entitlement to make a dependency claim against the CEGB; and (2) whether, in any event, it would be an abuse of process to allow such a claim to proceed; and (3) what, if any, value there is in the dependency claim.

I turn to the first of the questions, which, more precisely, is whether release by judgment or settlement of one tortfeasor discharges a concurrent tortfeasor. It requires careful consideration of the separate defences of accord and satisfaction and of satisfaction.

ACCORD AND SATISFACTION

The judge, in a characteristically thorough and well-constructed judgment, held that settlement by one concurrent tortfeasor only releases another concurrent tortfeasor if it amounts to actual satisfaction (ie payment) of the full value of the claim. Accordingly, he held that Mr Jameson’s settlement with Babcock Energy for a figure clearly less than his claimed whole loss did not release the CEGB from any liability that it might have to Mr Jameson. He held that the recital in the settlement that it was ‘in full and final settlement and satisfaction’ of the action did not prevent the court from considering whether the settlement figure did represent the full value of the claim and that, in any event, it referred only to the action against Babcock Energy not to any potential action

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against the CEGB or anyone else. After a thorough review of English, Scottish and North American authorities, he summarised his ruling in the following way:

‘No English case has been cited in which it has been held that payment to a claimant by one concurrent tortfeasor by way of an accord and satisfaction is satisfaction of the claimant’s action against another concurrent tortfeasor. On the contrary, the strong indications from Clark v Urquhart, Stracey v Urquhart [1930] AC 28, Bryanston Finance Ltd v de Vries [1975] 2 All ER 609, [1975] QB 703, and from the two Townsend cases, Townsend v Stone Toms & Partners (a firm) [1981] 2 All ER 690, [1981] 1 WLR 1153 and Townsend v Stone Toms & Partners (a firm) (No 2) (1984) 27 BLR 26, especially the second, are that a plaintiff can go on against another joint tortfeasor or a party having a concurrent liability but that he must bring into account what he has already received and his success or failure in such a second action will depend on how the balance is struck between what he has received in the first and what he obtains in the subsequent action. In so far as the ratio of the Scottish case or any of the American cases or any observation in them conflict with that principle, I decline to follow them.’

Accordingly, he held that Mr Jameson had vested in him at the moment of death a cause of action which, if he had survived, he could have maintained against the CEGB, and which thus entitled his executors to make a dependency claim against it on behalf of his widow under the 1976 Act. He also held that, even if the settlement sum of £80,000 were taken as the full value of Mr Jameson’s claim if he had lived, it could not have amounted to satisfaction so as to extinguish his claim before death because it was not paid in full until after it.

Mr Jameson’s settlement with Babcock Energy, whether regarded as an accord and satisfaction or simply as a covenant not to sue, barred his widow from claiming against it under s 1 of the 1976 Act. By the settlement he had divested himself of his cause of action against it on which her entitlement to sue it depended under that provision. (See Read v Great Eastern Rly Co (1868) LR 3 QB 555 and Pickett v British Rail Engineering Ltd, British Rail Engineering Ltd v Pickett [1979] 1 All ER 774 at 783, [1980] AC 137 at 152 per Lord Salmon.) The question is whether the settlement also barred his executors from making a 1976 Act claim against the CEGB.

Assuming liability by both Babcock Energy and the CEGB to Mr Jameson for his fatal disease, the parties have rightly agreed for the purpose of this part of the proceedings that they were not joint tortfeasors because the acts of negligence and breach of statutory duty alleged against each of them were not all the same. They were concurrent tortfeasors, that is to say several tortfeasors who have caused the same damage. The importance of the distinction is that whilst it is well-established by authority that settlement with one tortfeasor may, as an accord and satisfaction, bar a claim by him as against a joint tortfeasor, the position as to concurrent tortfeasors is said to be less clear.

Mr Ian McLaren QC on behalf of the CEGB, and Mr William Woodward QC on behalf of Babcock Energy, submitted that where a plaintiff, who has causes of action against concurrent tortfeasors, agrees to accept a sum ‘in full and final settlement and satisfaction’ from one of them, the agreement discharges the others, unless it expressly or impliedly recognises that the settlement is only in partial satisfaction of the tort. They submitted that it is the agreement, the accord, that discharges the obligation and that the only materiality of satisfaction, whether there are joint or concurrent tortfeasors, is that it makes the accord

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operative. They relied on a passage from the judgment of Scrutton LJ in British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616 at 643–644, [1933] All ER 320 at 327, not a joint or concurrent tortfeasor case, in which he stated, that, contrary to early law on the matter, consideration in accord and satisfaction could be executory, consisting of an exchange of obligations in the agreement itself.

They submitted, therefore, that the judge was wrong to consider whether the settlement figure of £80,000 was full satisfaction on full liability basis. Mr McLaren suggested that all the cases of partial satisfaction by one tortfeasor where the court has permitted an action against another tortfeasor are not examples of the inapplicability of the defence of accord and satisfaction to concurrent tortfeasors but of an express or implied reservation by the plaintiff in his acceptance of partial satisfaction of his right to proceed against another in respect of the same matter.

Mr Ronald Walker QC on behalf of Mr Jameson’s executors, replied that, whilst Mr McLaren’s and Mr Woodward’s submissions might be correct as to the treatment of satisfaction in a defence of accord and satisfaction, they had no relevance to this case because: (1) the defence of accord and satisfaction, as distinct from the quite separate defence of satisfaction, is available only to joint, not concurrent, tortfeasors, and, in any event (2) the settlement with Babcock Energy was not an accord and satisfaction, but merely a covenant not to sue it, and, for that reason, would not have barred a claim against the CEGB even if the latter were a joint tortfeasor.

There is no reported English authority in which it has been held that an accord and satisfaction, as distinct from full satisfaction of a claim, given by one tortfeasor discharges a concurrent tortfeasor. There is much support for Mr Walker’s contrary submission in the approach of the House of Lords and of this court in a number of decisions to which I shall refer and in the views of leading academic writers on the subject. That approach is also of a piece with the statutory inroads made on the former common law bar to successive proceedings against those jointly liable, originally by s 6 of the Law Reform (Married Women and Tortfeasors) Act 1935 and now, more widely drawn, in the 1978 Act. Putting aside the added complications of a dependency claim under the fatal accidents legislation, the trend, it seems to me, is to inhibit further litigation against joint or concurrent tortfeasors only to the extent necessary to prevent greater recovery than the damage suffered.

I take as a starting point the assertion of the editors of Clerk and Lindsell on Torts (17th edn, 1995) pp 147–148, para 4-55, that accord and satisfaction does not release several, as distinct from joint, tortfeasors:

‘The only remaining consequence of the distinction between joint tortfeasors and several tortfeasors causing the same damage is that release of one joint tortfeasor whether under seal or by way of accord and satisfaction releases all others, and this is not the case with several tortfeasors.’

Glanville Williams, in his 1951 study Joint Torts And Contributory Negligence p 46, was of the same view. Citing a Manitoban authority of first instance, Negrich (Negrych) v Werner [1937] 1 WWR 190, he said that the rule as to release by accord and satisfaction ‘does not apply to concurrent tortfeasors, except of course to the extent that actual satisfaction discharges’. In Negrich’s case Taylor J held that settlement by a plaintiff of her claim against the owner and driver of one of two vehicles in a road traffic accident in which her husband was killed did not

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preclude her from proceeding with an action against the owner and driver of the other vehicle since the pairs of defendants were not joint tortfeasors.

As I have said, the rule that accord and satisfaction, as distinct from a covenant not to sue, operates as a release for joint tortfeasors, is well-established. The oft-stated rationale of the rule is that the cause of action against them is ‘one and indivisible’. (See eg Duck v Mayeu [1892] 2 QB 511 at 513, [1891–4] All ER Rep 410 at 411 per A L Smith LJ, Apley Estates Co v de Bernales [1947] 1 All ER 213 at 214–215, [1947] Ch 217 at 220–221 per Morton LJ and Gardiner v Moore [1966] 1 All ER 365, [1969] 1 QB 55.) It may be executed or it may be executory where there is a settlement agreement replacing and extinguishing the right of action. (See Chitty on Contracts (27th edn, 1994) vol 1, para 22-014, Morris v Baron [1918] AC 1 at 13, 35 per Lord Finlay LC and Lord Atkinson and British Russian Gazette and Trade Outlook Ltd v Associated Newspapers Ltd [1933] 2 KB 616 at 643–645, [1933] All ER Rep 320 at 327–328 per Scrutton LJ.)

In either case, the effect of the settlement will, in any event, depend on whether it amounts to a release of all joint tortfeasors as distinct from a covenant not to sue, or, as Neill LJ has described it, ‘a release with a reservation’: see Bryanston Finance Ltd v de Vries [1975] 2 All ER 609 at 626, [1975] 1 QB 703 at 732 per Lord Diplock and Watts v Aldington, Tolstoy v Aldington (1993) Times, 16 December, [1993] CA Transcript 1578 per Neill LJ. Thus, in Gardiner v Moore [1966] 1 All ER 365, [1969] 1 QB 55 Thesiger J held that an agreement to ‘discharge’ a claim against two joint tortfeasors was not a release but a covenant not to sue because of an implied preservation of the cause of action against a third joint tortfeasor.

Because of the hardship that the rule can cause, the inclination of the courts has been to confine it narrowly (see Apley Estates Co v de Bernales [1947] 1 All ER 213 at 214–215, [1947] Ch 217 at 221 per Morton LJ). This inclination has received a boost from the replacement of s 6(1)(a) of the 1935 Act with s 3 of the 1978 Act extending the scope for successive actions against tortfeasors to ‘any other person … jointly liable … in respect of the same debt or damage’. The following words of Steyn LJ in Watts v Aldington, Tolstoy v Aldington (1993) Times, 16 December, [1993] CA Transcript 1578 with which I respectfully agree, suggest that now is not the time to extend to concurrent tortfeasors a rule as to joint tortfeasors which is in retreat:

‘These appeals illustrate the absurdity of the rule that the release of one of two joint and several tortfeasors operates as a release of the other. In Victorian times judges of great distinction reasoned that in a case involving joint and several liability of joint tortfeasors there is only a single cause of action, and accordingly a release of one of two joint tortfeasors extinguishes that single cause of action, or as it was usually put, releases the other joint tortfeasors. The rule has been relaxed by statute. The fact that joint tortfeasors can be sued successively heavily compromised the perceived rule of logic. But the old rule apparently still survives. In truth there is no inexorable march of logic. In a less formalistic age it is now clear that the question whether the release of a joint tortfeasor should operate to release the other tortfeasor is a policy issue. Either solution is logically defensible. But good sense, fairness and respect for the reasonable expectations of contracting parties suggests that the best solution is that the release of a joint tortfeasor should not release the other tortfeasor. On this basis the consequence that the unreleased tortfeasor may bring an action for

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contribution against the released tortfeasor must be faced. As far as the unreleased tortfeasor is concerned the settlement between the plaintiff and the released tortfeasor is res inter alios acta. If this solution is not perfect, it at least has the merit of promoting more sensible results than any other solution. See Glanville Williams Joint Obligations (1949) pp 137–138. The absurd consequences of applying the rule of logic invariably led judges, in the best common law tradition, to devise ways of escaping the rigours of its application. The first was the invention of the distinction between an agreement operating as a release of one joint tortfeasor from liability (which resulted in the discharge of the other joint tortfeasor from liability) and an agreement not sue one joint tortfeasor (which did not involve a discharge of the other). The second technique was the creation of the rule that, even if the agreement operates as a release of one joint tortfeasor, nevertheless the other tortfeasor was not released if the agreement contained a reservation of the plaintiff’s rights against the other tortfeasor. In combination these two subsidiary rules, generously interpreted, have ensured that in the majority of cases satisfactory solutions are achieved. But plainly the law is not in a satisfactory state. It is true that a claimant, who engages sophisticated lawyers, can by suitably drafted contractual stipulations avoid the application of the primary rule. But the rule is undoubtedly a trap for the unwary. And for those who are aware of the problem it is a potential disincentive to entering into bona fide and reasonable compromises. The rule requires re-examination, notably in the light of the suspect logic on which it was founded and, in any event, on the basis that the rationale of the rule disappeared once the “one cause of action” theory was undermined by the statute which authorised successive actions against joint tortfeasors. The point is of considerable importance since it potentially affects a large number of transactions. But it seems to me that binding authority compels me to approach the problem in the traditional way.’

There is no such binding authority compelling that approach in the case of concurrent tortfeasors, to whom Steyn LJ’s remarks apply a fortiori. In my view, the principle to be extracted from the authorities to which I have referred is that accord without full satisfaction reached with one tortfeasor does not release a concurrent tortfeasor. That is because the latter is a defendant or a potential defendant to a separate action.

Logically, and in the normal expectation of the settling plaintiff, the release of one, unless and to the extent that it amounts to satisfaction of the full value of his several claims, should not be expected to release the others. (See eg Townsend v Stone Toms & Partners (a firm) [1981] 2 All ER 690, [1981] 1 WLR 1153, where the court held, in overlapping claims by a building owner against a builder for defective work and against an architect for defective supervision, that the building owner’s acceptance of a payment into court by the builder did not operate to stay proceedings against the architect by virtue of RSC Ord 22, r 3(4).) That rule operated, on a plaintiff’s acceptance of a defendant’s payment into court, to stay all further proceedings against ‘any other defendant sued jointly or in the alternative’ with the defendant whose payment he had accepted. Though the plaintiff’s claims against the builder and the architect overlapped as to much of the alleged defective work, he had a different cause of action against each of them. Eveleigh LJ, with whom Watkins LJ and Sir David Cairns agreed, held that the words in the rule ‘sued jointly’ meant sued ‘in respect of joint liability’ and,

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therefore, did not apply to a case, such as that, where there are separate causes of action against two or more defendants albeit in relation to the same subject matter. He concluded his judgment with the following observation, which I respectfully regard as being a sound principle whatever the procedural context: ‘… where there are two separate causes of action, satisfaction of the one should not be a bar to proceedings in the other.’ (See [1981] 2 All ER 690 at 695, 696, [1981] 1 WLR 1153 at 1160, 1161.)

It seems to me that such a clear approach is likely to be at least as conducive to the proper settlement of actions as the one for which Mr McLaren and Mr Woodward have contended. Mr Woodward argued that a plaintiff and settling defendant have the reassurance of finality if they know that their agreement prevents all further litigation between the plaintiff and others arising out of the same matter. That would be true, if finality were the only object of settlement and if one looks at it solely through the eyes of the settling defendant and other potential defendants. Whilst finality is clearly of importance to defendants, a plaintiff who has potential claims against two or more tortfeasors is less likely to settle with one if he knows that in so doing, whatever the level of recovery achieved in that settlement, he may lose his right of recovery against all the others unless he clearly reserves it. In any event, where there are separate, concurrent, claims, why should a reservation as between a plaintiff and one settling tortfeasor affect the plaintiff’s right to proceed with his separate claim against the other tortfeasor? Neither logic nor policy requires it, as Steyn LJ’s remarks in Watts v Aldington, Tolstoy v Aldington (1993) Times, 16 December, [1993] CA Transcript 1578 about settlement in joint tortfeasor cases make clear. The only justification in law suggested by Mr McLaren—somewhat theoretical, in my view—is that the settling tortfeasor may have, as part of the settlement, negotiated and be willing to pursue a contractual entitlement to enforce the reservation on behalf of other tortfeasors.

SATISFACTION

The defence of satisfaction, in the sense of full satisfaction of a wrong or liability, is different from that of accord and satisfaction. First, it must be full satisfaction and second it must be given, executed. Its basis is the simple one that a claimant should not receive more than is necessary to compensate him for the wrong or wrongs done to him or in respect of the liability or liabilities owed to him. Where accord and satisfaction cannot be relied on, as where a claimant settles with only one of two concurrent tortfeasors, the tortfeasor facing a claim will nevertheless have a defence if the plaintiff’s settlement with the other has fully compensated him for the separate wrongs done to him. A further question raised in this appeal is whether the use of such words as ‘in full and final satisfaction’ in a negotiated settlement for a sum less than the formulated claim impresses the settlement sum when paid with the quality of full satisfaction for this purpose.

Mr McLaren and Mr Woodward submitted that a settlement with one tortfeasor expressed to be in full and final settlement and satisfaction should be regarded as full satisfaction so as to bar an action against a concurrent tortfeasor unless the claimant as part of the settlement reserved the right to proceed against any other concurrent tortfeasor. Mr Woodward added that most settlement figures are less than the potential full value of claims, but that they should nevertheless be regarded as ‘full satisfaction’ if that is what the parties have agreed.

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Mr Walker submitted that the defence of satisfaction, as distinct from that of accord and satisfaction, is only available where the claimant has been fully compensated in accordance with his claims for the wrongs done to him or in respect of the liabilities owed to him. He maintained that the fact that in settling with one tortfeasor a claimant is content to characterise the agreed sum as ‘full satisfaction’ of the claim against him does not render it so for the purpose of claims against others.

The authorities cited by Mr McLaren and Mr Woodward in support of their submission that the answer is to be found in the words of the parties in the settlement agreement are meagre.

The first was Apley Estates Co v de Bernales [1947] 1 All ER 213, [1947] Ch 217 which concerned joint, not concurrent, tortfeasors and where the defence under consideration was accord and satisfaction, not satisfaction.

The second was a Scottish case, Carrigan v Duncan 1971 SLT (Sh Ct) 33, which, in my view, on close examination, does not support the submission. It was a case of acceptance by a pursuer of a tender from one tortfeasor apparently in full satisfaction of his claim for all loss arising out of the matter, but which his solicitor in a subsequent action against a concurrent tortfeasor claimed to have been in partial settlement of his loss. The Sheriff’s Court upheld the decision of the sheriff substitute dismissing his claim, holding that his previously undeclared and unevidenced intention of accepting the tender in partial satisfaction of his loss could not override what on an objective assessment of the matter appeared to have been an acceptance of payment in full satisfaction of his loss. Putting aside the possible differences of Scottish law, the circumstances of the case do not suggest to me a contrary approach to that of the English courts. There was no evidence before the court that the tender sum accepted by the pursuer was not the full amount of his loss, and the court felt bound to proceed on the basis that it was. The English authorities, to which I shall briefly refer, indicate that if, as a question of fact a plaintiff has secured full recovery, he cannot recover any more. In the case before us, as I have said, the judge found as a fact that Mr Jameson had not secured by his settlement with Babcock Energy full recovery of his loss.

Mr McLaren also cited some North American authorities in support of his submission that, as between concurrent tortfeasors, an agreement with one expressed to be in full satisfaction, whether or not it was, released the other. On examination, they do not support Mr McLaren’s argument or, where they appear to do so, are not persuasive. In Lovejoy v Murray (1865) 70 US (3 Wall) 1 the Supreme Court of the United States held that a partially satisfied judgment against a trespasser did not bar recovery of the balance from a joint trespasser because the partially satisfied judgment was clearly not full satisfaction. In Black v Martin (1930) 292 P 577 the Supreme Court of Montana held that settlement with two joint tortfeasors for a sum less than full satisfaction did not bar an action for the balance against a concurrent tortfeasor. In Lisoski v Anderson (1941) 112 P 2d 1055 the Supreme Court of Montana held that release of a tortfeasor discharged a joint tortfeasor. In Latham v Des Moines Electric Light Co (1942) 6 NW 2d 853 the Supreme Court of Iowa declared that the tortfeasors were not joint but appears to have barred the second claim on the basis that the two causes of action were indivisible and that the two tortfeasors were responsible for the same wrong.

Such guidance as can be found in English authorities on the point indicate that satisfaction is a practical and objective defence, not dependent on agreement or accord, though often the result of it, by which a defendant says simply that the

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plaintiff has already been fully compensated for the wrong or wrongs for which he claims damage. As I have said, unlike accord and satisfaction, it can only be executed. It is available where the plaintiff has received the full value of his claim, whether by judgment or acceptance of money in court or by settlement. Its basis is simply that a plaintiff should not recover more than his true loss. Thus, unlike accord and satisfaction in the case of joint tortfeasors, it does not apply to a negotiated settlement figure which is less than that full value of that claim. For the same reason Mr McLaren’s reliance on the immateriality of the adequacy of consideration in contract as applied to a settlement agreement expressed to be in full satisfaction is misconceived.

This is how Glanville Williams, citing from very early authorities, put it in his 1951 study, Joint Torts and Contributory Negligence p 33:

‘Satisfaction by any concurrent tortfeasor discharges the others. Satisfaction means payment of damages, whether after judgment or by way of accord and satisfaction, or the rendering of an agreed substitution therefor. If the payment is of damages, it must be of the full damages agreed by the plaintiff or adjudged by the court as the damages due to him; otherwise it will only be a satisfaction pro tanto.’

The court may give effect to the defence of satisfaction in different ways. (1) Where the plaintiff has obtained full recovery, by declining to give him judgment because he can no longer prove an essential part of the cause of action, an entitlement to damages: see Bird v Randall (1762) 1 Wm Bl 373 at 387, 96 ER 210 at 218, Clark v Urquhart, Stracey v Urquhart [1930] AC 28 at 38, 50, 54, 57, 63, 66 and 76 per Lord Sumner, Lord Atkin and Lord Tomlin, United Australia Ltd v Barclays Bank Ltd [1940] 4 All ER 20 at 31, [1941] AC 1 at 21 per Viscount Simon LC and Bryanston Finance Ltd v de Vries [1975] 2 All ER 609 at 618–620, 624–628 and 632–633, [1975] QB 703 at 722–724, 729–734 and 740 per Lord Denning MR, Lord Diplock and Lawton LJ. Or (2) where there has only been partial recovery, by confining any subsequent judgment to the unrecovered amount of the plaintiff’s loss from the overlapping claims: see Townsend v Stone Toms & Partners (a firm) [1981] 2 All ER 690 at 695, [1981] 1 WLR 1153 at 1160 per Eveleigh LJ, Townsend v Stone Toms & Partners (a firm) (No 2) (1984) 27 BLR 26 per Oliver, Purchas and Waller LJJ at 38–39, 51 and 56 respectively and The Koursk [1924] P 140, [1924] All ER Rep 168. Or (3) where there has been full or partial recovery, by giving judgment for an amount but denying him his right to execution of it or confining execution to the unrecovered amount: see eg Dering v Uris [1964] 2 All ER 660, [1964] 2 QB 669, Wah Tat Bank Ltd v Chan Cheng Kum [1975] 2 All ER 257, [1975] AC 507 and Townsend v Stone Toms & Partners (a firm) [1981] 2 All ER 690 at 695, 696–697, [1981] 1 WLR 1153 at 1160, 1162 per Eveleigh LJ and Sir David Cairns.

Mr McLaren has subjected Bryanston Finance Ltd v de Vries [1975] 2 All ER 609, [1975] QB 703 to detailed analysis, distinguishing it on its facts, including the fact that it was a joint tortfeasor case, correctly observing that it did not deal with the precise issue before this court and drawing attention to the differences between the judgments of Lord Denning MR, Lord Diplock and Lawton LJ. He conducted much the same exercise with the two Townsend cases, emphasising, in particular, that, though there were concurrent claims in that dispute, it did not follow that when the facts came to be established there would be concurrent tortfeasors, and that though the allegation was that they had caused some overlapping damage, it was not alleged that they were responsible for precisely the same damage.

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In my view, none of the distinctions that Mr McLaren made of Bryanston Finance Ltd v de Vries is material. Although it was a joint tortfeasor case, it was not concerned with an accord and satisfaction, but with a consent judgment against one of the joint tortfeasors. The plaintiff was, therefore, entitled, by s 6 of the 1935 Act to proceed against the other tortfeasor. The relevant question for the Court of Appeal was how it should treat the subsequent claim against the second tortfeasor, having regard to the finding of the trial judge that the judgment sum against the first joint tortfeasor, if paid, more than compensated him for the wrong. Lord Denning MR and Lawton LJ regarded it as a bar to further recovery; Lord Diplock regarded it as a defence if pleaded. The court’s conclusion on the main issue that a claimant should not recover more than his true damage is as applicable to concurrent as to joint tortfeasors and as to judgments as to settlements whatever form the latter take (see [1975] 2 All ER 609 at 619, [1975] QB 703 at 723 per Lord Denning MR).

As to the Townsend cases, Mr McLaren’s submissions similarly do not meet the main thrust of the judgments, which was against over-recovery of damages, in this instance against concurrent tortfeasors or potentially concurrent tortfeasors. It seems to me that Oliver LJ pointed the way in the following passage from his judgment in Townsend v Stone Toms & Partners (a firm) (No 2) (1984) 27 BLR 26 at 38, in which, though talking of concurrent claims, he clearly had in mind principles governing valid claims against concurrent tortfeasors:

‘The treatment of moneys taken out in satisfaction of claims against one defendant whilst the action proceeds against another, and where there is no precise coincidence of claims is a question which, curiously enough, appears to be uncovered by any reported authority. The plaintiffs’ submission in this case, however, appears to me to be misconceived and to be based on the fallacious proposition that an unsatisfied judgment is to be treated for purposes of account in the same or another action on the same footing as a satisfied judgment. This, in my judgment, is palpably wrong. The starting point, and one on which there is a good deal of clear authority, is that where a plaintiff with concurrent claims against two persons has actually recovered part or all of his loss from another, that recovery goes in diminution of the damages which will be awarded against the defendant. A plaintiff can never, as I understand the law, merely because his claim may lie against more than one person, recover more than the total sum due.’

(See also his application (at 51) of that approach.)

Returning to this case, I can see no basis in law or in common sense why an agreement expressed to be in ‘in full and final settlement and satisfaction’ between a claimant and one tortfeasor should be regarded as full satisfaction in respect of any claims that he may have against a concurrent tortfeasor who was not a party to it. These are separate causes of action, not a single and indivisible action as is the case with joint tortfeasors. Nor am I impressed by the argument of Mr Woodward that, in a case of concurrent tortfeasors, it is undesirable and difficult for a court to attempt to determine the value of a claim on the basis of full liability regardless of the settlement figure. Such argument may apply to joint tortfeasors, but not to concurrent tortfeasors where satisfaction is not a reflection of an agreement but of whether the claim, good or bad, made against the second tortfeasor has in fact been satisfied. Where there is a question about that, in personal injury cases or otherwise, the task for the court is the same as that performed daily by civil courts throughout the country.

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As I have said, the judge found that the settlement figure of £80,000 did not represent the full value of Mr Jameson’s claim against Babcock Energy on a full liability basis. In my view, and for the reasons I have given, he was not bound to equate full satisfaction with a figure acceptable to both parties representing their respective assessment of the risks of the litigation. And, on the material before him, it was a finding he was entitled to make.

Accordingly, as Babcock Energy and the CEGB are agreed for the purpose of this preliminary issue to be concurrent tortfeasors and as Mr Jameson’s settlement sum was only partial satisfaction of the full value of his claim, his receipt of that sum could not bar his executors from proceeding with their claim.

Mr Walker has advanced a further reason, which he described as ‘subsidiary’ and ‘somewhat artificial’, why the settlement payment of £80,000 cannot provide a defence of satisfaction to the CEGB.

It is that, even if the £80,000 were regarded as capable of being full satisfaction, it was not executed, because Mr Jameson did not receive it all before he died. The final £5,000 making up the total sum was not paid until 29 April 1988, after his death.

Bryanston Finance Ltd v de Vries and the other authorities to which I have referred indicate the importance of actual receipt of full satisfaction before it can be relied on as a defence. The entitlement of Mr Jameson to proceed against the CEGB and, hence, that of his executors under the 1976 Act turns on his entitlement at the moment of death (see British Columbia Electric Rly Co Ltd v Gentile [1914] AC 1034 at 1041 per Lord Dunedin, giving the judgment of their Lordships). At that time, he had not received the sum which, on the CEGB’s and Babcock Energy’s case, amounted to full satisfaction. Mr Walker submitted, therefore, that he was still entitled for that reason to maintain an action against the CEGB at the moment of death, thus founding his executors’ present action against the CEGB.

In reply, Mr McLaren relied on the fact that the judge, by his order of 31 March 1995 giving effect to his judgment on the preliminary issues, has ordered that Mr Jameson’s executors ‘cannot now maintain any action against’ Babcock Energy, the only basis for which could be a finding that there had been an executory accord and satisfaction of Mr Jameson’s claim at the time of his death. Mr McLaren’s reliance on that order to support a defence of satisfaction is misconceived. Babcock Energy as a matter of contract was entitled to rely on the executory settlement agreement as an accord and satisfaction; the CEGB as a concurrent tortfeasor cannot rely on it on the quite separate defence of satisfaction.

Mr McLaren submitted that, in any event, the date of payment is irrelevant since the settlement agreement was made and the case was effectively ‘finished’ on 19 April 1988, at which time £75,000 was already in court. That submission, it seems to me is simply another way of putting the same misconceived argument, namely that accord and satisfaction, as distinct from satisfaction, bars a claim against a concurrent tortfeasor.

I would not care to determine the case against the CEGB on a point such as this, and in the light of my conclusion on the main issue as to satisfaction, do not need to do so. However, it cannot be dismissed as an artificial or technical point. Unless Mr Jameson received full satisfaction—for the purpose of this alternative argument of Mr Walker, the agreed settlement figure—before his death so as to deprive him of any further right of action against the CEGB, the statutory right of his executors to make a dependency claim on behalf of his widow vested on his

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death. Subsequent payment of the balance of the agreed sum could not, it seems to me, take away that entitlement.

ABUSE OF PROCESS—CONSTRUCTION OF S 1 OF THE 1976 ACT

As to abuse of process, the judge held that it would not have been an abuse for Mr Jameson to have proceeded against the CEGB had he lived; such an action would not have been, and the present action was not, a collateral attack on the settlement or akin to a collateral attack on a final judgment; he had found that the law permitted it and he referred by way of example to The Koursk [1924] P 140, [1924] All ER Rep 168 and ss 3 and 4 of the 1978 Act, which provide for successive actions against persons jointly liable for the same damage. He rejected the suggestion that Mr Jameson’s advisers in negotiating the settlement had in mind further recovery against Babcock Energy by proceedings against the CEGB in which they contemplated Babcock Energy would be brought in as a third party. As to the possible ‘windfall’ to Mr Jameson’s widow in recovering both the £80,000 through his estate and, thanks to s 4 of the 1976 Act, full dependency damages in the region of £142,000, as claimed, he referred to similar windfalls upheld by the courts.

A dependency claim under the Fatal Accidents Acts has always depended on the entitlement of the deceased at the moment of death to sue and recover damages for the wrongful act causing his death. Section 1(1) of the 1976 Act provides:

‘If death is caused by any wrongful act, neglect or default which is such as would (if death had not ensued) have entitled the person injured to maintain an action and recover damages in respect thereof, the person who would have been liable if death had not ensued shall be liable to an action for damages, notwithstanding the death of the person injured.’

Section 4 of the Act provides that in assessing, inter alia, dependency damages, benefit to dependants from the deceased’s estate shall be disregarded. More precisely, it provides:

‘In assessing damages in respect of a person’s death in an action under this Act, benefits which have accrued or will or may accrue to any person from his estate or otherwise as a result of his death shall be disregarded.’

Mr McLaren made two alternative submissions. The first, which he described as a matter of statutory construction of s 1 of the 1976 Act, only arises if, contrary to my view, the settlement sum of £80,000 would have been regarded as full satisfaction, as distinct from accord and satisfaction of the claim against Babcock Energy, but was only prevented from being so because the final £5,000 was not paid before Mr Jameson’s death. Mr McLaren argued that at the time of death Mr Jameson would have lost his right of action against the CEGB because, by reason of the payment five days later, he would not in practice have been able ‘to maintain an action and recover damages in respect thereof’ as required by s 1.

Mr McLaren’s submission on this point results from a misreading of s 1(1). It enables the bringing of an action on behalf of dependants if the wrong, but for the deceased’s death, would have ‘entitled’ him ‘to maintain an action and recover damages’. The test is the deceased’s ‘entitlement’ just before death to achieve that end if he had lived, not whether he could have achieved it given the fact that he died when he did or that his claim would thereafter have been struck out as an abuse of process as a result of the payment five days later. In any event, as, in my

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view, the settlement figure of £80,000 did not amount to full satisfaction of Mr Jameson’s claim, it was not capable, whenever paid, of releasing the CEGB as a concurrent tortfeasor.

Mr McLaren’s second submission, which Mr Woodward supported, was that it would have been an abuse of process to allow Mr Jameson’s widow to make a dependency claim against the CEGB, he having entered unreservedly into a full and final settlement with Babcock Energy for a sum which included a significant amount for future loss of earnings that she received as part of his estate. (Such loss could not have been recovered in a claim by his estate for ‘the lost years’ after his death, and it will be remembered that the 1934 Act claim was abandoned at the trial.) Mr McLaren added that it was a further abuse of process if, as Babcock Energy maintained, the CEGB could not recover contribution from it. He submitted that that abuse taints this ‘derivative’ action on behalf of Mr Jameson’s widow and offends the general canon that there should be finality in litigation.

Whilst the categories of cases that may be struck out as an abuse of process are not closed, examples are rare and usually fall into one of two classes, namely: invoking the judicial process for some collateral purpose (see eg Hunter v Chief Constable of West Midlands [1981] 3 All ER 727 at 729, [1982] AC 529 at 536 per Lord Diplock and Ashmore v British Coal Corp [1990] 2 All ER 981, [1990] 2 QB 338) and stultifying the process of the court (see eg Headford v Bristol and District Health Authority (1994) Times, 30 November, [1994] CA Transcript 1388).

The judge rejected the argument of Mr McLaren that there was evidence indicating that the action was tainted by reason of a secret or planned ‘procedural device’ under which Mr and Mrs Jameson agreed that he would not proceed with one of his causes of action so as to enable her to take advantage of the windfall of part of his damages by virtue of s 4 of the 1976 Act. Even if the judge had found that there had been some such arrangement, it is, in my view, open to question whether it would have rendered the present action an abuse.

I cannot see how, if Mr Jameson had lived, it would have been an abuse of process for him to have sued the CEGB for the balance of his claimed loss after settling as he did with Babcock Energy. He was not bound to sue all alleged tortfeasors in one action or to settle his claim as against all of them. (See Clerk and Lindsell on Torts pp 147–148, para 4-55 and eg The Koursk [1924] P 140, [1924] All ER Rep 168 and United Australia Ltd v Barclays Bank Ltd [1940] 4 All ER 20 at 50–51, [1941] AC 1 at 50 per Lord Porter; also s 6 of the 1935 Act and ss 3 and 4 of the 1978 Act expressly providing for successive actions). If, as the judge found, his settlement did not amount to full satisfaction of his claim against all those responsible for his condition, I can see no reason in law or as a matter of policy why he should not, if he had lived, proceed against a concurrent tortfeasor for the balance.

As to the present claim, Mrs Jameson has a statutory right, as her deceased husband’s dependant, to damages for her loss of dependency against those who caused it. She is also entitled, by s 4 of the 1976 Act, to ask the court to disregard any sums received ‘from his estate or otherwise as a result of his death’, including the sum of £80,000 from his settlement agreement with Babcock Energy. It cannot normally be an abuse of process to enforce an express statutory entitlement. (See eg Pidduck v Eastern Scottish Omnibuses Ltd [1990] 2 All ER 69, [1990] 1 WLR 993 and also Gammell v Wilson, Furness v B & S Massey Ltd [1981] 1 All ER 578, [1982] AC 27 and other ‘lost years’ damages cases until the scope for such claims was removed by s 4(2) of the Administration of Justice Act 1982, substituting s 1(2)(a)(ii) of the Law Reform (Miscellaneous Provisions) Act 1934.)

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Mr McLaren suggested nevertheless that it was an abuse of process for Mrs Jameson to seek and obtain double recovery of at least some of her husband’s lost future earnings already included in the £80,000 settlement. He said that the 1976 Act was not intended to assist those who had already recovered damages which could provide for dependency, as the 1982 Act still permits a living plaintiff to do.

Mr McLaren, in making that suggestion, relied heavily on a passage from the speech of Lord Salmon in Pickett v British Rail Engineering Ltd, British Rail Engineering Ltd v Pickett [1979] 1 All ER 774 at 782–783, [1980] AC 137 at 152–153, a ‘lost years’ claim by a plaintiff continued after his death by his widow as administratrix, not a dependency claim under the 1976 Act. Lord Salmon clearly considered the function of that Act and its predecessors to provide for a fatally injured man’s dependants where the interval between the fatal injury and death was so short that the injured man could not make similar provision by proceeding to judgment in a claim for his ‘lost years’ before death. He seems to have regarded the ‘lost years’ entitlement of a dying man and the dependency entitlement of his family after his death as alternative ways to the same end, the alternative chosen depending on the timing. This is how he put it ([1979] 1 All ER 774 at 783, [1980] AC 137 at 153):

‘When the Fatal Accidents Acts 1846 to 1908 were passed, it is, in my view, difficult to believe that it could have occurred to Parliament that the common law could possibly be as stated many years later, by the Court of Appeal in Oliver v Ashman [1961] 3 All ER 323, [1962] 2 QB 210 … [holding that there was no entitlement to claim for ‘the lost years’]. The clear intention of Parliament in passing those Acts appears to have been to deal with the all too frequent cases in which, as a result of someone else’s negligence, a man suffered injuries which incapacitated him from earning and caused his death before he could obtain any damages from the tortfeasor to compensate him for the loss of the money he would have earned but for the tort. The policy of the Acts was, in my opinion, clearly to put that man’s dependants, as far as possible, in the same financial position as they would have been in if the breadwinner had lived long enough to obtain judgment against the tortfeasor. In my opinion, Parliament correctly assumed that had the deceased lived, he would have recovered judgment for a lump sum by way of damages as compensation for the money he would have earned but for the tortfeasor’s negligence and that these damages would have included the money which the deceased would have earned during “the lost years”. Otherwise, Parliament would, surely, have made it plain that no judgment in favour of the deceased or settlement of his claim could bar a claim by his dependants under the Fatal Accidents Acts; I certainly do not think that Parliament would have used the language which it did use in s 1 of those Acts.’

Lord Salmon was not, of course, concerned in that case with the precise nature of entitlement under the Fatal Accidents Acts or with a dependency claim after death against a concurrent tortfeasor. The principle of law that he described as ‘probably correct’ ([1979] 1 All ER 774 at 782, [1980] AC 137 at 152) is that as a matter of construction of s 1 of the 1976 Act and its predecessors, if a dying man settles with or obtains judgment against a tortfeasor his dependants have no claim against that tortfeasor because he has none at death and his death does not create a fresh cause of action (see eg Read v Great Eastern Rly Co (1868) LR 3 QB 555, Williams v Mersey Docks and Harbour Board [1905] 1 KB 804 and Murray v

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Shuter [1972] 1 Lloyd’s Rep 6). However, as I have said, that principle does not apply where a dying man has a claim against another, concurrent, tortfeasor which he has not settled and against whom he has not obtained judgment, because there, if he had lived, he would have been entitled to maintain an action against that tortfeasor.

As to the effect on Mr Jameson’s notional claim if he had lived, or on his widow’s dependency claim, of the possible injustice to Babcock Energy in now being subjected to a third party claim despite its ‘full and final’ settlement with Mr Jameson, it seems to me that the possibility or probability of that at the time of settlement could not ‘taint’ either claim. Mr Jameson’s only agreement was with Babcock Energy; it was nothing to do with him whether, in any subsequent claim by him or by his widow under the 1976 Act against the CEGB, it might seek a contribution from Babcock Energy; and it was nothing to do with the CEGB, finding itself a defendant to a dependency claim, that Mr Jameson had settled his claim against Babcock Energy ‘in full and final satisfaction’. This appears to have been the approach of Steyn LJ in the passage that I have cited from his judgment in Watts v Aldington, Tolstoy v Aldington (1993) Times, 16 December, [1993] CA Transcript 1578 in which he suggests that release of a tortfeasor should not release a joint tortfeasor, putting him in the same position as a concurrent tortfeasor in this respect. For convenience, I repeat that part of the passage:

‘… but good sense, fairness and respect for the reasonable expectation of contracting parties suggest that the best solution is that the release of a joint tortfeasor should not release the other tortfeasor. On this basis the consequence that the unreleased tortfeasor may bring an action for contribution against the released tortfeasor must be faced. As far as the unreleased tortfeasor is concerned the settlement between the plaintiff and the released tortfeasor is res inter alios acta. If this solution is not perfect, it at least has the merit of promoting more sensible results than any other solution …’

Accordingly, my view is that there is no basis, evidential or otherwise, for regarding Mrs Jameson’s dependency claim, which she is legally entitled to make against the CEGB, as tainted by her husband’s settlement with Babcock Energy so as to render the present action an abuse of process.

DAMAGES

The issue as to damages arises only if, as I would hold, Mr Jameson’s cause of action before death has not been satisfied and the present claim is not an abuse of process. It is whether Mrs Jameson can establish that her loss of dependency has resulted from her husband’s death.

The judge rejected the CEGB’s and Babcock Energy’s argument that at the time of Mr Jameson’s death there was no dependency because by then he had no actual or potential earning capacity. He held that the effect of the Fatal Accidents legislation from its inception was to require a tortfeasor whose tort had caused loss of earning capacity and death, whether or not simultaneously, to compensate the deceased’s dependants for that loss. He also declined to accept the argument advanced on behalf of Babcock Energy that he should set against any dependency the fact that had Mr Jameson lived he would have required costly full-time nursing and would not have been able to do any work about the house.

Page 58 of [1997] 4 All ER 38

I set out the relevant provisions of the 1976 Act, for convenience repeating ss 1(1) and 4, emphasising parts of the provisions particularly relevant to this issue, and observing that s 1(1) is essentially the same as it was in the 1846 Act:

‘If death is caused by any wrongful act, neglect or default which is such as would (if death had not ensued) have entitled the person injured to maintain an action and recover damages in respect thereof, the person who would have been liable if death had not ensued shall be liable to an action for damages, notwithstanding the death of the person injured.’

Section 1(2) provides, subject to immaterial exceptions, that ‘every such action shall be for the benefit of the dependants of … the deceased …' Section 3(1) identifies in broad terms the damages recoverable:

‘In the action such damages, other than damages for bereavement, may be awarded as are proportioned to the injury resulting from the death to the dependants respectively.’

Section 3(3) excludes consideration in the assessment of damages of the prospect of a widow’s re-marriage:

‘In an action under this Act where there fall to be assessed damages payable to a widow in respect of the death of her husband there shall not be taken account the re-marriage of the widow or her prospects of re-marriage.’

And s 4 provides that in assessing damages certain benefits shall be disregarded:

‘In assessing damages in respect of a person’s death in an action under this Act, benefits which have accrued or will or may accrue to any person from his estate or otherwise as a result of his death shall be disregarded.’

Mr McLaren and Mr Woodward submitted that Mrs Jameson’s loss of dependency, including the claimed allowance for the work that he did around the house, did not result from her husband’s death, as required by those provisions, because he had already lost all future earning and ‘DIY’ capacity before it occurred. They maintained that the 1976 Act does not provide compensation for loss of dependency caused by the wrong or the injury that it caused during the deceased’s lifetime, but only for that resulting from the death, and they drew attention to the highlighted words in ss 3(1), 3(3) and 4. They placed particular reliance on the words of Lord Dunedin in British Columbia Electric Rly Co Ltd v Gentile [1914] AC 1034 at 1041, albeit that they were couched in terms of actionability rather than recovery of loss of dependency:

‘… the punctum temporis at which the test is to be taken is at the moment of death, with the idea fictionally that death has not taken place. At that moment, however, the test is absolute. If, therefore, the deceased could not, had he survived at that moment, [have] maintained, i.e., successfully maintained, his action, then the action under the Act does not arise.’

The consequence of their submission, if correct, would be to deprive dependants of any recovery under the Act whenever the injury causing permanent loss of earning capacity does not also instantaneously cause death. It would also mean that possibly hundreds of thousands of judgments and settlements in the 150 years of the Fatal Accidents legislation have erroneously provided for the dependants of those who did not die instantaneously from another’s wrong, including those who died only after a lingering fatal illness.

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Mr McLaren and Mr Woodward suggested that such an outcome would not produce an injustice in this case because Mr Jameson had already recovered a substantial amount of damages for his injury which would enure for the benefit of Mrs Jameson as part of his estate, thus merely preventing double recovery. That line of reasoning led Mr McLaren to soften the surprising consequence of the argument. He acknowledged that the clear policy of the 1976 Act and its predecessors was to provide for dependants whenever their provider died after suffering a fatal injury or disease. However, he suggested that the policy conflicted with the plain meaning of its words, particularly those that I have highlighted in ss 3(1), 3(3) and 4. To overcome that dilemma he suggested that, where the deceased has not obtained judgment or settled his claim before death, courts should apply the absurdity test to the literal meaning of the Act and the policy should prevail, but where he has done either the courts should give the provisions the literal and natural meaning for which he and Mr Woodward contended. They maintained, therefore, that Mrs Jameson cannot establish any dependency and that her only effective claim is for bereavement damages.

Mr McLaren sought, as part of this submission, to close a possible loophole in it based on any additional loss of dependency that Mrs Jameson might be able to establish from her husband’s entitlement before death to recover against the CEGB the balance of his claim for future loss. He said that as Mr Jameson had settled his claim against Babcock Energy in full and final settlement, he would have been unlikely to have made any claim against the CEGB if he had lived. He would have had to give credit for the substantial settlement sum £80,000, much of it going to future loss (not having the benefit of s 4 of the 1976 Act given to a deceased’s dependants); any claim by him against the CEGB would, as Mr Walker has conceded, have been weaker than that against Babcock Energy; and he would have been at risk as to costs under s 4 of the 1978 Act in bringing successive actions in respect of the same damage. Mr McLaren submitted that, in practice, Mr Jameson had no further claim at the time of death on which he could have maintained an action and have recovered damages against the CEGB and that, therefore, Mrs Jameson had no basis for a claim for loss of dependency under s 1(1) of the 1976 Act.

Mr Woodward argued additionally, though he did not press it as strongly as he had done to the judge, that if Mr Jameson had not died any claim that he might have had for future loss of earning capacity would have been of no benefit to his widow because it would have been substantially or entirely consumed in providing full-time care for him.

It is said that the cause of action under the 1976 Act and its predecessors is a new cause of action arising only at death, distinct, both as to cause and the nature of recoverable damages, from that of the deceased if he had lived (see eg Pym v Great Northern Rly Co (1863) 4 B & S 396, [1861–73] All ER Rep 180, British Columbia Electric Rly Co Ltd v Gentile [1914] AC 1034 at 1039–1040 per Lord Dunedin and Davies v Powell Duffryn Associated Collieries Ltd [1942] 1 All ER 657 at 662, 665 and 673, [1942] AC 601 at 611, 617 and 623 per Lord Wright and Lord Porter). Damages for dependency are not what a deceased would have recovered by way of his own action. They are what his dependants have lost by reason of his death, based conventionally on what he would have earned but for his death.

Whether one calls a dependency claim new or derivative, or both, the scheme of s 1 of the 1976 Act is plain. It vests in dependants a right to claim for loss of dependency resulting from a wrongful act causing injury and death in respect of which a deceased could have claimed for his injury if he had lived. Putting aside

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for a moment any question of full or partial recovery of future loss of earnings during life by settlement or judgment, in every case where death is caused by a wrongful act the deceased has suffered injury depriving him of his earning capacity before or by his death. Up to the moment of death he has an entitlement to claim for damages for the injury and its disabling consequence caused by that wrongful act. It is that entitlement which, by s 1(1) of the Act, is the basis for the dependants’ entitlement provided by s 1(2) and assessed in accordance with s 3(1) for the quite separate ‘injury’ of loss of dependency ‘resulting from the death’. The two forms of injury though distinct, are successive results of the same wrongful act.

Accordingly, in my judgment, even without resort to the notion of absurdity in the case of settlement or judgment before death, the meaning and effect of the 1976 Act are plain. It entitles a deceased’s dependants to claim for loss of dependency after death where his injury and death were caused by a wrongful act, whether or not there was an interval between injury and death and whether or not the injury had disabled him from working before death. As Mr McLaren’s qualified submission on the matter acknowledged, any other interpretation of the statute would be absurd. It would frustrate the clear purpose of the Fatal Accidents legislation since its introduction in 1846 and contradict the effect given to it by the courts in the 150 years of its existence. When Parliament continued in the 1976 Act substantially the same formula for entitlement as that in the 1846 Act it must have intended that it should continue to have that effect.

Mr Woodward’s additional and alternative submission is also contrary to the clear meaning of the Act and absurd, namely that there is no dependency entitlement because, if Mr Jameson had lived, all his loss of earnings would have been absorbed in maintaining him and he could have done no work about the house. It wrongly equates Mr Jameson’s cause of action before death for damages for the disabling effects of asbestosis with that of Mrs Jameson after his death, namely for loss of her dependency resulting from death. The scheme of s 1(1) of the 1976 Act in establishing an entitlement to a dependency claim is to enable a deceased’s dependants to recover their loss resulting from the wrongful act causing his injury and death, not to assume that the deceased has not died and that his loss continues after death.

INDEMNITIES

The CEGB maintains that if it fails in its other arguments, it is entitled, by virtue of s 1 of the 1978 Act, to a contribution from Babcock Energy notwithstanding the latter’s settlement with Mr Jameson, because their potential respective liabilities were ‘in respect of the same damage’. Babcock Energy’s case is that it is not liable to contribute because its potential liability is not ‘in respect of the same damage’ and that, in any event, it has contractually excluded such liability.

‘In respect of the same damage’

The judge found that Mr Jameson developed the fatal mesothelioma after the 1978 Act came into force and that, therefore, the question of contribution was governed by that Act and not the Law Reform (Married Women and Tortfeasors) Act 1935, s 6 of which the 1978 Act replaced and extended to include contribution for damage caused by any wrong whether or not tortious. He held that the CEGB was entitled to seek contribution from Babcock Energy in the third party proceedings, and Babcock Energy now appeals that decision.

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The 1978 Act, provides in s 1:

‘(1) … 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) …

(6) References in this section to a person’s liability in respect of any damage are references to any such liability which has been or could be established in an action brought against him in England and Wales by or on behalf of the person who suffered the damage …’

By s 2(1):

‘… in any proceedings for contribution under section 1 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 that person’s responsibility for the damage in question.’

By s 6(1), which clearly had liability under the Fatal Accidents legislation in mind, a person is liable in respect of any damage for the purpose of the 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).’

By s 6(2) and (3):

‘(2) References in this Act to an action brought by or on behalf of the person who suffered any damage include references to an action brought for the benefit of his estate or dependants.

(3) In this Act “dependants” has the same meaning as in the Fatal Accidents Act 1976.’

The first issue is whether the damage for which the CEGB may be liable in the present action is ‘the same damage’ for which Babcock Energy may be liable. By s 1(3) of the Act a person may be liable to contribute ‘notwithstanding that he has ceased to be liable in respect of the damage …’ unless by limitation or prescription extinguishing the claim. Thus s 6(1) must be interpreted as if it read ‘is or has been at any time entitled to recover compensation …’ (see R A Lister & Co Ltd v E G Thomson (Shipping) Ltd (No 2), The Benarty (No 2) [1987] 3 All ER 1032 at 1037–1038, 1039, [1987] 1 WLR 1614 at 1621, 1623 per Hobhouse J). Similarly, in s 1(6), as qualified by s 6(2), a person’s ‘liability in respect of any damage’ means a liability which has been or could have been or could be established in an action against him ‘by or on behalf of the person who suffered the damage’, including an action brought for the benefit of a deceased’s estate or his dependants. (See eg Logan v Uttlesford DC [1984] CA Transcript 263 per Donaldson MR, in which this court upheld the right of a defendant in a road traffic case to seek contribution from another with whom the plaintiff had settled his claim in respect of the same accident without resort to litigation.)

Mr McLaren submitted that the relevant damage in this context is the alleged wrong that caused injury and death to Mr Jameson, not the damages that he could have recovered for his injury. He said that the only wrong/damage was to Mr Jameson, not to Mrs Jameson, and that the action on her behalf is a derivative one ‘in respect of the same damage’, namely in respect of the damage suffered by him. He added that the fact that Babcock Energy ceased to be liable to Mr

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Jameson for that wrong/damage on the settlement is irrelevant on the question of contribution because ss 1(3), 1(6) and 6(1) create an entitlement to contribution in respect of a liability which could have been established at any time. He relied on the following passage from the judgment of Donaldson MR in Logan v Uttlesford DC, explaining the code of the 1978 Act and in particular its provision in s 1(2) for a defendant who was but is no longer liable to a plaintiff to recover a contribution from a third party, and in s 1(3) for a defendant to recover contribution against a third party who was, but is no longer, liable to the plaintiff:

‘Subsection (3) looks at the problem from the point of view of [the third party] against whom the [defendant] has made a claim for contribution in circumstances in which [the third party] is outside the general rule, because he has ceased to be liable to [the plaintiff]. It provides that he will nevertheless be liable to contribute if he was at one time liable to [the plaintiff], unless he ceases to be liable to [the plaintiff] by virtue of the expiry of a period of limitation or prescription which extinguished the right on which [the plaintiff’s] claim was based as contrasted with merely barring [the plaintiff’s] remedy.’

Mr Woodward submitted that Babcock Energy is not liable under the 1978 Act to contribute to any damages that the CEGB may be ordered to pay for her benefit under the 1976 Act. Put at its simplest his argument was that, as Mrs Jameson is and always was unable to maintain an action against Babcock Energy in respect of her husband’s death, the CEGB is unable to obtain a contribution from Babcock Energy in respect of his death because there is no common ‘damage’ for the purpose of s 1(1) of the 1978 Act. The premise of his argument was that the injury or damage in an action under the 1976 Act is not that suffered by the deceased before he died but only that suffered by his dependants on and as a result of his death. He relied on a number of authorities under the Fatal Accidents legislation, to some of which I have referred, indicating that a dependency claim is a new cause of action arising only on death. Thus, he reasoned that Mrs Jameson’s only claim for damage is that arising after her husband’s death and in respect of his death; she could never have had such a claim against Babcock Energy before his death and his settlement with Babcock Energy has deprived her of a claim after his death in respect of it. Accordingly, he submitted, Babcock Energy is not and never was putatively liable in respect of the same damage as that claimed against the CEGB, namely death and loss of dependency.

In my judgment, Mr McLaren has interpreted the 1978 Act correctly. Mr Woodward’s argument confuses ‘damage’ as it is used in the 1978 Act with ‘damages’ in its normal sense of compensation.

To demonstrate this, it is important to bear in mind the scheme of the 1976 Act (see ss 1(1) and (2), 2(4) and 3(1) and 4), which, as I have said, the draftsman of the 1978 Act clearly had in mind. It is to provide ‘damages’ to the dependants of a deceased for ‘any wrongful act, neglect or default’ that caused his death. In the 1978 Act the word ‘damage’ is not defined, but, in my view, its meaning is plain in the various contexts in which it appears. It is the wrong causing injury and/or death; it does not mean death and it does not mean loss of dependency resulting from death. It thus corresponds to the 1976 Act formula ‘any wrongful act, neglect or default’. The scheme of the 1978 Act, as I put it in Friends’ Provident Life Office v Hillier Parker May & Rowden (a firm) (Estates and General plc, third party) [1995] 4 All ER 260 at 272, [1997] QB 85 at 102, is to provide for contribution in

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respect of ‘compensation’ for ‘damage’ (see also Birse Construction Ltd v Haiste Ltd (Watson, third party) [1996] 2 All ER 1 at 8, [1996] 1 WLR 675 at 682 per Roch LJ).

Thus, s 2(1) directs the court when assessing the amount of any contribution to have regard to his responsibility for ‘the damage in question’. As Mr McLaren observed, apportionment of responsibility ‘for the damage in question’ only makes sense if it means apportionment of responsibility for the wrong causing injury and death and not the statutory remedy of dependency damages provided by the 1976 Act. (See also ss 1(6) and 6(2), which I have set out above.)

Any other interpretation would result in a narrowing of the provision for contribution as originally provided in s 6 of the 1935 Act, which is clearly not what was intended by 1978 Act. See eg Lampitt v Poole BC (Taylor, third party) [1990] 2 All ER 887 at 892–893, [1991] 2 QB 545 at 555 per Lord Donaldson MR.

Contractual exclusion of right to contribution

Babcock Energy maintains in the alternative that it has contractually excluded any liability to contribute and relies on s 7(3)(b) of the 1978 Act, which provides:

‘The right to recover contribution in accordance with section 1 above supersedes any right, other than an express contractual right, to recover contribution (as distinct from indemnity) otherwise than under this Act in corresponding circumstances, but nothing in this Act shall affect—(a) any express or implied contractual or other right to indemnity; or (b) any express contractual provision regulating or excluding contribution; which would be enforceable apart from this Act …’

The contract between Babcock Energy and the CEGB included a form of general conditions recommended by a number of professional engineers’ bodies. Condition 21(iv) of those conditions provided for Babcock Energy to indemnify the CEGB, in certain specified circumstances, against claims in respect of damage or injury occurring during the contract works caused by Babcock Energy’s negligence, but made no provision for contribution. Condition 21(vi) provided: ‘The Contractor [Babcock Energy] shall not be liable to the Purchaser [the CEGB] for … (b) except as provided in these Conditions, any claim made against the Purchaser [the CEGB].’

Mr Woodward submitted that that provision expressly excluded contribution as provided by s 7(3)(b). Mr McLaren, on the other hand, contended that it excludes only the right to an indemnity falling outside the circumstances specified in condition 21(iv), not the statutory right to a contribution.

Section 7(3)(b) protects any provision regulating or excluding contribution ‘which would be enforceable apart from this Act’. At common law there was, in general, no right of contribution between tortfeasors outside contract (see the Law Commission’s Law of Contract: Report on Contribution (1977) (Law Com No 79) pp 3–5, paras 13-17). The 1935 Act made no provision for statutory contribution in contract, only in respect of tortfeasors liable in respect of the same damage. However, the 1978 Act, in s 6(1), introduced a statutory right of contribution, based, inter alia, on contractual liability. It thus became necessary also to include in the 1978 Act a provision protecting contractual provision for, or exclusion of, a right to contribution. Hence s 7(3) provides that the statutory right to a contribution in s 1 supersedes all but such express contractual provision.

Here, condition 21(iv) provides only for an indemnity and then in carefully specified circumstances. There is no express contractual provision for a contribution. The use of the general words ‘any claim’ in that context does not

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seem to me to amount to ‘an express contractual provision excluding contribution’. There is, therefore, no candidate for exclusion under condition 21(vi), that is, a contribution ‘which would be enforceable apart from [the] Act’. In addition, the condition excluding liability—‘except as provided in these Conditions, any claim made against the Purchaser’—seems to me to be primarily intended to restrict to the specified circumstances the right of indemnity or other claim expressly provided for in the contract.

In my judgment, as a matter of construction of the contract and of s 7(3)(b) of the 1978 Act, the contract did not expressly exclude the CEGB’s statutory right of contribution under the 1935 Act and now the 1978 Act. I am reassured in that construction by the inherent implausibility, as Mr McLaren described it, of the parties having intended that the CEGB’s right of recovery against Babcock Energy should be a full indemnity or nothing.

Exercise of discretion

A further and alternative ground of appeal by Babcock Energy in the third party proceedings was that the judge should have exercised his discretion under s 2(2) of the 1978 Act so as to exempt Babcock Energy from liability to make a contribution.

As Mr McLaren submitted, it would have been inappropriate for the judge to have attempted to exercise such a discretion in determining these preliminary points of law. He had yet to hear evidence on and make findings of fact which would bear on the exercise of such discretion.

Accordingly, I would dismiss both appeals and confirm the judge’s orders.

SIR PATRICK RUSSELL. I agree.

NOURSE LJ. I also agree.

Appeals dismissed. Leave to appeal to the House of Lords refused.

30 June 1997. The Appeal Committee of the House of Lords gave leave to appeal.

L I Zysman Esq  Barrister.

Inland Revenue Commissioners v Willoughby and related appeal

[1997] 4 All ER 65

Categories:        TAXATION; Income Tax, Tax Avoidance        

Court:        HOUSE OF LORDS        

Lord(s):        LORD NOLAN, LORD MUSTILL, LORD HOFFMANN, LORD CLYDE AND LORD HUTTON        

Hearing Date(s):        10 MARCH, 10 JULY 1997        

Income tax – Avoidance – Transfer of assets abroad – Income payable to persons resident or domiciled outside United Kingdom – Residence of transferor – Whether transferor required to be ordinarily resident in United Kingdom for charge to income tax – Income and Corporation Taxes Act 1988, s 739.

Income tax – Avoidance – Transfer of assets abroad – Income payable to persons resident or domiciled outside the United Kingdom – Investment in offshore premium bonds – Holder having ability to choose underlying investments – Offshore bonds subject to separate tax regime – Whether purpose of transfer being avoidance of liability to taxation – Income and Corporation Taxes Act 1988, s 741.

In July 1986 W retired from his post as professor of law at the University of Hong Kong and became entitled to a lump sum payment from the university’s provident fund. On advice he put the lump sum into a single premium personal portfolio bond with RL, a company incorporated, managed, controlled and resident in the Isle of Man, which issued to him in return 19 policies of insurance linked to fund 1121. W and his wife subsequently returned to England and became ordinarily resident in the United Kingdom in May 1987. In February 1989, on the maturity of the first of three offshore insurance policies previously taken out, W chose to effect a further single premium personal portfolio bond with RL (No 2387). The proposal was made by his wife and the appropriate policies were issued to her on 13 March 1989. In February Mrs W took out a third bond (No 3343) funded by the second and third insurance policies. Under the statutory taxation regime for offshore life policies W and his wife would pay no tax on the income or capital gains until the maturity of the bond or the occurrence of one of the other specified chargeable events. However, the Revenue took the view that the taxpayers had sought to avoid income tax by the transfer of assets abroad and on that basis they assessed W to tax on the income arising under the bonds for the years 1987–88, 1988–89, 1989–90 and 1990–91 and his wife for the year 1990–91 under s 739a of the Income and Corporation Taxes Act 1988 (and its statutory predecessor), which had effect ‘for the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfer of assets’. A special commissioner allowed the taxpayers’ appeals. He held that s 739 did not apply to fund 1121 as W had not been resident or ordinarily resident in the United Kingdom when the funds were transferred; in relation to all three bonds, he rejected the Crown’s distinction between personal portfolio bonds in which the policyholder had the ability to nominate the underlying investments and other offshore bonds where such investment was pooled which qualified for exemption from s 739 liability pursuant to s 741(a)b and concluded that the transfers had not been made for the

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purpose of avoiding liability to tax. The Court of Appeal affirmed the commissioner’s decisions on both points and the Crown appealed.

Held – The appeals would be dismissed for the following reasons—

(1) In view of the natural and plain meaning of the words used, s 739 of the 1988 Act only applied to transfers of assets by individuals who were ordinarily resident in the United Kingdom at the time of the relevant transfer. Since W was not ordinarily resident in the United Kingdom when he purchased bond No 1121, the income from that bond did not therefore fall within the scope of s 739 (see p 71 b to d j and p 75 b to f, post); Vestey v IRC (Nos 1 and 2) [1979] 3 All ER 976 considered; IRC v Herdman [1969] 1 All ER 495 not followed.

(2) Moreover, for the purposes of s 741(a) of the 1988 Act, tax avoidance was a course of action designed to conflict with or defeat the evident intention of Parliament and not the acceptance of an offer of freedom from tax which Parliament had deliberately made. The mere fact that the personal portfolios bondholder might fare better or worse in terms of benefits by reason of his control over investment policy than did his fellow bondholder with the standard type of bond had nothing to do with tax or with tax avoidance and there was no reason why Parliament should have intended to distinguish between them in fiscal terms. It followed, in the instant case, that the investment in all three personal portfolio bonds could not be characterised as tax avoidance and the taxpayers’ claim for exemption under s 741(a) would therefore be upheld (see p 73 j, p 74 h j and p 75 b to f, post).

Notes

For prevention of avoidance of income tax, see 23 Halsbury’s Laws (4th edn reissue) para 1565.

For exemption from charge on income arising from a transfer of assets abroad, see 23 Halsbury’s Laws (4th edn reissue) para 1571.

For the Income and Corporation Taxes Act 1988, ss 739, 741, see 44 Halsbury’s Statutes (4th edn) (1996 reissue) 1132, 1135.

Section 739 was amended by s 81 of the Finance Act 1997, which inserted sub-s (1A). Section 739(1A) applies irrespective of when the transfer or associated operations took place, but applies only to income arising on or after 26 November 1996.

Cases referred to in opinions

Congreve v IRC [1948] 1 All ER 948, HL; affg [1947] 1 All ER 168, CA.

Ensign Tankers (Leasing) Ltd v Stokes (Inspector of Taxes) [1992] 2 All ER 275, [1992] 1 AC 655, [1992] 2 WLR 469, HL.

IRC v Goodwin [1976] 1 All ER 481, [1976] 1 WLR 191, HL.

IRC v Herdman [1969] 1 All ER 495, [1969] 1 WLR 323, NI CA and HL

Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, [1992] 3 WLR 1032, HL.

Vestey v IRC (Nos 1 and 2) [1979] 3 All ER 976, [1980] AC 1148, [1979] 3 WLR 915, HL.

Appeals

The Commissioners of Inland Revenue appealed from the decision of the Court of Appeal (Glidewell, Hobhouse and Morritt LJJ) ([1995] STC 143) on 16 December 1994 upholding a decision of a commissioner for the special

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purposes of the Income Tax Acts, Mr D A Shirley, allowing appeals against assessments to income tax by Peter Geoffrey Willoughby and his wife, Ruth Marylyn Willoughby. The assessments had been raised pursuant to s 739 of the Income and Corporation Taxes Act 1988 to prevent avoidance of tax by the transfer of certain assets abroad. The facts are set out in the opinion of Lord Nolan.

Launcelot Henderson QC and Rabinder Singh (instructed by the Solicitor of Inland Revenue) for the Crown.

David Goy QC and Philip Baker (instructed by Speechly Bircham) for the taxpayers.

Their Lordships took time for consideration.

10 July 1997. The following opinions were delivered.

LORD NOLAN. My Lords, in these appeals the Commissioners of Inland Revenue seek to uphold five assessments to income tax, four of which were made on the respondent, Professor Willoughby, for the years of assessment 1987–88 to 1990–91 inclusive and the fifth of which was made on his wife, the respondent Mrs Willoughby, for the year of assessment 1990–91. The assessment upon Professor Willoughby for 1987–88 was made under s 478 of the Income and Corporation Taxes Act 1970. The remaining assessments were made under s 739 of the Income and Corporation Taxes Act 1988, which replaced and re-enacted s 478 of the 1970 Act without material alteration. The origin of these sections is to be found in s 18 of the Finance Act 1936, a section whose provisions, either in their original or in their re-enacted form, have been considered by your Lordships’ House on previous occasions. It will be convenient, and sufficient for all relevant purposes, if as a general rule I refer to these provisions in the form in which they appear in the 1988 Act.

Section 739 is the first section in Ch III of Pt XVII of the 1988 Act, which is concerned with the transfer of assets abroad. The purpose which the section is intended to serve appears from sub-s (1), which reads:

‘Subject to section 747(4)(b), the following provisions of this section shall have effect for the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfers of assets by virtue or in consequence of which, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled outside the United Kingdom.’

The charging provision upon which the commissioners rely is sub-s (2), which is in these terms:

‘Where by virtue or in consequence of any such transfer, either alone or in conjunction with associated operations, such an individual has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a person resident or domiciled outside the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to income tax by deduction or otherwise, that income shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be income of that individual for all purposes of the Income Tax Acts.’

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By virtue of s 742(9)(a), the reference in s 739 to an individual is to be deemed to include the wife or husband of the individual. Section 742 also contains definitions of a number of the other words and phrases used in s 739, such as ‘transfer’, ‘power to enjoy’ and ‘associated operations’, but fortunately it is unnecessary to consider any of these definitions because it is common ground between the parties that by virtue or in consequence of transfers of assets to Royal Life Insurance International Ltd (Royal Life), a person resident or domiciled outside the United Kingdom, Professor and Mrs Willoughby had power to enjoy income of Royal Life at a time when they were ordinarily resident in the United Kingdom, that is to say during the tax years for which the disputed income tax assessments were made upon them.

More specifically, the facts upon which the claim for tax is based are these. In 1973 Professor Willoughby took up employment as Professor of Law at the University of Hong Kong and he and Mrs Willoughby became resident there. The university had a provident fund scheme of which Professor Willoughby was a member, but he wished to make additional provision for his retirement. This additional provision included the taking out of three offshore personal portfolio bonds with Royal Life. The first bond (No 1121) was taken out by Professor and Mrs Willoughby jointly in August 1986, with funds provided by Professor Willoughby on his retirement as Professor of Law at the University of Hong Kong. The second bond (No 2387) was taken out by Mrs Willoughby in March 1989, and was funded by the proceeds of an earlier offshore policy taken out by Professor and Mrs Willoughby in 1979 with Save and Prosper International Insurance Ltd (Save and Prosper), a Bermudan insurance company. The third bond (No 3343) was taken out by Mrs Willoughby in March 1990, and was funded by the proceeds of two further policies which had also been taken out by Professor and Mrs Willoughby with Save and Prosper, in 1981 and 1982 respectively. There is no dispute that the payments of premiums on the taking out of these policies were transfers of assets to Royal Life for the purposes of s 739, nor is there any dispute about the amount of income arising from the investments comprised in the bonds which is the subject of the various assessments. The premium on the first bond was, however, paid on 8 August 1986 when both Professor and Mrs Willoughby were still resident outside the United Kingdom. They contend that for this reason alone no liability to tax can arise upon the income of the first bond, because they say s 739 only applies to transfers of assets by individuals who are ordinarily resident in the United Kingdom at the time of the transfer.

The special commissioner accepted this contention. So did the Court of Appeal. My Lords, so do I. It has now been made clear, by the decision of your Lordships’ House in Vestey v IRC (Nos 1 and 2) [1979] 3 All ER 976, [1980] AC 1148, reversing the first part of its decision in Congreve v IRC [1948] 1 All ER 948 that the charging provisions of the section can be applied only to the individual (or the wife or husband of the individual) who has made the relevant transfer of assets. Lord Wilberforce described the section as being ‘directed against persons who transfer assets abroad; who by means of such transfers avoid tax, and who yet manage when resident in the United Kingdom to obtain or to be in a position to obtain benefits from those assets’ (see [1979] 3 All ER 976 at 986, [1980] AC 1148 at 1174–1175). He added: ‘For myself I regard this as being the natural meaning of the section.’

Mr Henderson QC, for the commissioners, pointed out that Lord Wilberforce, with whose speech Lord Salmon and Lord Keith of Kinkel agreed, expressed

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himself in terms which did not support the taxpayers’ case but which were perfectly consistent with the commissioners’ case. Lord Wilberforce did not indicate that the individual to be charged had to be ordinarily resident in the United Kingdom at the time of the relevant transfer: on the contrary, he confined his references to the case of individuals who avoid tax ‘when resident in the United Kingdom’.

This submission had not formed part of the commissioners’ written case, and was, I suspect, put forward by Mr Henderson in argument to ward off the reliance placed in the written case of the taxpayers upon other passages in the Vestey speeches, in particular those of Viscount Dilhorne, and again Lord Keith of Kinkel, implying or assuming that liability depended upon the individual being ordinarily resident in the United Kingdom at the time of the transfer (see [1979] 3 All ER 976 at 992 and 1004, [1980] AC 1148 at 1183 and 1197 respectively).

My Lords, I am satisfied that no useful purpose would be served in the present case by comparing these various passages in the Vestey speeches. Their Lordships in Vestey were simply not concerned with the particular question which arises in the present case. The transferors in Vestey had been ordinarily resident in the United Kingdom at all material times. If I were to read anything relating to the present issue into the words used by Lord Wilberforce, it would be merely that he was leaving the matter open.

Leaving Vestey aside, Mr Henderson submitted that the suggested restriction of liability to individuals who were ordinarily resident here at the time of transfer was unwarranted by the statutory language, and would give rise to anomalies. It would not be sensible, he argued, to distinguish between the cases of an individual intending to take up residence in the United Kingdom, who made a transfer of assets with a view to the future avoidance of United Kingdom tax and who settled here a few days after the transfer, and another individual acting with precisely the same intention who settled here a few days before making an identical transfer. The sensible time at which to consider the question of residence, Mr Henderson submitted, was the time at which the income from the transferred assets arose, and the avoidance of tax would (but for the section) take place. He reminded your Lordships that in the second part of its decision in Congreve this House had held that this latter approach should be adopted in relation to the residence of the transferee. In consequence of Congreve it matters not, for the purposes of the section, if the transferee was resident in the United Kingdom at the time of the transfer. It suffices if the transferee is non-resident at the time when the relevant income arises and the avoidance of tax would otherwise take place. This part of the Congreve decision was unaffected by the subsequent decision in Vestey.

Finally, Mr Henderson invoked the persuasive authority of a decision by the Court of Appeal in Northern Ireland, in IRC v Herdman [1969] 1 All ER 495. One of the issues raised in Herdman was precisely that now raised before your Lordships, and it was resolved by the Court of Appeal in favour of the Commissioners of Inland Revenue. The commissioners appealed unsuccessfully to your Lordships’ House (see [1969] 1 All ER 495, [1969] 1 WLR 323) on another aspect of the case but there was no appeal by Mr Herdman against the decision of the Court of Appeal on the point now in dispute.

Before considering the Herdman decision I must return to that part of the Congreve decision which was reversed by your Lordships’ House in Vestey. In Congreve the Commissioners of Inland Revenue had successfully contended that for the purposes of liability under s 18 of the Finance Act 1936 the identity of the

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transferor of the assets in question was immaterial. I mention in passing that this contention ran directly counter to what the House of Commons had been told by the Financial Secretary to the Treasury when the 1936 Finance Bill was being debated. The Financial Secretary had made it plain that, for liability to arise under the section the transfer of assets must have been made by the individual who was to be assessed. Indeed the Financial Secretary went further and said that ‘there has to be a transfer of assets abroad by an individual resident in this country’ (see 313 HC Official Report (5th series) col 685). That, of course, was long before the decision of your Lordships’ House in Pepper (Inspector of Taxes) v Hart [1993] 1 All ER 42, [1993] AC 593, and the possibility of referring to statements in Parliament as a guide to the intentions of the legislature was not considered. Even if it had been considered, it seems that no such reference would have been permitted under Pepper v Hart principles, because your Lordships’ House detected no ambiguity in the section. The leading speech was given by Lord Simonds, and he said ([1948] 1 All ER 948 at 953):

‘The language of the section is plain. If there has been such a transfer as is mentioned in the introductory words, and if an individual has by means of such transfer (either alone or in conjunction with associated operations) acquired the rights referred to in the section, then the prescribed consequences follow.’

This was the state of the law when Herdman’s case came before the Court of Appeal in Northern Ireland. In March 1951 Mr Herdman while resident in the Republic of Ireland had transferred assets to a company which was also resident in the republic. In October 1953 he became resident in the United Kingdom. Like Professor and Mrs Willoughby in the present case, he contended that the section did not apply to him because he had not been ordinarily resident in the United Kingdom at the time of the transfer. Not surprisingly, in the light of Congreve, the contention failed. After citing the speech of Lord Simonds in that case, Lord MacDermott CJ said ([1969] 1 All ER 495 at 503–504):

‘The individual, accordingly, at whom s. 412 is aimed is the person who seeks to avoid liability to charge, irrespective of whether he was or was not a participant in setting up the scheme for avoidance. This explains the reference to “ordinarily resident in the United Kingdom”, for that points to those who would gain by the avoidance rather than to those who may have contrived it—perhaps in some earlier year. There seems no reason why the section should make such residence necessary for those who play a part in the scheme for avoidance at the time they do so, and I do not think the language used provides for such a requirement.’

Mr Henderson accepts that in so far as the Herdman decision was thus based upon the reasoning in Congreve it cannot avail him. He submits, however, that the reversal of Congreve by Vestey does not of itself lead to a conclusion that Herdman was wrongly decided, and he relies upon a passage in the judgment of Lord MacDermott CJ immediately following that which I have quoted. In this passage Lord MacDermott CJ (at 504) said that ‘it would be surprising if Parliament had left such a large loophole open as would be the case’ if the taxpayer’s argument were correct, and that neither the wording of the section nor its underlying purpose seem to call for such ‘an anomalous distinction’ as would arise if an individual who was resident in the United Kingdom at the time of the relevant transfer was caught by the section, but one who was non-resident

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at that time escaped liability. These, then, are the grounds upon which Mr Henderson bases his case that the contention put forward by Professor and Mrs Willoughby gives rise to anomalies and is, he submits, unwarranted by the statutory language. I now return to that language.

The crucial words, as it seems to me, are those in sub-s (1) which state that the section is to ‘have effect for the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfers of assets’, coupled with the identification, in sub-s (2), of ‘such an individual’ as the subject of liability. What can the words ‘such an individual’ refer to save for an individual of the kind described in sub-s (1), that is an individual ordinarily resident in the United Kingdom seeking to avoid liability by means of transfers of assets? Although the point was not determined in Vestey, the view there taken that the individual to be charged must be the individual who made the transfer seems to me to lead inevitably to the conclusion that the individual concerned must be the only type of transferor with which the section is concerned, and that is a transferor ordinarily resident in the United Kingdom. At the risk of seeming overconfident in expressing an opinion about language which has been construed in diametrically opposite senses by your Lordships’ House in the past, I would say in the light of Vestey that this is the natural and plain meaning of the words used.

I accept that in consequence the immigrant tax avoider who makes his dispositions before taking up residence in this country would escape liability under the section. I would for my part find it fruitless to speculate whether this consequence was foreseen and accepted, or arose through inadvertence. I would not, in any event, regard it as sufficiently astonishing in itself to cast doubt on what I have described as the natural meaning of the words used, and I do not believe that Lord MacDermott CJ’s remarks in Herdman were intended to go so far. As I read them, these remarks were made by way of comment upon what Lord MacDermott CJ regarded as a satisfactory result of the Congreve decision rather than as an independent ground for his own decision.

I accept also that, at first sight, there appears to be something of an imbalance in a statutory requirement that the transferor must be ordinarily resident at the time of the transfer, but not the transferee. But the appearance of imbalance is, to my mind, little more than superficial. So far as the words used are concerned, it is to be noted that it is sufficient that income becomes payable to the non-resident person ‘by virtue or in consequence’ of the transfer, either alone or in conjunction with associated operations. This wording is apt to cover the case where there has been a lapse of time between the transfer and the accrual of income to the non-resident person. It is scarcely surprising that the legislature should have contemplated and provided for such a case. Otherwise it would have been too easy, as the facts of Congreve show, for liability under the section to be escaped by means of the relevant transfer being made to a resident person who thereafter became non-resident.

I therefore conclude that the income from bond No 1121 does not fall within the embrace of sub-ss (1) and (2), because Professor Willoughby was not ordinarily resident in the United Kingdom when he purchased it. I would only add by way of postscript that Parliament, has now, by s 81 of the Finance Act 1997, changed the law in respect of income arising on or after 26 November 1996.

In the case of bonds No 2387 and No 3343, which were taken out after Professor and Mrs Willoughby had become ordinarily resident in the United

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Kingdom, s 739 is plainly applicable unless it is displaced by s 741 of the 1988 Act, which reads:

‘Sections 739 and 740 shall not apply if the individual shows in writing or otherwise to the satisfaction of the Board either—(a) that the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer or associated operations or any of them were effected; or (b) that the transfer and any associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation …’

The special commissioner, Mr Shirley, found that Professor and Mrs Willoughby had discharged the burden of proof thus imposed upon them under both paras (a) and (b) in relation to all three policies, although strictly, of course, the exemption under s 741 was not required for the first policy (see [1995] STC 143 at 167).

I have mentioned that the first of the Royal Life bonds was taken out with the funds arising from the Hong Kong provident fund scheme, and the second and third with the proceeds of three policies taken out by Professor and Mrs Willoughby with Save and Prosper in Bermuda. I note in passing that each of these policies was certified by the Revenue under para 1(1)(a) of Sch 2 to the Finance Act 1975 as a ‘qualifying policy’. The effect of such certification, under the law then in force, was that the profits of the policy on maturity would be entirely free of United Kingdom tax.

On 17 November 1983 the Revenue published a press release entitled Offshore and Overseas Funds; Life Assurance Policies Issued by Non-Resident Life Offices (see Simon’s Tax Intelligence 1983 p 512). The press release made clear the government’s intention to introduce legislation in the 1984 Finance Bill which would: (i) in general prevent new policies of life assurance issued by non-resident life offices from being qualifying policies; and (ii) change the rules for computing the tax charge on profits received by UK-resident policy holders from non-qualifying policies issued by non-resident life offices, so that on the maturity of the policy, and in certain other events, the holder would be liable to both basic and higher rate income tax on the profits.

Thus, the total freedom from tax accorded to the benefits derived by Professor Willoughby from policies such as his Save and Prosper policies would cease to be available. The general rule for the future was that profits from policies issued by non-resident life offices would carry with them a liability to income tax on the benefits received at the time when they accrued. Until that time, however, the income and capital gains arising from the funds comprised in the policy could be accumulated free of United Kingdom tax. The new legislation bringing about these results was enacted in 1984 and is now incorporated in ss 539 to 554 of the Income and Corporation Taxes Act 1988.

In 1985 Professor Willoughby decided to take early retirement from the university and in July of that year he gave one year’s notice accordingly. On retirement he was due to receive a lump sum payment from the university’s provident fund. He sought advice from Personal Financial Consultants Ltd (PFC), a company which he had earlier consulted before taking out his Save and Prosper policies. He accepted its advice to put his money into a single premium personal portfolio bond taken out with Royal Life.

It is common ground that Professor Willoughby’s sole concern in consulting PFC was to provide for his ultimate retirement and to have an arrangement

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which would be flexible and also simple for his wife to deal with in the event of his death. At the time the first bond was taken out Professor Willoughby had made up his mind to return to live in the United Kingdom. The avoidance of United Kingdom tax was not in his mind, although he was well aware of the tax aspects of the policy. He could hardly fail to be, because they were naturally stressed in the Royal Life advertising material. Professor and Mrs Willoughby were, of course, resident in the United Kingdom when the second and third bonds were taken out. It was not suggested that there is any difference between the three bonds as regards either their inherent nature or the purposes for which they were acquired.

The principal feature distinguishing a personal portfolio bond from other bonds issued by Royal Life was that the purchaser of the personal portfolio bond retained the ability to choose, switch and manage the investments comprised in the fund to which the bond was linked. Personal portfolio bonds amounted to some 2% of the total of bonds issued by Royal Life, the remainder being bonds linked to what was described as a fixed menu of investments, selected by Royal Life. It was only the personal portfolio bonds which were regarded by the Revenue as falling foul of s 739. The remainder, it was accepted, were exempt by reason of the provisions of s 741(a).

In order to understand the line thus drawn, submitted Mr Henderson, it was essential to understand what was meant by ‘tax avoidance’ for the purposes of s 741. Tax avoidance was to be distinguished from tax mitigation. The hallmark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option. Where the taxpayer’s chosen course is seen upon examination to involve tax avoidance (as opposed to tax mitigation), it follows that tax avoidance must be at least one of the taxpayer’s purposes in adopting that course, whether or not the taxpayer has formed the subjective motive of avoiding tax.

My Lords, I am content for my part to adopt these propositions as a generally helpful approach to the elusive concept of ‘tax avoidance’, the more so since they owe much to the speeches of Lord Templeman and Lord Goff of Chieveley in Ensign Tankers (Leasing) Ltd v Stokes (Inspector of Taxes) [1992] 2 All ER 275 at 290–291 and 295, [1992] 1 AC 655 at 675–676 and 681 respectively. One of the traditional functions of the tax system is to promote socially desirable objectives by providing a favourable tax regime for those who pursue them. Individuals who make provision for their retirement or for greater financial security are a familiar example of those who have received such fiscal encouragement in various forms over the years. This, no doubt, is why the holders of qualifying policies, even those issued by non-resident companies, were granted exemption from tax on the benefits received. In a broad colloquial sense tax avoidance might be said to have been one of the main purposes of those who took out such policies, because plainly freedom from tax was one of the main attractions. But it would be absurd in the context of s 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of s 741 is a course of action designed to conflict with or defeat the evident intention of Parliament. In saying this I am

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attempting to summarise, I hope accurately, the essence of Mr Henderson’s submissions, which I accept.

Proceeding on this basis Mr Henderson contrasted the position of a United Kingdom resident who directly owned the underlying investments, and one who profited from the investments through the medium of the personal portfolio bond. The former would be liable to income tax at both basic and higher rates on the income from the investments, and also to capital gains tax on chargeable gains realised on disposal. The latter, under the tax regime applicable to overseas life policies, would pay no tax on the income or capital gains until the maturity of the bond or the occurrence of one of the other specified chargeable events.

In these circumstances, submitted Mr Henderson, the underlying reality of the matter is that the holder of the Royal Life personal portfolio bond continues to manage and benefit from his own portfolio of investments, but by the insertion of the bond structure he escapes tax on the income and gains from those investments as they arise. Parliament cannot sensibly have intended the statutory taxation regime for offshore life policies to apply in such circumstances, so the purpose of an investor in such bonds cannot be characterised as mere tax mitigation.

My Lords, there is a basic fallacy in this argument. It lies in the proposition that the ‘underlying reality’ is that the holder of the bond continues to manage and benefit from ‘his own portfolio of investments’. As my noble and learned friend Lord Hoffmann pointed out in the course of argument, so far from the underlying investments being owned by the bondholder, he has no legal or equitable interest in them whatever. As cl 12 of the policy makes clear, the allocation of investment units to the bond for which the policy provides is purely notional. Units are referred to solely for the purpose of computing benefits under the policy. The reality in truth is that the bondholder has a contractual right to the benefits promised by the policy, no more and no less. It is therefore quite wrong to describe the bondholder as having, in the words of the commissioners’ printed case, ‘in substance all the advantages of direct personal ownership without the tax disadvantages’. The significance of this misdescription would become all too apparent if—perish the thought—Royal Life were to become insolvent and unable to meet its obligations to the bondholders.

This fallacy goes to the heart of the commissioners’ case. For the attack which they have launched against Professor and Mrs Willoughby and other Royal Life bondholders is limited as I have said to those who hold personal portfolio bonds, that is to say bonds under which the bondholder has effective control of the investment policy, the commissioners accepting that the remaining offshore bonds issued by Royal Life do not involve the avoidance of tax.

Like the special commissioner and the Court of Appeal, I am unable to follow the reasoning of the commissioners. The personal portfolio bondholder may fare better or worse in terms of benefits by reason of his control over investment policy than does his fellow bondholder with the standard type of bond, but the difference between them seems to me to have nothing to do with tax or with tax avoidance. I can see no reason why Parliament should have intended to distinguish between them in fiscal terms.

It follows that, in agreement with the Court of Appeal, I would affirm the clear and carefully reasoned decision of the special commissioner upholding the taxpayers’ claim for exemption under s 741(a). It is therefore unnecessary to decide whether the special commissioner was equally entitled to hold that the taxpayers had established their claim to the protection conferred by s 741(b) on

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‘bona fide commercial transactions … not designed for the purpose of avoiding liability to taxation’. At first sight the point seems a straightforward one, but the precise scope of the phrase ‘bona fide commercial’ as it occurs in the related context of s 703(1) of the 1988 Act, which also deals with tax avoidance, has given rise to dispute in a number of cases of which IRC v Goodwin [1976] 1 WLR 191, [1976] 1 All ER 481, a decision of your Lordships’ House, is an example. In the instant case your Lordships did not think it necessary to call upon counsel for the taxpayers, and in company with the Court of Appeal I think it better to defer consideration of s 741(b) until a case arises in which it is crucial to the decision.

For these reasons, I would dismiss the appeals.

LORD MUSTILL. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Nolan. For the reasons he gives I would dismiss the appeals.

LORD HOFFMANN. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Nolan. For the reasons he gives I would also dismiss the appeals.

LORD CLYDE. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Nolan. For the reasons he gives I would dismiss the appeals.

LORD HUTTON. My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Nolan. For the reasons he gives I also would dismiss the appeals.

Appeals dismissed.

Susan J Murphy  Barrister.

National Trust for Places of Historic Interest or Natural Beauty v Ashbrook and others

[1997] 4 All ER 76

Categories:        TORTS; Nuisance: LAND; Property Rights        

Court:        CHANCERY DIVISION        

Lord(s):        LINDSAY J        

Hearing Date(s):        11, 12, 13, 20 JUNE 1997        

Nuisance – Land – Enclosure of common land – National Trust – Whether Trust having power to erect fences or walling on Trust property – National Trust Act 1907, s 29 – National Trust Act 1971, s 23.

On the true construction of s 29a of the National Trust Act 1907 and s 23b of the National Trust Act 1971 the National Trust has power to carry out fencing, walling or similar works intended to stand for a long term on the whole or any part of any Trust property to which s 29 of the 1907 Act applies whether or not the same encloses such property. That power is, however, subject to (i) it bona fide appearing to the Trust to be desirable for the purpose of providing or improving opportunities for the enjoyment of the property by the public, and in the interests of persons resorting thereto within the meaning of s 23(1) of the 1971 Act and (ii) to the consent of the Secretary of State for the Environment being duly obtained under s 23(2) of the Act where access by the public to any such property would thereby be prevented or impeded (see p 88 j to p 89 a, post).

Notes

For general powers of the National Trust, see 34 Halsbury’s Laws (4th edn) para 406.

For the National Trust Act 1907, s 29, see 32 Halsbury’s Statutes (4th edn) (1996 reissue) 559.

For the National Trust Act 1971, s 23, see ibid 598.

Cases referred to in judgment

Allen v Gulf Oil Refining Ltd [1981] 1 All ER 353, [1981] AC 1001, [1981] 2 WLR 188, HL.

Altrincham Union Assessment Committee v Cheshire Lines Committee (1885) 15 QBD 597, CA.

Arlett v Ellis (1827) 7 B & C 346, [1824–34] All ER Rep 294, 108 ER 752.

Freedman v British Railways Board, Church Comrs for England v British Railways Board (1992) 69 P & CR 13, CA; rvsg (1990) 68 P & CR 25.

Hambledon RDC v Hinde, Surrey CC v Hinde (1968) 19 P & CR 212.

Paddington Street (42–48) and Chiltern Street (62–72), St Marylebone, Re, Marks & Spencer Ltd v London CC [1952] 1 All ER 1150, [1952] Ch 549, CA; affd [1953] 1 All ER 1095, [1953] AC 535, HL.

Prenn v Simmonds [1971] 3 All ER 237, [1971] 1 WLR 1381, HL.

River Wear Comrs v Adamson (1877) 2 App Cas 743, [1874–80] All ER Rep 1, HL.

Searle v Wallbank [1947] 1 All ER 12, [1947] AC 341, HL.

Page 77 of [1997] 4 All ER 76

Shannon Ltd (The) v Venner Ltd [1965] 1 All ER 590, [1965] Ch 682, [1965] 2 WLR 718, CA.

Stewart v River Thames Conservators [1908] 1 KB 893.

Cases also cited or referred to in skeleton arguments

Allison v Cumberland CC (1907) 5 LGR 871.

Boyes v Cook (1880) 14 Ch D 53, CA.

Brannigan v Robinson [1892] 1 QB 344.

Firstpost Homes Ltd v Johnson [1995] 4 All ER 355, [1995] 1 WLR 1567, CA.

R v Westminster City Council, ex p Leicester Square Coventry Street Association Ltd (1990) 59 P & CR 51.

Reardon Smith Line Ltd v Hansen-Tangen, Hansen-Tangen v Sanko Steamship Co [1976] 3 All ER 570, [1976] 1 WLR 989, HL.

Rowbotham v Wilson (1860) 8 HL Cas 348, [1843–60] All ER Rep 601, 11 ER 348.

Stephens v Cuckfield RDC [1960] 2 All ER 716, [1960] 2 QB 373, CA.

Tapsell v Crosskey, Tapsell v Vernham (1841) 10 LJ Ex 188.

Originating summons

By summons dated 21 June 1996 the plaintiff, the National Trust for Places of Historic Interest or Natural Beauty, applied to the court for a declaration against the defendants, Kate Ashbrook, Rodney Legg, David Beskine and Philip Aldis, that on the true construction of s 29 of the National Trust Act 1907 and s 23 of the National Trust Act 1971 the National Trust had the power to carry out fencing or any other works permanently enclosing the whole or any part of any Trust property to which s 29 of the 1907 Act applied. The facts are set out in the judgment.

Sheila Cameron QC and Frank Hinks (instructed by Winckworth & Pemberton) for the National Trust.

David Ainger (instructed by Brooke North & Goodwin, Leeds) for the defendants.

Cur adv vult

20 June 1997. The following judgment was delivered.

LINDSAY J. I have before me an originating summons which raises a question as to the extent of a power conferred by statute upon the National Trust; does it, in certain circumstances, permit the Trust to fence common land which it holds?

This is a subject on which there is a marked divergence between some of its members and others of them. In particular, members of the National Trust who are also members of the Open Spaces Society (the full title of which society is ‘The Commons, Open Spaces and Footpaths Preservation Society’) are already disposed, or likely to be disposed, in the internal debates of the National Trust to oppose any fencing of its common land even where other National Trust officers or members hold it to be necessary. In that circumstance, the National Trust and the Open Spaces Society, both registered charities, made approaches to the Attorney General of the day, who in 1995 suggested as a possible way of proceeding that the differences as to the true construction of the relevant statutes should be resolved by way of the issue of proceedings for declaratory relief with the National Trust as plaintiff and with a number of its members who are also members of the Open Spaces Society as defendants.

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In that way, the originating summons of 21 June 1996 now before me was brought into existence. The National Trust is the only plaintiff and the four defendants are all individuals who are both members of the National Trust and of the Open Spaces Society. The issues raised in the originating summons are far from merely academic. There is at least one common or group of commons in which the statutory procedure by way of public inquiry, without which fencing would not in the particular circumstances have been lawful, is already thought by the National Trust to have been duly completed and where, so far as the National Trust itself is concerned, it is only the resolution of the issues raised by the originating summons which is delaying the erection of fences.

In the course of argument, there has been amendment suggested to the relief claimed in the originating summons, both as to the relief to be claimed therein and as to the form of any representation order I should be invited to make under RSC Ord 15, r 13. I shall return later to those subjects but from the outset I should emphasise as to the identity of the persons bound by this judgment and the order made herein that no one is bound other than present and future members of the National Trust as such and that this judgment is concerned only with the statutory powers I shall later describe. A person who, for example, is entitled to rights of common over the National Trust’s common land or who asserts some other relevant right other than deriving from the provisions I shall construe or otherwise than merely by way of his or her membership of the National Trust is not intended to be bound in any such other respect or capacity, whether or not he or she is also a present or future member of the National Trust.

Before I go further I should say something about the Open Spaces Society and the National Trust. The society is said in the evidence to be the oldest of our national conservation bodies, it having been founded in 1865 as the Commons Preservation Society. Its objects include the protection from encroachment of common land, open spaces and town and village greens and, subject to the rights of commoners, the securing of their use by the general public and the protection of footpaths and bridle ways. Miss Kate Ashbrook, its general secretary, deposes as to its role as a doughty and successful fighter in support of those objects. There are many commons in England and Wales where fencing has been resisted by the society and the society, no doubt rightly, claims to have played an important part in the establishment or preservation of, and in the framing of legislation affecting, important commons and open spaces such as Wimbledon Common, Epping Forest, Hampstead Heath and land at Bournemouth. Miss Ashbrook, referring to the society as ‘OSS’, states:

‘It is clear that from the outset OSS was opposed to the impeding of access to, and the change of appearance by intrusive fencing of, commons and similar open spaces. This opposition has continued throughout its history.’

I am told that the society is entitled to appoint one member of the council of the National Trust and, although their objects, as will shortly appear, differ, they are not so different that persons cannot enthusiastically be members of both the society and the National Trust and, as I have already indicated, the four defendants are, indeed, members of both.

As for the National Trust, it is derived from a body incorporated in 1895. Later that body was dissolved and reincorporated under the National Trust Act 1907 under its full name, ‘The National Trust for Places of Historic Interest or Natural Beauty’. Section 4(1) of the 1907 Act provides:

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‘The National Trust shall be established for the purposes of promoting the permanent preservation for the benefit of the nation of lands and tenements (including buildings) of beauty or historic interest and as regards lands for the preservation (so far as practicable) of their natural aspect features and animal and plant life.’

Unlike the society, the National Trust is, in terms of the area it owns, a significant landowner and amongst its holdings are some 159,500 acres of freehold land in England and Wales registered as common land under the Commons Registration Act 1965.

Before I turn to the statutory provisions which I am required to construe, I shall first say something of some problems encountered in the management of common land in recent times and of the law applicable to the fencing of commons as it was before any statutory intervention on the subject.

In 1958 the report of the Royal Commission on Common Land 1955–1958 (Cmnd 462) noted that the then last 50 years had seen a sharp decline in the use of commons for grazing due to a large extent to the advent of the motor car. The report continued (p 39, para 108):

‘Where cars and other motor traffic cross a common, sheep and cattle can no longer be safely turned out to pasture. There are other causes for the decline in grazing and even if the public were to cease driving cars, it is by no means certain that livestock would be pastured again on some commons.’

The sheep, cattle, horses, ponies and sometimes geese which were once turned out onto common land cropped the grass, trod down bracken and gorse and fed the herbage with their manure. The society itself reported to the Royal Commission that there was then, in 1958, no method of destruction of bush and scrub as efficient as grazing. Without systematic grazing, noted the Royal Commission, vegetation naturally changes and, depending on the fertility of the soil and its situation, a vegetational succession is started in which turf gives way to scrub, thicket and, if the conditions are propitious, to high forest. As the Royal Commission put it (p 40, para 109):

‘It may start with an old lady with her picnic basket being unable to penetrate the tangled growth; and finish, as on parts of Maidenhead Thicket (Berks), with none but the most adventurous or foolhardy wanting to try.’

The concern in that report, of almost 40 years ago, is still present and, if anything, exacerbated. There is detailed evidence adduced before me of common land owned by the National Trust on the Quantock Hills where some described fencing has been proposed by the National Trust but where the fencing is resisted, inter alia, by the four individual defendants in their capacities as members of the National Trust and is resisted also by the society. In that particular case, the National Trust owns well over 300 hectares of common land. The area is designated as an area of outstanding natural beauty and is popular as an open space for recreation and, in particular, for walking, horse riding and bird watching. If the land is not sufficiently grazed it will, as it is said, ‘scrub-up’—that is to say it will follow a vegetational succession of the kind feared by the Royal Commission. There is evidence of a need for some grazing to be carried out by ponies, which are particularly valuable for eating down the scrub, but grazing numbers have fallen. From 1984 to 1993 sheep fell from 958 to 829, and whereas in 1983 there were some 42 mares turned out, by 1993 there were only 20.

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The report by the inspector following a public local inquiry held in 1994 as to the erection of the fence proposed in the Quantocks concluded that open heathland was being lost to scrub and that the principal reason for the scrubbing-up was understocking. The inspector reported to the Secretary of State for the Environment that the risk of animals being injured on the roads and the prospect of legal liability for damage caused by straying animals had had a depressing effect on the exercise of common grazing rights. That was not the only factor but in the inspector’s view a contributory factor in the decline in stock numbers. The inspector continued:

‘I consider the fence will be of benefit to the neighbourhood by increasing commoners’ confidence, and encouraging them to run more stock on the hills, especially ponies, so preserving the grazing and the openness of the hills which is a key factor in the enjoyment of them by the public. It follows there will also be a benefit to the private interests, in that the Trust as owners will be better placed to maintain the commons in a state which enables them to be enjoyed by the public for recreation and enjoyment, and the commoners will have better security and safety for their stock.’

The proposal considered by the inspector included the provision of 15 gates and stiles covering, in his view, every point which the public then appeared to use for access. He held that the proposals represented no practical impediment to entry by the public.

I mention the problems of ‘scrubbing-up’ and understocking and the possibility, in some cases, of fencing being at least a contribution to a solution of those problems not because of any direct materiality to the question of statutory construction, to which I shall shortly turn (although the problems are part of the legislative context I shall need to have in mind), but lest it be thought that the erection of any fence in any circumstances by the National Trust would inevitably be an unwarranted step, a step contrary to its objects of the ‘preservation (so far as practicable)’ of the ‘natural aspect features and animal and plant life’ of the land it holds. It will have been seen from the report of the Royal Commission and from the conclusions of the inspector after a public inquiry that it can, at lowest, be sometimes reasonably argued on the facts of particular cases that, so far from harming them, fences can in some circumstances preserve the natural aspects, features and plant life of the land fenced.

As for the law relating to the fencing and the removal of fences on or about commons before statutes intervened, the position is, in my view, far from clear. Mr Ainger, who, on behalf of the defendants, has vigorously put the case against fencing, relies on there being what he calls the rule in Arlett v Ellis (1827) 7 B & C 346, [1824–34] All ER Rep 294, namely, he urges, a rule that a commoner has a right to throw down any fence he finds on the common land. I do not read the case as authority for any so unqualified a rule. Brooke’s Abridgment (but in translation and without identification of whether the citation was from the 1573, 1576 or 1589 edition) and the Year Book for the regnal year, 15 Hen 7 (1500), were, with other authorities, cited to the court in Arlett v Ellis and Bayley J said (7 B & C 346 at 362, [1824–34] All ER Rep 294 at 297):

‘The authorities cited from Brooke’s Abridgment and the Year Book satisfy my mind, that where a fence has been erected upon a common, inclosing and separating parts of that common from the residue, and thereby interfering with the rights of the commoners, the latter are not by law

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restrained, in the exercise of those rights, to pulling down so much of that fence as it may be necessary for them to remove for the purpose of enabling their cattle to enter and feed upon the residue of the common, but that they are entitled to consider the whole of that fence so erected upon the common as a nuisance, and to remove it accordingly.’

It will be noted that he is dealing there not with any fence but ones which enclosed and separated parts of the common from the rest and which, on that account, interfere with the rights of commoners. A fence around the perimeter of the whole common would not, it seems, on that test be capable of being removed in total but, if at all, only to the extent to which it impeded access and egress. In the same case Holroyd J, whilst expressing himself to be of the same opinion as Bayley J, was satisfied—

‘that where fences are wrongfully erected upon land, subject to a right of common, the commoner in exercising his rights is not restricted to pulling down so much of the fence as it may be necessary for him to remove in order to enter upon the locus in quo, but that he may remove the nocumentum injuriosum.’ (See 7 B & C 346 at 372, [1824–34] All ER Rep 294 at 301.)

But that citation deals only with fences wrongfully erected; it does not assist in ascertaining which fences are wrongful and which are not. Littledale J had no doubt but that a commoner was authorised to throw down part of the enclosure, and he went on to hold, on the basis of Brooke’s Abridgment and the Year Book, that—

‘there does not appear to be any reason why the commoner should not pull down the whole. It might be a great injury to the commoner to have fences set up on a common in different places, and although he might bring an action for the obstruction, yet he is in this, as in other analogous cases, entitled to abate the nuisance …’ (See 7 B & C 346 at 377–378, [1824–34] All ER Rep 294 at 303.)

In Arlett v Ellis the defendant’s plea in answer to the plaintiff’s claim in trespass had been that he could not use or enjoy his common of pasture ‘in so ample and beneficial a manner as he otherwise might and would and ought to have done’ (see 7 B & C 346 at 348). There is, I hold, no unqualified rule emerging from that case such that any commoner might, on finding a fence on or about the common over which his rights existed, uproot that fence by way of abatement. Regard was likely to be had instead to questions such as whether the fence was only on the perimeter of the common, dividing off no part of it from the rest, or whether it did physically enclose a part or parts of the common separating it or them from the rest, as to whether reasonable access and egress was none the less still left unimpeded and as to whether whatever rights of common were claimed could still conveniently and sufficiently be exercised notwithstanding the erection of the fence.

The passage in Brooke’s Abridgment which had been referred to in the case itself appears to distinguish between a fence on the common and one which runs immediately outside the perimeter of the common, as to which not the whole fence can be broken down but only such parts of it where access to the common was exercised. Common sense suggests that there can be cases where perimeter fences or, indeed, fences around poisonous trees or shrubs or around dangerous grounds, can be to the benefit rather than to the disadvantage of commoners. To

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the extent that it is material that I should have Arlett v Ellis in mind, as Mr Ainger urges, as part of the historical and legislative context in which the statutes to which I shall need to turn were made, I shall have the case in mind not as creating the unqualified rule he suggested but as indicating that the proper response to fencing depended more upon the answers to questions of the kind I have described.

The section with the construction of which I am chiefly concerned is s 23 of the National Trust Act 1971, a private Act promoted by the National Trust to amend its constitution and ‘to confer further powers on the said National Trust’, but as those further powers are described as additional to earlier ones, s 23 is best understood after reference to the earlier provision, which is to be found in s 29 of the 1907 Act, a private Act by the association under the name of the National Trust for Places of Historic Interest or Natural Beauty, which, as I earlier described, had been incorporated in the 1890s and which was, by the 1907 Act, dissolved and reincorporated as the present National Trust, a body corporate with perpetual succession.

Section 29 of the 1907 Act mixes duties cast upon the National Trust with powers conferred upon it and provides as follows:

‘By virtue of this Act there shall be imposed upon the National Trust with respect to any of the Trust property which consists of common or commonable land the following duties and the National Trust shall (subject to the provisions of this Act) have with respect to the same property the following powers (namely): (A) Except as in this Act otherwise provided they shall at all times keep such property unenclosed and unbuilt on as open spaces for the recreation and enjoyment of the public: (B) They may plant drain level and otherwise improve and alter any part or parts of such property so far as they may deem necessary or desirable and they may make temporary enclosures for the purposes of this subsection and for the purpose of protecting or renovating turf and for protecting trees and plantations: (C) They may make and maintain roads, footpaths and ways over such property and may make and maintain ornamental ponds and waters on such property: (D) They may on such property erect sheds for tools and materials and may maintain and repair such sheds: (E) They shall by all lawful means prevent resist and abate all enclosures and encroachments upon and all attempts to enclose or encroach upon such property or any part thereof or to appropriate or use the same or the soil timber or roads thereof or any part thereof for any purpose inconsistent with this Act: (F) They may set apart from time to time parts of such property upon which persons may play games or hold meetings or gatherings for athletic sports.’

Miss Cameron QC, who appears with Mr Hinks on behalf of the National Trust, draws attention to the radical nature of the duty in para (A). Historically, whereas in practice others than commoners and land owners had doubtless used common lands for passage and for recreation, they had not in general done so as a matter of right. Specific cases, such as metropolitan commons, had been specifically dealt with. Here, for the first time, say the plaintiffs, there was a general provision that common land in a particular ownership should, wherever situated, be kept unenclosed (meaning here not physically separated into a close or closes) and open and available for the recreation and enjoyment of the public. But the duty in para (A) is, as Miss Cameron emphasises, one which is ‘except as

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in this Act otherwise provided’ and one then sees that by way of qualification of, or encroachment upon, the s 29(A) duty there can be, for example, temporary enclosures for some purposes (para (B)) and even permanent buildings within the very limited class described in para (D). The direction in para (E) that the National Trust shall ‘prevent, resist and abate’ enclosures is plainly directed not at the National Trust’s own activity; if that had been so the draftsman would have had clearly to qualify para (E) to take account of, for example, para (D), and in any event the words ‘prevent, resist and abate’ in context are appropriate to describe reactions to the actions of others rather than a limitation on the National Trust’s own powers.

Whilst the National Trust had conferred on it wide powers of management over its own lands (see s 4(2) of the 1907 Act) the language of s 29 would, in the light of the general law as to fencing, which I have described, have left real doubt as to whether the National Trust was enabled, for example, to put up a perimeter fence around common land or, as another example, a fence separating common land from a highway running through the common. In 1907, of course, the motor car was still young, relatively infrequently encountered and puny and the four-wheel drive off-road vehicle lay in the future.

Then in 1971 came the National Trust Act of that year. I shall read s 23 in full:

‘(1) Subject to the provisions of this section, in addition to the powers conferred on the National Trust by section 29 (Powers exercisable over certain Trust property) of the Act of 1907, the National Trust shall have power with respect to any Trust property to which that section applies to do anything appearing to the National Trust to be desirable for the purpose of providing, or improving, opportunities for the enjoyment of the property by the public, and in the interests of persons resorting thereto, and in particular—(a) to provide or arrange for the provision of facilities and services for the enjoyment or convenience of the public, including meals and refreshments, parking places for vehicles, shelters and lavatory accommodation; (b) to erect buildings and carry out works.

(2) The erection of any building (other than a shed for tools and materials), or the construction of any other work, whereby access by the public to any Trust property to which the said section 29 applies is prevented or impeded, shall not be lawful unless the consent of the Secretary of State is obtained, and in giving or withholding his consent the Secretary of State shall have regard to the same considerations and shall, if necessary, hold the same inquiries as are directed by the Commons Act 1876, to be taken into consideration and held by the Secretary of State before forming an opinion whether an application under the Inclosure Acts 1845 to 1882 shall be acceded to or not.

(3) Notwithstanding anything in subsection (2) of section 30 (Power to charge for admission to Trust property) of the Act of 1907 the National Trust may make such reasonable charges as they may from time to time determine for the use by the public of any facilities, services, parking places or other accommodation provided under this section.’

Miss Cameron draws attention to the great width of the power ‘to do anything appearing to the National Trust to be desirable’ for the purposes there specified. She accepts that before the power can be exercised that desirability must bona fide appear to the National Trust but the National Trust’s bona fides are not in

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issue in the matter before me. She points out that the word ‘works’ as referred to in s 23(1)(b) is a word of wide meaning and plainly (from the reference in s 23(2) to ‘any other work’) extends beyond the erection of a building or shed. In Re 42–48 Paddington Street and 62–72 Chiltern Street, St Marylebone, Marks & Spencer Ltd v London CC [1952] 1 All ER 1150, [1952] Ch 549, in which the Court of Appeal was concerned with the meaning of the phrase ‘any works for the erection or alteration of a building’, Jenkins LJ described the phrase as one of wide import, as did Morris LJ. Morris LJ took the view that as Parliament in the Act then before the Court of Appeal had not defined the term ‘works’ it would be ‘unnecessary and perhaps unfortunate to attempt a definition. The word is a wide word’ (see [1952] 1 All ER 1150 at 1158, 1164, [1952] Ch 549 at 563, 572). I shall not rush in where Morris LJ elected not to tread but I am invited by Miss Cameron to adopt one of the meanings given by the New Shorter Oxford English Dictionary (1993), namely:

‘… A thing, structure, or result produced by the operation, action, or labour of a person or other agent … An architectural or engineering structure, as a house, bridge, pier, etc.; an edifice …’

It will have been noted that s 23 inescapably encroaches further upon the broad duty under s 29(A) of the 1907 Act to keep National Trust common land as open space than had s 29(B) and (D) of the 1907 Act. Section 23 expressly enables the National Trust to build, for example, restaurants, snack bars, public lavatories, shelters and car parks on its common lands. The power so conferred on the National Trust is, though, qualified. Not only must the particular works bona fide appear to the National Trust to be desirable for the purposes stipulated but the public and commoners alike are given the further protection, if, for example, access is prevented or impeded, of the consent of the Secretary of State being required under s 23(2) and the Secretary of State can then (as was done in relation to the application to fence in the Quantocks, which I earlier mentioned) require the public inquiry machinery of s 10 ff of the Commons Act 1876 to be used (see the note, ‘Inclosure Commissioners’, at 6 Halsbury’s Statutes (4th edn) (1992 reissue) 1011 for the succession of the Secretary of State to the powers of the inclosure commissioners).

At this point of the argument the National Trust’s case is thus a simple and attractive one; the erection of a fence on a common will be works or a work carried out. If its erection is bona fide seen to be desirable by the National Trust for the purpose of providing or improving opportunities for the enjoyment of the common by the public (as it may be, for example, as part of steps taken to ensure the land is sufficiently grazed that its ‘scrubbing-up’ is kept at bay and that walkers thus remain or become free to traverse it as they might please) then the National Trust is empowered to erect that fence by way of the broad power in s 23(1) which empowers the National Trust ‘to do anything’ as there described. It is by no means every fence on its common land, says the National Trust, that will impede or prevent access by the public to National Trust property. A fence along a dangerous cliff edge, for example, would be unlikely to do so, and there will be other cases where, on the facts of the particular case, the impediment is de minimis or, at all events, de minimis when regard is had to the manner in which access or egress is generally enjoyed and to the gates and stiles to be provided (consider Hambledon RDC v Hinde, Surrey CC v Hinde (1968) 19 P & CR 212 at 218).

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However, where such access is to be impeded or prevented then the National Trust accepts, of course, that the consent of the Secretary of State is required and that the machinery of public inquiry can then be brought into use, as it was in the Quantocks case to which I earlier referred where, after receiving the inspector’s report, the Secretary of State for the Environment not only gave his consent to the particular fence there described (1·05 to 1·11 metres high and about 1,710 metres long) but concurred with the inspector’s view—

‘that there is no practical alternative to the fencing proposed. Care has been taken to site the proposed fence as inconspicuously as possible and there will be a total of 15 gates and/or stiles provided at every point which the public appear to use for access. The conclusion reached is that the proposed fence (to encourage increased stocking levels) should enhance the environment of the area and improve road safety, that any disadvantages there may be are more than outweighed by the benefits, and that it is expedient that consent should be given.’

These proceedings, emphasises Miss Cameron, represent no attempt to avoid the consent of the Secretary of State or the use of public inquiries where such is required but rather, in the light of the society’s objections, to determine upon the construction of the relevant statutes whether the National Trust has the power, even where the Secretary of State’s consent has been given, to erect fences on its common land, a question which the Secretary of State scrupulously considered was not for him to determine. So put, the National Trust’s case is at first blush one difficult to resist, but I must now turn to the society’s case voiced through the four individual defendants.

Mr Ainger first draws my attention to cases showing that, in cases of ambiguity, private acts such as those of 1907 and 1971 should be construed against the promoter, here the National Trust. He refers me to Altrincham Union Assessment Committee v Cheshire Lines Committee (1885) 15 QBD 597 at 603. Two points emerge from the citation. Firstly, Lord Esher MR was referring to a case where, as he puts it, the private Act was ‘obtained by persons for their own benefit’.

Section 23, by contrast, was promoted by a body, the National Trust, whose purposes look to the public good rather than to its own profit and is a section the terms of which are themselves directed to the enjoyment of the public (see also Stewart v River Thames Conservators [1908] 1 KB 893 at 902). Secondly, the citation from Lord Esher MR goes on to make the point that where the construction is perfectly clear there is no difference between the modes of construing a public and a private Act. Were ambiguity here to be found I would need to entertain a construction against the promoter but I have found no relevant ambiguity.

Next, Mr Ainger emphasises that such Acts should be construed in their legislative and historical setting (see Freedman v British Railways Board, Church Comrs for England v British Railways Board (1990) 68 P & CR 25 at 29 per Hoffmann J (reversed by the Court of Appeal ((1992) 69 P & CR 13), but not on this point). I shall try to have such settings in mind but, for the reasons given above, they do not include, in my judgment, a right in every commoner to dismantle whatever fence might be erected by the freeholder on common land regardless of the description, extent and function of the fence and of whether the fence incommoded him or his fellow commoners or denied enjoyment of whatever rights of common the commoner had.

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I am enjoined to have in mind a purposive approach to the construction of the 1907 and 1971 Acts and I have been taken at one end of the chronology on that subject to River Wear Comrs v Adamson (1877) 2 App Cas 743, [1874–80] All ER Rep 1 and, at the other, to Prenn v Simmonds [1971] 3 All ER 237 at 240, [1971] 1 WLR 1381 at 1384 and Lord Wilberforce’s reference to the matrix of fact and to The Shannon Ltd v Venner Ltd [1965] 1 All ER 590 at 594, [1965] Ch 682 at 691, where there is a reference to documents not being executed in a vacuum. The particular legislative purpose I am especially invited to have in mind is, says Mr Ainger, that from at least the time of Elizabeth I the fencing of commons has been regarded with repugnance. He cites to that end the Act 35 Eliz 1 c 6 (restriction on building (1592)). But that Act fails to illustrate any general distaste for the fencing of commons; it related only to land within three miles of any of the gates of the City of London and only to such fences as hindered the training or mustering of soldiers or walking for recreation or the then laudable exercise of shooting. Moreover, the history of inclosure under the Inclosure Acts, summarised in an enviably compressed account by Viscount Maugham in Searle v Wallbank [1947] 1 All ER 12 at 14–15, [1947] AC 341 at 347–349, shows no abiding general distaste for the erection of fences on, or for the physical enclosure or the legal inclosure of, common land. I do not understand there to be any relevant legislative purpose behind s 23 of the 1971 Act, a provision which is plainly directed to the provision or improvement of opportunities for the enjoyment of the National Trust’s common land by the public, which obliges or encourages me to depart from the ordinary meaning of the words used in the section, nor one which suggests that I should regard the erection of fences with a distaste so obviously not to be directed to the restaurants, snack bars, car parks, shelters and lavatories, the erection of which the section more specifically contemplates as possible.

Next, I am reminded by Mr Ainger of Allen v Gulf Oil Refining Ltd [1981] 1 All ER 353 at 383, [1981] AC 1001 at 1020, where, in his dissenting judgment, Lord Keith of Kinkel, after a citation from the Altrincham Union case says:

‘It is the duty of those promoting private Acts to make plain the precise extent to which they propose to derogate from the common law rights of those who may be affected by their proposals. It will not do to slip through Parliament provisions which do not on the face of them express reasonably clearly the intention to take away the rights of others, with a view to subsequently relying on them as having had that effect. In order to check any such tendency, it is essential that any doubtful provision of the kind in question should be most strictly construed.’

I have no reason to think that s 23 of the 1971 Act was ‘slipped through’ Parliament, with or without such a view, and in any event I would regard it as sufficiently clearly intended and expressed in that section that the rights of others than the National Trust were being taken away or qualified. No one could reasonably expect that a right of common or pasture would persist entirely unaffected over a National Trust car park or that a commoner would, for example, continue to be able to dig for peat in the land newly covered by a National Trust lavatory. Leaving aside whether Lord Keith’s dictum in his dissenting judgment represents the law, I do not see it as doubtful, given the wide import, which I accept, of the word ‘works’, but that the works which might be carried out under the section could include the erection of fences and that the rights of persons other than the National Trust might thereby be affected.

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Subsection (2) after all expressly contemplates that access by the public may in some cases be prevented or impeded.

Next, Mr Ainger refers me to s 194 of the Law of Property Act 1925. He accepts that s 193 of that Act (which gives the public rights of access for air and exercise to certain commons) does not apply to any of the National Trust’s common lands as to which any fencing is at present contemplated but he draws attention to the express inclusion of a reference to fences in s 194. Section 194(1) reads as follows:

‘The erection of any building or fence, or the construction of any other work, whereby access to land to which this section applies is prevented or impeded, shall not be lawful unless the consent of the Minister thereto is obtained, and in giving or withholding his consent the Minister shall have regard to the same considerations and shall, if necessary, hold the same inquiries as are directed by the Commons Act, 1876, to be taken into consideration and held by the Minister before forming an opinion whether an application under the Inclosure Acts, 1845 to 1882, shall be acceded to or not.’

Subsection (2) provides a mechanism for complaint to the county court if, inter alia, a fence is erected without the required consent and sub-s (3) applies the section to any land which at the commencement of the 1925 Act was subject to rights of common. However, sub-s (4) provides:

‘This section does not apply to any building or fence erected or work constructed if specially authorised by Act of Parliament, or in pursuance of an Act of Parliament or Order having the force of an Act, or if lawfully erected or constructed in connection with the taking or working of minerals in or under any land to which the section is otherwise applicable, or to any telecommunication apparatus installed for the purposes of a telecommunications code system.’

In the light of sub-s (4) Mr Ainger does not argue that s 194 would affect any fence otherwise authorised under the provisions of s 23 of the 1971 Act but he argues that, in s 194, Parliament shows that when it means to refer to fences it does so expressly, that the provisions of s 194(1) are so akin to those of s 23(2) of the 1971 Act that it must be taken (as plainly was the case) that the 1925 Act was being used as a model for the 1971 provision and that it is thus of particular significance that the word ‘fence’ in the 1925 model is dropped from the 1971 formulation. I do not find that approach helpful. I must principally construe the 1971 provision by reference to the language used, not by reference to the language not used. If there was no other explanation possible for the omission of the word ‘fences’ in the description of things enabled to be done under the 1971 Act the argument might have had some force but I do not see that to be the case. Section 194, inter alia, prohibits fences and the construction of ‘any other work’ without the required consent. It thus sees the erection of a fence as a ‘work’. The draftsman of s 23, even one starting with s 194 as a model, could sensibly have taken the view that if he was to begin expressly to specify some ‘works’ within s 23(1)(b) without his succeeding in specifying all works foreseeably necessary he might end up, by reference to the expressio unius rule, as inadvertently excluding what otherwise would have been intended to be permissible. He might well have thought that if he specified ‘fences’ within s 23(1) he would do little but endanger the position of boundary or other walls, dry stone walls or other forms of barriers,

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posts and railings. I do not find this argument based on s 194 as capable of limiting the wide meaning ordinarily to be attached to the word ‘works’.

Next, Mr Ainger refers to the terms of s 9 of the Countryside Act 1968, sub-s (3) of which provides:

‘A local authority shall have power to do anything appearing to the local authority to be desirable for the purpose set out in section 6(1) above, and in the interests of persons resorting to the common land, and in particular—(a) to provide facilities and services for the enjoyment or convenience of the public, including meals and refreshments, parking places for vehicles, shelters and lavatory accommodation; (b) to erect buildings and carry out works …’

This subsection was used by the National Trust promoters and was disclosed to Parliament as the model for s 23(1)(a) and (b). Mr Ainger then draws attention to the mechanism of s 9 under which the site so built upon by the local authority is to be ‘taken out of the common land’ in accordance with the provisions of s 9 of and Sch 2 to that Act. However, it does not follow from the fact that the mechanism used in one Act is that the land upon which any erection is to be constructed has first to be taken out of the common that a later Act cannot employ a different and simpler mechanism, even where the first Act has in part been used as a model for the second. I thus do not find this argument assists on the true construction of s 23, although, as Miss Cameron points out, Mr Ainger’s oral argument that a local authority would be able to fence, for example, the car park or public lavatories it might erect under s 9 is at least consistent with the words in s 9(3)(b) including an ability to erect fences. The language of s 23(1)(b), only three years later, is identical.

I have by now, I believe, dealt with all the arguments pressed on me on behalf of the defendants in opposition to the National Trust’s ability under statute to erect fencing on common land. I have found no reason not to accept the National Trust’s submission which I earlier described as difficult to resist. I find the language of s 23 to be clear and unambiguous and to be wide enough, in an appropriate case, to empower the National Trust to erect fences. I am not concerned with the facts relating to any particular fence or wall on the National Trust’s common land, nor will my decision deprive any commoner of any right he or she has as such to object to any particular construction. Nor will my order deprive any member of the public of his or her right to object to any particular work save in the case where his or her objection is only to the technical vires of the National Trust and where he or she is or becomes a member of the National Trust and objects as such.

Although I recognise the court should approach declaratory relief of a general nature with some caution, I see it as right in my discretion both to grant relief here of such a nature and, by way of a representation order, to bind others than those before me. Accordingly, I declare that upon the true construction of s 29 of the 1907 Act and s 23 of the 1971 Act, and subject, firstly, to its bona fide appearing to the National Trust to be desirable for the purpose of providing or improving opportunities for the enjoyment of the property by the public, and in the interests of persons resorting thereto within the meaning of s 23(1) of the 1971 Act and, secondly, to the consent of the Secretary of State for the Environment being duly obtained under s 23(2) of the Act where access by the public to any such property would thereby be prevented or impeded, the National Trust has

Page 89 of [1997] 4 All ER 76

power to carry out fencing, walling or similar works intended to stand for a long term on the whole or any part of any Trust property to which s 29 of the 1907 Act applies whether or not the same encloses such property.

I shall now hear counsel as to the particular form of representation order that is appropriate on the basis, firstly, that it is to include all present and future members of the National Trust and, secondly, that it is to exclude any such members from being bound in any of their respective capacities as commoners or as others having or claiming to have rights to resist or oppose the construction of any such works by way of rights other than as a member of the Trust and on the basis of the vires of the Trust under the particular statutory powers I have been concerned with.

Order accordingly.

Celia Fox  Barrister.

Forthright Finance Ltd v Carlyle Finance Ltd

[1997] 4 All ER 90

Categories:        SALE OF GOODS        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        STUART-SMITH, PILL AND PHILLIPS LJJ        

Hearing Date(s):        28 JANUARY 1997        

Hire-Purchase – Agreement – Nature of agreement – Sale of motor car by finance company to car dealer – Agreement conferring option to purchase car which hirer/dealer deemed to have exercised when all instalments paid unless hirer electing not to take title – Whether hire-purchase agreement or conditional sale agreement – Sale of Goods Act 1979, s 25(1).

The plaintiff finance company was the owner of a Ford motor car which it delivered to a car dealer under an agreement described as a hire-purchase agreement. The agreement conferred an option on the dealer to purchase the car which the dealer was deemed to have exercised when all instalments had been paid, whereupon the property in the car passed to the dealer unless the dealer elected not to take title. The dealer subsequently delivered the car to a customer under a conditional sale agreement financed by the defendant, another finance company, to whom it purported to transfer ownership. It was common ground that the customer acquired a good title to the car. In proceedings between the two parties, the question arose whether the agreement between the plaintiff and the dealer was a hire-purchase agreement or a conditional sale agreement. The county court judge held that the agreement was a hire-purchase agreement, since the property in the car passed to the hirer unless he elected not to exercise the option to purchase and accordingly that, at the time when the title was vested in the plaintiff, the defendant wrongfully converted it with the result that the defendant was liable to the plaintiff in the sum of £12,943 plus interest. The defendant appealed, contending that the agreement between the plaintiff and the dealer was one whereby the dealer ‘agreed to buy’ the car within the meaning of s 25(1)a of the Sale of Goods Act 1979 so that, having been placed in possession of the car with the consent of the plaintiff, the dealer was in a position to pass good title to the defendant under s 25(1) and did so.

Held – On its true construction, the agreement between the plaintiff and the dealer was a conditional sale agreement, not merely in substance but in form, since the dealer was contractually obliged to pay all the contractual instalments until it had provided all the payments required by the contract as consideration for its right, inter alia, to become the owner of the car, at which stage, unless it exercised the option to decline to receive title, it was to pass to the dealer. The option not to take title, which one would only expect to be exercised in the most unusual circumstances, did not affect the true nature of the agreement. Accordingly, the appeal would be allowed (see p 97 j to p 98 d, post).

Helby v Matthews [1895–9] All ER Rep 821 considered.

Page 91 of [1997] 4 All ER 90

Notes

For distinction between hire-purchase agreements and conditional sale agreements, see 22 Halsbury’s Laws (4th edn) paras 35–37.

For of the Sale of Goods Act 1979, s 25, see 39 Halsbury’s Statutes (4th edn) (1995 reissue) 97.

Cases referred to in judgments

Combined Lease Finance plc v Carlyle Finance Ltd (unreported), Cty Ct.

Combined Lease Finance plc v Carlyle Finance Ltd (7 March 1994, unreported), QBD.

Helby v Matthews [1895] AC 471, [1895–9] All ER Rep 821, HL.

Lee v Butler [1893] 2 QB 398, [1891–4] All ER Rep 1200, CA.

Cases also cited or referred to in skeleton arguments

AG Securities v Vaughan, Antoniades v Villiers [1988] 3 All ER 1058, [1990] 1 AC 417, HL.

Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236, Aust HC.

Heap v Motorists’ Advisory Agency Ltd [1923] 1 KB 577, [1922] All ER Rep 251.

Jeffcott v Andrew Motors Ltd [1960] NZLR 721, NZ CA.

Lambert v G & C Finance Corp Ltd (1963) 107 SJ 666.

Langmead v Thyer Rubber Co Ltd [1947] SASR 29, Aust SC.

Martin (R F) Ltd v Duffy [1985] 11 NIJB 80, NI QBD.

Newtons of Wembley Ltd v Williams [1964] 3 All ER 532, [1965] 1 QB 560, CA.

Oppenheimer v Attenborough & Son [1904–7] All ER Rep 1016, [1908] 1 KB 221, CA.

Stadium Finance Ltd v Robbins [1962] 2 All ER 633, [1962] 2 QB 664, CA.

Appeal

The defendant, Carlyle Finance Ltd, appealed from the order of Judge Graham Jones made in the Cardiff County Court on 19 January 1995 entering judgment for the plaintiff, Forthright Finance Ltd, in the sum of £12,943 plus interest in an action brought by the plaintiff against the defendant for wrongfully converting a Ford Cosworth motor car. The facts are set out in the judgment of Phillips LJ.

Adrian Brunner QC and Barbara Hewson (instructed by Anthony W Jeremy & Co, Cardiff) for the defendant.

Frederick Philpott (instructed by Gordon Williams, Cardiff) for the plaintiff.

PHILLIPS LJ (delivering the first judgment at the invitation of Stuart-Smith LJ). This appeal relates to a dispute between two finance houses as to the title to a Ford Cosworth motor car. It is against an order made by Judge Graham Jones in the Cardiff County Court on 19 January 1995. The judge held that, at a time when the title was vested in the plaintiff, Forthright Finance Ltd (Forthright), the defendant, Carlyle Finance Ltd (Carlyle), wrongfully converted it with the result that Carlyle was liable to Forthright in the sum of £12,943 plus interest. Three issues were raised in the court below and Forthright succeeded on each of them. Before us Carlyle seeks to revive only one, which turns on the distinction between a hire-purchase agreement and a conditional sale agreement.

On 6 April 1992 Forthright, which then owned the car, delivered it to Fernland Ltd, a company which dealt in motor cars under the trade name of Senator Motors (Senator), pursuant to a contract described on its face as a ‘Hire Purchase

Page 92 of [1997] 4 All ER 90

Agreement’ (the agreement). Senator subsequently delivered the car to a Mr Griffiths under a transaction financed by Carlyle. The judge found the following facts in relation to this transaction:

‘On 10 March 1992 the defendants (Carlyle) entered into a conditional sale agreement with a Mr D F Griffiths in relation to a Mercedes Benz motor car. On 23 April 1992 that agreement was modified. It was agreed that for the Mercedes car there should be substituted a Ford Sierra Cosworth motor car. The Ford Sierra Cosworth car so substituted is the car which was acquired by Forthright and of which Senator were in possession under the agreement. That is no longer in dispute. Carlyle had been unable to find any invoice in relation to the car from any supplier. Clearly, however, Senator supplied the Ford car to Mr Griffiths and purported to transfer ownership of it to Carlyle.’

It is common ground that Mr Griffiths acquired a good title pursuant to the provisions of Pt III (ss 27–29) of the Hire-Purchase Act 1964 (title to motor vehicles on hire-purchase or conditional sale).

The issue

Section 25 of the Sale of Goods Act 1979 provides:

‘(1) Where a person, having bought or agreed to buy goods obtains, with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person, or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, has the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or document of title with the consent of the owner.

(2) For the purposes of subsection (1) above—(a) the buyer under a conditional sale agreement is to be taken not to be a person who has bought or agreed to buy goods, and (b) “conditional sale agreement” means an agreement for the sale of goods which is a consumer credit agreement within the meaning of the Consumer Credit Act 1974 under which the purchase price or part of it is payable by instalments, and the property in the goods is to remain in the seller (notwithstanding that the buyer is to be in possession of the goods) until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are fulfilled.’

Subsection (2) can have no application in the present case because the purchase price of the car placed the transaction outside the ambit of the Consumer Credit Act 1974.

It was and is Carlyle’s case that the agreement between Forthright and Senator was one whereby Senator agreed to buy the car so that, having been placed in possession of the car, Senator was in a position to pass good title to Carlyle under s 25 and did so.

It was and is Forthright’s case that the agreement was in truth, as it was described, a hire-purchase agreement under which Senator had no more than an option to buy the car. Senator had not agreed to buy the car and was not in a position to pass good title under s 25.

This issue as to the nature of the agreement is the only one raised on this appeal. Forthright served a respondent’s notice, indicating their intention to

Page 93 of [1997] 4 All ER 90

contend that Carlyle had failed to establish that the transfer made to them by Senator was in the ordinary course of Senator’s business or that Carlyle had entered into the transaction in good faith and that the burden had been on them to do so in order to make good a defence under s 25.

We have been provided with a transcript of the argument below where the parties were differently represented. At the outset of the hearing Mr Jeremy for Carlyle interrupted Mr Kember’s opening to state what he understood to be the only three issues alive on the pleadings. Mr Kember accepted his summary. Neither then nor in subsequent argument after the evidence had been called was there any suggestion that Carlyle had to do more to establish their s 25 defence than show that the agreement between Forthright and Senator was one whereby Senator had agreed to buy rather than agreed to hire the car. Carlyle’s good faith received a passing reference in the context of an alternative defence advanced under s 2 of the Factors Act 1889, but it appears from the transcript that the parties accepted that the judge could infer good faith in the absence of evidence to the contrary and, in the event, the judge rejected the Factors Act defence without the need to refer to the issue of good faith. Having regard to the agreement between the parties as to the live issues at the start of the hearing, we concluded that it would not be just at this stage to permit Forthright to advance the points raised by their respondent’s notice and declined to permit this.

The agreement

As I have said, the agreement is headed ‘Hire Purchase Agreement’. Forthright is described as the owner and Senator as the hirer throughout. On the face of the agreement a schedule of payments is set out showing under the heading ‘Terms of Hire’:

‘Cash Price of Goods        £13,000·00        

VAT on Cash Price                

Total        £13,000·00        

Less Initial Deposit (A)        £3,000·00        

Amount of Credit        £10,000·00        

Hire Purchase Charges        £2,250·00        

Balance Payable (B)        £12,250·08        

Payable by 36 monthly instalments                

Commencing on the 30 day of April 1992                

First instalment of (inc. £20 Doc Fee)        £360·28        

35 instalments of        £340·28        

Total Purchase Price (A) + (B) + £20        £15,270·08’        

Under the signature of the hirer is stated: ‘The Goods will not become your property until you have made all the payments. You must not sell them before then.' The back of the agreement provides, inter alia, as follows. In the recital:

‘The Owner agrees to let and the Hirer agrees to take on hire with option to purchase mentioned below the goods and accessories specified in the said Schedule’

Clause 1(a):

‘The Hirer agrees (a) Having paid the initial Deposit … to pay the Balance Payable specified in the … Schedule in accordance with the terms thereof …’

Page 94 of [1997] 4 All ER 90

Clause 2:

‘When the Hirer (having meanwhile conformed with all the terms herein) has paid the Balance Payable and all other sums due to the Owner hereunder the Hirer shall be deemed to have exercised the option to purchase hereby given and the property in the Goods shall pass to the Hirer (unless the Hirer has told the Owner before that time that such is not the case) but until such time the Hirer is a bailee of the Goods and he must not sell or offer for sale assign mortgage pledge lend or otherwise deal with them or with any interest therein or in this Agreement which is personal to the Hirer.’

Clause 3(d) of the agreement provided that in the event of termination by the owner the hirer would be liable to pay any accrued arrears and the balance of the total purchase price subject to certain specified deductions.

In approaching the question of whether this agreement was a hire-purchase agreement or a conditional sale agreement the judge drew a distinction between two different types of instalment agreement under which property in goods customarily passes to the party whom it is convenient to describe as the customer: (1) an agreement under which the customer will automatically become the owner of the goods when the final instalment is paid; (2) an agreement under which the customer will only become the owner of the goods if he exercises an option to acquire the ownership at the end of the period covered by the agreement.

The former type of agreement the judge identified as a conditional sale agreement, citing as an example Lee v Butler [1893] 2 QB 398, [1891–4] All ER Rep 1200; the latter he identified as a hire-purchase agreement, citing as an example Helby v Matthews [1895] AC 471, [1895–9] All ER Rep 821.

The judge went on to hold that the agreement in the present case fell into the latter category. He held that the crucial term that produced this result was the provision in brackets in cl 2 whereby, on paying all final instalments, property in the car passes to the hirer ‘unless the Hirer has told the Owner before that time that such is not the case’. The reasoning of the judge appears from this passage of the judgment:

‘In my judgment the effect is to give the hirer the right not to acquire title to the goods. It is true that he has to take an active step, ie he has to inform the owner that the property is not to pass or else he is, as it were, fixed with ownership automatically, which is the converse of the situation where he has to exercise the option to acquire the goods and if he does not exercise the option and does nothing he does not acquire them. But in my judgment the legal effect is the same. It is also true that he cannot under this agreement terminate the hire. He has to pay all the hire charges. But once he has paid all the hire charges, if he has told the owner that he is not exercising the option to purchase and the property in the goods is not to pass to him, then the hire comes to an end and the goods revert to the owner. Consequently I am of the view, and I find, that the effect of those words in brackets in cl 2 is to render this agreement a hire-purchase agreement.’

The conclusion of the judge differs from that which has been reached in two other cases, also involving Carlyle as defendant, in which the same point arose in relation to virtually identical wording. In Combined Lease Finance plc v Carlyle Finance Ltd (another unreported decision in the Cardiff County Court more recent than that of Judge Jones, although the precise date is not clear from the

Page 95 of [1997] 4 All ER 90

transcript before us), Judge Burr held that the agreement in question was a conditional sale agreement. This was his reason:

‘It is quite clear from an examination of the agreement that there is no clause enabling the hirer to determine the hiring before the final instalment of hire becomes payable. There is further no requirement for the active exercise of the option to purchase which the hirer is deemed to have exercised at the conclusion of the agreement after all rental sums have been paid. It seems inconceivable that any hirer having paid the total price representing the value of the vehicle should at the conclusion of the agreement repudiate the goods and require the owner to take possession of them and for the same reasons advanced by Professor Goode [in Consumer Credit Legislation] I find that Micro had “agreed to buy” within the terms of s 25(1) of the Sale of Goods Act 1979 having with the consent of the plaintiff obtained possession of the goods at the outset of the agreement.’

In an earlier case between the same parties in the High Court (7 March 1994, unreported), Gage J reached the some conclusion on the same form of agreement. Although the issue was simply whether Carlyle had an arguable defence, the decision of the judge suggests that he thought it not merely arguable but clearly sound. At the end of the judgment, he said:

‘It seems to me that had the hirer paid all the sums under the agreement it is inconceivable that he would then return the goods. The option is only a form of words. It does not reflect reality and the big difference here is that this agreement has no provision for termination.’

Judge Jones was influenced in reaching his decision by the consideration that there is little difference in effect between the form of contract in this case and the form of hire-purchase agreement under which the hirer is obliged to pay all the instalments but then only acquires title if he exercises a positive option to pay a further nominal sum. As to that point, Mr Philpott for Forthright drew our attention, in order to challenge it, to the proposition advanced by Professor Goode in his work on Consumer Credit Legislation para 218:

‘To avoid classification as a contract of sale, the agreement must be framed so as to avoid a commitment to purchase. This may be achieved in one of two ways. The hirer may be given the right to terminate the agreement before it has run its full course. Alternatively the hiring agreement may be for a fixed period, with no power of termination, if at the end of the period of hire the hirer is required to exercise his option to purchase by payment of a further sum which is not purely nominal. The absence of the right to terminate is not material in such a case, for even if the hiring agreement runs its full course the hirer is not thereby committed to paying the full price. In practice, the latter form of hire-purchase agreement is rarely encountered, and the hirer is almost invariably given a right to terminate the agreement at any time.’

It was with the words ‘which is not purely nominal’ that Mr Philpott joined issue, those words being supported by decisions in the Commonwealth but not by any authority in this country. Mr Philpott submitted that those words were not justified, having regard to certain technical complications that they imported, referred to elsewhere by Professor Goode.

Page 96 of [1997] 4 All ER 90

Mr Philpott’s submission was that it is of the essence of a conditional sale agreement that the purchaser is contractually obliged both to pay all the instalments that make up the purchase price and to take title in the goods purchased. If, however expressed, the contract gives him an option whether or not to become the owner of the goods, it will constitute a hire-purchase rather than a conditional sale agreement. In so submitting, Mr Philpott relied on certain passages in the speeches of the House of Lords in the leading case on this topic of Helby v Matthews [1895] AC 471, [1895–9] All ER Rep 821. The facts as set out in the headnote were ([1895] AC 471):

‘The owner of a piano agreed to let it on hire, the hirer to pay a rent by monthly instalments, on the terms that the hirer might terminate the hiring by delivering up the piano to the owner, he remaining liable for all arrears of hire; also that if the hirer should punctually pay all the monthly instalments, the piano should become his sole and absolute property, and that until such full payment the piano should continue the sole property of the owner. The hirer received the piano, paid a few of the instalments and pledged it with a pawnbroker as security for an advance:—Held, that upon the true construction of the agreement the hirer was under no legal obligation to buy, but had an option either to return the piano or to become its owner by payment in full; that by putting it out of his power to return the piano he had not become bound to buy; that he had therefore not “agreed to buy goods” within the meaning of the Factors Act 1889 s. 9, and that the owner was entitled to recover the piano from the pawnbroker.’

Lord Herschell LC began the leading speech in that case as follows ([1895] AC 471 at 475–476, [1895–9] All ER Rep 821 at 823–824):

‘… it is said that the substance of the transaction evidenced by the agreement must be looked at, and not its mere words. I quite agree. But the substance must, of course, be ascertained by a consideration of the rights and obligations of the parties, to be derived from a consideration of the whole of the agreement. If Brewster agreed to buy the piano, the parties cannot, by calling it a hiring, or by any mere juggling with words, escape from the consequences of the contract into which they entered. What, then, was the real nature of the transaction? The answer to this question is not, I think, involved in any difficulty. Brewster was to obtain possession of the piano, and to be entitled to its use so long as he paid the plaintiff the stipulated sum of 10s. 6d. a month, and he was bound to make these monthly payments so long as he retained possession of the piano. If he continued to make them at the appointed times for the period of three years, the piano was to become his property, but he might at any time return it, and, upon doing so, would no longer be liable to make any further payment beyond the monthly sum then due. My Lords, I cannot, with all respect, concur in the view of the Court of Appeal, that upon the true construction of the agreement Brewster had “agreed to buy” the piano. An agreement to buy imports a legal obligation to buy. If there was no such legal obligation, there cannot, in my opinion, properly be said to have been an agreement to buy. Where is any such legal obligation to be found? Brewster might buy or not just as he pleased. He did not agree to make thirty-six or any number of monthly payments. All that he undertook was to make the monthly payment of 10s. 6d. so long as he kept the piano. He had an option no doubt to buy it by

Page 97 of [1997] 4 All ER 90

continuing the stipulated payments for a sufficient length of time. If he had exercised that option he would have become the purchaser. I cannot see under these circumstances how he can be said either to have bought or agreed to buy the piano. The terms of the contract did not upon its execution bind him to buy, but left him free to do so or not as he pleased, and nothing happened after the contract was made to impose the obligation.’

Mr Philpott focused particularly in that passage on the words:

‘An agreement to buy imports a legal obligation to buy. If there was no such legal obligation, there cannot … properly be said to have been an agreement to buy.’

He also relied on this further passage in the speech of Lord Herschell LC ([1895] AC 471 at 477, [1895–9] All ER Rep 821 at 824):

‘… when a person has, for valuable consideration, bound himself to sell to another on certain terms, if the other chooses to avail himself of the binding offer, he may, in popular language, be said to have agreed to sell, though an agreement to sell in this sense, which is in truth merely an offer which cannot be withdrawn, certainly does not connote an agreement to buy, and it is only in this sense that there can be said to have been an agreement to sell in the present case.’

In this case, argued Mr Philpott, there was no legal obligation on Senator to buy as Senator had an option to decline to take title: ergo, Senator had not agreed to buy the car.

For myself, I consider that the reason why the House of Lords held that the contract under consideration in Helby v Matthews was not one whereby the customer had agreed to buy the piano appears from the following short passages in some of the speeches. First, this passage in the longer passage I have already read from the speech of Lord Herschell LC:

‘He did not agree to make thirty-six or any number of monthly payments. All that he undertook was to make the monthly payment of 10s. 6d. so long as he kept the piano.’

Then from the speech of Lord Macnaghten ([1895] AC 471 at 481, [1895–9] All ER Rep 821 at 827):

‘The customer was under no obligation to fulfil the conditions on which and on which alone the dealer undertook to sell. He was not bound to keep the piano for a single day or a single hour.’

Finally this passage is from the speech of Lord Shand ([1895] AC 471 at 483–484, [1895–9] All ER Rep 821 at 828):

‘An agreement to purchase would infer an obligation to pay a price, the payment of which could be enforced by action, while here it is plain that no action for any balance of the alleged price could be maintained if Brewster thought fit at any time to return the instrument to its owner.’

In the present case Senator were contractually obliged to pay all the contractual instalments until they had provided all the payments required by the contract as consideration for their right, inter alia, to become the owner of the car. At that

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stage, unless they had exercised the option to decline to receive title, it was to pass to them.

In my judgment, this contract has all the ingredients of a conditional sale agreement. The option not to take title, which one would only expect to be exercised in the most unusual circumstances, does not affect the true nature of the agreement. It seems to me that it is incorporated simply to enable the supplier to advance the very argument that has been urged by Mr Philpott. He has urged it most elegantly, but I remain of the view that it is specious. The conclusions reached by Gage J and Judge Burr on this point were correct. This agreement is, not merely in substance but in form, a conditional sale agreement. Whether, as Professor Goode has suggested, contracts which differ from this one only in that they include a positive option to acquire title for a nominal payment also constitute conditional sale agreements I need not decide.

For the reasons I have given, I consider this appeal should be allowed.

PILL LJ. I agree.

STUART-SMITH LJ. I also agree.

Appeal allowed. Leave to appeal to House of Lords refused.

Mary Rose Plummer  Barrister.

Forthright Finance Ltd v Ingate (Carlyle Finance Ltd, third party)

[1997] 4 All ER 99

Categories:        SALE OF GOODS: CONSUMER; Consumer credit        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        STAUGHTON, HENRY AND THORPE LJJ        

Hearing Date(s):        14 MAY 1997        

Sale of goods – Conditional sale agreement – Antecedent negotiations – Defendant agreeing to purchase car from plaintiff finance company under conditional sale agreement – Defendant subsequently seeking to part-exchange car for another – Dealers offering to purchase car and pay outstanding balance due to plaintiff – Defendant paying dealers deposit on second car and entering into conditional sale agreement with second finance company – Dealers later going into liquidation without having paid sum due to plaintiff – Whether second finance company liable to discharge defendant’s debt to plaintiff – Consumer Credit Act 1974, s 56(1)(b)(2)(4).

The defendant agreed to buy an Austin Metro car under a conditional sale agreement made with the plaintiff finance company, F Ltd. A year later she went to car dealers in Cardiff as she was interested in purchasing a secondhand Fiat Panda car from them. They were licensed credit brokers and explained that they would buy her Metro in part exchange and discharge the balance of £1,992 owed to F Ltd under the finance agreement; for that purpose they valued the Metro at £2,000. The defendant paid a deposit of £1,000 to the dealers and entered into a conditional sale agreement with another finance company, C Ltd, which recorded that the Fiat was sold to her, the cash price being £2,995, the deposit being £1,000 and the amount left on credit being £1,995. The dealers subsequently went into liquidation without having paid the £1,992 due to F Ltd as agreed. F Ltd brought an action against the defendant for the amount due to them on the Metro and obtained judgment against her by consent for the amount claimed. The defendant issued third party proceedings against C Ltd seeking an indemnity on the basis that anything said by the dealer was deemed to have been said on behalf of C Ltd by virtue of s 56a of the Consumer Credit Act 1974. The district judge ordered C Ltd to indemnify the defendant against the claim, but his decision was set aside on appeal on the ground that s 56 did not apply because there were two separate transactions, one relating to the Metro and the other to the Fiat and the antecedent negotiations did not relate to the goods to be sold, ie the Fiat. The defendant appealed.

Held – Since the negotiations concerning the Metro were as a matter of fact part of the package to take the Fiat, they formed part of one transaction relating to the goods to be sold by the dealer to the finance company within the meaning of s 56(1)(b) of the 1974 Act, notwithstanding that the value agreed for the Metro cancelled out the debt due on it so that there was no part-exchange except in a loose sense. Moreover, s 56(4) of the Act made it clear that a wide construction should be given to the words ‘negotiations … in relation to’ the goods in s 56(1)(b), since it provided that antecedent negotiations should be taken to

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commence when the negotiator and the debtor or hirer first entered into communication and included any representations made by the negotiator to the debtor or hirer and any other dealings between them. Accordingly, C Ltd was liable under s 56(2) of the Act for the dealers’ promise to discharge the defendant’s debt under the finance agreement relating to the Metro and the appeal would therefore be allowed (see p 105 c to f j and p 106 a to c f to p 107 b, post).

UDT v Whitfield (First National Securities, third party) [1987] CCLR 60 approved.

Powell v Lloyds Bowmaker Ltd [1996] CCLR 50 disapproved.

Notes

For entry into consumer credit agreements and antecedent negotiations, see 22 Halsbury’s Laws (4th edn) paras 62, 65, and for cases on the subject, see 26(2) Digest (2nd reissue) 405, 2339–2341.

For the Consumer Credit Act 1974, s 56, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 55.

Cases referred to in judgments

Branwhite v Worcester Works Finance Ltd [1968] 3 All ER 104, [1969] 1 AC 552, [1968] 3 WLR 760, HL.

Powell v Lloyds Bowmaker Ltd [1996] CCLR 50, Sh Ct.

UDT v Whitfield (First National Securities, third party) [1987] CCLR 60, Cty Ct.

Case also cited or referred to in skeleton arguments

Woodchester Equipment (Leasing) Ltd v British Association of Canned and Preserved Foods Importers and Distributors Ltd [1995] CCLR 51, CA.

Appeal

The defendant, Maisie Olive Ingate, appealed with leave from the decision of Judge Crowther QC in the Cardiff County Court on 18 October 1996 setting aside the decision of District Judge Wyn Rees dated 19 April 1996 whereby, in third party proceedings brought by Mrs Ingate against Carlyle Finance Ltd (Carlyle), he ordered Carlyle to indemnify the defendant against the claim of the plaintiffs, Forthright Finance Ltd, for the amount due to them on an Austin Metro motor car in respect of which judgment had been entered against the defendant on 6 March 1995 by consent for the sum of £3,135·26. The facts are set out in the judgment of Staughton LJ.

Nicholas David Jones (instructed by Dolmans, Cardiff) for Mrs Ingate.

Colette Wilkins (instructed by Anthony W Jeremy & Co, Cardiff) for Carlyle.

STAUGHTON LJ. In March 1990 Mrs Ingate, who is the defendant in this action, agreed to buy an Austin Metro car. That was achieved by a conditional sale agreement. No doubt she paid part of the price at once and agreed to pay the balance by instalments. The agreement was with the present plaintiffs, Forthright Finance Ltd. A year later on 19 March 1991 Mrs Ingate went to the premises of Matthew Phillipsons Ltd, car dealers in Cardiff. She was interested in buying a secondhand Fiat Panda car which they had. Mr Taylor, a sales manager with the dealers, said that if she bought the Fiat Panda they would take the Austin Metro in part-exchange. What is more, they would discharge

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the balance of the money due for the Austin Metro to Forthright. In fact, this would not achieve any significant credit to be set against the price of the Fiat Panda, because the outstanding balance on the Austin Metro was £1,992. Its value, as the parties agreed at the time, was £2,000. The difference of £8 was ignored by Mrs Ingate and the dealers and can be ignored by us. The important point to notice is that neither the Austin Metro nor the proceeds of sale of the Austin Metro were, in fact, set against the price of the Fiat Panda. The words ‘part-exchange’ were used in a loose sense.

Mrs Ingate told Mr Taylor that she wished to refinance, as she put it, the purchase of the Fiat Panda with Forthright with whom she had dealt previously. Had that happened it may well be that the present problem would not have occurred. However, the dealers made other arrangements, as later appeared. Mrs Ingate paid a deposit of £1,000 to the dealers and then, or else a few days later, signed a conditional sale agreement between herself and another finance house, Carlyle Finance Ltd. That agreement recorded that the Fiat Panda was sold to her, the cash price being £2,995, the deposit £1,000 and the amount left on credit, £1,995. Mrs Ingate paid the deposit of £1,000 to the dealers. At some stage she must have signed the conditional sale agreement although she did not remember doing so.

Some months later in October 1991 the dealers went into liquidation. Contrary to their agreement with Mrs Ingate they had not paid off the £1,992 due to Forthright, so that it was still due from Mrs Ingate. At that time the Austin Metro was still at the dealers’ premises but soon after it disappeared.

In this action Forthright have sued Mrs Ingate in the Cardiff County Court for the amount due to them on the Austin Metro. On 6 March 1995 judgment was entered against her by consent for the sum of £3,135.26, that being the amount due with interest. Execution was stayed pending the outcome of the third party proceedings which Mrs Ingate had brought against Carlyle. Those proceedings were based on s 56 of the Consumer Credit Act 1974, to which I shall return presently.

Mrs Ingate’s claim against Carlyle succeeded before District Judge Wyn Rees. He ordered that they should indemnify Mrs Ingate against the claim of Forthright and the costs ordered against her. But there was an appeal; and Judge Crowther QC set aside the order of the district judge and dismissed Mrs Ingate’s third party claim. By consent he gave leave to appeal.

Section 56(2) of the Consumer Credit Act 1974 provides:

‘Negotiations with the debtor in a case falling within subsection (1)(b) or (c) shall be deemed to be conducted by the negotiator in the capacity of agent of the creditor as well as in his actual capacity.’

That refers one back to s 56(1), which says:

‘In this Act “antecedent negotiations” means any negotiations with the debtor or hirer … (b) conducted by a credit-broker in relation to goods sold or proposed to be sold by the credit-broker to the creditor before forming the subject-matter of a debtor-creditor-supplier agreement within section 12 (a) …’

Then there is another alternative, (c). It is accepted that the agreement between Mrs Ingate and Carlyle, when it came into existence, was a creditor-debtor-supplier agreement. Matthew Phillipsons Ltd, the dealers,

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were licensed as a credit broker. The transaction was one by which they sold the Fiat Panda to Carlyle, and Carlyle thereafter sold it on credit to Mrs Ingate. That was a transaction of the kind mentioned in ss 11(1)(a) and 12(a) of the Act. Hence it was a creditor-debtor-supplier agreement.

When one looks at s 56(1) it is apparent that words have been deliberately inserted in s 56(1)(b) to restrict the kind of negotiations which will qualify under that paragraph. The words of restriction are ‘in relation to goods sold or proposed to be sold by the credit-broker’ and so forth. In this case that means in relation to the Fiat Panda, which was proposed to be sold by the credit broker, the dealers, to Carlyle before Carlyle sold it to Mrs Ingate. The problem is, granted that there were goods to be sold in that way, whether the negotiations with which we are concerned related to those goods. Mrs Wilkins who appears for Carlyle says, in terms, that there were two quite separate transactions, one transaction being the agreement by which the dealers took the Austin Metro and agreed to pay off what was due in respect of it, the other transaction being that when they accepted Mrs Ingate’s deposit and undertook to arrange a credit sale by Carlyle.

Now the findings that were made in respect of that were as follows. The district judge said in terms that Mr Taylor explained to Mrs Ingate that if she bought the Fiat Panda the company would buy the Austin Metro in part-exchange and discharge the balance owed. Later in his judgment he said:

‘Having considered the evidence in this case, I have little doubt that had Matthew Phillipsons Ltd not agreed to purchase the Austin Metro car from the defendant and discharge the balance owed by the defendant to the plaintiff in respect of that vehicle, the defendant would not have entered into the conditional sale agreement with the third party.’

Those findings of fact on the evidence, as it seems to me, show quite clearly that there were not two independent transactions but two linked aspects of one transaction. When the matter came before the circuit judge, Judge Crowther QC, he said early on in his judgment that he found all the correct factual and legal analysis in the judgment of the district judge and agreed with his conclusions as to the argument on causation. However, later in his judgment the circuit judge said:

‘I sympathise with the defendant’s view that she entered into a single credit transaction with one party, albeit a complex transaction with that party’s agent. I find her view to be wrong and differ from the district judge. I prefer the reasoning of the sheriff in Powell v Lloyds Bowmaker Ltd [1996] CCLR 50 to that of Judge Vos in UDT v Whitfield (First National Securities, third party [1987] CCLR 60.’

There, as it seems to me, the judge is saying that even though he accepts the findings of fact of the district judge, nevertheless there were in law two separate transactions.

One other aspect of the facts which I should mention was raised by Thorpe LJ in the course of the argument. He pointed out that the dealers had valued the car for the purposes of this transaction at £2,000, and on that basis were prepared to take it and to pay off the outstanding balance of £1,992. But it seems very likely that if Mrs Ingate had not intended to buy the Fiat Panda the dealers would not have valued the Austin Metro at £2,000 or anything like

Page 103 of [1997] 4 All ER 99

it, or at least it is very questionable whether they would have done. That was why that valuation was in all probability an integral part of the whole arrangement.

Against that background of facts I turn to the law. There have been two cases in recent times bearing on this question. In both of them the dealers agreed to pay off the outstanding balance of a car owned by the proposed purchaser and to take the car themselves. In both cases the dealers failed to do that, and the purchaser of the new car was held liable to the company from which he had borrowed for that car. In one case it was held that the purchaser could recover from the new finance company financing the second transaction. In the other case it was held that the purchaser could not. A feature common to both cases was that there was a small surplus on the old car. The amount at which the dealer valued it slightly exceeded the amount that was owing in respect of it to the company that had financed the original purchase of it. That small surplus was in each case carried forward into the transaction, the new transaction for the purchase on credit of a new car, as part of the deposit so to speak to the credit of the purchaser. So, on the facts of those two cases, if there was a distinction from this case it militated more in favour of there being related transactions than is the case before us.

In UDT v Whitfield (First National Securities, third party) [1987] CCLR 60 Judge Vos decided in favour of the customer and held that he could recover from the new finance company. His reasons are reported in effect in one short paragraph (at 63):

‘I find that these were antecedent negotiations conducted by the credit broker in the transaction relating to goods sold by the credit broker to the creditor under a debtor-credit-supplier agreement.’

That was the UDT case. The second case, Powell v Lloyds Bowmaker Ltd [1996] CCLR 50, was decided in the Sheriff’s Court in Edinburgh. The sheriff in that case held that the customer could not recover from the second finance company. The sheriff expressed his or her reasons in these words (at 56):

‘Nevertheless, regard must be had first and last to the words of the Act. If Parliament had intended all representations made by a supplier in relation to a section 56(1)(b) transaction to be deemed to be conducted by the dealer as agent of the creditor, Parliament would in my opinion have said so, by framing the subsection in wider terms, such as can be seen in section 56(1)(a) and (c). Section 56(1)(b) is restricted in its application to goods sold or proposed to be sold by the dealer.’

There is indeed a difference between the wording of s 56(1)(b) on the one hand and s 56(1)(a) and (c) on the other. No specific point has been made on it save this: it is evident, as I have already said, that a restriction was deliberately placed in s 56(1)(b). Not all negotiations were to be deemed to have been made on behalf of the creditor, but only negotiations in relation to goods which were to be supplied under a credit agreement. That is not an answer to the question how one defines the extent of those negotiations.

We have heard some argument on the legislative history of the Consumer Credit Act 1974. One can start with the Tenth Report of the Law Reform Committee (Innocent Misrepresentation) (Cmnd 1782) (July 1962), which is helpfully set out in the speech of Lord Wilberforce in Branwhite v Worcester Works Finance Ltd

Page 104 of [1997] 4 All ER 99

[1968] 3 All ER 104 at 123, [1969] 1 AC 552 at 588. The Law Reform Committee concluded para 20 of their report by saying:

‘We think, therefore, that it should be made clear in any legislation on this subject that where negotiations for a hire-purchase contract are in fact conducted by a dealer he shall, notwithstanding any agreement to the contrary, be deemed to be the agent of the finance company for the purpose of any representations in respect of the goods which are the subject-matter of the contract.’

That perhaps was the mischief which the Law Reform Committee detected; and the remedy which they proposed was an agency as to representations made in respect of the goods. That was the remedy adopted by Parliament in s 16 of the Hire-Purchase Act 1965, which provided in sub-s (1):

‘Where a person (in this section referred to as “the owner or seller”) lets goods under a hire-purchase agreement, or sells or agrees to sell goods under a credit-sale agreement or a conditional sale agreement, any representations with respect to the goods to which the agreement relates which were made, either orally or in writing, to the hirer or buyer by a person other than the owner or seller in the course of any antecedent negotiations conducted by that other person shall be deemed to have been made by him as agent of the owner or seller.’

There Parliament followed the very language of the Law Reform Committee.

Then there came the Crowther Committee’s Report on Consumer Credit (Cmnd 4596) (March 1971). This dealt with the present topic in paras 6.6.26 and 6.6.28:

‘6.6.26. There are three different ways in which the borrower might be given relief against a connected lender. The first is to make the lender answerable in damages for misrepresentations made by the seller in antecedent negotiations and for breaches of any term of the agreement relating to title, fitness or quality of the goods. An alternative and intermediate measure is to provide that, while the lender shall not incur a positive liability in damages, the borrower shall, by way of defence to a claim for sums due under the loan agreement, be entitled to set off any claim that he has for such a misrepresentation or breach. The third approach is to require the borrower to pursue his remedies against the seller in the first instance, the lender becoming liable to the consumer only if the latter is unable to obtain redress from the seller because of his insolvency. This is the solution advocated by the finance houses, who accept that a seller-linked lender must accept a measure of responsibility for misrepresentations or breaches of contract by the seller, but who urge that this should be limited to the secondary liability of underwriting the seller’s solvency.

6.6.28. We therefore recommend that where the price payable under a consumer sale agreement is advanced wholly or in part by a connected lender that lender should be liable for misrepresentations relating to the goods made by the seller in the course of antecedent negotiations, and for defects in title, fitness and quality of the goods. Further, we consider that where the sale or the loan are made by separate contracts, the borrower should nevertheless have the right to set off against any sum payable by

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him under the loan contract any damages he is entitled to recover from the lender for breaches of the sale agreement by the seller.’

In some respects those recommendations are drawn narrowly to reflect the old law, at other times they seem to go somewhat wider. It is difficult to discern any precise limit in the Crowther recommendations. What matters at the end of the day, as it seems to me, is that Parliament, when it came to enact the Consumer Credit Act 1974, did not adopt the limited measure which there had been in the Hire-Purchase Act 1965 that representations relating to the goods should be all that the creditor was to be liable for. A different and wider form of words was used. In those circumstances if the antecedent history has any significance at all, it is that we must look for a somewhat wider meaning.

In my judgment, what s 56(1)(b) means is that there must be goods sold or proposed to be sold by the credit broker to the creditor, which will form the subject matter of a debtor-creditor-supplier agreement. If that condition is fulfilled, one next inquires whether there were negotiations in relation to those goods. If there were, then all that was said by the credit broker in those negotiations is deemed to have been said on behalf of the creditor. On the other hand, what is said in any other negotiations which do not relate to those goods, is not deemed to be said on behalf of the creditor.

The question is then a simple one of fact, were the negotiations in this case all relating to the goods to be sold? The answer in my judgment is that they were, because they were all part of one transaction. If the dealers had been asked by Mrs Ingate, ‘I no longer want the Fiat Panda, but please take my car and give me £8 and pay off what I owe on it’ one can be fairly confident that the answer would be that, ‘That is not on offer. We have been negotiating about one transaction overall and that is what we have been talking about’.

In my judgment the law is plain enough: one simply has to inquire whether all the negotiations form part of the one transaction as a matter of fact. The facts are plain enough to lead to that conclusion in this case.

I should perhaps have mentioned that in Chitty on Contracts (27th edn, 1994) para 36-062, p 548 it is said about s 56(1)(b):

‘It is to be noted that this category belongs only to goods and to the goods sold or proposed to be sold by the dealer to the finance house.’ (Author’s emphasis.)

Then there is a footnote:

‘But see U.D.T. v. Whitfield and First National Securities ([1987] CCLR 60), Cty. Ct. (finance house held liable for dealer’s failure to fulfil his undertaking to the debtor to discharge the outstanding balance on a vehicle traded-in by the debtor as part of a transaction to take a new vehicle on hire-purchase).’

It was indeed part of the transaction. In so far as that footnote betrays only moderate enthusiasm by the editors of Chitty for the UDT decision, I am afraid that I do not agree with it. I consider that the UDT case was rightly decided. It follows that I would not agree with the conclusion of the sheriff in Powell v Lloyds Bowmaker Ltd [1996] CCLR 50.

I also agree with what I believe Henry LJ is about to say about s 56(4) of the 1974 Act. I would allow this appeal.

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HENRY LJ. I agree that this appeal should be allowed and I agree with Staughton LJ’s reasons for so doing. Using the old familiar language of ‘hirer, dealer and finance company’ the clear statutory effect of s 56 of the Consumer Credit Act 1974 is to make the dealer, in addition to his liability in his ‘actual capacity’, the finance company’s agent in situations where he would not be at common law because he would not have had the authority express or implied so to act. The machinery for doing this is to be found in s 56(2) of the Act making him the finance company’s agent in negotiations with the hirer as defined in our case in s 56(1)(b). Under that subsection the negotiations in question must be ‘conducted … in relation to’ the goods that will become the subject matter of, in our case, the conditional sale agreement, ie the Fiat Panda.

Now, in relation to the acquisition of that vehicle Judge Crowther QC found that there were two separate transactions. The relevant passage of his finding has already been read by Staughton LJ. I do not believe that position to be tenable either in fact or in law.

To deal with the facts: the evidence was heard before the district judge and his findings were accepted by the judge. The district judge held that there was just one transaction here, that relating to the Fiat Panda. Staughton LJ has already quoted the passage where he found that.

The argument that there was a separate transaction relating to the Austin Metro seems to me to rest on the coincidental fact that on these particular figures the value agreed for the Austin Metro cancelled out the debt due on it. If this were the usual case of taking the Austin Metro in part-exchange, it would seem to me to be very difficult indeed to mount the ‘two transactions’ argument. But this coincidence does not, to my mind, create a two-transaction situation where in my judgment (as the district judge correctly found on the facts) there was in reality one. It seems to me that the district judge was right to reject the two-transaction argument as a matter of fact. However, should, as a matter of law, the words ‘negotiations … in relation to’ the Fiat Panda be so narrowly construed as to exclude negotiations concerning what the district judge found to be part of the package, namely the Austin Metro? It seems to me that such a narrow interpretation of the words would not only be artificial but would fly in the face of the clear purpose of this Act to protect consumers. While I would favour a wide construction of the words on that ground alone, s 56(4) seems to me to put the matter beyond doubt in favouring the wide construction. That subsection reads:

‘For the purposes of this Act, antecedent negotiations shall be taken to begin when the negotiator and the debtor or hirer first enter into communication (including communication by advertisement), and to include any representations made by the negotiator to the debtor or hirer and any other dealings between them.’

I get from that three things: first, negotiations here started when Mrs Ingate expressed an interest in the Fiat Panda after which the dealer said that if she bought it the company would buy her Austin Metro in part-exchange. Second, those negotiations included, as the representations found, the dealer’s promise to Mrs Ingate to pay off her debt under the finance agreement relating to the Austin Metro. Third, even if the Austin Metro part of the package were dressed up as a separate transaction it would at best have been ‘other dealings’ within the meaning of that subsection included in the negotiations. Of course, as Mrs

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Wilkins reminds me, in each case the negotiations so defined must relate to the goods sold by the dealer to the finance company, ie the Fiat Panda. These negotiations, for reasons that Staughton LJ and I have sought to explain, plainly did. Therefore, in my judgment, s 56 is to be construed widely. Section 56(1)(b) applies, and the third party are in my judgment liable under s 56(2) for the dealer’s promise to discharge Mrs Ingate’s debt under the conditional sale agreement. I would allow this appeal.

THORPE LJ. I agree with both judgments.

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

Mary Rose Plummer  Barrister.

Bank of Credit and Commerce International (Overseas) Ltd (in liquidation) v Price Waterhouse (a firm) and another (Abu Dhabi and others, third parties)

[1997] 4 All ER 108

Categories:        CONSTITUTIONAL; Other Constitutional        

Court:        CHANCERY DIVISION        

Lord(s):        LADDIE J        

Hearing Date(s):        4, 5 NOVEMBER 1996        

Constitutional law – Diplomatic privilege – Immunity from legal process – Ruler of constituent territory of recognised state – Defendants seeking to bring third party proceedings against constituent territory – Defendants issuing third party notice against ruler of constituent territory in his public capacity as ruler – Ruler of constituent territory also president of the state – Ruler applying to set aside notice on ground of diplomatic immunity – Whether notice should be set aside – Diplomatic Privileges Act 1964, Sch 1, art 31 – State Immunity Act 1978, ss 14, 20.

The liquidators of the plaintiff bank commenced certain actions against the defendants, who were the bank’s former auditors. The defendants sought to bring into those proceedings Abu Dhabi, which was a constituent territory of the United Arab Emirates (a recognised state), and issued a third party notice against Z, the Ruler of Abu Dhabi and President of the United Arab Emirates. Z applied to set aside the notice on the ground that he was immune from suit as a diplomatic agent under art 31a of the Vienna Convention on Diplomatic Relations, as set out in Sch 1 to the Diplomatic Privileges Act 1964, by virtue of s 20(1)(a)b of the State Immunity Act 1978. The defendants contended that they were bringing proceedings against Z in his public capacity as the Ruler and the embodiment of Abu Dhabi, and that since the territory was not immune from suit as a separate entity under s 14(2)c of the 1978 Act as it had not acted in the exercise of the sovereign authority of the United Arab Emirates, neither was he.

Held – Although the sovereign or head of a recognised state enjoyed immunity from suit under s 14(1)d of the 1978 Act when acting in a public capacity, in all other circumstances he enjoyed the immunities prescribed under the 1964 Act. It followed, in the instant case, that since it was not asserted that Z was acting in a public capacity on behalf of the United Arab Emirates, he was immune from suit under the 1964 Act; the fact that he was acting in a public capacity in relation to Abu Dhabi was irrelevant, because the public capacity referred to in s 14(1) had to be a public capacity in relation to the recognised state, which Abu Dhabi was not. Accordingly, the application would be granted and the third party notice issued against Z would be set aside (see p 113 g to p 114 b d, post).

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Notes

For immunities from jurisdiction, see 18 Halsbury’s Laws (4th edn) paras 1548–1581.

For the Diplomatic Privileges Act 1964, Sch 1, art 31, see 10 Halsbury’s Statutes (4th edn) (1995 reissue) 683.

For the State Immunity Act 1978, ss 14, 20 see ibid 766, 771.

Cases cited or referred to in skeleton arguments

Alcom Ltd v Republic of Colombia (Barclays Bank plc and anor, garnishees) [1984] 2 All ER 6, [1984] AC 580, HL.

Australia and New Zealand Banking Group Ltd v Commonwealth of Australia, Amalgamated Metal Trading Ltd v Department of Trade and Industry (28 April 1989, unreported), QBD.

I Congreso del Partido [1981] 2 All ER 1064, [1983] 1 AC 244, HL.

Kuwait Airways Corp v Iraqi Airways Co [1995] 3 All ER 694, [1995] 1 WLR 1147, HL.

Rayner (J H) (Mincing Lane) Ltd v Dept of Trade and Industry [1987] BCLC 667; affd sub nom Maclaine Watson & Co Ltd v Dept of Trade and Industry, Re International Tin Council, Maclaine Watson & Co Ltd v International Tin Council, Maclaine Watson & Co Ltd v International Tin Council (No 2) [1988] 3 All ER 257, [1989] Ch 72, CA; affd [1989] 3 All ER, [1990] 2 AC 418, HL.

Application

His Highness Sheikh Zayed Sultan al Nahyan, the President of the United Arab Emirates and Ruler of Abu Dhabi, applied to strike out a third party notice issued against him in his public capacity as ruler of Abu Dhabi by the defendants, Price Waterhouse and Ernst & Whinney, both firms of chartered accountants, so as to bring Abu Dhabi into the proceedings brought against them by the plaintiffs, Bank of Credit and Commerce International (Overseas) Ltd. The facts are set out in the judgment.

Peter Scott QC, William Trower and Mark Arnold (instructed by Macfarlanes) for Sheikh Zayed.

Michael Crystal QC and Adrian Beltrami (instructed by Lovell White Durrant) for the plaintiffs.

Peter Goldsmith QC and John Nicholls (instructed by Herbert Smith) for the defendants.

LADDIE J. This is an application by His Highness Sheikh Zayed Sultan al Nahyan, the President of the United Arab Emirates and Ruler of Abu Dhabi, to set aside certain third party notices issued against him. The circumstances in which the third party notices were issued are as follows. The liquidators of the plaintiffs, Bank of Credit and Commerce International (Overseas) Ltd (BCCI), have commenced certain actions against the former auditors of the bank. For the present purposes I will refer to them as Price Waterhouse and Ernst & Whinney. There are effectively three actions, a consolidated action, an action referred to as the 1988 action and another action referred to as the 1989 action. In each of these, claims for large sums of money are made against the defendants.

The Price Waterhouse defendants have sought to bring in, by third party notice, Abu Dhabi. To that end they have issued third party notices against inter alia, (1) Abu Dhabi, (2) the Emirate of Abu Dhabi, (3) the government of Abu

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Dhabi, and (4) His Highness the Ruler of Abu Dhabi. All of these originally sought to have their third party notices set aside on grounds of immunity under statute or at common law. But the first three third parties have now relinquished their applications. It is only Sheikh Zayed who still seeks to set aside the third party notices issued against him and the only ground he relies on is that he has immunity from suit by virtue of statute.

Before me, Mr Peter Scott QC appeared for Sheikh Zayed, Mr Peter Goldsmith QC appeared for the Price Waterhouse defendants.

There are two statutes which are relevant to this application, the Diplomatic Privileges Act 1964 and the State Immunity Act 1978. The first is concerned to bestow immunity in respect of civil and criminal proceedings on diplomatic staff. This Act implements many of the provisions of the Vienna Convention on Diplomatic Relations and Optional Protocol concerning the Compulsory Settlement of Disputes signed in 1961. In particular, it brings into effect in our domestic law, the provisions of art 31 of that convention, which, so far as relevant to this application, reads as follows:

‘1. A diplomatic agent shall enjoy immunity from the criminal jurisdiction of the receiving State. He shall also enjoy immunity from its civil and administrative jurisdiction, except in the case of … (c) an action relating to any professional or commercial activity exercised by the diplomatic agent in the receiving State outside his official functions …’

When the 1964 Act became part of our law, it did not affect the common law immunity of heads of state, but only the immunity of representatives of a state, such as ambassadors. The 1978 Act is concerned primarily with state immunity. Until the passing of that Act, state immunity was a matter of common law and the extent of that immunity was the subject of some difficult case law. The 1964 Act gives some immunity to states but, at least in some respects, that immunity is less extensive than the immunity given to the diplomatic staff of the state. However, the 1978 Act goes beyond that. It also makes certain provisions for the immunity of the sovereign or heads of state.

It is necessary to start with a consideration of s 21(a) of the 1978 Act. That provides as follows:

‘A certificate by or on behalf of the Secretary of State shall be conclusive evidence on any question—(a) whether any country is a State for the purposes of Part I of this Act, whether any territory is a constituent territory of a federal State for those purposes or as to the person or persons to be regarded for those purposes as the head or government of a State.’

A recognised state, that is one in respect of which a suitable certificate under s 21 has been issued, is given immunity as provided for under s 1(1) of the 1978 Act. That means:

‘A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.’

Section 1(2) provides: ‘A court shall give effect to the immunity conferred by this Section even though the State does not appear in the proceedings in question.' That general immunity is subject to a number of significant exceptions. Once again, for the purpose of this application it is only necessary to refer to those

Page 111 of [1997] 4 All ER 108

exceptions contained within s 3 of the 1978 Act. In so far as relevant, they read as follows:

‘(1) A State is not immune as respects proceedings relating to—(a) a commercial transaction entered into by the State; or (b) an obligation of the State which by virtue of a contract (whether a commercial transaction or not) falls to be performed wholly or partly in the United Kingdom …

(3) In this section “commercial transaction” means—(a) any contract for the supply of goods or services; (b) any loan or other transaction for the provision of finance and any guarantee or indemnity in respect of any such transaction or of any other financial obligation; and (c) any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority; but neither paragraph of subsection (1) above applies to a contract of employment between a State and an individual.’

Therefore in those respects, the state itself would not be immune to proceedings brought in this country. Now into this picture we must bring the position of the sovereign or head of state. The 1978 Act includes two significant provisions relating to the sovereign or head of state, that is to say a sovereign or head of state of a state recognised by virtue of the issue of a suitable certificate. The first, s 20(1)(a), provides:

‘Subject to the provisions of this section and to any necessary modifications, the Diplomatic Privileges Act 1964 shall apply to—(a) a sovereign or other head of State …’

Thus, the head of state has all the immunities bestowed on diplomatic personnel such as ambassadors. Secondly, in some cases, it is possible to bring proceedings against the head of state as representing the state itself. Because that is so, s 14(1)(a) of the 1978 Act provides:

‘The immunities and privileges conferred by this Part of this Act apply to any foreign or commonwealth State other than the United Kingdom; and references to a State include references to—(a) the sovereign or other head of that State in his public capacity …’

This means that when a head of a recognised state is acting in his private capacity, he has the same immunities as say, the ambassador of that state under the 1964 Act. On the other hand, when acting in his public capacity, effectively as the embodiment of the state, he has all the immunities the state has under the 1978 Act. It would appear at first blush that the immunities are cumulative, thus the fact that he has immunities when acting in a public capacity, does not detract from the immunities derived from the 1964 Act by virtue of s 20(1) of the 1978 Act. (See in this regard s 16 of the 1978 Act.)

If in this case the defendants had been trying to bring third party proceedings against the head of a recognised state in his private capacity, the provisions of the 1964 Act would give him immunity from suit. In particular, the provisions of art 31(1)(c) of the convention only removes the immunity from suit where the diplomatic agent, or in this case head of state, is carrying on a professional or commercial activity in the receiving state, that means in England. There is no suggestion that Sheikh Zayed is carrying on or has carried on any relevant activity in England. Furthermore, as Mr Goldsmith accepted, to avoid immunity it

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would be necessary to show that the head of state carried on a continuous business activity here with a view to profit. That also was not asserted against Sheikh Zayed.

However, these are not the only statutory provisions relevant to this application. A recognised state may be a federation. The 1978 Act makes certain provisions for the constituent territories of such a federation. In particular, s 14(5) provides:

‘Section 12 above applies to proceedings against the constituent territories of a federal State; and Her Majesty may by Order in Council provide for the other provisions of this Part of this Act to apply to any such constituent territory specified in the Order as they apply to a State.’

For example, an Order in Council might have the effect of treating the constituent territory as if it were itself a recognised state, so that the head of the constituent territory would also be treated as if he were head of a recognised state.

However, if there is no such order, s 14(6) applies and that provides:

‘Where the provisions of this Part of this Act do not apply to a constituent territory by virtue of any such Order subsections (2) and (3) above shall apply to it as if it were a separate entity.’

This refers back to s 14(2)(a) and (b) which are the only other provisions of s 14 to which it is necessary to refer for the purpose of this application. Section 14(2) is in the following terms:

‘A separate entity is immune from the jurisdiction of the courts of the United Kingdom if, and only if—(a) the proceedings relate to anything done by it in the exercise of sovereign authority; and (b) the circumstances are such that a State (or, in the case of proceedings to which section 10 above applies, a State which is not a party to the Brussels Convention) would have been so immune.’

It is now possible to consider the effect of these provisions on the position of a constituent state which is not the subject of an order. When such a state does something, ‘in the exercise of sovereign authority’, it is given the benefit of the same immunities as the state of which it forms a constituent part. It is not in dispute that the ‘sovereign authority’ in s 14(2)(a) is a reference to the sovereign authority of the recognised state. In other words, when a constituent territory or other separate entity acts for and on behalf of the recognised state and effectively acts as if it was exercising the state’s sovereign authority, it obtains the immunity that the state would have obtained, had it acted on its own behalf.

Secondly, if it does not fall within the provisions of s 14(2)(a), the constituent territory or other separate entity has no immunity. It neither falls under s 14 nor does it obtain immunity under the 1964 Act. In particular, there is no equivalent provision to s 20(1)(a) extending to such a constituent territory any of the 1964 Act immunities. This is not surprising because the 1964 Act immunities are clearly concerned with giving immunities from suit to individuals rather than territories.

With that in mind, it is possible to turn to the particular facts of this case. Most of these facts I do not understand to be in dispute. (1) The United Arab Emirates is a state within the meaning of the 1978 Act, a certificate to that effect has been signed by the Secretary of State. (2) His Highness Sheikh Zayed is the head of

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that state. (3) Abu Dhabi is a constituent territory of the United Arab Emirates for the purpose of the 1978 Act and once again a certificate to that effect has been issued, signed by the Secretary of State. (4) It is, however, not a territory in respect of which an order under s 14(5) has be made. It therefore is treated just like a separate entity under s 14(2) of the 1978 Act. (5) As such, it has no immunity of its own, it only obtains the immunity it can acquire under s 14(2)(a), when it does things in the exercise of the sovereign authority of the United Arab Emirates. (6) Sheikh Zayed is the Ruler of Abu Dhabi. In that capacity, he is not a head of state within the meaning of 1978 Act.

The Price Waterhouse defendants want to third party Abu Dhabi. In so far as they do that, Abu Dhabi can rely on no statutory immunity because the acts of which complaint is made and which are alleged to give rise to liability here to the Price Waterhouse defendants, were not done in the exercise of the sovereign authority of the United Arab Emirates. That may well account for the fact that the first three third parties, in particular, the first third party, Abu Dhabi, have withdrawn their applications to set aside the issue of the third party notices against them. But the defendants are not content with that. They say that the Ruler of Abu Dhabi may be, effectively, indistinguishable from Abu Dhabi as a territory. Therefore they are not sure that bringing proceedings against Abu Dhabi itself is the correct course to adopt. They want to bring proceedings against His Highness the Ruler of Abu Dhabi in case that is the correct title in which to sue Abu Dhabi.

Mr Goldsmith says the defendants are bringing proceedings against Sheikh Zayed in his public capacity as Ruler of Abu Dhabi. He says that Sheikh Zayed’s immunity is no greater than the immunity of the constituent territory on whose behalf he is acting in a public capacity. In particular he says that is so where he is being sued ‘as the constituent territory’. The latter words are important. The defendants say they are not concerned to bring proceedings against Sheikh Zayed personally, but only in so far as he is the embodiment of Abu Dhabi.

Mr Scott, on the other hand, says that it is clear that Sheikh Zayed has immunity. This can be put in two ways. First he says that the immunities bestowed on a sovereign or head of state under s 14(1) of the 1978 Act, when acting in his public capacity are cumulative to those he acquires under the 1964 Act by virtue of s 20(1) of the 1978 Act. In other words, whether acting in his private or public capacity, he always has the 1964 Act immunity. When acting in his public capacity as head of state, he has, in addition, s 14(1) immunity.

Mr Goldsmith accepted as I understood it, that if this is a correct construction of the 1978 Act, his third party notice must be set aside, because the immunity under the 1964 Act, and particularly that deriving from art 31 of the convention, is wide enough to encompass the acts which are the subject of third party claims here.

The second way of reaching the same conclusion is as follows. The 1964 Act immunities apply to the sovereign or head of a recognised state at least when he is not acting in a public capacity. That means that he has such immunities at least when he is not acting in a public capacity on behalf of the recognised state. Here, although Sheikh Zayed might well have been acting in a public capacity, vis-à-vis Abu Dhabi, which for this purpose is not a recognised state, he was not acting in that capacity for the United Arab Emirates, therefore the 1964 Act immunities apply with the same result as set out above.

It is not necessary for me to consider the first of these arguments because I am satisfied that Mr Scott is correct in the second. Even if the immunities enjoyed by

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a sovereign or head of state when acting in a public capacity on behalf of the state are exclusively those provided under s 14(1) of the 1978 Act, in all other circumstances the immunities are those prescribed under the 1964 Act. Since here it is not asserted that Sheikh Zayed is acting in a public capacity on behalf of the United Arab Emirates, his immunities are those set out in the 1964 Act. The fact that he may be said to be acting in a public capacity in relation to Abu Dhabi is irrelevant for this purpose, because the public capacity referred to in s 14(1) must be a public capacity in relation to the recognised state. Just as the words ‘exercise of sovereign authority’ in s 14(2)(a) must also refer back to the sovereign authority of the recognised state.

This construction appears to me to be consistent with the underlying purpose of this legislation. In so far as the sovereign or head of state is acting in a public capacity on behalf of that state, he is clothed with the immunity that the state has. When acting in this capacity, the head of state and the state are, to some extent, indistinguishable. On the other hand, when acting in any other capacity, it is sensible that he should have immunity equivalent to that enjoyed by the state’s diplomatic staff.

It follows for the reasons I have given that Mr Scott’s application succeeds and I will order the third party notice issued against Sheikh Zayed to be set aside.

Order accordingly. Leave to appeal granted.

Celia Fox  Barrister.

Re Cosslett (Contractors) Ltd

[1997] 4 All ER 115

Categories:        COMPANY; Charges        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        EVANS, MILLETT LJJ AND SIR RALPH GIBSON        

Hearing Date(s):        17, 18, 29 JULY 1997        

Company – Charge – Registration – Engineering contract deeming contractor’s plant while on site to be property of employer – Contract providing that if contractor went into liquidation or abandoned contract, employer could enter on site and either use plant to complete works, or sell plant and apply proceeds towards satisfaction of any sums due from contractor – Whether employer having legal ownership of plant while it remained on site – Whether employer’s contractual rights constituting equitable charge – Whether fixed or floating charge – Whether void for want of registration – Companies Act 1985, s 395.

The company entered into a contract with the local authority to carry out engineering works in a land reclamation project, part of which involved the processing of large deposits of coal-bearing shale. In the course of the work two coal-washing plants were established on the site. Under cl 53(2) of the contract all plant, goods and materials owned by the contractor, while on site, were deemed to be the property of the local authority as employer. Clause 54 made provision for the transfer of property in goods and materials to the local authority prior to delivery to the site in order to secure payment and cl 63(1) provided that if the contractor went into liquidation or abandoned the contract, the local authority could enter on the site and either use the plant and materials which were deemed to be its property under cll 53 and 54 to complete the works, or at any time sell such plant and materials and apply the proceeds towards the satisfaction of any sums due from the company under the contact. Before the works were completed, the company abandoned the site, leaving the coal-washing plants behind. When the local authority refused to comply with the company’s administrator’s demand to deliver up the plants or pay for their use, the administrator applied to the court for an order requiring delivery up of the plant, contending that the local authority’s contractual rights as employer gave it a property interest in the plant which amounted to an equitable security interest in the nature of a floating charge registrable under s 395a of the Companies Act 1985, and that since no floating charge had been registered, the local authority’s contractual right to retain the coal-washing plants was void as against the administrator. The judge dismissed the administrator’s claim, holding that the contract conditions created an equitable proprietary interest in the nature of a specific equitable charge and not a floating charge, so the local authority’s rights were unaffected by the lack of registration. The administrator appealed. The local authority contended that the judge had erred in holding that cl 53 had not transferred the legal ownership of the plants to it; alternatively, that by virtue of the power of sale in cl 63, it had a possessory lien with a power of sale and not an equitable charge.

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Held – On its true construction cl 53(2) did not pass legal ownership in the coal-washing plants to the local authority, nor did cl 63(1) constitute a possessory lien with a power of sale since the local authority’s rights in relation to the plant were exclusively contractual and not attributable to any delivery of possession by the company. Rather, the local authority’s power of sale under cl 63(1) was a security interest constituting an equitable charge, and since it was a charge on present and future assets of the company which, in the ordinary course of the business of the company, would be changing from time to time, it was a floating charge for the purposes of s 395 of the 1985 Act and not a fixed charge; that was so notwithstanding that the local authority’s contractual rights entitled it to refuse to permit the removal of the plant by the company, even where it was not immediately required to complete the works, since it was not essential to the existence of a floating charge that the chargor should have unfettered freedom to deal with the charged assets, and that restriction on the way the company carried on business did not have any relation to the local authority’s security but was imposed to ensure that the company would give proper priority to the completion of the works. Although the failure to register the charge rendered the security created by the power of sale void against the administrator, it did not affect any other right of the local authority which was not a security and which did not require registration, and therefore did not invalidate the local authority’s contractual right to retain possession of the plant and materials and use them to complete the works. It followed that since at the date when the writ was issued the works had not been not completed, the local authority’s right to retain possession of the plant and use it to complete the works was sufficient to defeat the administrator’s claim in the action. Accordingly, the appeal would be dismissed (see p 122 f j to p 123 c g, p 125 d j to p 126 a d f h, p 127 d e h j and p 128 d f to h post).

Re Yorkshire Woolcombers Association Ltd, Houldsworth v Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 applied.

Decision of Jonathan Parker J [1996] 4 All ER 46 affirmed on other grounds.

Notes

For floating charges or security, see 7(2) Halsbury’s Laws (4th edn reissue) paras 1260–1266.

For registration of charges at the registrar’s office, see ibid para 1299.

For the Companies Act 1985, s 395, see 8 Halsbury’s Statutes (4th edn) (1991 reissue) 475.

Cases referred to in judgments

Beeston v Marriott (1863) 8 LT 690.

Bennett & White (Calgary) Ltd v Municipal District of Sugar City No 5 [1951] AC 786, PC.

Bond Worth Ltd, Re [1979] 3 All ER 919, [1980] Ch 228, [1979] 3 WLR 629.

Brightlife Ltd, Re [1986] 3 All ER 673, [1987] Ch 200, [1987] 2 WLR 197.

Brown v Bateman (1867) LR 2 CP 272.

Fox, Re, ex p Oundle and Thrapston RDC v The trustee [1948] 1 All ER 849, [1948] Ch 407, DC.

Great Eastern Rly Co v Lord’s Trustee [1909] AC 109, HL.

Hart v Porthgain Harbour Co Ltd [1903] 1 Ch 690.

Keen & Keen, Re, ex p Collins [1902] 1 KB 555, DC.

Page 117 of [1997] 4 All ER 115

Milnes v Huddersfield Corp (1883) 12 QBD 443, CA; affd (1886) 11 App Cas 511, [1886–90] All ER Rep 350, HL.

Reeves v Barlow (1884) 12 QBD 436, CA.

Weibking, Re, ex p Ward [1902] 1 KB 713.

Winter, Re, ex p Bolland (1878) 8 Ch D 225.

Yorkshire Woolcombers Association Ltd, Re, Houldsworth v Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284, CA; affd sub nom Illingworth v Houldsworth [1904] AC 355, HL.

Young v Matthew Hall Mechanical and Electrical Engineers Pty Ltd (1988) 13 ACLR 399, W Aust SC.

Cases also cited or referred to in skeleton arguments

Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477, Aust HC.

Astor Chemicals Ltd v Synthetic Technology Ltd [1990] BCLC 1.

Biggs v Hoddinott, Hoddinott v Biggs [1898] 2 Ch 307, [1895–9] All ER Rep 625, CA.

Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd (in liq) [1985] 1 All ER 155, [1985] Ch 207.

Charlesworth v Mills [1892] AC 231, HL.

Church v Sage (1892) 67 LT 800.

Inglefield (George) Ltd, Re [1933] 1 Ch 1, [1932] All ER Rep 244, CA.

Kent and Sussex Sawmills Ltd, Re [1946] 2 All ER 638, [1947] Ch 177.

Lloyds and Scottish Finance Ltd v Cyril Lord Carpets Sales Ltd [1992] BCLC 609, HL.

Manchester, Sheffield and Lincolnshire Rly Co v North Central Wagon Co (1888) 13 App Cas 554, HL.

Molton Finance Ltd, Re [1967] 3 All ER 843, [1968] Ch 325, CA.

Morris v Delobbel-Flipo [1892] 2 Ch 352, [1891–4] All ER Rep 605.

National Provincial and Union Bank of England v Charnley [1924] 1 KB 431, CA.

Noakes & Co v Rice [1902] AC 24, [1900–3] All ER Rep 34, HL.

Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78, CA.

Palmer v Carey [1926] AC 703, [1926] All ER Rep 650, PC.

Palmer v Day [1895] 2 QB 618, CA.

R v Norfolk CC (1891) 60 LJQB 379, DC.

Santley v Wilde [1899] 2 Ch 474, CA.

Seka Pty Ltd v Fabric Dyeworks (Aust) Pty Ltd (1991) 4 ACSR 455, Aust Fed Ct.

Slavenburg’s (NV) Bank v Intercontinental Natural Resources Ltd [1980] 1 All ER 955, [1980] 1 WLR 1076.

Standard Manufacturing Co, Re [1891] 1 Ch 627, [1891–4] All ER Rep 1242, CA.

Stoneleigh Finance Ltd v Phillips [1965] 1 All ER 513, [1965] 2 QB 537, CA.

Swiss Bank Corp v Lloyds Bank Ltd [1980] 2 All ER 419, [1982] AC 584, CA; affd [1981] 2 All ER 449, [1982] AC 584, HL.

Trendent Industries Pty Ltd, Re (1983) 8 ACLR 115, NSW SC.

Tunbridge (G E) Ltd, Re [1995] 1 BCLC 34.

Waitomo Wools (NZ) Ltd v Nelsons (NZ) Ltd [1974] 1 NZLR 484, NZ CA.

Welsh Development Agency v Export Finance Co Ltd [1992] BCLC 148, CA.

Appeal

By reamended notice dated 17 June 1997 Ian Clark, the administrator of Cosslett (Contractors) Ltd (the company), appealed from the decision of Jonathan Parker J ([1996] 4 All ER 46, [1997] Ch 23) on 21 December 1995 whereby he dismissed the administrator’s application under s 234 of the Insolvency Act 1986 for an order for

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delivery up by the respondent local authority, Mid-Glamorgan County Council (now Bridgend County Borough Council) (the council), of two coal-washing plants to which the administrator claimed to be entitled pursuant to a contract between the council and the company. The facts are set out in the judgment of Evans LJ.

Richard Wilmot-Smith QC and Alan Maclean (instructed by Hammond Suddards, Manchester) for the administrator.

Simon Mortimore QC and Antony Zacaroli (instructed by Edwards Geldard, Cardiff) for the council.

Cur adv vult

29 July 1997. The following judgments were delivered.

EVANS LJ. The appellant, Ian Clark, claims as the administrator of Cosslett (Contractors) Ltd against Mid-Glamorgan County Council (now Bridgend County Borough Council). I shall call them ‘the company’ and ‘the council’ respectively.

By an engineering contract dated 28 January 1991 incorporating the Institution of Civil Engineers (ICE) Conditions of Contract and Forms of Tender, Agreement and Bond for use in connection with Works of Civil Engineering Construction (5th edn, 1973) with some amendments, the company agreed to carry out permanent and temporary works in connection with the Upper Garw Valley Reclamation Scheme (the scheme).

The scheme covered an area of approximately 141 hectares, the majority of which were covered with shale tips associated with the former workings of the Garw and International Collieries. The ‘Brief Description of Works’ (not part of the contract terms) included this:

‘Over an estimated period of 4 years the coal bearing shale will be processed through a washing plant and the residue used to raise the valley floors to provide plateaux for possible development and the provision of new river channels for the Nant Garw and Nant Hir. Both realigned rivers will be interspersed with two feature lakes complete with recreation areas and the whole of the newly created land forms will be landscaped in sympathy with the surrounding topography.’

Two coal-washing plants were required for this purpose and they were duly installed on the site. We were told something of separate financial arrangements which enabled the company or one of its associates to purchase the plants, but those arrangements are not relevant for the purposes of the appeal. As will appear below, it was agreed for the purposes of the contract that the washing plants should be regarded as constructional plant which the company brought to the site for the purposes of the contract works.

The first washing plant was installed between June and December 1991 and the second between May and September 1992.

During 1993 disputes arose between the company and the contractor, and early in August 1993 the company left the site. The engineer duly certified on 6 August that the company had abandoned the contract. This gave the council certain rights under cl 63(1) of the ICE conditions (quoted below) including a

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right to use the washing plants for the purpose of completing the contract works. This the council, employing another contractor, did.

Soon afterwards, in September 1993, the appellant claimed that the company was entitled to be paid by the council for the continued use which it was making of the plants. Payment was refused and in October/November 1993 he demanded delivery up of the plants, unless the council agreed to pay a rent of £10,000 pw or to purchase the plants for a reasonable sum, being not less than £1,200,000. This too was refused, and the appellant issued proceedings on 1 February 1994, claiming an order for delivery up of the plant as the company’s property, under s 234 of the Insolvency Act 1986. After hearing full argument, Jonathan Parker J dismissed the appellant’s claim (see [1996] 4 All ER 46, [1997] Ch 23).

The issues

These can be stated in outline as follows. The council does not dispute that the washing plants were purchased by the company, presumably from the manufacturers, and initially became its property. They rely, however, on cl 53(2) of the conditions, by which all plant, goods and materials owned by the company ‘shall when on site be deemed to be the property of the employer’ ie of the council. Furthermore, they say that in the circumstances which arose when the company left the site cl 63(1) entitled them to use the plants to complete the works and also ‘at any time’ to sell them and to apply the proceeds towards whatever sums might be due from the company under the contract. The power of sale was never asserted by the appellant but its existence is relevant to the legal issues which arise. These are as follows.

(1) The council says that cl 53 had the effect of transferring legal ownership of the plants to it, at least until the contract works were complete, and therefore they were not the company’s property when the appellant made his demand for delivery up.

(2) Alternatively, cll 53 and 63 at least had the effect of creating a charge over the plants in the council’s favour, or if not a charge, then a lien based on their continued possession of the plants. In either event, they were entitled to refuse to return them to the company or to the administrator, when the demand for delivery up was made.

(3) The appellant contended in his reply that if the contract conditions created a charge in the council’s favour, then it was a floating rather than a fixed charge, and as such was void for want of registration under s 395 of the Companies Act 1985.

(Note the lien contention under (2) above was not raised before the judge and it is not referred to in his judgment.)

Judgment

The judge held, in summary, that the contract conditions did not transfer legal ownership of the plants to the council, but that they had the effect ‘of giving the employer an equitable proprietary interest in the relevant plant’ which was an interest in the nature of a charge, because of the power of sale contained in cl 63(1). The charge was not a floating charge for the purposes of the statutory registration provisions, and therefore the admitted fact of non-registration did not prevent the council from relying on cl 63(1) in accordance with its terms. The claim for delivery up therefore failed.

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The contract conditions

The relevant parts of cll 53 and 63, and of cl 54 which is relied on as affecting the construction of cl 53, are set out in extenso in the judgment ([1996] 4 All ER 46 at 49–52, [1997] Ch 23 at 28–31). Only the following need be quoted here (amendments in italics):

‘53.(1) For the purpose of this clause:—(a) the expression “Plant” shall mean any constructional plant coal-washing plant temporary works and material for temporary works but shall exclude any vehicles engaged in transporting any labour, plant or material to or from the Site …

(2) All plant, goods and materials owned by the Contractor or by any company in which the contractor has a controlling interest shall when on site be deemed to be the property of the Employer. The washing plant must be owned by the Contractor or by a company in which the Contractor has a controlling interest …

(6) No Plant (except hired Plant) goods or materials or any part thereof shall be removed from the Site without the written consent of the Engineer which consent shall not be unreasonably withheld where the same are no longer immediately required for the purposes of the completion of the Works but the Employer will permit the Contractor the exclusive use of all such Plant goods and materials in and for the completion of the Works until the occurrence of any event which gives the Employer the right to exclude the Contractor from the Site and proceed with the completion of the Works …

63.(1) If the Contractor shall become bankrupt or have a receiving order made against him … or if the Contractor shall assign the Contract without the consent in writing of the Employer first obtained or shall have an execution levied on his goods or if the Engineer shall certify … that in his opinion the Contractor … (a) has abandoned the Contract … then the employer may after giving 7 days’ notice in writing to the Contractor enter upon the Site and the Works and expel the Contractor therefrom without thereby avoiding the Contract or releasing the Contractor from any of his obligations or liabilities under the Contract or affecting the rights and powers conferred on the Employer of the Engineer by the Contract and may himself complete the Works or may employ any other contractor to complete the Works and the Employer or such other contractor may use for such completion so much of the Constructional Plant Temporary Works goods and materials which have been deemed to become the property of the Employer … may at any time sell any of the said Constructional Plant Temporary Works and unused goods and materials and apply the proceeds of sale in or towards the satisfaction of any sums due or which may become due to him from the Contractor under the contract …’

General

The issue which the judge found against the appellant, and the only issue raised by his appeal, was whether the charge created by the conditions was a fixed rather than a floating charge; he held that it was a fixed charge, and it followed that the council’s rights were unaffected by the lack of registration under s 395. Mr Wilmot-Smith QC therefore was able to present the appeal on the assumptions (1) that the council did not become owners of the plants, and (2) that the

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conditions did create some form of charge in the council’s favour. He submitted that the charge should properly be regarded as floating over such of the company’s assets as were present on the site from time to time, and that those assets included the two washing plants in the circumstances of this case, however immobile or how much like fixed assets they might appear to be. In addition, however, Mr Simon Mortimore QC, for the council, submitted by way of cross-appeal that the judge was wrong to hold that legal ownership of, or ‘the general property’ in, the plants was not transferred to the council under cl 53(2), and he added the lien contention to which I have referred above. In the result, therefore, we heard argument as to the effects of the conditions generally, including a brief historical survey of decisions starting with Beeston v Marriott (1863) 8 LT 690 which were concerned with contractual provisions of this sort.

These authorities show that for more than a century building and engineering contracts have contained clauses which provide that the property in goods and materials and in plant which the contractor brings onto the site shall pass or be ‘deemed’ or ‘considered’ to pass to the employer, at least until the works are completed. The underlying reason may well be, as was suggested by Mr Mortimore, that it is in the employer’s interests to have the plant, goods and material which are on the site free from all risk that they might be followed and seized by creditors of the contractor. Another factor, which is especially evident in the early cases (and see also, more recently, one in Re Fox, ex p Oundle and Thrapston RDC v The trustee [1948] 1 All ER 849, [1948] Ch 407, which was concerned with builder’s materials lying on the site, rather than with plant) was that materials which became part of the building as it was constructed, thereupon become the property of the owner of the building, by operation of law, by virtue of being incorporated in it (see Brown v Bateman (1867) LR 2 CP 272).

It was also in the employer’s interest, if the contractor should default or for any other reason fail to complete the works, that the same plant, goods and materials should remain on the site and be available for the employer or any other contractor whom he might introduce to complete the works to use it for that purpose.

These objects were achieved, so far as the contractual wording was concerned but subject to various legal challenges that were made, by clauses which provided that the property should pass or be deemed or considered to pass to the employer until such time as the works were complete. In Hart v Porthgain Harbour Co Ltd [1903] 1 Ch 690 at 695 Farwell J referred to the leading decision in Reeves v Barlow (1884) 12 QBD 436 and held:

‘Applying that statement here, the true view is that the materials have become the property at law of the company subject to this condition; and the condition has not been performed by reason of the default of the contractor.’

Whether the clause had this effect, however, was always a question of construction in the circumstances of the case, and in Re Keen & Keen, ex p Collins [1902] 1 KB 555 ownership was not transferred (see Butcher KC arguendo in Hart v Porthgain Harbour Co Ltd [1903] 1 Ch 690 at 694: ‘It was there decided that the clause as to materials in a building agreement did not vest the property in the owners of the land, because subsequent clauses negatived any such meaning’, whereupon he was stopped by the court).

The reason why it was necessary to decide whether the clause was effective to transfer the property, meaning legal or absolute ownership, from the contractor

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to the employer varied from case to case. Ownership might be asserted by a judgment creditor of the contractor (see Brown v Bateman) or of the employer (see Beeston v Marriott). A trustee in bankruptcy of the contractor might assert that the goods etc in question remained in the reported ownership of the contractor, even though legal ownership had been transferred, by virtue of his possession or apparent possession of the site. It was held, however, that appearances were ‘ambiguous’ in this respect (see Re Keen & Keen [1902] 1 KB 555 at 560 and Re Fox [1948] 1 All ER 849 at 855, [1948] Ch 407 at 419). And it was alleged that the contracts which separated the legal ownership from equitable interests were bills of sale which were void if not registered under the successive Bills of Sale Acts of 1854, 1878 and 1882. These further issues gave rise to much learning in the judgments to which we were referred.

They do not arise in the present case, although Mr Wilmot-Smith reserved an as yet unpleaded submission that the contract is registrable as a bill of sale.

What the authorities establish, which is relevant to the appeal, is that a contractual provision of this sort can be effective to transfer the ownership of plant, goods and materials to the employer, depending as always on the true construction of the words. Secondly, however, a ‘deeming’ provision does not necessarily have this effect.

Finally, none of the authorities has been concerned with the floating charge submission made in the present case. They do contain statements, however, of the nature of the interest, legal or equitable, which either remains with the contractor, if legal ownership passes to the employer, or is transferred to the employer, if legal ownership is undisturbed.

This case—construction

I agree with the judge and with Millett LJ that legal ownership did not pass to the council, for the reasons which they have given.

Lien

Logically, Mr Mortimore’s next submission is that the council acquired possession of the plants, coupled with a contractual power of sale under cl 63(1), which entitled them to assert a possessory lien in answer to the appellant’s demand for delivery up. He relies on Great Eastern Rly Co v Lord’s Trustee [1909] AC 109. The issue in that case, on which the House of Lords was divided, was whether the railway company had delivered the goods unconditionally to the goods owner so as to lose its carrier’s lien. The majority held that it had not done so (see [1909] AC 109 at 112, 114, and 116). The lien which it exercised, therefore, was based on its actual possession as carrier of the goods, which was not destroyed by its contractual arrangements with the receiver or by delivery up of the goods.

The present is the converse case. By cl 53(6) the company had the exclusive right to use the plants. That contractual right ended when it abandoned the site. The plants remained its property, subject to the right given to the council by cl 63(1). Unless the council was already the owner, which in my judgment it was not, it relies on the clause to justify its refusal to deliver them up. It cannot rely on either a delivery of possession or a right to possession, independently of the clause. I agree with the judgment of Millett LJ that for the reasons he gives the council cannot rely on a possessory lien.

Page 123 of [1997] 4 All ER 115

Charge

Clause 63(1) gives the council two contractual rights; first to use the plants to complete the contract, and secondly, to sell the plant ‘at any time’ and to defray the proceeds of sale against sums due to it, etc.

The former right is unaffected, in my judgment, by the requirement of registration under s 395 of the 1985 Act. The council therefore was entitled to retain the plants for the purposes described in the cl 63(1).

The power of sale, however, is a security right which does require registration if it is a floating charge. On this one issue I would disagree with the judge. In agreement with Millett LJ and for the reasons he gives I would hold that the power of sale is a floating charge over the company’s property as defined in the clause. Not having been registered, the clause is void against the administrator in that respect.

I would, however, dismiss the appeal.

MILLETT LJ. I have had the advantage of reading in draft the judgment of Evans LJ. I gratefully adopt his recital of the facts.

As appears therefrom, by the present proceedings the administrator of the company claims the delivery up of certain plant as property of the company together with damages for its wrongful retention. The council has refused delivery up in reliance on its contractual rights under the standard form of contract issued by the Institution of Civil Engineers (ICE). Clause 63(1) of this contract grants the council two distinct rights in the event of the company being expelled from the site. One is the right to retain possession of the plant and use it to complete the works without further payment to the company. The other is the right to sell plant on completion of the works as well as plant not required to complete the works and to apply the proceeds of sale towards whatever sums might be or become due from the company under the contract. The administrator contends that these rights constitute a floating charge which is void against him for want of registration under s 395 of the Companies Act 1985. The judge held that the rights in question constitute a fixed but not a floating charge and accordingly do not require registration.

In my judgment, the two rights on which the council relies are distinct rights and must be considered separately. At the date when the writ was issued the works were not complete, and accordingly the council’s right to retain possession of the plant and use it to complete the works, if valid, is sufficient to defeat the administrator’s claim in the action. The works have, however, now been completed, so that to justify its continued retention of the plant the council must rely on its power of sale. We have been asked to indicate our view whether this power is void as against the administrator, even this if not strictly necessary for the disposal of the appeal, so that future disputes can be avoided.

In my judgment the following questions arise for decision.

(1) Whether cl 53(2) of the contract has the effect of transferring the legal property in the plant to the council? If it does then (i) it was still the property of the council when delivery up was demanded; and (ii) there can be no question of the council’s rights in respect of the plant constituting a charge on its own property.

(2) If it does not, whether the council’s right to retain possession of the plant and use it to complete the works constitutes an equitable charge?

Page 124 of [1997] 4 All ER 115

(3) Whether the council’s power of sale arises by way of equitable charge or possessory lien?

(4) If either right arises by way of charge, whether the charge is a fixed or floating charge?

(5) If so, what are the consequences of the company’s failure to register it?

(1) Does cl 53(2) transfer legal property in the plant to the council?

This depends on the terms of the contract and is a pure question of construction (see Re Fox, ex p Oundle and Thrapston RDC v The trustee [1948] 1 All ER 849 at 855, [1948] Ch 407 at 419). The authorities show that it may turn on fine distinctions. Where the contract provides that plant and materials brought onto the site ‘shall be and become’ the property of the employer the words are given literal effect and the contract is treated as passing legal title to the employer (see Reeves v Barlow (1884) 12 QBD 436 at 442 and Bennett & White (Calgary) Ltd v Municipal District of Sugar City No 5 [1951] AC 786). Where, however, as in the present case the contract provides only that the plant and materials ‘shall be deemed’ or ‘shall be considered’ to be the property of the employer, the words are regarded as ambiguous. In such a case other provisions of the contract may be taken into account in order to decide whether the contract has the effect of passing the legal property in the plant and materials to the employer or whether, as the prima facie meaning of the words suggests, it does not have this effect but merely entitles the employer to act as if the property in the plant and materials had passed to him (see Brown v Bateman (1867) LR 2 CP 272, Re Winter, ex p Bolland (1878) 8 Ch D 225, Milnes v Huddersfield Corp (1883) 12 QBD 443 at 449 and Re Keen & Keen, ex p Collins [1902] 1 KB 555).

Not all the cases are consistent. In Re Weibking, ex p Ward [1902] 1 KB 713 a provision that plant and materials brought onto the site should ‘be deemed to be annexed to the freehold’ was held by Wight J to pass legal title to the employer, but the case was said in Re Fox to turn on its own particular facts; while in Hart v Porthgain Harbour Co Ltd [1903] 1 Ch 690 Farwell J seems to have thought it immaterial which form of words was used. I cannot think that this is correct. Of course the contract must be construed as a whole, but given that it is susceptible of two possible meanings the actual words of the clause relied on to pass the title must be of great importance.

In the present case there are several indicia that the legal ownership of plant and materials brought onto the site does not pass to the council. Such plant and materials are described throughout as ‘plant and materials which have been deemed to become the property’ of the council, a circumlocution which might well have been dispensed with if they had become the actual property of the council. The company is prohibited by cl 53(6) from removing plant or materials from the site without the consent of the engineer (a similar clause was said in Re Keen & Keen to be unnecessary if the plant and materials belonged to the council). Finally, cl 53(9) exempts the council from liability for loss of or injury to plant or materials brought onto the site (a provision which was also said in Re Keen & Keen to be inconsistent with the property having passed to the council).

I do not find this last consideration persuasive in view of the fact that the contract in the present case, unlike that in Re Keen & Keen, contains a revesting provision (cl 53(7)). For its part the council relies on the provisions of cl 53(6) by which the company is granted permission to use the plant to complete the work and cl 53(7) by which the plant and materials revest in the company on

Page 125 of [1997] 4 All ER 115

completion of the works or previous removal from the site. The council submits that neither provision would be necessary unless legal title had passed to the council under cl 53(2). In my judgment, there is no substance in this point. The company would need permission to make use of the plant whether legal ownership had actually passed to the council or had only been deemed to pass to it; while cl 53(7) is carefully drawn to provide for a deemed revesting, and merely ‘undeems’ that which is previously deemed.

If there were nothing more I would hold that cl 53(2) is merely a deeming provision which does not have the effect of passing legal title. But the last sentence of cl 53(2) puts the matter beyond argument. It applies the clause indiscriminately both to plant belonging to the company and to plant belonging to its controlled subsidiaries. These are not parties to the contract. In relation to plant which belongs to a subsidiary, the clause is effective in equity as a deeming provision, for the court could order specific performance of the contract by requiring the company to exercise its powers of control over the subsidiary and thus procure compliance with its own contractual obligations. But the clause cannot possibly operate at law to pass title to property owned by a company not a party to the contract.

Accordingly, I agree with the judge that cl 53(2) of the contract does not pass legal ownership in the plant to the council.

(2) Does the council’s right to retain possession of the plant and use it to complete the works constitute an equitable charge?

In my judgment the council’s right to retain possession of the plant and use it to complete the works does not constitute an equitable charge because (i) it does not give the council a proprietary interest in the plant but only rights of possession and use and (ii) it is not by way of security.

It is of the essence of a charge that a particular asset or class of assets is appropriated to the satisfaction of a debt or other obligation of the chargor or a third party, so that the chargee is entitled to look to the asset and its proceeds for the discharge of the liability. This right creates a transmissible interest in the asset. A mere right to retain possession of an asset and to make use of it for a particular purpose does not create such an interest and does not constitute a charge.

But there is an even more fundamental reason why this right of the council in the present case does not constitute a charge. This is that it does not constitute any kind of security interest, since it is not given to the council by way of security. It does not secure the performance of the contract by the company, but merely enables the council to perform the contract in its place. It does not, therefore, secure the discharge of any debt or other legal obligation of the company or of any third party, whether to complete the works or to pay damages for its failure to do so. Completion of the works by the council does not discharge either of these obligations.

This is sufficient to dispose of the administrator’s claim in the action.

(3) Does the council’s power of sale arise by way of equitable charge?

By contrast the council’s power to sell the plant and apply the proceeds in or towards discharge of whatever sums might be or become due from the company by reason of its failure to complete the works clearly is a security interest. The council contends that its rights constitute a possessory lien with a power of sale

Page 126 of [1997] 4 All ER 115

and not an equitable charge, and cites Great Eastern Rly Co v Lord’s Trustee [1909] AC 109 in support.

This proposition cannot be accepted. In the Great Eastern Rly case there was no dispute that the railway company’s power of sale was attached to its lien. The question which divided the House of Lords was whether the lien was contractual or possessory. The majority held that its carrier’s lien was not extinguished until the goods were unconditionally delivered up to the consignee and that accordingly it did not need to rely on any contractual right of possession.

There are only four kinds of consensual security known to English law: (i) pledge; (ii) contractual lien; (iii) equitable charge and (iv) mortgage. A pledge and a contractual lien both depend on the delivery of possession to the creditor. The difference between them is that in the case of a pledge the owner delivers possession to the creditor as security, whereas in the case of a lien the creditor retains possession of goods previously delivered to him for some other purpose. Neither a mortgage nor a charge depends on the delivery of possession. The difference between them is that a mortgage involves a transfer of legal or equitable ownership to the creditor, whereas an equitable charge does not.

In the present case the council’s rights in relation to the plant and materials are exclusively contractual, and are not attributable to any delivery of possession by the company. When the company brings plant and materials onto the site they remain in the possession of the company to enable it to use them in the completion of the works. There is no question of the company delivering possession at that stage, either by way of security (ie as a pledge) or otherwise (ie by way of lien). The council comes into possession of the plant and materials when it expels the company from the site leaving the plant and materials behind. But this does not amount to a voluntary delivery of possession by the company to the council. It is rather the exercise by the council of a contractual right to take possession of the plant and materials against the will of the company.

In my judgment, therefore, the council’s rights are derived from contract not possession and, in so far as they are conferred by way of security, constitute an equitable charge.

(4) Is the charge a fixed or floating charge?

In my judgment the three characteristics of a floating charge which were identified by Romer LJ in Re Yorkshire Woolcombers Association Ltd, Houldsworth v Yorkshire Woolcombers Association Ltd [1903] 2 Ch 284 at 295 are all present. There is no difficulty in regard to the first two characteristics. Plant and materials become subject to the charge as they are brought onto the site and cease to be subject to it as they are removed from the site. Accordingly, the charge is a charge on present and future assets of the company which, in the ordinary course of the business of the company, would be changing from time to time. The dispute has centred on the third characteristic. The administrator submits that, until the council takes steps under cl 63(1) to enter on the site and expel the company therefrom, the company is free to carry on its business in the ordinary way with the plant and materials on the site. The judge accepted the council’s submission that this was not so, because of the council’s absolute right under cl 53(6) to refuse to permit the company to remove from the site plant and materials immediately required to complete the works, and its qualified right to refuse permission for the removal of plant and materials not immediately required for this purpose provided only that it acts reasonably. I am unable to agree with him.

Page 127 of [1997] 4 All ER 115

The judge held that it is of the essence of a floating charge that until the charge crystallises the chargor should retain an unfettered freedom to carry on his business in the ordinary way. He relied for this purpose on two passages, one in the judgment of Vaughan Williams LJ in the Yorkshire Woolcombers case (at 294) and the other in the judgment of Slade J in Re Bond Worth [1979] 3 All ER 919 at 953, [1980] Ch 228 at 266. The first passage reads as follows:

‘If at the will of the mortgagor he can dispose of [the asset] and prevent its being any longer a security, although something else may be substituted more or less for it, that is not a “specific security”.’ (My emphasis.)

The second passage reads:

‘It is in my judgment quite incompatible with the existence of an effective trust by way of specific charge in equity over specific assets that the alleged trustee should be free to use them as he pleases for his own business in the course of his own business.’ (My emphasis.)

But with respect the converse does not follow. The chargor’s unfettered freedom to deal with the assets in the ordinary course of his business free from the charge is obviously inconsistent with the nature of a fixed charge; but it does not follow that his unfettered freedom to deal with the charged assets is essential to the existence of a floating charge. It plainly is not, for any well-drawn floating charge prohibits the chargor from creating further charges having priority to the floating charge; and a prohibition against factoring debts is not sufficient to convert what would otherwise be a floating charge on book debts into a fixed charge (see Re Brightlife Ltd [1986] 3 All ER 673 at 676, [1987] Ch 200 at 209 per Hoffmann J).

The essence of a floating charge is that it is a charge, not on any particular asset, but on a fluctuating body of assets which remain under the management and control of the chargor, and which the chargor has the right to withdraw from the security despite the existence of the charge. The essence of a fixed charge is that the charge is on a particular asset or class of assets which the chargor cannot deal with free from the charge without the consent of the chargee. The question is not whether the chargor has complete freedom to carry on his business as he chooses, but whether the chargee is in control of the charged assets.

The business of the company was to carry out works of civil engineering. In the ordinary course of that business it entered into the contract with the council. In bringing plant and materials onto the site and carrying out the works for the council it was carrying on the ordinary course of its business. It is not to be supposed that its business was confined to the performance of its contract with the council; and if it wished to remove plant or materials from the site and deploy them elsewhere this too would be in the ordinary course of its business. In forbidding the company from removing from the site plant or materials required, whether immediately or not, for the completion of the works, the council was, therefore, placing a restriction on the way in which the company carried on business.

Thus far I agree with the judge. Where I part company from him is that I do not regard this restriction as having any relation to the council’s security. The council’s purpose in imposing the restriction was not to protect its security but to ensure that the company would give proper priority to the completion of the works. A similar restriction would have been appropriate even if the council had not taken any security interest.

Page 128 of [1997] 4 All ER 115

In a case where the plant or materials are not immediately required, the engineer’s consent is not to be unreasonably withheld. As Evans LJ pointed out in argument, the fact that the decision is left to the engineer shows that it is to be made on operational grounds. If completion of the works will not be prejudiced or delayed by the removal of an item of plant or materials, then consent to its removal must be given; consent cannot be withheld on the ground that the remaining plant and materials would be insufficient security if the company were in default.

In the course of argument it was pointed out that the council must give seven days’ notice before expelling the company from the site, and it was suggested that once such notice has been given and while it has not yet expired the engineer may properly refuse his consent on the ground that the remaining security is insufficient. I do not agree with this; but even if I did it would make no difference. If the council’s right to prevent removal on security and non-operational grounds arises only on notice of expulsion, then in my judgment the effect of giving such notice is to crystallise the charge.

Accordingly, and in disagreement with the judge, I hold the charge to be a floating charge.

What are the consequences of the want of registration?

Of all the contractual rights which the council enjoys only one, the power of sale, constitutes a charge of a kind which is registrable under s 395 of 1985 Act. The section provides that the failure to register a charge makes the charge (that is to say the registrable charge) void as a security against a liquidator or administrator of the company. The effect of this is to entitle the liquidator or administrator to deal with the company’s assets free from the security created by the charge in question.

In my judgment, therefore, the failure to register the charge renders the security created by the power of sale void as against the administrator, but does not affect any other right of the council which is not a security and which does not require registration. In particular, it does not invalidate the council’s contractual right to retain possession of plant and materials and use them to complete the works. But after the completion of the works the council’s right to continue in possession is referable to a security which is void against the administrator and cannot prevail against him.

In reaching this conclusion I have derived much assistance from the illuminating judgment of Brinsden J in Young v Matthew Hall Mechanical and Electrical Engineers Pty Ltd (1988) 13 ACLR 399 with which I am in full agreement.

Conclusion

I would dismiss the appeal.

SIR RALPH GIBSON. I agree with both judgments.

Appeal dismissed. Leave to appeal to the House of Lords refused.

L I Zysman Esq  Barrister.

Bannister v SGB plc and others

and other cases

[1997] 4 All ER 129

Categories:        CIVIL PROCEDURE        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        SAVILLE, BROOKE AND WALLER LJJ        

Hearing Date(s):        16–18, 21, 25 APRIL 1997        

County court – Practice – Striking out – Automatic directions prescribing timetable for action – Automatic strike-out sanction for failure to apply for hearing date within prescribed time – Actions to which automatic directions apply – Computations of time – Application of strike-out rule to cases excepted from automatic directions – Fixing hearing date – Ouster of automatic directions – Effect of ouster – Effect of appeals – Principles for reinstatement of action – Fresh proceedings after automatic strike-out – Principles to be applied – CCR Ord 17, r 11.

Order 17, r 11 of the County Court Rules makes provision for an action to be automatically struck out if there is a failure to apply for a hearing date within a prescribed time after the date when pleadings are deemed to be closed (ie 14 days after the delivery of a defence or 28 days where there is a counterclaim). However, the scheme of Ord 17 does not permit two separate regimes to run side by side in relation to the same plaint. Accordingly, if a plaint contains a cause of action of a type listed in r 11(1), automatic directions do not apply to that action and specific manual directions will have to be sought even though the cause of action exempted from the rule relates only to a small part of the total claim. Furthermore, the automatic directions do not apply to third party or similar proceedings or to counterclaims (see p 137 h to p 138 a e to j and p 139 c j, post).

Computation of the time when a defence is delivered is governed by the general law contained in s 7a of the Interpretation Act 1978 and the practice directionb relating to postal service. Thus the court should adopt the actual date when the defence is delivered to the court office by post when this date is known, since this will represent ‘proof to the contrary’ of the date when delivery is effected, but if the judge finds that the contrary has been proved the Court of Appeal will not interfere with his finding unless it is clearly wrong (see p 140 j to p 141 e, post).

For these purposes, the defence in Form N9 or Form N9B, however brief, constitutes a defence, provided it makes it clear that the claim is disputed, and when more than one defendant has been joined or served with the original proceedings, the trigger date is to be calculated from the date of delivery of the last defence to be delivered by the defendant who was originally joined in the proceedings. However, if one or more of the original defendants never delivers a defence, there is no trigger date in that action. Where an action is transferred from the High Court to the county court, in the absence of any express directions

Page 130 of [1997] 4 All ER 129

to the contrary effect, the trigger date occurs automatically 14 days after the date of transfer (see p 143 f to h, p 144 f g j to p 145 b f g and p 147 h, post).

Where automatic directions have started to apply they may nevertheless be ousted by new directions which are repugnant to the concept contained in r 11(3)(d) or cannot co-exist with the automatic directions, eg directions ordering listing for trial on the joint application of the parties. Furthermore, if the automatic directions are disapplied to any part of the claim, they will cease to apply to the whole action. However, once the automatic directions have been ousted, they will not reapply automatically (see p 155 f to j, post).

In deciding whether to exercise its discretion under Ord 13, r 4c to reinstate proceedings automatically struck out under Ord 17, r 11, the court must be satisfied: (i) that the plaintiff, apart from his failure to request a date for trial, is innocent of any significant failure to conduct the case with expedition (or reasonable diligence) between the trigger date and the guillotine date, having regard to the particular features of the case; (ii) that in all the circumstances his failure to apply for a date is excusable and should be forgiven, eg where he was genuinely and reasonably misled by the court, the defendants or others, although not from his own internal problems such as a change of solicitors; and (iii) that the balance of justice indicates that the action should be reinstated. Each case depends on its own facts. The assessment of the weight or otherwise to be given to the circumstances of the case is a matter for the court concerned in the exercise of its discretion and the Court of Appeal will not interfere with the exercise of the discretion unless the decision is so plainly wrong that it is clear that the court must have failed to apply the general guidelines in the light of the object of the rule. However, where the court reinstates an action in which there is more than one defendant, the action is not reinstated against any defendant who has not been given notice of the action to reinstate (see p 163 h to p 164 a f g, p 165 e and p 167 d e, post).

Peters v Winfield, Churchill v Forest of Dean DC [1996] 1 WLR 604, Downer & Downer Ltd v Brough, Protim Services Ltd v Newcomb [1996] 1 WLR 575 and Rastin v British Steel plc [1994] 2 All ER 641 applied.

The court issued further guidelines for resolving problems occurring in the interpretation of automatic directions.

Notes

For pre-trial review, see 10 Halsbury’s Laws (4th edn) paras 235–238.

Cases referred to in judgment

AB v John Wyeth & Bro Ltd (1997) 8 Med LR 57, CA; affg (1996) 7 Med LR 267.

Allen v Sir Alfred McAlpine & Sons Ltd, Bostic v Bermondsey and Southwark Group Hospital Management Committee, Sternberg v Hammond Group Hospital Management Committee [1968] 1 All ER 543, [1968] 2 QB 229, [1968] 2 WLR 366, CA.

Ashworth v McKay Foods Ltd [1996] 1 All ER 705, [1996] 1 WLR 542, CA.

Birkett v James [1977] 2 All ER 801, [1978] AC 297, [1977] 3 WLR 38, HL.

Page 131 of [1997] 4 All ER 129

Carr v Northern Clubs Federation Brewery Ltd (1996) Times, 18 January, [1995] CA Transcript 1738.

Costellow v Somerset CC [1993] 1 All ER 952, [1993] 1 WLR 256, CA.

David v Howe (1884) 27 Ch D 533.

Downer & Downer Ltd v Brough, Protim Services Ltd v Newcomb [1996] 1 WLR 575, CA.

Ever v WT Partnership Construction Management (1997) Times, 9 January, [1996] CA Transcript 1831.

Ferreira v American Embassy Employees Association [1996] 1 WLR 536, CA.

G v G [1985] 2 All ER 225, [1985] 1 WLR 647, HL.

Gardner v Southwark London BC (No 2), King v East Cambridgeshire CC, Thompson v Wickens Building Group Ltd [1996] 1 WLR 561, CA.

Gayle v House of Copiers plc [1996] CA Transcript 497.

Gleed v Milton Keynes BC [1995] CA Transcript 227.

Gomes v Clark (1997) Times, 27 March, [1997] CA Transcript 365.

Heer v Tutton [1995] 4 All ER 547, [1995] 1 WLR 1336, CA.

Hodgson v Armstrong [1967] 1 All ER 307, [1967] 2 QB 299, [1967] 2 WLR 311, CA.

Hytec Information Systems Ltd v Coventry City Council (1996) Times, 31 December, [1995] CA Transcript 1897.

Jokai Tea Holdings Ltd, Re [1993] 1 All ER 630, [1992] 1 WLR 1196, CA.

Perry v Wong, Sampson v Moon, Jones v Roe Shopfitting Ltd [1997] 1 WLR 381, CA.

Peters v Winfield, Churchill v Forest of Dean DC [1996] 1 WLR 604, CA.

Rastin v British Steel plc [1994] 2 All ER 641, [1994] 1 WLR 732, CA.

Samuels v John Laing Construction Ltd [1996] CA Transcript 1867.

Tanglecroft Ltd v The Hemdale Group Ltd [1975] 3 All ER 599, [1975] 1 WLR 1544, CA.

Tarry v Humberclyde Finance Ltd [1996] 1 WLR 611, CA.

Welply v Buhl (1878) 3 QBD 80, DC; affd (1878) 3 QBD 253, CA.

Whitehead v Avon CC (1997) Times, 17 March, [1997] CA Transcript 138.

Williams v Globe Coaches (a firm) [1996] 1 WLR 553, CA.

Cases also cited or referred to

Birch v Tesco Stores Ltd [1995] CA Transcript 547.

Cashmore v Blue Circle Plumbing Fixtures Ltd (t/a Qualcast Bathrooms) [1996] CA Transcript 1083.

Chekalow Ltd v Naturestone [1993] CA Transcript 541.

Computacenter Maintenance Ltd v Intersolv plc [1995] CA Transcript 806.

Deadman v Rumbelows Ltd [1997] CA Transcript 50.

Dowse v Kapell [1996] CA Transcript 1833.

Gardner v Southwark London BC (Note) [1996] 1 WLR 571, CA.

Goodman v Ryvita Co Ltd [1995] CA Transcript 628.

Hackwell v Blue Arrow plc (t/a Extra Staff) (1996) Times, 18 January, [1995] CA Transcript 1675.

Harding v James McNaughton Paper Group Ltd [1994] CA Transcript 1643.

Hawkes v Treasures and Rivers Wyatt [1994] CA Transcript 1345.

Hoskins v Wiggins Teape (UK) Ltd [1994] PIQR P377.

Kramer v Landuyal [1995] CA Transcript 708.

Lightfoot v National Westminster Bank plc [1996] 1 WLR 583, CA.

Meigh v British Steel Corp plc [1994] CA Transcript 1468.

Morris & Lewis (Leeds) Ltd v Modrec Ltd (unreported, 12 March 1996), CA.

Page 132 of [1997] 4 All ER 129

Mortimer (Angela) plc (t/a Pathfinder) v Regent Productions Ltd (1995) Times, 22 December.

Moyle v Comr of Police of the Metropolis [1996] CA Transcript 1830.

Noviello v ELE International Ltd [1997] CA Transcript 265.

Otto v Keys [1996] CA Transcript 1814.

Pargeter v Baylis [1996] CA Transcript 325.

Parrott v Jackson [1996] CA Transcript 136.

Reville v Wright [1996] 1 WLR 592, CA.

Rooney v National Solus Sites Ltd [1997] CA Transcript 47.

Russell v Dennis [1995] CA Transcript 1676.

Sadiq v London Buses Ltd [1997] CA Transcript 264.

Segaram v Grant [1996] CA Transcript 1878.

Smith v Cosworth Casting Processes Ltd [1997] CA Transcript 283.

Vallely v British Railways Board [1994] CA Transcript 1580.

Watkins v Toms [1996] CA Transcript 1148.

Webster v Ellison Circlips Group Ltd [1995] 4 All ER 556, [1995] 1 WLR 1447, CA.

Woodall v British Railways Board [1996] CA Transcript 772.

Woodford v Northamptonshire CC [1995] CA Transcript 205.

Interlocutory appeals and applications

The court considered 19 appeals and 2 applications, all of which raised issues as to the proper interpretation of CCR Ord 17, r 11:

(1) Bannister v SGB plc, heard in the Kingston upon Hull County Court on 22 August 1995 by Judge Fricker QC;

(2) Boustead v British Road Services Ltd, heard in the Newcastle upon Tyne County Court on 12 July 1996 by Judge Crawford QC;

(3) Burrows v Wigan Metropolitan BC, heard in the Wigan County Court on 6 January 1997 by Judge Urquart;

(4) Eagle Star Insurance Co Ltd v Karasiewicz, heard in the Brentford County Court on 13 June 1995 by Judge Oppenheimer;

(5) Grafton v Ballard, heard in the Romford County Court on 26 April 1994 by Judge Hutching;

(6) Harding v British Airports Authority plc, heard in the Uxbridge County Court on 12 April 1995 by Judge Elystan Morgan;

(7) Hume (t/a Benco & Son) v Anderton, heard in the Southampton County Court on 4 August 1995 by Judge Rudd;

(8) Kearns v Effluent Services Ltd, heard in the Liverpool County Court on 4 August 1995 by Judge Marshall Evans QC;

(9) Leach v Wade Heath & Co, heard in the Stoke on Trent County Court on 28 April 1995 by Judge Taylor;

(10) Lee v Hampshire CC, heard in the Portsmouth County Court on 7 November 1995 by Judge Shawcross;

(11) Lloyds Bank plc v Gow, heard in the Slough County Court on 8 June 1995 by Judge Hague QC;

(12) Loake v Chief Constable of the Norfolk Constabulary, heard in the Bedford County Court on 20 October 1995 by Mr Recorder Akast;

(13) Meon Valley Engineering Ltd v Reinforced Plastic Products Ltd, heard in the Bournemouth County Court on 22 January 1996 by Judge Galpin;

(14) Moorlite Electrical Ltd v Cripps, heard in Mayor’s and City of London County Court on 20 July 1995 by Judge Simpson;

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(15) National Westminster Bank plc v Hurine, heard in the Chester County Court on 9 March 1995 by Deputy Circuit Judge Roy Woolley;

(16) Norman v Jewson Ltd, heard in the Cambridgeshire County Court on 3 October 1995 by Judge Mellor;

(17) Pannell v Tesco plc, heard in the Brighton County Court on 7 June 1995 by Judge Viner;

(18) Shaw v Translink Joint Venture, heard in the Folkestone County Court on 28 April 1995 by Judge Ellison Nash and on 10 August 1995 by Judge Peppitt QC;

(19) Singh v Joshi, heard in the Willesden County Court on 8 July 1996 by Judge Krikler;

(20) Smith v Bovis Construction Ltd, heard in the Uxbridge County Court on 6 March 1995 by Judge Henson;

(21) Utting v McMurdie, heard in the Brentford County Court on 21 November 1996 by Judge Oppenheimer.

Timothy Clayson (instructed by Myer Wolff & Manley, Hull) for Bannister.

Patrick Limb (instructed by Whitfield Hallam Goodall, Dewsbury) for SGB plc.

Toby Wynn (instructed by Crutes, Newcastle upon Tyne) for British Road Services Ltd.

Bruce McIntyre (instructed by Allan Henderson Beecham & Peacock, Newcastle upon Tyne) for Boustead.

Paul Higgins (instructed by Peter Rickson & Partners, Manchester) for Burrows.

Wigan Metropolitan BC was not represented.

Geoffrey Mott (instructed by J R Jones) for Karasiewicz.

Michael Buckpitt (instructed by Bretherton Price Elgoods, Cheltenham) for Eagle Star.

Matthew Jackson (instructed by Budd Martin Burrett, Chelmsford) for Ballard.

Nicholas Stanton (instructed by Coleman Tilley Tarrant Sutton, Kingston upon Thames) for Grafton.

Clifford Payton (instructed by Sohal & Co) for Harding.

Simon Wheatley (instructed by Vizards) for British Airports Authority plc.

John Lofthouse (instructed by Bolitho Way, Portsmouth) for Hume.

Paul McCormick (instructed by Anderton & Co, Portsmouth) for Anderton.

Mark Turner (instructed by Daniels, Macclesfield) for Effluent Services Ltd.

Simon Holder (instructed by Paul Rooney & Co, Liverpool) for Kearns.

Edwin Glasgow QC, Neil Thompson and Sam Grodzinski (instructed by Grindeys, Stoke on Trent) for Leach.

David Stockdale QC (instructed by T H M Tinsdills, Stoke on Trent) for Wade Heath & Co Ltd.

Roderick Denyer QC and Glyn Edwards (instructed by Warner Goodman & Streat, Fareham) for Lee.

Derek Marshall (instructed by Paris Smith & Randall, Southampton) for Hampshire CC.

Adam Weitzman (instructed by Barrett & Thomson, Slough) for Gow.

Martin Hutchings (instructed by Clarks, Reading) for Lloyds Bank plc.

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Fiona Barton (instructed by Eversheds, Norwich and Heald Nickinson, Milton Keynes respectively) for the Chief Constable of the Norfolk Constabulary and the second defendant.

Jamie de Burgos (instructed by Gareth Woodfine & Partners, Bedford) for Loake.

Gary Self (instructed by Paris Smith & Randall, Southampton) for Reinforced Plastic Products Ltd.

Richard Egleton (instructed by Keeping & Co, Alton) for Meon Alley Engineering Ltd.

Alan Saggerson (instructed by Mills & Reeve, Cambridge) for Cripps.

Edwin Glasgow QC and Sam Grodzinski (instructed by Norrie Waite & Co, Sheffield) for Moorlite Electrical Ltd.

Mark Le Brocq (instructed by Fox Hayes, Leeds) for Hurine.

Geoffrey Pass (instructed by Slater Heelis, Manchester) for National Westminster Bank plc.

Roderick Noble (instructed by Shoosmiths & Harrison, Northampton) for Jewson Ltd.

Michael Yelton (instructed by Leeds Day, St Ives) for Norman.

John Denniss (instructed by Plumridge & Howell, Hove) for Pannell.

Stephen Shaw (instructed by Bunkers, Hove) for Tesco plc.

Gaurang Naik (instructed by Thompsons, Ilford) for Shaw.

James Laughland (instructed by Kennedys, Brentwood) for Translink Joint Venture.

Stephen Boyd (instructed by Louis Glatt & Co) for Singh.

Ian Croxford QC and Richard Ground (instructed by S D Rosser & Co) for Joshi.

James Bell (instructed by Greenwoods) for Bovis Construction Ltd.

Simon Edwards (instructed by Iliffes Booth Bennett, Uxbridge) for Smith.

Monty Palfrey (instructed by Feldman Nicholls & Co) for Utting.

The defendants did not appear.

Cur adv vult

25 April 1997. The following judgmentd of the court was delivered.

SAVILLE LJ.

PREFACE

1  This is the judgment of the court to which all three members of the court have contributed equally. As we will explain, we have chosen these 19 appeals and 2 applications out of more than 100 appeals and applications which were awaiting disposal by the court in March of this year, in order to give us the opportunity of dealing with a very large number of unresolved issues on the proper interpretation of CCR Ord 17, r 11. We are also using the occasion to restate the existing law on this topic in a single judgment. Such is the scale of the difficulties that have been confronting the lower courts that we have asked that a copy of this judgment should be sent immediately to every county court in

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England and Wales (for distribution to the judges who sit at that court), as well as to all the parties in all the appeals and applications awaiting decisions by this court. The text of this judgment is to be made available immediately on FELIX, the judges’ electronic bulletin board and on the Internet (website http://www.open.govuk/lcd/lcdhome.htm). If this country was in the same happy position as Australia, where the administration of the law is benefiting greatly from the pioneering enterprise of the Australasian Legal Information Institute (AUSTLII), we would have been able to make this judgment immediately available in a very convenient electronic form to every judge and practitioner in the country without the burdensome costs that the distribution of large numbers of hard copies of the judgment will necessarily impose on public funds.

2  In this judgment we will be setting out the principles of law to be applied to problems arising under Ord 17, r 11 in the main text of the judgment. We will then apply these principles to the 21 cases we have to decide.

INTRODUCTION

1.1  The title to CCR Ord 17, r 11 is ‘Automatic Directions’. The rule sets out the steps which are to be taken to progress an action to trial. It also contains a sanction. The action will be automatically struck out if there is a failure to apply for a day for the hearing within the time allowed. The object of the rule is to set out the steps that must be taken within a prescribed timetable so that actions can progress to trial without undue delay or the need to incur the expense of making applications to the court. The object of the sanction is to reinforce the rule by providing an incentive to claimants to prosecute their claims with reasonable speed. In other words the purpose of the rule and the sanction is to discourage the delays which have bedevilled much county court litigation in the past.

1.2  The evils created by delay in the conduct of litigation were highlighted in 1988 by the report of the Civil Justice Review body, which followed three years of painstaking consultation. The review body seems never to have contemplated the creation of a blunderbuss remedy for these evils, which the automatic strike-out sanction represents. Its recommendations were designed to strengthen the powers of the court, and to increase the resources available to the court, including the provision of appropriate technology, so that it might make suitably tailored orders that would enable it maintain effective control over the timetable of an action. Such orders might, of course, include timetables in a standard form, and they might be made effective by the existence of remedial sanctions which have been carefully developed over the years, to which we refer below.

1.3  The introduction of the automatic strike-out sanction has led to a torrent of new litigation. This litigation has been devoted to two questions. The first involves an inquiry whether the action has indeed been automatically struck out. If the answer is Yes, the second invites the court to consider whether it should be reinstated. This is a species of what the former Master of the Rolls (Bingham MR) has described as ‘satellite litigation’. By this phrase he was referring to proceedings which are not concerned with resolving the real dispute between the parties, but with ancillary questions.

1.4  Although the introduction of the rule will unquestionably have had a salutary effect on the working habits of dilatory litigators, the spawning of all this satellite litigation is in total conflict with the original purposes of the rule. Actions have been delayed, sometimes for years, while these questions have been debated through the courts, at great expense to the parties, or to their insurers, or to the taxpayer through the legal aid fund. The number of Court of Appeal

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decisions alone runs into dozens, and as we have already said, in March of this year there were still over 100 appeals or applications for leave to appeal awaiting consideration by this court. In short the courts, including the Court of Appeal, have been flooded with extra work which has had the effect of diverting their limited resources from the determination of mainstream litigation. Judge Hague QC spoke for hundreds of judges and district judges up and down the country when he said in one of the appeals before us: ‘The application before me today is yet again concerned with the ill-considered, badly drafted and much-litigated CCR Ord 17, r 11.’

1.5  During the course of the present exercise we have identified more than 30 points of general application which still remain unresolved over six years after the introduction of the new automatic sanction. This lamentable history surely provides an object lesson of the reasons why draconian new rules should not be introduced into litigation practice without being first submitted to a widespread and appropriately critical consultation process.

1.6  There is no doubt that the rule requires extensive revision and a new draft is in the course of preparation. This will not, however, help the unfortunate parties in proceedings where such questions have already arisen. The court has therefore decided to bring together a large number of these outstanding appeals and applications for hearing at the same time. Our purpose is to resolve outstanding problems, and also to provide in a single judgment a comprehensive restatement of existing authority. It should then be unnecessary in future to refer to any earlier authorities on this topic. We hope that the adoption of this strategy will bring some order to the chaos which exists at present, and that the guidance we will be giving may help to avoid, or at any rate to reduce, the recurrence of satellite litigation in this field.

THE EXISTING POWERS TO STRIKE OUT AN ACTION

2.1  Long before Ord 17, r 11(9) was included in the County Court Rules, both the High Court and the county court possessed a residual power to strike actions out in certain circumstances before they came to trial. In the High Court the nature and extent of this jurisdiction has been identified and explained on a case by case basis. One line of authority, exemplified by such decisions as Allen v Sir Alfred McAlpine & Sons Ltd, Bostic v Bermondsey and Southwark Group Hospital Management Committee, Sternberg v Hammond Group Hospital Management Committee [1968] 1 All ER 543, [1968] 2 QB 229 and Birkett v James [1977] 2 All ER 801, [1978] AC 297, is concerned with situations in which a plaintiff’s delay has been both inordinate and inexcusable, and where the defendant invites the court, usually after the end of the primary limitation period, to strike the action out for want of prosecution. A second line of authority, recently exemplified by cases like Re Jokai Tea Holdings Ltd [1993] 1 All ER 630, [1992] 1 WLR 1196 and Costellow v Somerset CC [1993] 1 All ER 952, [1993] 1 WLR 256, is concerned with cases where a party breaches orders made by the court: ultimately an order is made to the effect that if he does not comply with the court’s order on this last occasion, his action, or his pleadings, will be struck out. A recent, much more unusual example of the exercise of this jurisdiction may be seen in AB v John Wyeth & Bro Ltd (1997) 8 Med LR 57, when this court upheld Ian Kennedy J’s decision to strike out the remnants of the ill-starred Benzodiazepine group litigation because its further continuance would represent an abuse of the court’s processes.

2.2  In Hytec Information Systems Ltd v Coventry City Council (1996) Times, 31 December Lord Woolf MR said that the judgment of Ward LJ should be regarded

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as stating the general guidance normally to be applied in the second type of case, subject always to the qualification that each case has to be decided on its own facts. Ward LJ had encapsulated his understanding of the philosophy underlying the proper approach to a strike-out in these terms:

1. An ‘unless’ order was an order of last resort, not made unless there was a history of failure to comply with other orders. It was a party’s last chance to put his case in order. 2. Because it was the last chance, a failure to comply would ordinarily result in the sanction being imposed. 3. That sanction was a necessary forensic weapon which the broader interests of the administration of justice required to be deployed unless the most compelling arguments were advanced to exonerate the failure. 4. It seemed axiomatic that if a party intentionally or deliberately flouted the order he could expect no mercy. 5. A sufficient exoneration would almost invariably require that he satisfied the court that something beyond his control had caused the failure. 6. The judge would exercise his discretion whether to excuse the failure in the circumstances of each case on its own merits, at the core of which was service to justice. 7. The interests of justice required that justice be shown to the injured party for procedural inefficiencies causing the twin scourges of delay and wasted costs. The public interest in the administration of justice to contain those blights also weighed heavily. Any injustice to the defaulting party, although never to be ignored, came a long way behind the other two.

2.3  In the county court, the equivalent jurisdiction is codified in Ord 13, r 2(2). It is to be exercised in accordance with the same principles, as the notes to that rule in The County Court Practice make clear.

THE NEW AUTOMATIC DIRECTIONS (INCLUDING A STRIKE-OUT SANCTION): THE ACTIONS TO WHICH THEY APPLY

3.1  The concept of automatic directions was first introduced in the county court in February 1990 (see r 13 of the County Court (Amendment No 4) Rules 1989, SI 1989/2426). At that time they applied only to personal injuries actions, and the new rule was modelled on the comparable provisions in RSC Ord 25, r 8, which had been in force in the High Court for about ten years. The new Ord 17, r 11 which introduced this limited regime for automatic directions prescribed a timetable for the action, but did not include any automatic strike-out provisions.

3.2  Eight months later the ambit of automatic directions was greatly enlarged when r 14 of the County Court (Amendment No 3) Rules 1990, SI 1990/1764, came into force on 1 October 1990. The newly substituted Ord 17, r 11 extended the scope of automatic directions to all default or fixed date actions except for the 17 types of action or other proceedings originally listed in r 11(1). That list, with one omission and one addition, is still the effective list today. It was this rule which introduced the automatic strike-out sanction, an animal not previously encountered in English litigation practice.

3.3  The new rule applies to all actions commenced in the county court on and after 1 October 1990 and to all actions transferred from the High Court to the county court provided that they, too, were commenced in the High Court on or after 1 October 1990 and transferred to the county court on or after 1 July 1991 (see County Court (Amendment No 3) Rules 1990 and County Court (Amendment No 3) Rules 1991, SI 1991/1328). It does not apply, however, to

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actions excluded from the operation of the rule by Ord 17, r 11(1), and the nature and scope of this exception have given rise to difficulties.

3.4  As we have said, the rule applies to any default or fixed date action except those contained in the list in r 11(1). In this context the draftsman of the new rule did not refer to ‘causes of action’. He referred to ‘actions’ which were excepted from the provisions of the rule, and disputes have now arisen over the status of an action which contains one cause of action which is listed in the list of exceptions and one or more other causes of action which are not, or whether the answer is different if the excepted cause of action is pleaded against one defendant alone. A typical example is a landlord’s action for possession which also includes claims for rent, mesne profits, damages for breach of covenant and injunctive relief, and might additionally include a claim against another defendant founded on a guarantee. Is this an action for the recovery of land (r 11(1)(i)) which is exempted from automatic directions, or are all the causes of action other than the claim for possession subject to the new automatic directions regime?

3.5  Section 147 of the County Courts Act 1984 defines the word ‘action’ as meaning, unless the context otherwise requires, ‘any proceedings in a county court which may be commenced as prescribed by plaint’. Order 5, r 1 provides that a plaintiff, subject to r 3, ‘may in one action claim relief against the same defendant in respect of more than one cause of action’ if one of the conditions prescribed in r 1 is fulfilled. Rule 3 provides that if it appears to the court that the joinder of two or more causes of action ‘may embarrass or delay the trial or is otherwise inconvenient, the court may order separate trials or make such other order as may be expedient’.

3.6  As we have said, the purpose of automatic directions is to prescribe the timetable of events leading up to the eventual trial, so that in theory the parties may arrive at the trial without having to seek any interlocutory directions from the court. In our judgment the scheme of Ord 17 does not permit two separate regimes to run side by side in relation to the same plaint. Either there is an automatic directions regime under r 11, or there is a regime (which we will describe as a ‘manual directions’ regime) in which specific directions will have to be sought through the arrangements for pre-trial review prescribed in rr 1 to 10. If for any reason one or other of the parties want to have a different directions regime in a hybrid action in relation to those causes of action which would usually be subject to r 11, then it is always open to them to seek a direction for a separate trial and for pre-trial directions which are appropriate for that separate trial, as envisaged by Ord 5, r 3.

3.7  It follows, in our judgment, that if a plaint contains a cause of action of a type listed in r 11(1), even if that cause of action relates to one defendant alone, automatic directions do not apply to that action, and specific manual directions will have to be sought. This principle applies even if the cause of action exempted from the rule only relates to a small part of the total claim.

3.8  Thus automatic directions do not apply to an action which contains a cause of action arising out of a regulated consumer credit agreement (r 11(1)(d)). Nor do they apply to an action which includes a cause of action for the recovery of land, even if the plaint includes an action on a guarantee (r 11(1)(i)): nor to an action which includes at least one cause of action of a kind mentioned in s 66(3) of the County Courts Act 1984 (r 11(1)(h)).

3.9  It was suggested in argument that an action which includes a claim in respect of false imprisonment is not ‘an action of a kind mentioned in section 66(3) of the Act (trial by jury)’ within the meaning of Ord 17, r 11(1)(h) unless and

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until the court directs trial by jury. This in our judgment is not the correct way to interpret that sub-paragraph. Automatic directions either apply to an action or to a set of proceedings from the close of pleadings or they do not, and in our judgment the addition of the word ‘trial by jury’ in that subrule is purely descriptive of the type of claims which are found in s 66(3) of the Act. They remain actions of a kind mentioned in that subsection even if the court ultimately decides not to direct jury trial in the circumstances described at the end of the subsection. Similarly, if an action excluded from the operation of r 11 is consolidated with an action which is not, automatic directions will cease to apply to the latter action from the date of consolidation. The same principle will apply where a plaintiff combines in a single plaint a cause of action against one defendant which is excepted from the operation of the rule with a cause of action against another which is not.

3.10  Automatic directions do not apply, either, to ‘an action on a third party notice or similar proceedings under Order 12’ (Ord 17, r 11(1)(p)). Although the use of the word ‘action’ in this context seems strange (see s 147(1) of the County Courts Act 1984, above), the scope of the exception is tolerably clear. Third party or similar proceedings are parasitic on the original action, and require manual directions, to be shaped to the requirements of the timetable in the main action. The third party proceedings would, for example, continue if the main action was struck out. Such directions will customarily be given when the court grants leave to issue such proceedings (see Ord 12, r 1(3)). Alternatively, if the third party notice is issued without leave before the pleadings are deemed to be closed in an action to which Ord 17, r 11 applies (see Ord 12, r 1(2)), the appropriate directions will be given at the pre-trial review required by Ord 12, r 1(5). The plaintiff must remember that automatic directions will continue to apply to the main action, unless these are overridden by new manual directions, and in a case of any complexity the demands of sensible case management may dictate that a composite manual directions order, omitting the strike-out sanction, should be made in relation to all the proceedings in the action, whether under Ord 12 or otherwise. One of the present appeals demonstrates the untoward results that may occur if a plaintiff overlooks the way in which automatic directions will continue to operate strictly in relation to the main action in cases involving a third party.

3.11  The status of a counterclaim requires separate mention. In a case in which a counterclaim is delivered the pleadings are deemed to be closed 28 days, not 14 days, after the delivery of a defence (see Ord 17, r 11(1)(a)). The scope of the automatic directions contained in Ord 17, r 11(3) to (8) will of course cover the issues raised in the counterclaim, and any pleadings consequential on the counterclaim, in addition to the issues covered in the main pleadings. Rule 11(3)(d), however, makes it clear that it is for the plaintiff to request a date for hearing within six months. There is no comparable obligation placed on the defendant even though he may be in some cases the effective plaintiff by reason of the scale of the counterclaim he is bringing in comparison to the plaintiff’s claim. In the same way, r 11(9) imposes the automatic strike-out sanction on the plaintiff and not on a counterclaiming defendant. If the plaintiff’s claim is indeed struck out under r 11(9), the counterclaim will not be struck out at the same time (see Ord 21, r 4(2)). In such a case, therefore, the plaintiff must be astute to remember his continuing obligation to request a hearing date under the automatic directions regime even if it is the counterclaim whose consideration is delaying the parties’ preparations for trial.

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3.12  We should add that because r 11 does not apply to counterclaims, it seems to us that a counterclaim can be in no different position from the other claims excluded under r 11(1). We therefore do not consider that it is even open to a court to try to apply the automatic directions, and the principles applicable to such directions, by express order. In one of the present appeals the plaintiff’s claim had been struck out and the court made an order which purported to apply the automatic directions to the counterclaim. We do not consider that such an order can be read as imposing the sanction of automatic strike-out to a counterclaim when the rule does not apply to counterclaims. In any event we do not consider it is open to a court to make an order to which the principles (eg Rastin v British Steel plc [1994] 2 All ER 641, [1994] 1 WLR 732) on reinstatement apply, having regard to the existing authorities (eg Costellow v Somerset CC [1993] 1 All ER 952, [1993] 1 WLR 256) which are applied in cases that are not the subject of the automatic strike-out provisions of CCR Ord 17, r 11.

THE CLOSE OF PLEADINGS (THE TRIGGER DATE)

4.1  The new automatic directions start to rune after pleadings are deemed to be closed (r 11(3): ‘the trigger date’). So far as actions transferred from the High Court are concerned, from 16 September 1991 onwards the pleadings are deemed to be closed 14 days after the date of transfer (Ord 16, r 6(1A)), provided that the action was commenced in the High Court on or after 1 October 1990 and transferred to the county court on or after 1 July 1991 (County Court (Amendment No 3) Rules 1990, County Court (Amendment No 3) Rules 1991 and County Court (Amendment No 4) Rules 1991, SI 1991/1882). This rule is in surprisingly absolute terms and applies even if there is no pleading in the action prior to transfer other than a generally indorsed writ. Difficulties, to which we will refer below, have arisen over identifying the correct date of transfer.

4.2  In an action commenced in the county court, pleadings are deemed to be closed 14 days after the delivery of a defence in accordance with Ord 9, r 2 or, where a counterclaim is served with the defence, 28 days after the delivery of the defence (r 11(11)(a)). A defence is delivered in accordance with Ord 9, r 2 when it is delivered at the court office (Ord 9, r 2(6)). If all the original defendants deliver a defence the trigger date is calculated from the date the last defence was delivered. The trigger date is not altered if a defence is later amended. We will refer in due course to the difficulties which have arisen when a short defence is delivered in one of the forms prescribed at the back of The County Court Practice, often with the rubric ‘pleaded defence to follow’, or when one of the original defendants does not serve a defence at all.

COMPUTATIONS OF TIME

5.1  Because of the dramatic effect of the automatic strike-out provision, difficulties have arisen over the computation of time in some circumstances. Three examples of such difficulties relate to the time at which a defence is deemed to have been delivered to the court, the time at which the relevant documents in a High Court action are deemed to have been received by the proper officer of the county court, and the time at which pleadings are deemed to have been closed.

5.2  Order 9, r 2(6) provides that a defence is to be delivered at the court office. Because the court office is not a person within the meaning of Ord 7,

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r 1(1), and because the deeming provisions of Ord 7, r 10(3) are only concerned with the service of a default or fixed date summons, the computation of time for delivery of a defence is to be governedf by the general law which is to be found in s 7 of the Interpretation Act 1978, read together with Practice Direction [1985] 1 All ER 889, [1985] 1 WLR 489, which provides (para 2):

‘To avoid uncertainty as to the date of service it will be taken (subject to proof to the contrary) that delivery in the ordinary course of post was effected (a) in the case of first class mail, on the second working day after posting, (b) in the case of second class mail, on the fourth working day after posting. “Working days” are Monday to Friday excluding any bank holiday.’

5.2A  This practice direction applies to the county court by virtue of s 76 of the County Courts Act 1984. This rule means, of course, that there can be no question of delivery of a defence being deemed to have been effected on a Saturday or Sunday, or on a bank holiday, and in any event the proper officer would not be present to receive the document (see Ord 2, r 5(1)) when the court office is closed. The court should adopt the actual date when the defence is delivered to the court office by post when this date is known (for example from a date stamp which shows the date of receipt), since this will represent ‘proof to the contrary’ of the date when delivery was effected. If in any case a judge finds that the contrary has indeed been proved by reference to the evidence before him, this court will not interfere with his decision unless it is clearly wrong.

5.3  When an action is transferred from the High Court to the county court, RSC Ord 107, r 2(1A) prescribes that the relevant documents are to be sent by post to the proper officer of the county court (who is identified as the district judge in Queen’s Bench Masters’ Practice Direction No 9). In our judgment, in any doubtful case the general law is to be applied here, too. We do not consider that in this context the provisions of Ord 7, r 1, which apply to documents ‘required to be served on any person’, apply naturally to the despatch of documents by post from court to court, or by a party or his solicitor to the court, even if the recipient is identified as the district judge (who is a person) and not the court office (which is not). Moreover, it would in our judgment be desirable if the same regime of deeming provisions applied at this stage of the process as well. Disputes as to the time of delivery to the district judge in these cases are therefore also to be resolved with the aid of s 7 of the Interpretation Act 1978, and not by recourse to any of the provisions of Ord 7.

5.4  The scope for nearly all these disputes would be eliminated if the county court office or the district judge, as the case may be, were to make a practice of imposing a date stamp for the date of receipt on a defence, or on the covering letter attached to the documents in a High Court action, when it arrives, in order to put the actual date of receipt beyond all room for reasonable argument.

5.5  Once the defence has been delivered to the court office, the pleadings are deemed to be closed 14 days thereafter (Ord 17, r 11(11)(a)), unless there is a counterclaim, in which case the relevant period is 28 days. In our judgment, this period starts immediately after the date of delivery of the defence to the court office (see Ord 1, r 9(3) and, for the High Court practice in a case where sensible recourse is to be had to such a rule even where its wording is not strictly apposite, see Tanglecroft Ltd v The Hemdale Group Ltd [1975] 3 All ER 599, [1975] 1 WLR

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1544). It follows that in the usual case pleadings are deemed to be closed at the end of the fourteenth day after the defence is delivered, and if a date for trial has not been requested within 15 months after that date, the ‘guillotine date’ (ie  the date which the action will be automatically struck out) will be the last day of the 15th month if no inconsistent manual directions have been given: see Ord 1, r 9(3) for the meaning of ‘within a specified period’. A request made on the first day of Month 16 will have been made too late. A worked up example would be: defence delivered on 17 March; pleadings deemed closed on 31 March; guillotine date on 30 June: application for hearing date on 1 July too lateg. Another worked up example would be: defence delivered on 3 March: pleadings deemed closed on 17 March: guillotine date on 17 June: application for hearing date on 18 June too late. Although an application may be made by post (Ord 2, r 5) it must be received by the proper officer at the court office on or before the guillotine date (cf Hodgson v Armstrong [1967] 1 All ER 307, [1967] 2 QB 299). If the court office is closed on the guillotine date, the request will have been made in time if it is made on the next day following the guillotine date when the court office is open (see Ord 1, r 9(5)), again applying the pragmatic approach in the Tanglecroft case, above.

THE TRIGGER DATE: WHEN DOES IT OCCUR IN AN ACTION COMMENCED IN THE COUNTY COURT?

6.1  As we have already said, if an action, not excepted by r 11(1), has been commenced in the county court, the timetable for automatic directions begins to run from the date when pleadings are deemed to be closed. For the meaning of the close of pleadings, see r 11(11)(a) which refers, incidentally, to the delivery of ‘a defence in accordance with Order 9, rule 2’.

6.2  Order 9 is concerned generally with ‘Admission, Defence, Counterclaim and Answer’. Rule 17(a) of that order provides that unless the context otherwise requires, ‘defence’ means any document which shows that the defendant desires to dispute the whole or any part of the plaintiff’s claim. In r 2(2), however, a defence is defined for the purposes of rr 2, 3 and 6 of the order to include a counterclaim and to mean ‘the relevant form appended to the summons completed according to the circumstances of the case or a defence otherwise than on that form’. Rule 2 is concerned with the requirements for delivery of an admission, defence or counterclaim in any action. Rules 3 and 6 are concerned only with default actions, and r 6, in particular, prescribes the procedure to be followed if a plaintiff desires to enter judgment in default of defence in such an action.

6.3  The form referred to in r 2(2) is a form of a type mentioned in Ord 3, r 3(2)(c), which the proper officer is to annex to every copy of a summons for service in a default or fixed date action. The form currently prescribed for use in default actions pursuant to the County Court (Forms) Rules 1982, SI 1982/586, as amended from time to time, is Form N9B. The present version of this form was introduced in 1995 and is headed ‘Defence and Counterclaim’. It contains six boxes to be completed, as appropriate, by the defendant or his solicitor.

6.4  Three difficulties arise under these provisions. The first is whether pleadings are deemed to be closed 14 days after delivery of a defence in Form N9B, even if it is stated expressly on that form, or in a covering letter, that a pleaded defence is to follow. The second is to identify the date when pleadings

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are deemed to be closed when more than one defendant is joined and served with the original proceedings. The third is to identify the timetable for automatic directions when one or more defendants are added as parties to the action by later amendment, often because the original defendant has blamed them for what happened in its defence.

6.5  There are two examples of the first type of problem in the appeals before us. In the first, the defendants’ solicitors delivered to the court a Form N9 (not in fact the correct form, but the one which the court had sent them) which indicated that no element of the plaintiff’s claim was admitted. In an accompanying letter to the court they said that their defence would follow in due course. We do not know how the reverse side of the form was completed, since the original is lost and only the front side was copied, although we have been shown what the defendant’s solicitor did in a similar, unrelated case. No Form N450 was sent out, and the formal defence, settled by counsel, was delivered to the court five weeks later. The judge said that he had no doubt at all that the defence envisaged by the rules was the Form N9. He drew attention to the many cases in the county court which are defended by litigants in person where what is written on Form N9 is the only defence in the case. He said that a formal defence was merely a fuller expression of what generally appears on the back of Form N9 in the paragraphs that relate to the defence.

6.6  In the other case, the signed Form N9B which was delivered to the court office briefly put in issue, by way of a composite denial, all the allegations contained in the particulars of claim, and continued: ‘A full defence drafted by counsel will be filed … in due course’. On receipt of this form, Form N450 was sent out to the parties, and a full defence was delivered about a month later. Here, too, the judge accepted the submission made by counsel for the defendants that the defence in Form N9B amounted to a defence within the meaning of Ord 9, r 2 and that it would, inter alia, prevent the plaintiff from entering judgment in default of defence.

6.7  In our judgment both judges interpreted the rules correctly. The defence in Form N9 or Form N9B, however brief, constitutes a defence for the purposes of Ord 9, r 2, and the trigger date will follow 14 days after it is lodged at the court, unless it is accompanied by a counterclaim. Any hardship which might flow from the application of this rule in particular cases must be mitigated, if at all, when applying the guidelines for reinstatement. Provided that the form delivered to the court makes it clear that the claim is disputed, it constitutes a defence within the meaning of Ord 9, r 2, and the court need not be astute to inquire whether every relevant box has been completed.

6.8  The second difficulty to which we have referred has been partly resolved by the judgment of this court in Peters v Winfield, Churchill v Forest of Dean DC [1996] 1 WLR 604. There the court ruled that the trigger date is to be calculated from the date of delivery of the last defence to be delivered by a defendant who was originally joined in the proceedings. Bingham MR reached this conclusion after rejecting a contention that there might be different trigger dates for different defendants. He said that it was impossible to find any answer which provided a solution to all the possible problems which could arise, but added (at 610):

‘I am however satisfied that on the whole the effective conduct of proceedings, and the fair treatment of those involved, will be best served by recognition of a trigger date calculated from the date of delivery of the last defence to be delivered by a defendant named in the proceedings as

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originally issued. In a case where any party, plaintiff, defendant, added defendant or third party, finds himself embarrassed by the operation of the rule, then a necessary step is for such a party to seek a variation of the automatic timetable from the court. Any problem, any unfairness or any difficulty must in such circumstances be resolved by recourse to the court itself for an order appropriate to meet the requirements of justice in all the circumstances. Such a procedure is, or may be, obviously indicated in a case where a defendant not named in the proceedings as originally issued is thereafter joined. There should, I think, be little difficulty in that since the matter will come before the court anyway.’

6.9  One of the present appeals provides a good example of the difficulties that can arise in this field. The plaintiff originally obtained judgment in default of defence against the only defendant he sued, who was his original employer. He then appears to have accepted that the identity of his employer had been changed by statute. The default judgment was set aside by consent, and the second putative employer was added by amendment. In amended particulars of claim the plaintiff asserted that if the second defendant accepted that it was the relevant employer, he would discontinue against the first defendants. The second defendants did accept such responsibility, but in their defence they blamed independent contractors for creating the hazard which had caused the plaintiff’s accident. At the same time they issued a third party notice against the contractors. The plaintiff’s solicitors had probably agreed with the first defendants’ solicitors that they need not serve a defence pending the delivery of the second defendants’ defence, and eight months after the delivery of that defence the plaintiff joined the contractors to his action by amendment. He also formally discontinued the action as against the first defendants at that time.

6.10  So long as the default judgment was in force, automatic directions could not have started to run. Once it was set aside, there were two defendants. We are of the clear view that if one or more of the original defendants (a phrase to which we will return below) never delivers a defence, there will never be a trigger date in that action, because it would be intolerable to leave the timetable in a state of limbo against the chance that a defence finally eventuates from the laggard defendant or, once it becomes clear that no further defence will be forthcoming, for the timetable to spring into being with retrospective effect from the last-delivered defence of an original defendant. There may be any number of reasons why a defendant does not deliver a defence. It may be that he has not been or cannot be served; or that the plaintiff agrees that he need not serve a defence, either at all or for the time being; or that the action is struck out against him pursuant to Ord 9, r 10; or that the plaintiff obtains a default judgment; or that the plaintiff discontinues the action against him; or that he is made bankrupt and the plaintiff does not obtain leave to continue the proceedings against him. At one time we thought it might be possible to fill the gaping hole left by the rulemaker to construct a regime whereby if any of these possibilities resulted in some kind of certainty that a defence would not in fact be forthcoming, the trigger date would be calculated back to the defence most recently delivered. However, the idea of resurrecting a timetable retrospectively is wholly alien to the philosophy of the rule, and it would in our judgment be impossible to come to any other answer to this problem which would not lead the way open to a great deal of undesirable satellite litigation. We would accordingly answer the question left unanswered by Bingham MR in Peters v Winfield [1996] 1 WLR 604

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at 610 by saying that if a defence is not forthcoming for any reason whatsoever from any of the original defendants there is no trigger date and any of the other defendants who wish the action to proceed in accordance with a timetable must apply to the court for appropriate directions. We must make it clear that if before any defence is served by any defendant there is either a substitution of defendants or a joinder of new defendants, our reference to ‘original defendants’ will mean the defendants in the action at the time the first defence is delivered.

6.11  So far as the third difficulty is concerned, if the trigger date has in fact been finally determined for the action as originally constituted (following the setting aside of any default judgment, if relevant), we are of the clear opinion that the rules make no provision for automatic directions to start running completely afresh each time a further defendant is joined to the action by later amendment. A timetable has now been set for the action, and since a plaintiff has to obtain an order from the court pursuant to Ord 15, r 1 if an additional party is to be added or substituted, that is the occasion when a prudent plaintiff will seek an order amending the original timetable. Alternatively, such a direction may be obtained at any time before the guillotine date. This is the procedure which was clearly envisaged by this court in Peters v Winfield, where its observations to this effect did not form part of its decision, and in our judgment it is clearly right. Otherwise time would start to run afresh automatically as soon as any newly joined defendant served a defence, without any occasion for the court to be able to exercise any control over the timetable. We cannot believe that this is what the draftsman of the rule intended.

THE TRIGGER DATE: WHEN DOES IT OCCUR IN AN ACTION TRANSFERRED FROM THE HIGH COURT?

7.1  We have observed that where an action, not excepted by r 11(1), has been commenced in the county court, the timetable for automatic directions begins to run from the date when pleadings are deemed to be closed. If an action was commenced in the High Court before 1 October 1990, automatic directions did not apply when it was later transferred to the county court (see Tarry v Humberclyde Finance Ltd [1996] 1 WLR 611). For actions commenced in the High Court on and after 1 October 1990 which are subsequently transferred to the county court, since 16 September 1991 the pleadings have been deemed to be closed for the purposes of Ord 17, r 11 14 days after the date of transfer (see Ord 16, r 6(1A)).

7.2  Different judges have adopted different approaches to the identification of the date of transfer, a question which now comes to us for decision. According to one school of thought the date of transfer is the date the High Court order directing transfer was sealed. Others believe that the date of transfer is related to the date when the appropriate papers arrive at the county court, but there are mixed opinions as to the date to be preferred. Is it the date the papers actually arrive (or are presumed to have arrived), or the date the county court issues a formal notification of transfer, or some other date (and if so what)?

7.3  Section 40 of the County Courts Act 1984 gives the High Court the power or, in certain circumstances, the duty, to order the transfer of any proceedings before it to be transferred to the county court. Section 7 of the County Courts Act 1867 created similar powers, and it has been long established that the High Court retains jurisdiction over such cases until such time as the requisite administrative action has been taken to lodge the papers (including the High Court order) in the county court. It is at this point that the county court assumes

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jurisdiction over the action (see Welply v Buhl (1878) 3 QBD 80, 253 where the Divisional Court’s ruling was affirmed by the Court of Appeal; and David v Howe (1884) 27 Ch D 533).

7.4  It was submitted to us, however, that changes made to the statutory provisions for transfer when the Courts and Legal Services Act 1990 came into effect altered the position completely, so that from that time onwards the action was transferred to the county court at the moment the High Court order was sealed. This argument ran along the following lines. In the 1867 Act the power to order transfer and the administrative requirements for making the transfer were both included within the provisions of the statute (see the 1867 Act, s 10), and this arrangement was carried forward into s 40 of the County Courts Act 1984 as originally enacted (see the 1984 Act, s 40(1), (7) and (8)). Section 2(1) of the 1990 Act, however, substituted an entirely new s 40 of the 1984 Act, which was only concerned with the new duty to transfer, or the power to transfer, as the case might be. The administrative arrangements for transfer were now prescribed by statutory instrument (RSC Ord 107, r 2(1A) and CCR Ord 16, r 6), supplemented by practice directions (currently, a 1991 practice direction by the Lord Chief Justice (see [1991] 3 All ER 349, [1991] WLR 643) and Queen’s Bench Masters’ Practice Direction No 9). Reliance was then placed on RSC Ord 42, r 3(1), which creates the general rule that a judgment of the court takes effect from the day of its date. Thus, it was argued, an order that an action be transferred means that it is transferred as at that date, and that all the other provisions, which are not now underpinned by the strength of primary legislation, are mere machinery: nothing in the working out of the machinery can whittle down the strength of the order.

7.5  We do not accept this submission which does not even recognise all that was provided for under the old regime. It is noticeable, for instance, that although ss 7 and 10 of the 1867 Act contained double-barrelled provisions relating to both the power of transfer and the machinery for transfer, s 8 of that Act, which related to the transfer of proceedings in the High Court of Chancery, contained merely the power of transfer. The difference between these sections was pointed out to Bacon V-C by counsel for the plaintiff in David v Howe (1884) 27 Ch D 533 at 535 in support of a submission that the High Court no longer had any jurisdiction over the action following the order for transfer, but Bacon V-C rejected this contention, saying:

‘I have no doubt that where an order has been made for the transfer of that action to a County Court, until the transfer is actually completed by the necessary steps being taken for that purpose the jurisdiction of the Superior Court still remains.’

7.6  In our judgment that is still the position today. Primary legislation now contains the duty or the power to transfer, and secondary legislation contains the machinery for transfer (in so far as this prescribed machinery is not supplemented by practice directions) but the effect remains the same. Notwithstanding that the order for transfer has been sealed, the High Court will retain jurisdiction over the action until it is transferred to the county court at the time the relevant documents are received by the proper officer of the county court.

7.7  It follows that in one of the present appeals the judge was wrong to identify the date of sealing the High Court order as the date of transfer, since the county court did not possess any jurisdiction over the action until it was actually transferred to it in accordance with the High Court order.

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7.8  CCR Ord 16, r 6 governs the procedure to be followed in the county court when a case is transferred from the High Court. It reads, so far as is material:

‘(1) Where by an order of the High Court—(a) any proceedings are to be transferred to a county court … the proper officer of the county court, on receipt of the relevant documents, shall either refer them to the district judge for directions or shall enter the proceedings … in the records of the court and fix a day for the hearing of the proceedings … or, if he thinks fit, a day for a pre-trial review and give 21 days’ notice thereof to every party. In this paragraph “the relevant documents” means—(a) the writ (or a copy thereof) (b) the order transferring the proceedings to the county court (or a copy thereof) (c) all pleadings and affidavits filed in the High Court, and (d) any documents required by the order for transfer to be filed in the county court.

(1A) Nothing in paragraph (1) shall require the proper officer to fix a day in an action to which Order 17, rule 11 applies unless—(a) before it was transferred to a county court the action had been set down for hearing in the High Court; or (b) a request for a day to be fixed is made pursuant to directions under Order 17, rule 11, and, where the proceedings are transferred down from the High Court, the pleadings shall, for the purposes of the said rule 11, be deemed to be closed 14 days after the date of transfer …’

7.9  By r 6(2) the party lodging the relevant documents is also obliged to file certain other information at the county court, such as a statement of the names and addresses of the parties and their solicitors.

7.10  We have no doubt that the date of transfer is the date when the relevant documents are first received by the proper officer of the county court in compliance with the requirements of r 6(1). It is at this point that jurisdiction over the case is transferred from the High Court to the county court, and the obligations of the proper officer of the county court under that rule begin. We have already explained how this date is to be ascertained in the event of any dispute, and we have pointed out the desirability of county courts using an office date stamp to pinpoint the date of receipt. In cases to which Ord 17, r 11 applies, Ord 16, r 6(1) requires the proper officer either to place the documents before a district judge for directions, or to enter the proceedings in the records of the court and fix a day for a pre-trial review: in either case the county court customarily sends a notice of transfer to the parties together with any directions that may have been given.

7.11  In the absence of any express directions to contrary effect, the trigger date occurs automatically 14 days after the date of transfer. Needless to say, any High Court directions that continue to have effect following transfer will have the effect of overriding the automatic directions in so far as they are inconsistent with them.

7.12  Two of the cases before us give examples of the difficulties to which we have referred. In the first, the order for transfer was sealed in a district registry. When the identification of the precise date of transfer became important, inquiries were made which established that the relevant documents were sent to the county court by second class post from the district registry a week later. Counsel for the defendants relied on s 7 of the Interpretation Act 1978 to support his argument that delivery by post should be deemed to have been effected on the fourth working day after posting. The formal notice of transfer was not,

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however, sent to the parties by the county court until about four weeks after the documents were posted, and no other evidence was available to show that the proper officer of that court had received the documents on any earlier date. The judge held that the presumption created by the Interpretation Act had been displaced by the evidence of the formal notice of transfer, coupled as it was by a letter from the county court to the district registry on the same day, acknowledging receipt of the documents. This was a conclusion he was entitled to reach on the evidence before him, and this is not the type of finding this court would disturb.

7.13  In the other case, the plaintiff’s solicitors posted the relevant documents to the county court two weeks after the order for transfer was sealed. About two weeks later the proper officer of the county court wrote to them, giving the action a temporary case number. However, he also asked if there were any moneys held by the Court Funds Office on a district registry ledger, adding that until they provided this information the action could not be transferred in. The plaintiff’s solicitors delayed for nearly five months before replying that there was in fact no money in court. By this time the county court office appears to have mislaid the papers, and chasing letters from the plaintiff’s solicitors went unanswered until they lodged a second bundle of relevant documents with the court nearly five months after they wrote their letter about funds in court. This elicited, at long last, a formal notice of transfer. In this case the date of transfer within the meaning of Ord 16, r 6(1A) occurred when the proper officer of the county court first wrote to the plaintiff’s solicitors, since by that time it was clear that he had received all the documents required to be lodged. Since no money had in fact been paid into the High Court, the plaintiff’s solicitors were not obliged to file a copy of notice of payment in pursuant to Ord 16, r 6(2)(d), and in any event the proper officer’s duties commence when the documents referred to in r 6(1) are received by him. He should have accepted that the action had been effectively transferred into his court at that stage, and he should not have said that his requisitions for further information from the plaintiff’s solicitors delayed the date of transfer.

THE EFFECT OF COUNTY COURT FORM N450

8.1  County Court Form N450 (entitled ‘Notice that automatic directions apply’) is a form sent out by the administrative staff of a county court when the court receives a defence in a case to which automatic directions apply. It explains the effect of the directions, and the existence of the automatic strike-out sanction is mentioned in note 3 at the end of the notice. The form ought to be dated at the top, and it contains a sentence to the effect that the timetable begins to run 14 days after ‘the date given above’, or 28 days if a counterclaim was filed with the defence. ‘The date given above’ has often been later than the date on which the defence was delivered at the court office.

8.2  If the sending out of form N450 (whether or not it is properly completed and whether or not it includes a date) involves no exercise of judicial discretion, so that there is no judicial intention to vary the timetable, it cannot alter the mandatory effect of the rule, and the trigger date is still calculated from the actual date of delivery of the defence at the court office. We will be referring later to the principles which a court will apply when deciding whether to reinstate an action when it is satisfied that a party was genuinely and reasonably misled by information contained on such a form.

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THE EFFECT OF PARTICULAR COUNTY COURT PRACTICES

9.1  We should add that the practice adopted in some county courts of routinely ordering a pre-trial review on receipt of a request to fix a hearing date does not of itself take an action out of the automatic directions regime, so that an expectation that an order of this kind may in due course be made does not excuse the parties from complying with automatic directions until such an order is made.

APPLICATION OF ORD 17, R 11 TO CASES FALLING OUTSIDE THAT RULE

10.1  In a number of cases the courts have purported to make orders applying Ord 17, r 11 to cases to which that rule does not apply.

10.2  The problem that arises in these cases is whether such orders (which are in such terms as ‘the automatic directions are to apply’ or ‘directions in the same form as Order 17, rule 11 to apply’, or ‘directions as Order 17, rule 11 to run from [a specified date]’) and which in one case at least referred to and attached Form N450 to the order, have the effect of applying the automatic strike-out provisions of the rule. If the answer to this question is that they do, the further problem arises whether the principles for reinstatement are those set out in this judgment, or whether the principles in such cases as Costellow v Somerset CC [1993] 1 All ER 952, [1993] 1 WLR 256, Hytec Information Systems Ltd v Coventry City Council (1996) Times, 31 December and Birkett v James [1977] 2 All ER 801, [1978] AC 297 should be applied instead.

10.3  In our judgment it is not open to the court to apply the automatic striking out provisions of Ord 17, r 11 to actions which are expressly excepted by that rule or to which the rule does not apply (for example counterclaims which we have already considered earlier in this judgment), or (in cases of transfers from the High Court) where the action was commenced before 1 October 1990 or transferred before 1 July 1991 and so are outside the rule by virtue of the County Court (Amendment No 3) Rules 1990 or the County Court (Amendment No 3) Rules 1991.

10.4  As to the last of these, this was the decision of a two-judge division of this court in Gleed v Milton Keynes BC [1995] CA Transcript 227, approved in Tarry v Humberclyde Finance Ltd [1996] 1 WLR 611. As to the first, it seems to us that the same reasoning applies with even greater force. The rule itself stipulates that it does not apply to the excepted cases. In those cases the principles for the striking out of actions and for their reinstatement have been stated and settled in the cases to which we have referred and are (subject to later authorities) as discussed in the notes to Ord 13, r 2 in The (current) County Court Practice 1997, p 229. The argument has been advanced that since the introduction of Ord 17, r 11, and bearing in mind the object of the rule, it is now permissible and indeed proper for the courts to adopt a similar regime in all cases, but the short answer to this submission is that it simply ignores the fact that in para (1) the actions there listed are expressly excepted from its provisions. As to counterclaims, the wording of the rule is in our view quite inappropriate to apply to a counterclaim, whether or not the action in which it is made has ceased to exist.

10.5  There remains the question whether such orders have any effect at all. On balance we consider that with one exception that they do, since they can (just) be read and understood as shorthand for applying the relevant directions (as opposed to the sanctions) that are to be found in Ord 17, r 11, particularly those in para (3). However we are bound to say that in our view this form of shorthand is highly undesirable. If the rule does not apply to the action, it is only confusing to say that it does. The exception relates to the case of counterclaims, for such

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shorthand would involve having to read the word ‘plaintiff’ as meaning ‘defendant’ and in our view even the most purposive construction cannot, in the context of the rule, overcome this hurdle, especially in the light of other rules, as for example Ord 17, r 12(5)(a). In the future, court orders must spell out plainly and precisely what the parties are to do and when they are to do it and this form of shorthand must not be employed. In such cases we emphasise that the principles governing the orders that can be made and the sanctions for failure to comply with them are not those in Ord 17, r 11 but are governed by the general law (eg Costellow v Somerset CC [1993] 1 All ER 952, [1993] 1 WLR 256 and Hytec Information Systems Ltd v Coventry City Council (1996) Times, 31 December).

EXTENSIONS OF TIME

11.1  A problem has arisen over orders for an extension of time under the rule. In essence, the question is whether such orders should be read and understood as fixing a period for making a request for a date for trial, or as fixing a period on the expiry of which the action will be automatically struck out if a date for trial has not been requested.

11.2  The reason for the problem lies in the words in brackets in para (9). That paragraph provides:

‘If no request is made pursuant to paragraph 3(d) within 15 months of the day on which pleadings are deemed to be closed (or within 9 months after the expiry of any period fixed by the court for making such a request), the action shall be automatically struck out.’

11.3  Rule 11(3)(d) requires the plaintiff to request the proper officer to fix a day for the hearing within six months of the trigger date.

11.4  It follows from this wording that if the court is treated as fixing a period within which a request must be made, the action is not struck out at the expiry of that period if no request has been made, but only if the failure to make a request continues for a further nine months, whereas if the court is treated as having extended the guillotine date or having otherwise fixed a new guillotine date, then the further nine month period will not apply and the action will be automatically struck out on the expiry of the period fixed by the court if there has been no request for a date.

11.5  The problem has given rise to conflicting decisions of two-judge courts dealing with applications for leave to appeal.

11.6  The sort of orders that give rise to the problem are those which give an extension of time for setting the action down for trial, or an extension of time within which to comply with the automatic directions (with the extension either expressed to run from the date of the order or to a specified date), such as orders amending or extending ‘the automatic directions’, ‘the timetable’, ‘time limits’, or ‘the automatic timetable’, or simply extending the time for ‘setting down’ or for requesting a date for the trial. On their face orders such as these could be read either as fixing the period within which a request must be made, or as extending or fixing the guillotine date.

11.7  In some cases it is possible, by examining the context in which the order is made (including the time when it is made and the wording of the application for an extension etc) to be able to discern with more or less confidence what the court must have intended. For example, where an extension is sought during or soon after the six month period, and one is granted for a period which expires before the original guillotine date, it can hardly have been the intention of the

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court to truncate the original guillotine date so that it operated at the end of the extended period, rather than after a further nine months after the expiry of the extension. On the other hand, when an application is made when the guillotine date is imminent, it can be said with force that in the context what the court must have been ordering was an extension of the guillotine date itself, rather than a period of extension plus nine months. These are, however, two extreme cases and there are likely to be many where it is not easy or even possible to work out from the context what the court must have intended. Furthermore, if the context is taken into account in this way the result will be that identically worded orders will have a completely different effect depending upon the context. More importantly, perhaps, to adopt this method of construing orders would in our view be to frustrate the object of the rule by encouraging satellite litigation, for time and money will be spent (as it has in the past) on debating whether in the circumstances the order should have the one effect or the other.

11.8  In these circumstances it seems to us that there should be one simple rule, namely that orders for an extension of time should be treated as fixing the period within which a request for a date should be made, unless the order itself makes plainly and expressly clear that the guillotine date is being extended or a new guillotine date is being fixed. Thus orders extending the time for setting down the action, or for requesting a date, whether done by reference to the date of the order, or by reference to a date in the future, by reference to the automatic directions or timetable, or by some other means, will not be read as extending the guillotine date to the expiry of the period of the extension, but as bringing into effect the words in brackets in para (9), so that the guillotine date will be nine months after the expiry of the extended period for requesting a date. We fully appreciate that in some cases this may produce a result that, in context, it can be said neither the parties nor the court could have intended, but the result will be certainty on the face of the order and as to the future, it is for the courts, if they wish to do so in appropriate cases, to specify the guillotine date in clear and express terms in their orders. This indeed is already what is being done in a large number of courts. For the avoidance of doubt we should make it clear that where there has been more than one extension, the same rule applies to all extensions, so that the guillotine date, in the absence of clear and express language to the contrary, will be nine months from the expiry of the last extension.

FIXING THE HEARING DATE: WHAT CONSTITUTES REQUESTING A DATE FOR HEARING?

12.1  Order 17, r 11(3) provides that unless a day has already been fixed the plaintiff shall within 6 months request the proper officer to fix a day for the hearing, and by r 11(8) the plaintiff is required to file with the request a note, if possible agreed with the other parties, giving an estimate of the length of the trial and the number of witnesses to be called. No fee was payable on requesting a hearing date when the new r 11 was first introduced in 1990. By art 7 of the County Court Fees (Amendment) Order 1994, SI 1994/1996, a fee of £50 was made payable at this stage of an action, and since 15 January 1997 this fee has been £100: see the County Court Fees (Amendment) Order 1996, SI 1996/3189. Article 3(2) of the County Court Fees Order 1982, SI 1982/1706 as amended, has the effect of requiring the fee to be paid by the person requesting the hearing date, and it must be paid before the date is requested..

12.2  Order 1, r 3 defines the expression ‘the proper officer’ as meaning ‘the district judge or (a) in relation to any act of a formal or administrative character which is not by statute the responsibility of the district judge … the chief clerk or

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any other officer of the court acting on his behalf in accordance with directions given by the Lord Chancellor’.

12.3  At first sight one might think that the request for a hearing date related to an act of a formal or administrative character which is not by statute the responsibility of the district judge. Indeed in Perry v Wong, Sampson v Moon, Jones v Roe Shopfitting Ltd [1997] 1 WLR 381 at 387 Bingham MR attached significance to this fact when he said that in this context the expression ‘the proper officer’ should be interpreted as meaning the chief clerk or other officer of the court acting on his behalf. There would therefore appear to be a lot to be said for the view expressed by Judge Rudd in one of the current appeals to the effect that a plaintiff could not make a valid request for a hearing date otherwise than to the proper employee within the administration of the court, after first paying the requisite fee. But for successive decisions of this court, which we will describe below, one might think the process of requesting a hearing date for hearing could be simply expressed as the administrative step of paying the fee to the responsible employee at the county court, and then asking him to fix a hearing date, while filing at the same time the note required by Ord 17, r 11(8). This approach to the interpretation of the rule would have the advantage of certainty. It would also assist the efficient administration of the court because the requisite fee would have to be paid first, and the information required for listing purposes would have to be provided at the same time as the request for the hearing date was made. If more time was needed, the plaintiff would have to apply to the appropriate judicial officer of the court, namely the district judge, for a judicial decision pursuant to Ord 13, r 4 extending the time in which he might make his request.

12.4  This court, however, has never been inclined to be too strict in relation to what constitutes a request. In May 1995, for example, a division of this court (Bingham MR, sitting with Peter Gibson and Saville LJJ) refused leave to appeal from a judge’s decision in Gayle v House of Copiers plc [1996] CA Transcript 497, holding that a request without a proper reference number which had been rejected by the county court for that reason was still a request within r 11(3)(d). Bingham MR said that there might come a stage when a request was so defective or so incomplete or so unclear that it would not be regarded as a request, but if a judge with greater familiarity with the procedure of the county court regarded the request as one that an ordinary person would see as valid, he would not dissent.

12.5  Next, in June 1995 this court held in Ferreira v American Embassy Employees Association [1996] 1 WLR 536 that an application to a judicial officer of the court for an extension of the 15-month period, if issued before but heard after the expiration of the 15-month period allowed by the automatic directions regime, by implication contains in the alternative an application to a proper officer of the court to fix a hearing date (in the event that the application for an extension of time is refused). It appears that in that case counsel conceded that the absence of a fee and of the note required by r 11(8) did not mean that the application was not a request, and Roch LJ observed (Ferreira’s case, at 540) that there was no particular form in which a request for a hearing date had to be made.

12.6  The decision of this court in Ferreira’s case and indeed Carr v Northern Clubs Federation Brewery Ltd (1996) Times, 18 January which followed it, are binding on us. In November 1995 this court went on to hold in Ashworth v McKay Foods Ltd [1996] 1 All ER 705, [1996] 1 WLR 542 that a request made within the 15-month period where there had been no compliance with r 11(3), and when the

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plaintiff was not in fact ready for trial and could not comply with r 11(8), nevertheless did not constitute an abuse of the process of the court. Thus the request was a valid request. An attempt to nullify the effect of Ashworth’s case by arguing that if no request had been made to extend the six month period, an application which was made after six but before 15 months was invalid, failed in Perry v Wong [1997] 1 WLR 381. And finally in December 1996 in Ever v WT Partnership Construction Management (1997) Times, 9 January an application ‘to set the matter down for trial on the first open day after 56 days from the date of this order’, on which no order was made, was approved as a request for a hearing date. That decision once again approved the concept that a district judge could be a proper officer for this purpose and that the inability of the plaintiff to comply with r 11(8) was irrelevant. In our view, there has already been sufficient chaos in this area of the law over the last six years to dissuade us from adding to it by being willing to consider afresh whether a stricter test of what constitutes a request for hearing date might not be appropriate.

12.7  While we were hearing the present appeals, we were obliged to consider just how far the decision in Ferreira’s case went as a matter of logic. First, it seemed to us that any application to extend time for requesting a hearing date must carry with it the implied request, and not just a request to extend the 15-month guillotine date. Secondly, no other applications, for example to extend time or appeals from orders during the currency of the automatic timetable, would seem to carry any such implied request. The logic of the implication relates simply to the hearing date request, and the fact that automatic strike-out will occur in the absence of such a request. Thirdly, if an application to extend time for requesting a hearing date always carries with it by implication a request for a hearing date itself, this must logically be the effect of making the application whether it is ultimately refused or granted. This interpretation of the rule, however, would result in our being unable to give any effect at all to the words ‘or within 9 months after the expiry of any period fixed by the court for making such a request’, which appear in brackets in r 11(9), where the court fixes a date different from that originally prescribed by r 11(3)(d). These words contemplate the automatic strike-out provisions continuing to apply in relation to the new date.

12.8  It is not easy to reconcile this obvious intention of the rule-maker with the decision in Ferreira’s case. It appears to us that the only way in which to achieve a logically consistent interpretation which gives effect to the words in brackets in r 11(9) is to hold that the implied request for a hearing date carries with it the further implication that if the application is granted in whole or in part, the request is withdrawn and of no effect. It appears to us that the position thus can be put as follows:

(i) An express request for a hearing date can be made in any form, eg orally to the district judge, and without compliance with the formalities of paying a fee or complying with r 11(8). Whether an express request is an effective request will essentially be a question of fact for the judge.

(ii) An application for an extension of time for requesting a hearing date (or an extension to the guillotine date) by implication contains a request to fix a hearing date, but if that application is granted (in whole or in part) the implied request is treated as withdrawn and of no effect. No other applications, eg to extend the other or automatic directions or to appeal against interlocutory orders while the timetable is running, carry with them any such implied request.

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(iii) Any request can be withdrawn and thereby nullified. The implied request identified in Ferreira’s case is withdrawn by any grant of an extension. Other requests can be withdrawn and it is essentially a question of fact whether that has happened. If, for example, an application for an extension of time was clearly withdrawn or abandoned, that would be an example of a withdrawal of the request. If an applicant for an extension of time simply failed to appear on the return date of the application through an oversight, that would not be an abandonment and withdrawal of the request. Nor would an adjournment of such an application. The decision as to whether the request was withdrawn or abandoned would essentially be one of fact for a judge.

(iv) For the avoidance of doubt, and since the argument was raised in the course of the appeals before us, the questions whether an application for summary judgment, or for an interlocutory judgment (for example on an admission), or for an order for the trial of a preliminary issue constitutes requests for a hearing date do not arise. This is because in all these situations the automatic directions regime, as we will be explaining below, would have been ousted. A fortiori, whether the request for a hearing of the preliminary issue once such a hearing has been ordered is a request for a hearing date is also a question which does not ariseh.

(v) If an application for an extension of time is refused, the judge would be wise to go on to appoint a hearing date in response to the implied application to that effect, thereby ensuring that the matter is not left in limbo with no hearing date fixed.

12.9  In the High Court, the Rules of the Supreme Court refer to orders which fix a period within which a plaintiff is to set down an action for trial: see, for example, RSC Ord 34, r 2(1), or, for automatic directions in personal injuries actions, RSC Ord 25, r 8(1)(f). Pleadings are not filed at the court in the High Court, and RSC Ord 34, r 3(1) therefore requires rather more of a party setting an action down for trial than is required by the equivalent county court rule. Notwithstanding this difference, practitioners in the county court do regularly use the language of ‘setting down’ although this expression is not used at all in the county court (see its absence from the index to The County Court Practice). It is inapposite language, but an order requesting an action to be set down is clearly a request for a day for the hearing within the meaning of the rule.

FIXING A HEARING DATE: WHO CAN APPLY TO FIX THE DATE?

13.1  In Ever v WT Partnership Construction Management (1997) Times, 9 January Aldous LJ, when referring to the combined effect of rr 11(3)(d) and 11(8), said (echoing Bingham MR in Rastin v British Steel plc [1994] 2 All ER 641 at 646, [1994] 1 WLR 732 at 740) that this step—

‘concerns the plaintiff alone. He, not later than six months after the start of the timetable, must write to the court requesting that a date be fixed for trial (unless the court has set a date already) and tell the court how long [he] thinks the case will last and how many witnesses he and the other party will have at the trial’ (See [1997] CA Transcript 1831.)

13.2  If no date has already been fixed by the court of its own motion or on the application of any other party, it is therefore the plaintiff who must fulfil the obligation required of him by r 11(3)(d) if he is to prevent the automatic strike-out

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sanction taking effect under r 11(9). In one of the applications before us this request was made by the plaintiff personally, despite the fact that a solicitor was on the record as acting for him. In our view such a request suffices to satisfy the rule, provided that it is not subsequently withdrawn. A plaintiff may also make a request for the purposes of r 11(3)(d) through a defendant or third party provided he properly authorises them as his agents to make the request on his behalf and the court is informed that the plaintiff has so authorised them.

13.3  The rule does not, of course, prevent either a defendant or a third party from applying for a hearing date to be fixed. If their request is granted, then a date will indeed have been fixed and the plaintiff will have been relieved from his obligation under r 11(3)(d). But unless a date is so fixed, it is right that the obligation to apply for the date should rest with the plaintiff, as the rule requires. In one of the current appeals the third party applied with the support of the plaintiff for a hearing date to be fixed, but this application was then adjourned by consent and never restored. At no stage did the third party profess itself to be acting on behalf of the plaintiff, and the plaintiff himself made no request for a hearing date at any time before the guillotine fell. This example shows why it is so important, if a hearing date is not in fact fixed by some other means, that the obligation to request a date does remain with the plaintiff. The only safe course for a plaintiff to take is to issue his own application, or to send the court a letter making the request, even if the matter is then taken forward by another party’s solicitor in the interests of saving costs.

ONCE AUTOMATIC DIRECTIONS START TO APPLY, HOW MAY THEY BE OUSTED OTHER THAN BY AN EXPRESS MANUAL DIRECTION TO THAT EFFECT?

14.1  Once the pleadings are deemed to be closed in an action to which Ord 17, r 11 applies, automatic directions will apply unless they are ousted. It is now well established that the thrust of those parts of the rule which recognised that directions given by the court might exclude the automatic directions is to keep the automatic directions applicable unless the court otherwise directs. But it is clear that the automatic directions cease to apply in two situations.

14.2  First, if any new directions are repugnant to the concept contained in r 11(3)(d), as in Downer & Downer Ltd v Brough [1996] 1 WLR 575, where the directions ordered listing for trial on ‘the joint’ application of the parties.

14.3  Second, if any new directions simply cannot co-exist with automatic directions (as in Protim Services Ltd v Newcomb [1996] 1 WLR 575, the case heard with Downer), in which under the new directions a timetable for the exchange of witness statements expired only a day or so before the guillotine date, and a trial date was directed to be fixed in terms which were inconsistent with the automatic directions, namely ‘the action be listed for trial for hearing before a judge on a date to be fixed on application certifying readiness for hearing and subject to agreed time estimate’.

14.4  The same principles will apply whether the directions were given originally in the High Court and continue to apply on transfer, or whether they are given for the first time in the county court. Furthermore, if the automatic directions are disapplied to any part of the claim, eg as between one defendant and the plaintiff, they will cease to apply to the whole action. Once automatic directions have been ousted, they will not reapply automatically. It is easy to recognise how unfair this would be if one contemplates a situation in which an order ousting automatic directions was successfully reversed on appeal, with the result that automatic directions were reinstated retrospectively with a guillotine

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date having already come and gone. There are certainly circumstances, in our view, where the court can manually reapply equivalent directions, including the automatic strike-out sanction, but such an order would have to spell out expressly the trigger date and guillotine date anew.

14.5  If a new order simply grants an extension of time for fulfilling one of the obligations referred to in r 11(3)(a), (b) or (c), that is not of itself going to disapply the automatic directions (including the obligation to request a hearing date with the draconian consequences for failure). However, if a direction of the court makes compliance impossible, or if an order of the court is simply inconsistent with the automatic directions continuing to apply, the approach of the Court of Appeal has not been to attempt to remould or suspend their implementation for a period of time, or something of that nature, but to declare that they do not apply. Where directions are given which might impinge on the automatic directions, it is preferable for the order to deal expressly with the operation of the automatic directions, so that people’s minds can be concentrated on the question whether they are to be disapplied or not. This is a practice which we believe is now happening, and is greatly to be encouragedi.

OUSTER: REFERENCE TO ARBITRATION

14A.1  By Ord 17, r 11(1)(c) ‘proceedings which are referred for arbitration under Order 19’ are excluded from the ambit of Ord 17, r 11. Proceedings can be so referred either automatically under Ord 19, r 3, or on the application of one of the parties under Ord 19, r 9. Where the matters in issue actually go to arbitration under either of these rules, Ord 17, r 11 clearly does not apply.

14A.2  A question could arise, however, as to whether Ord 17, r 11 applies to proceedings automatically referred under Ord 19, r 3, if the district judge then orders a trial in court under r 3(3). In our view, since the action has already been referred to arbitration automatically, it is within the exception contained in Ord 17, r 11(1)(c), and it remains within that exception. If a trial is then ordered in court, the district judge must give manual directions, and in our view because the action has been excluded from Ord 17, r 11, it is not open to the court to apply the automatic directions, or to give manual directions to which the strike-out principles inherent in automatic directions will apply: in other words, the guidance we give in para 10.5 above is apposite in this context.

14A.3  The position in relation to an application to refer a matter to arbitration would appear to us to be different. Consistently with the views we will be expressing in relation to applying for summary judgment or applying for an order for the trial of a preliminary point (see paras 17.1 to 18.5 below), the application to refer the matter for arbitration will take the action outside the ambit of the automatic directions. If, however, that application is withdrawn, abandoned, not proceeded with for any reason or refused, the court will be entitled to give manual directions. So long as the action is one to which Ord 17, r 11 would otherwise have applied, these manual directions could be in terms equivalent to automatic directions, with both a trigger date and guillotine date clearly expressed, to which the principles applicable to automatic directions would apply. We have described manual directions of a similar type at para 11.8 above. In this context, too, it may be preferable to fix a date for trial towards which the parties will be directed to work: see para 23.1 below.

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OUSTER: INTERLOCUTORY JUDGMENTS AND STAYS

15.1  In recent months this court has held that automatic directions are ousted if an interlocutory judgment is entered on all the issues of liability in the action (see Gomes v Clark (1997) Times, 27 March), or if an order is made staying the action, even if it is likely that the stay will only be a temporary one (Whitehead v Avon CC (1997) Times, 17 March). In Gomes v Clark, where interlocutory judgment was entered for damages to be assessed in a personal injuries action, Lord Woolf MR said that the language of Ord 17, r 11 seemed to be inconsistent in its entirety with the idea that the rule should continue to apply once a judgment had been entered. Similarly in Whitehead v Avon CC, where a stay had been directed in another personal injuries action pending the examination of the plaintiff by a psychiatrist, Waller LJ said that an order for a stay was inconsistent with the automatic directions.j

OUSTER: APPLICATIONS FOR SUMMARY AND INTERLOCUTORY JUDGMENT

(i) Ouster: applications for summary judgment

16.1  We would now go rather further than it was necessary to go in Gomes v Clark. An application for summary judgment cannot be said to constitute a request for a hearing date within the meaning of r 11(3)(d), but this kind of application against any defendant takes the whole action outside the ambit of automatic directions, since automatic directions are concerned with taking the action forward to a full trial. Order 9, r 14 (4) seems to us to have been framed in a way which shows that as soon as an application for summary judgment has been made there is no immediate scope for the continuing application of any of the provisions of Ord 17, whether automatic or manual. We stress that the application will take the action outside the automatic directions regime whatever its subsequent fate. Thus, if it is dismissed or withdrawn or struck out for want of attendance, it will still be necessary for the court to give manual directions.

16.2  If the application for summary judgment is determined by a decision granting the defendant leave to defend, Ord 9, r 14(4) provides that ‘the court may treat the hearing as a pre-trial review and Order 17 with the necessary modifications shall apply accordingly’. Since it is difficult to contemplate that a document ‘purporting’ to be a defence (see Ord 9, r 14(1A)) will not in fact have constituted a defence for the purposes of Ord 17, r 11, manual directions should always be given.

16.3  When any manual directions are given following the disposal of an application for summary judgment, provided the action is one to which Ord 17, r 11 would otherwise have applied, it will be open to the court to reapply directions equivalent to automatic directions, with a trigger date and guillotine date clearly expressed, to which the principles applicable to automatic directions would apply. Elsewhere in this judgment we have advocated fixing a date for trial at an early stage which avoids the automatic strike-out. Nothing we say here should be regarded as detracting from that view.

(ii) Ouster: applications for interlocutory judgment

16.4  Much of Ord 9 is concerned with actions which are not destined to go forward to a full trial, either because a defendant has admitted liability in full, or because he has admitted liability for part of a claim and the plaintiff is willing to

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accept the part admitted in full satisfaction of the whole claim or, in a default action, because no defence is delivered. In such cases judgment may be obtained by an administrative procedure, and there is no question of Ord 17, r 11 applying, even if there is an ongoing dispute about time for payment. If in a fixed date action judgment is obtained in respect of a partial admission or in default of defence (under rr 4 and 4A), manual directions must be given in respect of any part of the claim that is still outstanding.

16.5  Even if the action proceeds against other defendants, Ord 17, r 11 will not apply for the reasons we have set out in para 6.10 above. We have already rejected the idea of trigger dates operating retrospectively in cases where one or more defendants do not, in the end, deliver a defence for whatever reason, and one of the reasons for such non-delivery might be that an admission of liability by such a defendant obviates the need for a defence; and it would be chaotic if there were to be one regime in cases where an admission of liability by one defendant precedes the delivery of other defendants’ defences, and a different regime in cases where one of the defences is delivered before an admission (which disposes of the claim as against that defendant) is forthcoming from one of his co-defendants.

16.6  It follows that if a default judgment is entered against one of several defendants it will be necessary for the court to give manual directions. If that judgment is subsequently set aside it may then be necessary to give further manual directions in order to adjust the earlier timetable. This question does not arise if a default judgment is entered against the only defendant in the action, and if that judgment is subsequently set aside, we see no reason why automatic directions should not apply, since a defence must then be delivered, and there will be no difficulty in identifying a trigger date, calculated from the time when the only defence in the action is delivered.

16.7  Order 9, r 3(6) is concerned with a situation in which the defendant has admitted part of the plaintiff’s claim and the plaintiff notifies the proper officer that he does not accept the amount admitted. Order 17, r 11(1)(o) expressly excepts an action to which Ord 9, r 3(6) applies, but we would emphasise, as one of the cases we have decided shows, that this subrule only applies when both its requirements are met. In other words there must be both a partial admission and a notification by the plaintiff to the proper officer that he does not accept the amount admitted.

16.8  In cases where an application to a judicial officer of the court is required before judgment may be entered on an admission (for example, under Ord 11, r 3(7)(b), or where there is a dispute as to whether an admission has been made, and the court declines to allow judgment to be entered by administrative process), the making of such an application must in our view have the same effect as an application for interlocutory judgment, and manual directions will be required for the conduct of the balance of the action.

16.9  If a defendant makes an application under Ord 9, r 2(4) to withdraw an admission of a type which has allowed or would allow one of the procedures for obtaining interlocutory judgment to be put in train so as to dispose of the action (at any rate so far as liability is concerned), and the court permits him to do so, manual directions will once again be required. We are not here concerned with an application to withdraw an admission which is simply part of a defence in an action to which Ord 17, r 11 already applies, because there is no reason why the automatic directions should not continue to apply whether or not such an admission is allowed to be withdrawn.

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16.10  When we refer in this section to manual directions, provided that the action would otherwise be within Ord 17, r 11, there is no reason why manual directions should not be given equivalent to the automatic directions, with a trigger date and guillotine date clearly spelt out, to which the principles applicable to automatic strike-out would apply. If this course is adopted, a form of words such as ‘Directions in the same form as Ord 17, r 11(3)’ should not be used, because this could lead to the court ignoring the need to consider the timetable which would be appropriate for the particular action at the time when such directions are being given. Once again, we would strongly encourage the giving of directions which will include the fixing of a date for trial from the outset to which everyone can work.

OUSTER: DIRECTIONS FOR THE TRIAL OF A PRELIMINARY ISSUE

17.1  In our view the existence of an order for the trial of a preliminary issue, together with any directions that may have been given for the trial of that issue, will be inconsistent with the continuing application of automatic directions to any part of the action, whether or not that issue is subsequently tried. The trial of a preliminary issue, a limitation issue, for example, will need its own set of manual directions. The court may direct a timetable for discovery and/or the exchange of witness statements or affidavits limited to that issue. Alternatively, it may simply direct the trial of that issue without discovery or witnesses. In either event it would be absurd to contemplate the continued application of automatic directions to the action as a whole.

17.2  In the two appeals before us in which this point fell to be decided, counsel for each defendant suggested that even if the other automatic directions were inapposite, r 11(3)(d), which creates the obligation to request a hearing date within six months, should continue to apply. At the forefront of their submissions, however, was the argument that the hearing for which the plaintiff was bound to request a hearing date was not the hearing of the preliminary issue, but the full trial. They pointed out, for instance, that CCR Ord 20, which is entitled ‘Hearing of the cause or matter’, makes no provision at all for the trial of a preliminary issue, and RSC Ord 33, r 3, which applies by analogy in the county court by virtue of s 76 of the County Courts Act 1984, treats the trial of a preliminary issue as something different from the ‘trial of the cause or matter’, which they said was the hearing referred to in Ord 17, r 11(3)(d).

17.3  Curiously enough, it was the strength of this submission, which we accept, which convinced us that the regime that must follow an order for the trial of a preliminary issue is wholly inconsistent with the continuing application of automatic directions whose purpose is to prepare the ground for the trial of the main action. The purpose of ordering the trial of an issue is to eliminate or reduce greatly the number of issues that may remain if the issue is decided in a particular way. It would be absurd if a procedure designed to avoid or reduce the cost of the eventual hearing was accompanied by a continuing, quite pointless, obligation on the plaintiff to request a date for the hearing of the main action, whether within 6 or 15 months, in circumstances in which he could not usefully comply with his obligation to file the note prescribed by r 11(8).

17.4  Although this matter was not argued on this basis, we think that the absurdity of requiring full discovery, witness statements and requesting a date for the hearing of the full trial is as obvious once an application is issued for an order for the trial of a preliminary issue as it is when the order itself is made. Accordingly, in our view the application itself ousts the automatic directions.

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17.5  In our judgment, for these reasons an application for, and, a fortiori, an order for the trial of a preliminary issue has the same effect as an application for interlocutory or summary judgment or an order for a stay. Such steps or orders are wholly inconsistent with the continuing application of the automatic directions regime to any part of the action. This regime, therefore, will come to an end, and it will have to be replaced, where relevant, by appropriate manual directions. In this area, too, provided the action is one to which Ord 17, r 11 would have applied, the court would have the power to reapply directions equivalent to the automatic directions, with a trigger date and guillotine date clearly expressed, but once again it is likely to be better to fix a trial date for the parties to work towards rather than to contemplate automatic strike-out.

THE EFFECT OF OUSTER: PRACTICAL CONSIDERATIONSk

18.1  We believe that we need to stress, although it will be quite obvious from this judgment, that there will be many occasions when the provisions of Ord 17, r 11 will have been ousted in actions which might otherwise have been thought to fall within that rule. Both district judges and circuit judges will have to be diligent in ensuring that such actions are not left directionless.

18.2  We realise that a burden will also be imposed on court staff who will have to identify the cases in which the issuing of an application has taken the action outside the automatic directions regime, so that all such cases may be brought to the attention of the district judge. Where, for example, an application for summary judgment, albeit later withdrawn, has taken a case outside the automatic directions regime, that case will become directionless unless appropriate action is taken. In order to make the present rule work, administrative procedures will have to be set up for identifying and referring to the district judge all the cases in which relevant applications have been made, for example, applications for reference to arbitration, for summary or interlocutory judgments, or for orders for the trial of preliminary points.

18.3  If this cannot be done, and if it is still impossible nine years later to implement recommendation 41 of the 1988 report of the review body on Civil Justice, ‘computer facilities for the management of lists and individual cases should be made available as a matter of priority’, then a rule which is only really appropriate for simple single-defendant actions which have no significant interlocutory excursuses, should be changed without delay.

THE EFFECT OF APPEALS

19.1  One reason why it would, in our view, be unfair if the automatic directions continued to apply even though an application has been made for summary judgment or an order has been made for a preliminary issue to be tried, is that appeals from any such orders may take matters well beyond the guillotine date. It would be wholly unsatisfactory if an additional outcome of such an appeal were to be that the plaintiff’s action was automatically struck out. But it is right to emphasise that, in our view, it cannot be reasonably suggested that in some way or other the automatic directions timetable is suspended or extended while appeals on other interlocutory matters, such as discovery, are pursued in an action to which the automatic directions would otherwise apply.

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FIXING A DATE

20.1  An application to fix a date can be made by any party, and if a date is fixed at any time (even after the six months have expired under r 11(3)(d), but before the 15 months have expired under r 11(9)), the plaintiff will be released from his obligation to request the fixing of a hearing date under r 11(3)(d), and will no longer be subject to the sanction of automatic strike-out under r 11(9). If the hearing date were for any reason vacated, we still consider that a date would have been fixed so as to release the plaintiff from his obligation under that rule, but it would be within the control of the court either to refix a date or to reimpose the obligation on the plaintiff to apply to fix a further date if this was thought to be the appropriate course. In the latter event, provided the action was one to which the automatic directions applied originally, it would seem to us to be open to the court to impose a new guillotine date to which the principles applicable to Ord 17, r 11 would apply, so long as it did so in clear and express terms.

20.2  It is clear that there is room for argument as to what constitutes the ‘fixing of a day’. In one of the present appeals the judge ruled that a direction by the court on a form sent with the defence that ‘the hearing of this action will take place on a date during the week commencing Monday, 11 October 1993’ did not constitute the fixing of a hearing date. No argument on this point was addressed to us during the appeal, but we are bound to say that we consider that a direction from a proper officer, whether a district judge or an administrative officer of the court, that a case should come on for hearing during a defined period does fix a date for trial, and that in such an event the plaintiff’s obligation under r 11(3)(d) of the automatic directions timetable accordingly ceases or never starts to arise. This can be contrasted with the different direction given in another case to the effect that there would be a hearing at a particular date to be fixed. This does not amount to fixing a date.

REINSTATEMENT

21.1  Rastin v British Steel plc [1994] 2 All ER 641, [1994] 1 WLR 732 established that the court has power, under CCR Ord 13, r 4, retrospectively to extend the time for applying for a date for trial and thus to reinstate proceedings automatically struck out under Ord 17, r 11.

21.2  The existence of this power has not been seriously questioned in subsequent cases (nor in our view could it be) but the debate has rather been about the criteria to be applied by the courts when deciding whether or not to reinstate the action.

21.3  The first and most important point to be borne in mind is that such decisions are made in the exercise of a discretion vested in the court. It follows from this that the Court of Appeal will not interfere with the way in which the court below has exercised its discretion unless persuaded that the conclusion reached by the judge was plainly wrong: see G v G [1985] 2 All ER 225, [1985] 1 WLR 647. As that case emphasises, the fact that this court might itself have reached a different conclusion is insufficient; for what must be shown is that the result falls outside the generous ambit within which reasonable disagreement is possible.

21.4  There are two main categories of case.

21.5  The first of these applies unless the plaintiff can bring himself within the second category. Rastin v British Steel plc itself gave guidance on how the discretion should be exercised in the first category. The court made clear that the principles developed to deal with other procedural defaults and with striking out

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for want of prosecution were inapplicable in the present context; and it set out special guidelines to be applied to this category. The reason for this special approach lies in the object of the rule which, as we have already stated, is to set out the steps to be taken so that actions to which the rule applies can progress to trial without undue delay and to provide the sanction of automatic striking out as an incentive to plaintiffs to prosecute their claims with reasonable speed.

21.6  In this category the overall conduct of the case by the plaintiff, a word, which includes those advising the plaintiff, is clearly relevant and forms the first of the general guidelines. The reason for this is, of course, the object of the rule which we have stated above. Thus if (apart from the failure to request a date for trial) the plaintiff fails to satisfy the court that he is innocent of any significant failure to conduct the case with expedition, having regard to the particular features of the case, then it would be plainly wrong to reinstate it, for to do so in such circumstances would be to frustrate the object of the rule.

21.7  In view of the wording of the rule it is clear that the obligation to get on with the case commences with the trigger date and continues until the guillotine date. The plaintiff will accordingly have to show that during this period he was innocent of any significant failure to conduct the case with expedition, having regard to the object of the rule, which here of course includes the timetable stipulated in the rule.

21.8  In considering whether the plaintiff has satisfied the court that he is innocent of any significant failure to conduct the case with expedition (which is described in the cases as the ‘reasonable diligence’ guideline), the judge is entitled to consider all the aspects of the litigation.

21.9  Difficulties and delays in progressing a case arise for a myriad of reasons. For example, the case may be complex and the automatic directions for that or other reasons not really appropriate. The defendants may be unco-operative or indeed actively seek to delay matters. These are the sort of factors that can be taken into account when assessing whether the plaintiff is innocent of significant failure to conduct the case with expedition, but they are not in themselves necessarily conclusive, since in the end it is for the plaintiff to get on with his claim. Where such difficulties and delays arise or can reasonably be foreseen, often the obvious remedy is to seek the assistance of the court, either for an extension of time or special directions, or to put pressure on the other parties to the action; and a failure to do so in appropriate circumstances might make it difficult to satisfy a court that the plaintiff had nevertheless been prosecuting the case with expedition. Furthermore, where the action has been started late (for example just before the expiry of the limitation period) the expedition required of a plaintiff during the relevant period may well be greater than if the action had started soon after the events giving rise to it.

21.10  If (and only if) the court is satisfied that the plaintiff (apart from his failure to request a date for trial) is innocent of any significant failure to conduct the case with expedition, bearing in mind the object of the rule, should it turn to consider the second general guideline, which is concerned with the reason for the failure to apply for a date for trial.

21.11  In Rastin v British Steel plc [1994] 2 All ER 641 at 647, [1994] 1 WLR 732 at 740 it was stated that the plaintiff must satisfy the court that the failure is ‘excusable’. This expression has given rise to much debate, but looking at the cases as a whole it means simply whether in all the circumstances what is ex hypothesi an unjustifiable failure is of such a kind that it should not of itself preclude reinstatement; in other words that it should be forgiven. Thus a failure by

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solicitors to have any or any adequate system for monitoring compliance with the automatic directions, with the result that the guillotine date arrives and passes without any action, is very unlikely indeed to be regarded as excusable, as compared with, for example, an isolated clerical error in entering the relevant date in a computerised system. Again, delay in applying for reinstatement after the guillotine date can be a material factor. A test suggested by some of the cases (including Rastin’s case) is whether an extension of time would have been granted had it been applied for prospectively. If this would be likely to have happened, it can be weighed in the balance in favour of the plaintiff. Another test is whether the failure to apply for a date for trial has contributed in a significant way to delay in getting the matter to a hearing. These tests are not exhaustive and do not form part of the general guideline but may, depending on the circumstances, be employed as useful tools for assessing excusability. The passing or failing of these tests does not necessarily or automatically entail that there is or is not an excusable failure. For example, the fact that time has passed since the guillotine date because there has been a reasonable but unsuccessful appeal on the grounds that the action has not been automatically struck out at all may, again depending on all the circumstances, be treated as something which goes towards explaining a delay which otherwise would militate against excusability.

21.12  However the matter is approached, the court should always have in mind the object of the rule and accordingly should be wary of finding too readily that a failure to apply for a date is excusable, for to do so would once again be to frustrate that object.

21.13  If (and only if) the court is satisfied that the plaintiff has met the requirements of the first and second guidelines should it turn to the third guideline, which is the interests of justice generally. As the court pointed out in Rastin v British Steel plc [1994] 2 All ER 641 at 647, [1994] 1 WLR 732 at 740–741, here the position of the parties and the balance of hardship can be considered. If reinstatement would cause significant prejudice to the defendant which would not have been suffered if the plaintiff had applied for a date for trial in due time, that would be likely to be a conclusive reason for refusing reinstatement, though the absence of such prejudice is not a potent reason for ordering reinstatement. Factors such as the existence or otherwise of an alternative remedy for the plaintiff if reinstatement is not ordered, whether or not the limitation period has expired, and whether or not there has been an admission of liability or payment into court can also be taken into consideration. All these are examples of factors which may tip the scales of justice the one way or the other and do not represent an exhaustive list. What can be regarded as just will turn on the circumstances of the particular case, once again bearing in mind the object of the rule.

21.14  In summary, therefore, the guidelines to be applied, bearing the object of the rule in mind, are these. (i) Has the plaintiff satisfied the court that (apart from his failure to request a date for the trial) he is innocent of any significant failure to conduct the case with expedition between the trigger date and the guillotine date, having regard to the particular features of the case? If he has not, then reinstatement should be refused. (ii) Has the plaintiff satisfied the court that in all the circumstances his failure to apply for a date is excusable, ie should be forgiven? If he has not, then again reinstatement should be refused. (iii) Has the plaintiff satisfied the court that the balance of justice indicates that the action should be reinstated? If not then once again reinstatement should be refused.

21.15  What must be emphasised is that each case depends on its own facts; and what may strike a judge as of particular significance in one set of

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circumstances may well be reasonably regarded as of little or no significance in another.

21.16  What is quite illegitimate is to conduct a trawl through the decided cases, or the present cases, in an attempt to demonstrate that the one factor or the other (or the application of one or other of the suggested tests for any of the guidelines), was in another case applied to one guideline rather than another, or was given special weight or was discounted or ignored when considering any particular guideline, and then to seek to challenge the exercise of the discretion by showing that the court in the instant case did not adopt the same approach.

21.17  For example, attempts have been made to argue that since the cases have indicated that the question of reasonable diligence should be measured against the timetable laid out in the rule, any failure to comply with that timetable automatically entails that there has been a significant failure to conduct the case with reasonable expedition, whatever the other circumstances may be. As Lord Woolf MR pointed out in Samuels v John Laing Construction Ltd [1996] CA Transcript 1867, this is not the correct approach. Certainly the court must bear in mind the timetable stipulated in the rules, but if there is a departure from that timetable it does not necessarily follow that there was a significant failure to proceed with reasonable expedition, since the departure may not have resulted in any significant delay or may have been wholly reasonable and sensible in all the circumstances, ie. likely to have been sanctioned by the court had an application in that regard been made. Thus although (except where the rule otherwise expressly provides) the parties cannot by agreement change the timetable, ie for discovery or for requesting a date (and for reasons given elsewhere cannot extend the guillotine date) a sensible and reasonable agreement or understanding that the court would be likely to have sanctioned had it been asked to do so can be taken into account in assessing whether the guidelines have been met.

21.18  If the court has directed itself properly in accordance with the general guidelines and with the object of the rule in mind, then the way in which it chooses to resolve the matter depends upon all the circumstances of the case in question and the assessment by the judge of the weight which he considers should be given to the factors relied upon by the parties. The fact that the judge does not recite the guidelines or the object of the rule in the judgment is not, in itself, automatic proof that he failed to have these matters in mind when reaching his decision. This court will only interfere with the exercise of the discretion if the decision is so plainly wrong that it is clear that the court must have failed properly to apply the general guidelines in the light of the object of the rule.

21.19  The second main category of case is where the failure to apply for a date for the trial has been caused by something that has genuinely and reasonably misled the plaintiff or his advisers. Again the reason for the existence of this second category lies in the object of the rule. Since the sanction of automatic striking out is there to provide an incentive to plaintiffs to prosecute their claims with reasonable speed, it is hardly just to apply that sanction where the failure to meet the timetable arises through no fault on the part of the plaintiff.

21.20  For this reason Williams v Globe Coaches (a firm) [1996] 1 WLR 553 lays down a different guideline. That case was concerned with an error on the part of the court administration, but there is no reason in principle why this category should not extend to any case where the plaintiff is genuinely and reasonably misled, whether by the court, the defendants or others. Equally, it seems to us that this second category is not limited to cases where the plaintiff was misled into

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believing the wrong guillotine date, but would include cases where he was misled into genuinely and reasonably believing that there was no guillotine date at all.

21.21  What must be emphasised, however, is that in order to rely upon this ground for reinstatement, the plaintiff (a word which again includes his advisers) must satisfy the court that he was genuinely and reasonably misled into failing to apply for a date for trial. In other words, the plaintiff must satisfy the court that had he not been so misled, he would have requested a date for the trial before the guillotine date. Thus, for example, where the plaintiff was misled into believing that the guillotine date was 1 June whereas it was in fact 1 May, but failed to apply for a date until after 1 June, it could not be seriously suggested that he could bring his case within this category, since by failing to meet the latter date he has demonstrated that he was not reasonably and genuinely misled into believing that he had until the latter date to apply for a date for trial.

21.22  What must also be emphasised is that this category is not available to relieve plaintiffs from their own internal problems. If, for example, the plaintiff changes solicitors, and those now acting for him do not have the information which was possessed or which should have been possessed by their predecessors, which would have made it clear that what the new solicitors are being told is or may be inaccurate, and as a result the new solicitors are led to believe that the guillotine date is later than it in fact is, the plaintiff cannot successfully seek reinstatement under this category. The reason for this is that in such cases the true reason why the guillotine date is missed is not because the plaintiff has been genuinely and reasonably misled, but because (for whatever reason) there has been an internal failure properly to investigate the position or to pass on relevant information.

21.23  Finally, we must state once again that the assessment of the weight or otherwise to be given to the circumstances of the case is a matter for the court concerned in the exercise of its discretion. Again it is illegitimate to trawl through the cases to seek to demonstrate to this court that the court below has not adopted the same weighting as in other cases. For example, in Williams v Globe Coaches (a firm), the judge at first instance considered that the plaintiff was genuinely and reasonably misled by the court administration sending out a second Form N450 giving the wrong trigger date. In another case, however, a judge might conclude that those acting for the plaintiff should have realised that the date was or might be wrong and should have made further inquiries. The judge in the latter case could not be criticised for reaching a different view, if the matter is within the generous ambit within which reasonable disagreement is possible, any more than he could if he reached the same view as the earlier judge, as was pointed out in Samuels v John Laing Construction Ltd. As with the first category, this court will only interfere if satisfied that the decision is so plainly wrong that the court must have failed properly to apply the guideline applicable to this category, namely that bearing the object of the rule in mind it must be satisfied that the failure to apply for a date was because the plaintiff was genuinely and reasonably misled.

21.24  When considering whether or not an action should be reinstated the court should, of course, also bear in mind that it would defeat the object of the exercise to indulge in a lengthy or complicated investigation into the facts of the case, so that care should be taken to ensure that unless the interests of justice clearly indicate otherwise, prolonged argument, extensive examination of documents, or the calling of witnesses for cross-examination etc should be strongly discouraged.

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21.25  Elsewhere in this judgment we consider the situation when the automatic directions are ousted by some application or order of the court in actions to which they would otherwise apply. For the reasons we have given, we conclude that the court can manually reapply directions equivalent to the automatic directions in such cases. If the action is struck out for failure to meet the guillotine date in such circumstances, then the case can only be reinstated if the plaintiff can bring himself within one or other of the categories we have described.

21.26  At this stage it is convenient to consider whether, as was argued in one of the cases, there should be a third category for reinstatement, namely actions where the parties have so conducted themselves in their dealings with each other that it would be inequitable for the defendant to assert that the action had been struck out or to oppose reinstatement; and where the plaintiff can also satisfy the court that the balance of justice indicates that the action should be reinstated. Thus where shortly before (but probably in ignorance of) the guillotine date the plaintiffs wrote to the defendants asking for details of witnesses so that there could be an application for a hearing date with an agreed estimate of length, and where the defendants at their request were given more time to respond but did not do so before the guillotine date (of which probably they too were ignorant) it was urged on us that it would be inequitable for the defendants to oppose an application for reinstatement and only just to reinstate the action.

21.27  We are unpersuaded that there should be any such additional category for reinstatement.

21.28  It is clear from Rastin v British Steel plc [1994] 2 All ER 641 at 646, [1994] 1 WLR 732 at 739 that the rule is not to be construed as sanctioning the traditional delay-causing method of proceeding, where the parties (particularly their advisers) expressly or implicitly are content to let matters drift rather than driving the case forward to trial. It is also clear from Heer v Tutton [1995] 4 All ER 547, [1995] 1 WLR 1336 that the parties cannot by agreement between themselves extend the guillotine date, either prospectively or retrospectively, for that would be to emasculate the rule and deprive it of its intended beneficial effect.

21.29  In the light of these considerations we can see no basis for suggesting that agreements or understandings between the parties should provide a separate basis for reinstatement, with or without the suggested further requirement that the court must be persuaded that it would be just to order reinstatement. As we say above, sensible and reasonable agreements or understandings might, of course, assist in showing that the plaintiff was innocent of any significant failure to conduct the case with expedition; if he was, whether the failure to apply for a date was excusable; and if the failure was excusable whether justice indicated that the action should be reinstated. In the case before us, however, the plaintiff had not acted with reasonable diligence and it could not be suggested that the conduct relied upon assisted in showing that he had established an excusable failure to apply for a date; the former because the conduct came right at the end of the relevant period, and the latter because the plaintiff was unaware that there was a guillotine date to be met.

21.30  In this connection we should add that we deprecate any attempt to reformulate (as opposed to restate) the guidelines in the two categories we have discussed. Formulations such as ‘whether the failure to set down was causative of any significant delay in bringing the matter to trial’ do not in our view properly reflect the way the law has developed in dealing with this rule and (if adopted) would be likely to cause confusion and difficulty.

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21.31  A further question which has risen in the context of reinstatement is whether, once a guillotine date has passed, an action may be reinstated if a court makes an order giving new manual directions for its future timetable when both the court and the parties are oblivious of the fact that the guillotine has fallen. In our judgment, such an order cannot have that effect. In Rastin v British Steel plc it was made plain that the object of the new rule was to enable the court, not the parties, to maintain control over the timetable, and that a retrospective application to extend time should not succeed unless the plaintiff could show to the court that he had prosecuted his case with at least reasonable diligence. In the situation we have postulated, the plaintiff has not demonstrated this to the court, so that the order the court has made does not have the effect, without more, of reinstating the action. An express application must be made in which it is made clear to the court that the request for reinstatement forms a part of what is being applied for, before an order made after a guillotine date will have this effect. There is no reason why such an application should not be made with the defendant’s consent, if this is forthcoming. This is not to say that the original order is not final and conclusive between the parties (see s 70 of the County Courts Act 1984). It is simply that the order cannot bind the hands of the court.

21.32  In conclusion on this topic we should state that it is our clear view that where the court reinstates an action in which there is more than one defendant, the action is not reinstated against any defendant who has not been given due notice of the application to reinstate and who accordingly has been deprived of the opportunity to respond to it. It is also our clear view that if a court declares an action to be struck out, that order will continue in full force and effect until it is set aside or there is an order for reinstatement.

FRESH PROCEEDINGS AFTER AN AUTOMATIC STRIKE-OUT

22.1  In Gardner v Southwark London BC (No 2), King v East Cambridgeshire CC, Thompson v Wickens Building Group Ltd [1996] 1 WLR 561 the court decided that in the absence of exceptional circumstances a plaintiff whose action has been automatically struck out may bring fresh proceedings if still within the limitation period. The reason for this decision was that a failure to apply for a date for trial by the guillotine date could not be equated with the sort of conduct which would lead a court in other cases to apply the extreme sanction of prohibiting fresh proceedings, especially since there is nothing in the rule to indicate that such an extreme sanction should be applied. Of course, as was pointed out in Gardner (No 2), the court might well exercise its discretion to stay the subsequent proceedings until the plaintiff had paid any costs he had been ordered to pay in the struck out action, but the extreme sanction can only be applied if over and above his failure to comply with the automatic directions, the plaintiff has so conducted himself that it can be said that the new proceedings amount to an abuse of the processes of the court.

CONCLUSION

23.1  It will be apparent from this judgment that the ill-thought out introduction of an automatic strike-out sanction has caused very great difficulties for many who are involved in the conduct of county court litigation. Many courts are now departing entirely from the automatic strike-out approach to the management of litigation by fixing a date for the trial at an early stage in appropriate cases. This means that these courts have taken it upon themselves in effect not to leave the fixing of a date to the plaintiff and to take a proactive role

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in managing the action. This is of course the approach advocated by Lord Woolf in his proposed reforms of the civil justice system and by his predecessor, now Lord Bingham, at the end of his judgment in Ashworth v McKay Foods Ltd [1996] 1 All ER 705 at 714, [1996] 1 WLR 542 at 552, when he encouraged the Judicial Studies Board to consider whether it was practicable or desirable to recommend a national practice along these lines. In our judgment this alternative approach, reinforced by the much tougher approach of the courts to pardoning delays in the run-up to the date fixed for trial, has a very great deal to commend it. We certainly cannot go on as we are.

THE DECISION IN THE INDIVIDUAL CASES BEFORE THE COURT

Bannister v SGB plc and ors

The writ in this personal injuries action was issued in the Kingston upon Hull District Registry in May 1991, a few days before the expiry of the limitation period. On 21 December 1992 an order transferring the action to the Kingston upon Hull County Court was sealed in the High Court. On 4 January 1993 the plaintiff’s solicitors wrote to the county court lodging the documents required pursuant to Ord 16, r 6. On 21 January 1993 the proper officer of the county court replied to them, informing them of the temporary reference number allocated to the case, and asking them to inform the court of any moneys held by the Court Funds Office on a district registry ledger to enable him to transfer the funds to the county court. He said that ‘until this information is provided the case cannot be transferred in’. On 17 June 1993 the plaintiff’s solicitors replied that there were no funds in court, and said that they would be obliged if the case could be transferred to the county court as soon as possible. This request was repeated by letters dated 30 July, 20 August and 29 November 1993, all of which went unanswered. On 7 December they spoke to an official of the court on the telephone and ascertained that the court file has been mislaid. They therefore enclosed a duplicate set of documents. On 16 December the county court issued a notice of transfer, which included a direction that there would be a hearing at the Combined Court Centre in Hull on a date to be fixed. The plaintiff’s solicitors did not receive this notice, but on 1 August 1994 they wrote to the court notifying it that, subject to transfer to the county court, the case was ready for trial. The court responded on 10 August 1994, informing them that notification of the transfer had been sent to them on 17 December 1993, and enclosing a copy of the notice.

On 19 April 1995 District Judge Evans held that the date of transfer from the High Court, for the purposes of CCR Ord 16, r 6(1A), was the date on which the High Court order was sealed, 21 December 1992, so that the guillotine date was 4 April 1994. Since no request for a hearing date had been made before that date, he ruled that the action had been struck out. He also refused the plaintiff’s application to reinstate, and made a wasted costs order against the plaintiff’s solicitors in respect of the costs of the defendants’ application. On 22 August 1995 Judge Fricker QC dismissed the plaintiff’s appeal, and made a further wasted costs order against the plaintiff’s solicitors in respect of the costs of the appeal. The plaintiff now appeals from all aspects of Judge Fricker’s order.

For the reasons we have given in the main judgment, the date of transfer in this case is to be taken as 21 January 1993, so that the action was struck out on 4 May 1994. Counsel for the plaintiff submitted that the action should be reinstated on Williams v Globe Coaches principles. We are of the view that it should be reinstated. It seems to us on the material we have been shown that the plaintiff’s

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solicitor was genuinely and reasonably misled into believing that the case had not been transferred when it had and accordingly was misled into believing that there was no question of the trigger date being calculated from 21 January 1993. Accordingly the appeal is allowed, and it is common ground that in this event the wasted costs orders made against the plaintiff’s solicitors must also be quashed.

Boustead v British Road Services Ltd

In this appeal the defendants seek to challenge the decision of Judge William Crawford QC in the Newcastle upon Tyne County Court to the effect that the plaintiff had brought himself within the guidelines of the first of the categories for reinstatement discussed in the main judgment. In particular, it was submitted that the judge had erred in treating the failure to apply for a date for trial as excusable. We are not convinced on the material shown to us that the judge was so plainly wrong that he must have failed properly to apply the guidelines, which he carefully set out in his judgment. Accordingly this appeal is dismissed.

Burrows v Wigan Metropolitan BC

This is a personal injuries action proceeding in the Wigan County Court. The ‘trigger date’ was 16 August 1995, and the ‘guillotine date’ therefore 16 November 1996. The plaintiff had solicitors on the record in the litigation, but he chose to bypass them by delivering a letter from himself to the county court in late August 1996, requesting that the matter be set down and enclosing the requisite £50 fee. On 19 September 1996 the county court telephoned the solicitors to find out what was happening. The solicitors said that the case was not ready to be set down. The county court reported this to the plaintiff by letter dated 19 September 1996 and sent the fee of £50 back to him. The guillotine date passed on 15 November 1996, and on 19 November 1996 the district judge declared the action to have been automatically struck out. On 6 January 1997 Judge Urquhart allowed the plaintiff’s appeal and granted leave to set the matter down.

The defendant has sought leave to appeal from Judge Urquhart’s order, suggesting that two points are properly arguable. First, it is submitted that the plaintiff cannot make a request for a hearing date personally when he has solicitors on the record. As we have indicated in the main judgment, we cannot see why not. Secondly, it is said that it is arguable that the request was withdrawn. In the strange circumstances that existed, we do not think that there is sufficient evidence that the solicitors withdrew the request or of an acceptance by the plaintiff that the request which he had made personally should be treated as withdrawn. We therefore consider that there is no reasonable prospect of success on an appeal, and we dismiss the application.

Eagle Star Insurance Co Ltd v Karasiewicz

In this possession case from the Brentford County Court, District Judge Gerlis ordered ‘automatic directions to apply’ in a case to which they would not otherwise have applied by virtue of Ord 17, r 11(1)(i). The only question, as in Utting v McMurdie (p 180, post), is whether the effect of this order was to apply the sanction of automatic striking out if the plaintiff failed to request a hearing date within 15 months of the close of pleadings. On 18 May 1995 District Judge Henson held that the action had not been automatically struck out, even though the guillotine date had come and gone, on the ground that the original order had not spelled out that the strike-out sanction was to apply. On 13 June 1995 Judge

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Oppenheimer dismissed the second defendant’s appeal, and she now appeals to this court.

For the reasons we have given in the main judgment this appeal is dismissed.

Grafton and ors v Ballard and anor

This is a personal injuries case from the Romford County Court. The question that arises on this appeal is whether a request for a hearing date made by a third party can be a request within r 11(3)(d) so as to prevent the sanction that would otherwise apply under r 11(9).

The defendant and the third party in one action were the drivers of two cars which collided. The plaintiffs in that first action were passengers in the third party’s car. In a second action the defendant driver in the first action sued the third party driver. It is only the first action with which the court is concerned. An order was made on 30 June 1992 that the automatic directions applied to the ‘main suit’, ie that between the plaintiffs and the defendant; manual directions were given in relation to the third party proceedings as required by r 11(1)(p). The ‘trigger date’ was 7 May 1992, and the ‘guillotine date’ therefore 7 August 1993. On 19 March 1993 the third party’s solicitors applied in the first action for an order that ‘this matter be set down for trial after 56 days …’ to be heard with the second action. They also wrote to the plaintiffs’ solicitors on 4 June 1993 asking them to consent to the third party’s application at that stage, which was due to come on for hearing on 23 June 1993. On 15 June the plaintiffs’ solicitors replied that they did consent and that their letter could be produced to the Romford County Court. In the event the third party and the defendant compromised the second action, and agreed between themselves that the hearing on 23 June 1993 should be adjourned, to which adjournment the plaintiffs’ solicitors in the first action consented. In the result nothing was ever communicated to the court by anyone about the plaintiffs’ views on the matter, save their consent to this adjournment.

Some six weeks after that adjournment, the guillotine date came and went without any further material developments. Seven months after the guillotine date, on 7 March 1994, the defendant applied for costs against the plaintiffs, on the ground that the action had been automatically struck out. The plaintiffs responded on 11 March 1994 by applying to restore the adjourned applications. On 30 March 1994 Deputy District Judge Perry found that the action had been struck out, refused to restore the applications, and awarded costs to the defendant. On 26 April 1994 Judge Hitching allowed the plaintiffs’ appeal. The defendant now appeals to this court.

As we have said in the main judgment, the obligation is on the plaintiff to request a hearing date. This does not prevent any other party to the action applying and fixing a date, but only if a date is then fixed is the plaintiff relieved of the obligation under r 11(3)(d). If of course the plaintiff appoints another party as his agent to apply, and that is made clear in the application, a request as an agent would constitute a request by the plaintiff. Simply consenting to an application does not appoint another party an agent. It is not placing any great burden on a plaintiff to write his own letter requesting a hearing date even where another party is also applying. This case demonstrates why it is important that the obligation remains on the plaintiff to request a hearing date even if a request has been made by another party but no date has in fact been fixed. We would therefore allow this appeal.

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Harding v British Airports Authority plc

This personal injuries action was commenced by default summons in the Uxbridge County Court. The defendants’ solicitors delivered a signed copy of Form N9B to the court on 11 August 1993. They had ticked the box which showed that they disputed the full amount of the claim, and in answer to the question in section 4 of the form—‘If you dispute the claim for reasons other than payment, what are your reasons?’—they wrote: ‘Negligence, breach of statutory duty, causation, loss and damage and the Plaintiff’s claim in its entirety is denied. A full defence drafted by counsel will be filed on behalf of the first and second defendants … in due course.' Four weeks later, on 9 September 1993, they lodged a defence settled by counsel.

On 12 December 1994 the plaintiff’s solicitors applied for an extension of time for ‘requesting a date for trial’ which, by virtue of Ferreira v American Embassy Employees Association [1996] 1 WLR 536 incorporated an implied request for a hearing date. On 16 December 1994 the defendants cross-applied for a declaration that the action had been automatically struck out. If the filing of Form N9B counted as the delivery of a defence for the purpose of Ord 17, r 11, then the trigger date was 25 August 1993 and the guillotine date 25 November 1994, meaning that the action had already been struck out when the plaintiff’s implied request was made. Conversely, if delivery of the form did not amount to delivery of a defence, then the guillotine date was 23 December 1994, so that the application was made in time to stop the action being automatically struck out.

On 8 February 1995 Deputy District Judge Williams heard both parties’ applications together, and declared that the action had been automatically struck out. However, she allowed the plaintiff to amend his application to seek reinstatement, and ordered that the action be reinstated. The defendants appealed and the plaintiff cross-appealed. On 12 April 1995 Judge Elystan Morgan allowed the defendants’ appeal but dismissed the plaintiff’s cross-appeal. He held that the action had been automatically struck out and he refused to reinstate it, on the grounds that the case was covered by Rastin v British Steel plc [1994] 2 All ER 641, [1994] 1 WLR 732, not Williams v Globe Coaches (a firm) [1996] 1 WLR 553, and that the plaintiff had failed to satisfy the Rastin threshold criteria for reinstatement. The plaintiff now appeals from Judge Elystan Morgan’s order.

For the reasons we have given in the main judgment the judge was correct to hold that the guillotine date was 27 November 1994. It was not suggested that he was plainly wrong in concluding that the plaintiff had failed to show that the case had been prosecuted with reasonable diligence and accordingly the plaintiff fails to bring the case within the first of the categories for reinstatement. The plaintiff sought before us to bring himself within the second category on the grounds that he was genuinely and reasonably misled by the date on the defence settled by counsel. We are not persuaded by this argument. There had been a change of solicitors and it was not shown that the former solicitors were unaware of the true guillotine date. For the reasons stated in the main judgment, it follows that the plaintiff cannot establish that he was genuinely and reasonably misled. The appeal is accordingly dismissed.

Hume (t/a Benco & Son) v Anderton

This is a contract case from the Southampton County Court. The plaintiff’s solicitor wrote to the court on 25 November 1994 requesting a hearing date, but failed to pay the fee of £50 required by the County Court Fees Order. The court wrote back on 7 December 1994 (despite having no obligation to do so) asking for

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the fee to be paid, but the solicitors failed either to reply or to pay the fee. On 19 January 1995 the court wrote again with a reminder about the fee. Again, nothing was forthcoming. On 3 March 1995 the guillotine date passed. On 15 June 1995 the plaintiff finally paid the fee, but the defendant nevertheless applied on 26 June 1995 for a declaration that the action had been struck out. On 4 August 1995 Judge Rudd declared that the action had been struck out. The plaintiff now appeals from that order.

As we have indicated in the main judgment, we have considerable sympathy for the views expressed by Judge Rudd, but for the reasons we have given in that judgment, this appeal must be allowed.

Kearns v Effluent Services Ltd

This is a personal injuries case from the Liverpool County Court. The ‘trigger date’ was 15 March 1993, and the ‘guillotine date’ was therefore 15 June 1994.

On 15 March 1993 (ie right at the outset of the action) the Liverpool County Court in accordance with their practice, which is to be commended for the reasons we have given in the main judgment, initially fixed a date for hearing the whole action. That, as we see it, would have relieved the plaintiff in any event from requesting a hearing date under r 11(3)(d). On the application of the defendants dated 2 March 1993, however, it was ordered on 23 April 1993 that the issues relating to limitation should be tried as preliminary issues, that the date for trial of those issues should be in the week commencing 11 October 1993, and that discovery should be limited to those preliminary issues. It appears that the parties were not ready for that trial, and on 5 October 1993 they submitted a consent order for an adjournment and for the refixing of a date in 1994. The district judge would not deal with the matter, quite rightly, in the absence of the parties and adjourned the application for hearing inter partes to 28 October 1993. Due to a misunderstanding no order was made on 28 October 1993 relisting the matter. The case then went to sleep, with no further developments until 16 March 1995, nine months after the guillotine date, when the plaintiff applied for discovery. The defendant took the point that the action had been automatically struck out, and on 9 May 1995 District Judge Johnson held that it had been struck out. However, on 4 August 1995, Judge Marshall Evans QC allowed the plaintiff’s appeal. The defendant now appeals to this court.

Various points were argued in front of the judge, including the question whether the directions that a date for the full trial should be in the week commencing 11 October 1993, fixed a date for the trial. That point was not argued before us, but it is right to say that we take the view that a date was thereby fixed. The main issue on which the appeal was argued was the effect of an application, and the order, for the trial of a preliminary issue. On that aspect it is fair to say that the issue joined in the skeleton arguments was as to whether the request for the hearing of a preliminary issue constituted a request to fix a day for the hearing. However, when it became apparent that the point on which we required assistance was on the question whether a direction that there should be a preliminary issue took the whole action outside the automatic directions, counsel for the defendants, albeit taken by surprise, made powerful and helpful submissions to the effect that such a direction should not have that effect.

As appears from the main judgment, however, the force of his submission to the effect that r 11(3)(d) referred not to a request for the hearing of a preliminary issue but to the hearing of a full trial, reinforced what seemed to us to be the correct approach, ie that once a direction is made for a preliminary issue, the

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automatic directions certainly cease to apply to the action. In our view, for the reasons given in our main judgment, they would have been ousted earlier by the application for a trial of a preliminary issue. For reasons which are different from those given by the judge, we would dismiss this appeal.

Leach v Wade Heath & Co

This is a personal injuries case from the Stoke on Trent County Court. On 14 April 1993 an order was made transferring this action from the High Court to the county court. No issue has arisen as to the correct date for transfer and the ‘trigger date’ has been treated as 28 April 1993, and the ‘guillotine date’, therefore, as 28 July 1994. Prior to the transfer, however, on 15 July 1992 an order had been made by the district judge that the question of limitation be tried as a preliminary issue before the issues of ‘liability and quantum’, with those matters to be tried subsequently if they remained live ‘as may be directed by the trial judge’. On 14 April 1993, under the order transferring the action from the High Court, it was ordered that the preliminary issue be listed for trial on the first available date.

On 21 September 1993 that issue was determined in favour of the plaintiff, but no directions were given as to the further conduct of the action, and no directions were subsequently sought by any party. On 10 March 1995 the district judge refused the defendant’s application for a declaration that the action had been automatically struck out. On 28 April 1995 Judge Taylor allowed the defendant’s appeal. The plaintiff now appeals to this court.

The judge decided that a request for a date for the hearing of a preliminary issue was not a request for the fixing of a date for the hearing under r 11(3)(d). There is no indication that he was asked to consider the question now raised by the appellants, namely whether once a direction is given for the trial of a preliminary issue, this takes the action outside the automatic directions. For the reasons given in the main judgment, we consider that such an order does take the action outside the automatic directions. Indeed in our view, as in Kearns v Effluent Services Ltd (p 172, ante) the application itself would have taken the matter outside the automatic directions. We would therefore allow the appeal, but on a basis which, so far as we can tell, was not raised before the judge.

Lee v Hampshire CC and ors

The plaintiff, who was a caretaker at Fareham Tertiary College (Fareham), commenced an action for damages for personal injuries in the Portsmouth County Court against the Hampshire County Council (Hampshire), whom he believed to be his employers, and on 8 June 1993 he obtained a judgment against them in default of defence. This judgment was set aside by consent on 3 November 1993, when the court also made an order joining Fareham as second defendants and granting the plaintiff leave to serve amended particulars of claim. In this pleading he averred that he would discontinue proceedings against Hampshire if Fareham accepted in their defence that by the operation of a new statute they were the plaintiff’s employers at the relevant time. On 11 January 1994 Fareham delivered a defence accepting such responsibility, but blaming Herbert E Drew & Sons Ltd (Drew), their independent contractors, for creating the relevant hazard. At the same time they issued a third party notice against Drew. The plaintiff apparently obtained an order by consent giving him leave to join Drew as a third defendant, and on 15 September 1994 he served reamended particulars of claim, in which he adopted as part of his own case the allegations Fareham had made against Drew in the third party proceedings. On the same

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date he discontinued his proceedings as against Hampshire, who had never served a defence, presumably by agreement with the plaintiff. Drew delivered its defence on 1 November 1994. During the following year, when a question arose concerning the timetable of the action, Drew contended that the action had been automatically struck out on 25 April 1995, on the basis that the trigger date was 25 January 1994, 14 days after the delivery of Fareham’s defence. The plaintiff countered by applying on 21 July 1995 for a declaration that the action had not been struck out. On 3 October 1995 District Judge Baehr agreed with the plaintiff, finding that the relevant defence had been delivered on 1 November 1994, giving a trigger date of 15 November 1994 and a guillotine date of 15 February 1996. On 7 November 1995, however, Judge Shawcross allowed Drew’s appeal, holding that the guillotine date was 25 April 1995. He also rejected an alternative submission by the plaintiff, which has not been pursued before us, that an implied request for a hearing date had been made before the guillotine fell.

For the reasons we have given in our main judgment, automatic directions never applied to this action at all, since the first defendants never delivered a defence. The judge was correct in holding as he did on the arguments which were raised before him, but because automatic directions never applied at all, we would allow this appeal.

Lloyds Bank plc v Gow and ors

In this action in the Slough County Court, a lender with a charge over the borrower’s land sought, by means of a single county court summons (1) an order for possession of the charged land; and (2) money judgments on the personal covenants under the loan instrument and on a guarantee, both of which debts were secured by the relevant charge. It is accepted that the action was subsequently struck out automatically to the extent, if any, that automatic directions applied to it. The short point in this case is whether automatic directions did in fact apply to the debt aspect of the action (or, at least, to the claim under the guarantee), in view of the fact that CCR Ord 17, r 11(1)(i) excludes its application from actions ‘for the recovery of land’, without explicitly mentioning actions for debts secured upon land.

On 12 January 1995, on the plaintiff’s application for directions, Deputy District Judge Goldsmith refused to make an order, on the ground that the action had been automatically struck out over a year and a half earlier. On 5 April 1995 District Judge Burgess took a different view, and on 8 June 1995 Judge Hague QC dismissed the defendants’ appeal from District Judge Burgess, declaring that the action had not been automatically struck out. The defendants now appeal to this court.

For the reasons we have given in the main judgment, automatic directions did not apply to this action, and we would dismiss this appeal.

Loake v Chief Constable of the Norfolk Constabulary and anor

This action in the Bedford County Court included a claim for damages for false imprisonment. The pleadings were closed on 20 December 1993. No request for a hearing date, and no application for jury trial, were made before the guillotine date. Nevertheless, on 15 August 1995, several months after the guillotine date, Deputy District Judge Brar refused the defendants’ application for a declaration that the action had been automatically struck out, on the grounds that the exclusion from the automatic directions regime of ‘an action of a kind mentioned

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in section 66(3) of the [County Courts Act 1984] (trial by jury)’ encompassed all actions which might potentially be tried by a jury (including false imprisonment actions), irrespective of whether an application for jury trial has in fact been made in a particular case. On 20 October 1995 Mr Recorder Akast upheld the deputy district judge’s order. The defendants now appeal to this court.

For the reasons we have given in the main judgment, we would dismiss this appeal.

Meon Valley Engineering Ltd v Reinforced Plastic Products Ltd

This is an appeal by the defendants from an order of Judge Galpin in the Bournemouth County Court reinstating an action which had been automatically struck out. The judge concluded that the plaintiffs had failed to prosecute the action with due diligence but nevertheless reinstated the action. It was common ground that the case did not fall within either of the categories for reinstatement discussed in the main judgment. The circumstances which led the judge to reinstate the action are summarised in the main judgment where we have considered and rejected the submission made in this case that there should be a third category for reinstatement. We should add that we have also considered in the main judgment the question of the precise date when the guillotine falls, a matter which was considered by Judge Galpin, but our conclusions in that regard do not assist the plaintiffs in this case. It follows that this appeal is allowed.

Moorlite Electrical Ltd v Cripps

This action for the price of goods sold and delivered was commenced in the Sheffield District Registry on 6 January 1993. An order that the case be transferred to the Mayor’s and City of London County Court was sealed in the High Court on 27 September 1993, and the relevant documents were sent by second class post to that county court by the Sheffield District Registry on 4 October 1993. On 3 November 1993 the proper officer of the county court sent the parties notice of the transfer and wrote to the Sheffield District Registry acknowledging receipt of the documents. On 26 January 1995 the plaintiff requested a hearing date. The defendant applied for a declaration that the case had been automatically struck out, on the ground that the date of transfer was 27 September 1993, so that the guillotine date was 11 January 1995.

On 20 July 1995 District Judge Samuels refused the defendant’s application, on the basis that the date of transfer was the date on which the county court issued the formal notice of transfer. On 30 August 1995 Judge Simpson dismissed the defendant’s appeal. He held that the date of transfer was the date of receipt, and found as a fact that the date of receipt was 3 November 1993. Despite the lack of any explanation for the four-week delay between the date of posting and the date of receipt, the judge held that the fact that the notice of transfer and the letter acknowledging receipt of the documents from the district registry were both dated 3 November rebutted the statutory presumption that documents sent by second class post are received four working days after posting. The judge expressed himself satisfied that this solution promoted certainty for the parties, in that the only date actually notified to them was the one stamped on the notice they received. The defendant now appeals from Judge Simpson’s order.

For the reasons we have given in the main judgment, the judge was correct to hold that the date of transfer was the date of the receipt of the documents by the proper officer of the county court. He was entitled to conclude on the evidence

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that the documents were received on 3 November, and we would not disturb this finding. This appeal is therefore dismissed.

National Westminster Bank plc v Hurine and anor

In this action, which was transferred from the Manchester County Court to the Chester County Court, the plaintiff bank claimed against the two defendants sums totalling £131,553·85 on a loan account and £4,324 as the outstanding overdraft on a current account, together with interest. It was accepted that the second of these liabilities arose out of a regulated consumer credit agreement within the meaning of the Consumer Credit Act 1974. The first defendant, who was bankrupt, apparently played no part in the proceedings, and the second defendant delivered a defence and counterclaim in Form N9B on 4 June 1993. There were two issues in the case. The first was whether, and if so to what extent, the automatic directions regime applied, in that a small part of the claim (about 3% by value) arose out of the regulated consumer credit agreement (being an action excepted from the provisions of Ord 17, r 11 by virtue of CCR Ord 17, r 11(1)(d)). The second was whether, on the assumption that automatic directions applied to part of the claim, the issuing of the plaintiff’s application for summary judgment on 23 September 1994, shortly before the guillotine fell, amounted to a request for a hearing date or ousted the automatic directions regime for some other reason. At the adjourned hearing of the plaintiff’s application for summary judgment on 8 February 1995 District Judge Harrison ordered that summary judgment be entered for the plaintiff, rejecting the second defendant’s argument that the action had been automatically struck out. The second defendant appealed from so much of the judgment which related to sums which did not accrue due under a regulated consumer credit agreement, but on 9 March 1995 Roy Woolley, sitting as a deputy circuit judge, dismissed her appeal on the grounds that automatic directions did not apply to the action at all. He went on to hold that if directions equivalent to automatic directions which were issued by the court of its own motion had any effect, the trigger date under those directions was 16 July 1993 and the application for summary judgment 14 months later rendered those directions no longer effective. She now appeals to this court.

For the reasons we have given in the main judgment, the judge was correct to hold that automatic directions did not apply to this action by reason of the effect of Ord 17, r 1(1)(d). He was also correct to hold that if they had applied, the issuing of the application for summary judgment would have terminated their effect, for the reasons we have also given in the main judgment, although the trigger date would in fact have been 2 July 1993, 28 days after the defence and counterclaim in Form N9B was delivered. In the circumstances we do not have to go on to consider a further point, which was not considered in argument at all, which might have arisen out of the failure of the bankrupt first defendant to deliver a defence at all, a very difficult question we have also discussed in the main judgment.

The appeal will therefore be dismissed.

Norman v Jewson Ltd

In this personal injuries case in the Cambridge County Court the guillotine date was 6 July 1994. Oblivious of the fact that the action had been automatically struck out, the plaintiff’s solicitors subsequently applied for a new set of manual directions, including a direction that the matter be set down on both parties filing certificates of readiness. The defendant’s solicitors, equally oblivious of the fact

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that the guillotine date had passed, indorsed their consent on the application, and on 26 September 1994 District Judge Barker duly made a consent order in the terms sought. A reamended statement of claim (sic) was served, and witness statements were exchanged a month later in pursuance of this order. On 28 November 1994 the defendants’ solicitors contended for the first time that the action had been struck out, and on 20 March 1995 District Judge Temple made an order to this effect. On 3 October 1995 Judge Mellor allowed the plaintiff’s appeal on the basis that by analogy with Ferreira v American Embassy Employees Association [1996] 1 WLR 536  District Judge Barker’s order was to be treated as having the effect of reinstating the action pursuant to an implied request to that effect. He went on to refuse a very belated application by the defendant for leave to appeal out of time against that consent order. The defendant now appeals from both these decisions. Counsel for the plaintiff concedes, for his part, that if the Rastin approach to reinstatement had been adopted, then the action would have stood no prospect of being reinstated.

For the reasons we have given in the main judgment, we consider that the judge was wrong to hold that the consent order had the effect of reinstating the action. The action therefore remained struck out, and was not reinstated. We will therefore allow the appeal and reinstate the order of District Judge Temple. We would add, for the sake of completeness, that the judge’s refusal to grant leave to appeal against District Judge Barker’s order so long after it was made was clearly right, but this consideration does not, of course, affect the outcome of the appeal, since the action stands struck out.

Pannell v Tesco plc

This is a personal injuries case from the Brighton County Court. The pleadings closed on 30 July 1992. The guillotine date would therefore, in the ordinary course of things, have been 30 October 1993. However, on 27 October 1993 Deputy District Judge Radcliffe ordered ‘that the time limit for setting the action down for trial be extended until 29th October 1994’. On 4 October 1994 the plaintiff applied ex parte for the time limit for setting down the action under the automatic directions to be extended by six months to 29 April 1995. On 14 October 1994 Deputy District Judge Thompson dealt with that application by ordering that ‘the time limit for setting down the action be extended by a period of four months from today’. On 21 October 1994, when the defendant’s solicitors had said that they were considering an appeal from that order, the plaintiff’s solicitors asked them to confirm as a matter of urgency whether such an appeal would be launched, on the ground that ‘if you were successful in appealing against the order and your appeal is heard after the 29 October there is clearly the prospect that our client will be prejudiced in that our claim will be effectively struck out’. On 22 February 1995, four months and eight days after the order of 14 October 1994, the plaintiff wrote to the court requesting that the case be ‘set down’. On 7 March 1995 the court wrote back to say that the action had been automatically struck out. On 10 March 1995 the plaintiff applied for a declaration that the action had not been struck out or, in the alternative, an order reinstating it. On 2 May 1995 Deputy District Judge Peat refused both aspects of this application, finding in relation to reinstatement that, applying Rastin’s case, the action had not been conducted with due diligence. On 7 June 1995 Judge Viner QC dismissed the plaintiff’s appeal. The plaintiff now appeals from Judge Viner’s order.

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For the reasons given in the main judgment this appeal is allowed, since the effect of Deputy District Judge Thompson’s order was that the guillotine date was now nine months after the expiry of the four-month extension ordered. We were wholly unpersuaded by the submission that the circumstances were such that it would be unjust to allow the plaintiff to rely on this point.

Shaw v Translink Joint Venture

This personal injuries action was originally commenced in the Romford County Court by default summons on 8 December 1992. With the summons the court sent the defendant’s solicitors Form N9, which is not the form prescribed for use in default actions, and on 23 December 1992 the defendant’s solicitors wrote to the court, enclosing this form duly completed. They observed that this was the only form which had been served with the summons, and said that the defence would follow in due course. The form was not enclosed with the papers when the action was transferred to the Folkestone County Court, and it has now been lost. A photocopy of the front side of the form has survived, from which it is clear that the defendant’s solicitors did tick the relevant box to indicate that they did not admit any of the claim. There is no surviving copy of the reverse side, on which the question ‘What are your reasons for disputing the claim?’ would have appeared. This form was received by the county court on 29 December 1992, but it did not send out any Form N450 as a consequence.

The defendant’s litigation manager has sworn an affidavit in which he says that in a totally separate action in which he filed a Form N9 in the same county court some three months later, he answered the relevant question on the second page with the words ‘defence to follow’. In that unrelated case, the proper officer of the court wrote to him stating that the form N9 in that case ‘constitute[d] a defence, and accordingly automatic directions were issued. We await the filing of your full defence in due course’.

In the present case there followed correspondence between the parties’ solicitors in which a short extension of time for serving the defence was granted, and the defendants’ solicitors then had to issue an application to the court for a further extension of time. On 4 February 1993, however, before that application was heard, they filed and served a defence settled by counsel. If Form N9 counted as the defence, then the trigger date was 12 January 1993, and the guillotine date 12 April 1994. If the formal defence settled by counsel counted as the defence, then the guillotine date was 18 May 1994. The plaintiff’s request for a hearing date was made on 22 April 1994. The district judge held that Form N9 did not constitute a defence, and that the action had, accordingly, not been struck out. On 28 April 1995, however, Judge Ellison Nash allowed the defendant’s appeal on this point, and, on 10 August 1995, Judge Peppitt QC refused the plaintiff’s application to reinstate. The plaintiff appeals from the orders of both judges.

For the reasons we have given in the main judgment, Judge Ellison Nash was correct to hold that the guillotine date was 12 April 1994. On the question of reinstatement, we are not persuaded that Judge Peppitt QC was plainly wrong in concluding that the plaintiff had not prosecuted the case with reasonable diligence and so fell outside the first category. As to the second category, the judge described the failure to apply for a date as ‘excusable’. The relevant guideline, however, is whether in all the circumstances the plaintiff was genuinely and reasonably misled by the service of the defence settled by counsel into believing that the guillotine date was later than in fact was the case. We have therefore been entitled to consider the matter afresh, and we conclude that he has

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brought his case within this guideline. Accordingly the appeal from the order of Judge Nash is dismissed and that from the order of Judge Peppitt QC allowed.

Singh v Joshi

In this action in the Willesden County Court, a landlord sued his tenant in August 1992 for possession, arrears of rent, mesne profits and damages for wrongful failure to pay utility bills. The tenant promptly delivered a defence and counterclaim, seeking recovery of overpaid rent and damages for breach of the covenant to repair. On 5 November 1993 an ‘unless’ order was made, requiring the plaintiff to file a defence to counterclaim and list of documents within 21 days. The plaintiff did not comply with this order, and in due course the plaintiff’s claim was struck out and the defendant was permitted to enter judgment on his counterclaim. On 4 August 1994 District Judge Morris ordered: ‘(1) judgment set aside (2) reply to defence and defence and counterclaim 7 days (3) Directions as Order 17 rule 11 to run from 11.8.94.' The reply and defence to counterclaim were duly served, but the action went back to sleep for another year and a half. On 3 May 1996, upon the defendant’s application, District Judge Steel ordered that unless the plaintiff serve his witness statements at 12 noon on 17 May 1996 at the defendant’s solicitor’s office, the plaintiff be debarred from calling witnesses. The plaintiff’s solicitors wrote on 10 May 1996 complaining that they had just received a copy of District Judge Steel’s order that day, and seeking a sealed copy of the order and an extension of time until 28 May 1996. The plaintiff applied for an extension of time, which District Judge Steel refused on 13 June 1996. The plaintiff appealed to Judge Krikler and at the same time sought a declaration that the counterclaim had been automatically struck out, on the ground that no request for a hearing date had been made within 15 months of 11 August 1994, the trigger date mentioned in District Judge Morris’s order of 4 August 1994. On 8 July 1996 Judge Krikler refused this application, but allowed the plaintiff’s appeal against District Judge Steel’s order, granting the plaintiff 14 further days for the filing of witness statements. Part of the grounds relied on by the judge appeared to have been that that the effect of District Judge Morris’s order was to reinstate the plaintiff’s claim. The plaintiff now appeals to this court.

For the reasons given in the main judgment we do not consider that there was any power to apply the automatic directions to the counterclaim, whether the plaintiff’s claim was reinstated or not. Moreover it is impermissible for the reasons we have explained even to use the reference to the automatic directions as shorthand to bring into play directions equivalent to the directions set out in r 11(3). In our view the judge was accordingly right in the view he took. We consider that the claim of the plaintiff was not in fact reinstated, but the history was not put before the judge with great clarity, which was why he may have taken a different view. In any event what appears to have been his initial view that the automatic directions simply cannot be applied to a counterclaim, was right, and this appeal is dismissed.

Smith v Bovis Construction Ltd

This is a personal injuries case from the Uxbridge County Court. Pleadings were deemed to be closed on 2 June 1993, with the consequence that the guillotine date would ordinarily have been 2 September 1994. On 7 February 1994 District Judge Jolly ordered, upon the plaintiff’s application, that ‘[t]he time be extended for setting this matter down for a hearing up to & including 27th May

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1994’. On 8 August 1994 District Judge Henson made a consent order that ‘the time for setting this matter down for trial be extended up to 30 September 1994 inclusive as leave is being sought from the Companies Court to continue proceedings against the second defendants, who are in liquidation’. On 8 September 1994 the second defendant company were dissolved. No request for a hearing date having been made by 30 September 1994, the defendants applied for a declaration that the action had been automatically struck out. On 6 March 1995 District Judge Henson refused this application, declaring that the action had not been automatically struck out. On 1 May 1995 Judge Bishop dismissed the defendants’ appeal. The defendants now appeal to this court.

For the reasons given in the main judgment this appeal is dismissed. The effect of the order of 8 August 1994 was that the guillotine date was nine months from 30 September 1994.

Utting v McMurdie and anor

In this action conducted by a litigant in person in the Brentford County Court, the district judge made an order, before the defendants had even delivered a defence, stating ‘Directions in the same form as Order 17, r. 11 to apply (copy attached)’. Automatic directions would not otherwise have applied to the case, since it contained a claim for recovery of land, and therefore fell within a category excluded by CCR Ord 17, r 11(1). It is admitted that, if this order validly applied the automatic strike-out sanction to the case, then the guillotine date passed without any request for a hearing date being made, with the consequence that the action was automatically struck out. The only question, therefore, is whether the order did validly introduce the strike-out sanction. On 10 October 1996 District Judge Henson held that the action had not been struck out, following Judge Oppenheimer’s earlier decision in Eagle Star Insurance Co Ltd v Karasiewicz (p 169, ante). On 21 November 1996 Judge Oppenheimer dismissed the defendants’ appeal against District Judge Henson’s decision, reaffirming his own earlier decision in Eagle Star. The defendants now seek leave to appeal from Judge Oppenheimer’s order.

For the reasons given in the main judgment this application is refused.

Orders accordingly.

Mary Rose Plummer  Barrister.

Greig Middleton & Co Ltd v Denderowicz

Olaleye-Oruene v London Guildhall University and other appeals

[1997] 4 All ER 181

Categories:        CIVIL PROCEDURE        

Court:        COURT OF APPEAL CIVIL DIVISION        

Lord(s):        SAVILLE, BROOKE AND WALLER LJJ        

Hearing Date(s):        22 MAY, 4 JULY 1997        

COURT OF APPEAL, CIVIL DIVISION

BROOKE AND WALLER LJJ

22 MAY, 4 JULY 1997

County court – Practice – Pre-trial review – Automatic directions – Automatic strike-out of action – Defendant admitting part of claim – Whether reference to arbitration by the court – Whether automatic timetable applicable – Whether action automatically struck out – CCR Ord 9, r 3(6), Ord 17, r 11(1)(c)(o), Ord 19, r 2(3).

Court of Appeal – Time for appeal – Extension of time – Discretion – Exercise of discretion – Factors to be considered – Change in law since losing party decided not to appeal decision at first instance – Principles to be applied when deciding whether to grant extension of time for appealing.

In the first case, the plaintiffs brought an action in the county court against the defendant claiming over £10,000. The case was subsequently transferred to another county court, which erroneously issued a notice stating that the action had been referred to arbitration under what was now CCR Ord 19, r 3(1) and that there would be a preliminary hearing. Thereafter, the court issued a further notice stating that the automatic directions under Ord 17, r 11 applied and replaced the preliminary hearing. After the proceedings began, the defendant sent a cheque to the plaintiffs for the amount he admitted was due, which they accepted as a payment on account, but failed to notify the proper officer that the amount had not been accepted as satisfying the claim as required by Ord 9, r 3(6). The deputy district judge later decided that the action had not been automatically struck out and his decision was affirmed on appeal. The defendant appealed to the Court of Appeal. Following a change in the law in Ord 17, r 11 cases, the plaintiffs sought to uphold the judgment on the additional ground that the action fell outside the provisions of Ord 17, r 11, because: (i) r 11(1)(o) excepted ‘an action to which Ord 9, r 3(6) applies (admission of part of the plaintiff’s claim)’; and (ii) r 11(1)(c) excepted proceedings referred to arbitration under Ord 19 and such a reference had to have been made by the district judge pursuant to Ord 19, r 3(1).

In the second case, the plaintiff brought an action against the defendant alleging racial discrimination. On 24 September 1992 the district judge directed that the trial be set down on a joint certificate of readiness signed by both parties. The plaintiff’s subsequent application to set down the action for trial on 2 August 1994 was successfully opposed by the defendants on the ground that the action had been automatically struck out, and on 16 May 1995 the district judge’s decision to that effect was upheld on appeal. Thereafter the plaintiff instructed

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her present solicitors, who, following a change in the law, applied for legal aid, which was later granted for the purpose of taking counsel’s opinion as to whether the order of 24 September had taken the action outside the automatic directions under Ord 17, r 11. In August 1996, some 15 months after the decision in the action, the plaintiff applied for leave to appeal.

Held – (1) In order for Ord 19, r 3(6) to apply, two conditions had to be satisfied, namely that the defendant admitted part of the plaintiff’s claim and that the plaintiff notified the proper officer that he did not accept the amount admitted. In the first case, however, the proceedings did not become ‘an action to which Ord 9, r 3(6) applies’ because the plaintiffs had failed to notify the proper officer that they did not accept the defendant’s cheque as satisfying the claim. Moreover, the provision in Ord 19, r 3(1) that proceedings in which the sum claimed exceeded a specified limit should ‘stand referred for arbitration by the district judge’ identified the person who was to arbitrate, not the person who was to refer the matter to arbitration; it also made it clear that, provided the proceedings fell within the stipulated description, the reference to arbitration was automatic. Since the amount claimed in the instant case exceeded the specified limit, the proceedings did not fall within the stipulated description and therefore there could be no automatic reference to arbitration. Further, the notice issued by the county court was not a notice of any judicial determination that the matter should be referred to arbitration; it was merely an error on the part of an officer of the court. It followed that the appeal would accordingly be allowed (see p 186 d f j to p 187 e,  post).

(2) An application for an extension of time for appealing a decision at first instance, following a change in the law in relation to Ord 17, r 11, was likely to be successful on the basis of special circumstances where the applicant could show that he did not appeal immediately in reliance on reasonable advice and that if an extension of time for appealing were granted his appeal was likely to succeed. However, an extension of time for appealing would not be given automatically in Ord 17, r 11 cases following a change in the law where: (a) there was an inexcusable delay in applying for an extension of time; (b) the respondent could demonstrate (i) that any third party might be affected by the reopening of the litigation, or (ii) that he or his insurers had acted reasonably on the basis that the claim was at an end or if prejudice had been suffered in any other way; or (c) the plaintiff had actually pursued a second action, causing the respondent to incur costs defending it. In the result, the application in the second case would be dismissed in view of the plaintiff’s delay in issuing the application for leave (see p 195 b to p 196 b j to p 197 b, post).

Notes

For pre-trial review, see 10 Halsbury’s Laws (4th edn) paras 235–239.

For extension of time for appealing, see 37 Halsbury’s Laws (4th edn) para 684, and for cases on the subject, see 37(3) Digest (Reissue) 163–167, 3822–3845.

Cases referred to in judgment

Bannister v SGB plc [1997] 4 All ER 129, CA.

Berkeley, Re, Borrer v Berkeley [1944] 2 All ER 395, [1945] Ch 1, CA.

Brett v Northern Foods Ltd [1997] CA Transcript 948.

Bourne v British Telecommunications plc (7 May 1997, unreported), CA.

Craig v Phillips (1877) 7 Ch D 249, CA; affg (1876) 3 Ch D 722.

Page 183 of [1997] 4 All ER 181

Dennis (a bankrupt), Re [1994] CA Transcript 158.

Downer & Downer Ltd v Brough, Protim Services Ltd v Newcomb [1996] 1 WLR 575, CA.

Edmondson v Scottish and Newcastle Breweries plc (1997) Times, 21 June, [1997] CA Transcript 952.

Esdaile v Payne (1889) 40 Ch D 520, CA.

Ferreira v American Embassy Employees Association [1996] 1 WLR 536, CA.

Khela v Pone [1997] CA Transcript 1253.

Norwich and Peterborough Building Society v Steed [1991] 2 All ER 880, [1991] 1 WLR 449, CA.

Noviello v Ele International Ltd [1997] CA Transcript 265.

Pearson v Export Packaging Services (14 May 1997, unreported), CA.

Property and Reversionary Investment Corp Ltd v Templar [1978] 2 All ER 433, [1977] 1 WLR 1223, CA.

Rajah v Garner [1997] CA Transcript 811.

Rastin v British Steel plc [1994] 2 All ER 641, [1994] 1 WLR 732, CA.

Sadiq v London Buses Ltd [1997] CA Transcript 264.

Seagaram v Grant [1996] CA Transcript 1878.

Sebag-Montefiore, Re, Sebag-Montefiore, v Alliance Assurance Co Ltd [1944] 1 All ER 672, [1944] Ch 331.

Sharma v Knight [1986] 1 WLR 757, CA.

Smithson v Palmer & Harvey Ltd (15 May 1997, unreported), CA.

Tredgold, Re, Midland Bank Executor and Trustee Co Ltd v Tredgold [1943] 1 All ER 120, [1943] Ch 69.

Twycross v Grant (1877) 2 CPD 469, CA.

United Scientific Holdings Ltd v Burnley BC [1977] 2 All ER 62, [1978] AC 904, [1977] 2 WLR 806, HL.

Van Stillevoldt (C M) BV v El Carriers Inc [1983] 1 All ER 699, [1983] 1 WLR 207, CA.

Ward v James [1965] 1 All ER 563, [1966] 1 QB 273, [1965] 2 WLR 455, CA

Wigfull (J) & Sons Ltd v J Jackson & Son Ltd [1916] 1 Ch 213; application for leave to appeal dismissed sub nom Re J Wigfull & Sons’ Trade Marks [1919] 1 Ch 52, CA.

Williams v Globe Coaches (a firm) [1996] 1 WLR 553, CA.

Interlocutory appeal and application

Greig Middleton & Co Ltd v Denderowicz

The defendant, Napthali Denderowicz, appealed with the leave of a single Lord Justice, from the decision of Judge Cartlidge on 14 March 1995 dismissing the defendant’s appeal from the decision of Deputy District Judge Dodds in the Gateshead County Court on 1 February 1995 whereby he held that the action brought by the plaintiffs, Greig Middleton & Co Ltd, against the defendant claiming some £10,000 in relation to transactions they had handled for him on the Stock Exchange had not been automatically struck out. The facts are set out in the judgment of the court.

Olaleye-Oruene v London Guildhall University

The plaintiff, Taiwo Olaleye-Oruene, applied for leave to appeal from the decision of Judge Quentin Edwards QC on 16 May 1995 upholding the decision of District Judge Litchfield in the Central London County Court on 17 March 1995 that her action against the defendants, London Guildhall University, alleging racial discrimination had automatically been struck out. The facts are set out in the judgment of the court.

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Mr Denderowicz appeared in person.

Mark James (instructed by Simmonds Church Smiles) for Greig Middleton & Co.

William Panton (instructed by Moss Beachley & Mullem) for Ms Olaleye-Oruene.

Thomas Linden (instructed by Ashurst Morris Crisp) for the university.

Cur adv vult

4 July 1997. The following judgment of the court was delivered.

SAVILLE LJ.

1  Introduction

1.1  This is the judgment of the court, to which all three members of the court have contributed equally. We were invited to sit together for seven weeks after Easter this year in order to dispose of more than 100 appeals or applications for leave to appeal which had accumulated in connection with the operation of CCR Ord 17, r 11. At the end of the third week of this period we gave a composite judgment entitled Bannister v SGB plc [1997] 4 All ER 129 in which we restated the existing law and resolved a large number of outstanding issues when deciding 19 appeals and two applications of this kind. Copies of our judgment in Bannister were sent to all the parties in the outstanding appeals and applications, and as a result, a large number of them were resolved by agreement without the need for a court hearing. In order to dispose of the remainder, we sat for the next 3 weeks in a series of two-judge divisions of the court, mainly consisting of Brooke and Waller LJJ. On 22 May we reconstituted ourselves as a three-judge division to hear the three remaining cases in our list. In one of these cases the appeal as against one of the defendants has now been resolved without any need for a formal judgment, but because a novel point was suddenly being taken for the first time as against the other, we adjourned that part of the application in order to hear argument from both sides. Two of us (Brooke and Waller LJJ) have now heard argument inter partes in that case. This judgment contains our judgments on the two cases we have decided as a three-judge court, and some additional comments which are designed to take further forward the effort we undertook in our judgment in Bannister, in order to make it easier for judges and practitioners to operate this difficult rule.

1.2  These last three cases were selected for special treatment because they raised points on which we were able to reconsider certain obiter dicta contained in our judgment in Bannister. The present judgment affords us the opportunity of correcting or clarifying those points. Two of them also raise an important new issue, following Bannister, in relation to cases where applicants are seeking to appeal out of time. This relates to the proper approach the court should adopt where such applications are lodged out of time because the law has now been authoritatively held to be different from what it was thought to be when the losing party originally decided not to appeal against a judgment. Brooke and Waller LJJ had already heard, but reserved judgment in, four other applications of this type. In this judgment of the full court we will therefore state the principles which should be followed, and we will then go on to apply them to the application we have decided as a three-judge court in which these issues arose.a

1.3  We authorised two versions of our judgment in Bannister to be published, one in hard copy transcript form and one on the Internet. Because the page numbering of these two versions differed and because those who downloaded

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the judgment from the Internet are likely to have different paging systems, we have inserted paragraph numbering into the main text of the original judgment (as opposed to its schedules).b  It also seemed to us that it would be very much more convenient if we were to incorporate into the original text of our judgment the corrections and clarifications we have mentioned, and we have directed that it is this revised version of our judgment in Bannister, as clarified and corrected, which should appear in any official law report. We have also directed that the text of the judgment which currently appears on FELIX, the judges’ electronic communications system, and on the Internet on the website of the Lord Chancellor’s Department should be replaced by this revised version, and copies of this revised version should be sent to court administrators for distribution to judges as before. In addition, this judgment should itself be distributed on FELIX and the Internet, and to court administrators for distribution to judges.

1.4  We also believed that it would be helpful to practitioners if we were to include in our present judgment a summary of the new points decided by two-judge divisions of this court during the four weeks which followed our judgment in Bannister. Most of the cases they heard raised no new points of general interest, but a few of them did, and we are including a summary of these in the final part of this judgment.

1.5  We have accordingly designed the present judgment along the following lines. In sections 2 to 5 we will clarify or correct some of the things we said in our judgment in Bannister. In section 6 we will give our judgment in Greig Middleton & Co Ltd v Denderowicz. In section 7 we will state the general principles this court will apply when it considers an application to extend the time for appealing in cases arising under Ord 17, r 11 where there has been an authoritatively stated change in the law since the date of the judgment now under challenge. In section 8 we will apply those principles to Olaleye-Oruene v London Guildhall University. In section 9 we will summarise the new points that have been decided by two-judge divisions of the court since Bannister.c

[The court then set out in sections 2 to 5 the amendments to their judgment in Bannister [1997] 4 All ER 129, which is reported as revised, and continued:]

6  Greig Middleton & Co Ltd v Denderowicz

6.1  In this action, started in the Westminster County Court, the plaintiffs, who are stockbrokers, claimed over £10,000 from one of their customers in relation to transactions they had handled for him on the Stock Exchange. The defendant completed Form N9B in which he admitted that £204·50 was owing to the plaintiffs, but he otherwise denied the claim and stated that a fully pleaded defence was to follow. It was common ground that this form was received by the court by, at the latest, 30 April 1992.

6.2  The case was transferred to Gateshead County Court under Ord 9, r 2(8). On 15 May 1992 that court erroneously issued a notice to the effect that the action had been referred to arbitration under Ord 19, r 2(3) (whose current, amended, equivalent is Ord 19, r 3(1)) and that there would be a preliminary hearing on 14

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July. Shortly afterwards the court issued a further notice to the effect that the automatic directions applied and that these replaced this preliminary hearing. On 23 July the defendant delivered a defence settled by counsel.

6.3  There then followed a long history of applications to the court. For reasons that will become apparent it is not necessary to go through this history. Suffice it to say that on 1 February 1995 Deputy District Judge Dodds decided that the action had not been automatically struck out, on the grounds that the plaintiffs had applied for an extension of time before the guillotine date. The defendant unsuccessfully appealed to Judge Cartlidge and now, with the leave of a single Lord Justice, appeals to this court.

6.4  In the light of our decision in Bannister, the appeal was resisted on only two grounds.

6.5  First it was argued that the part admission in Form N9B (which is to be treated as the defence for the purpose of calculating the trigger date (see Bannister para 6.8) meant that the action fell outside the provisions of Ord 17, r 11, since r 11(1)(o) excepts from that rule ‘an action to which Order 9, rule 3(6) applies (admission of part of plaintiff’s claim)’.

6.6  Order 9, r 3(6) on its face applies ‘where the defendant admits part of the plaintiff’s claim and the plaintiff notifies the proper officer that he does not accept the amount admitted’. In that event the rule prescribes an automatic transfer to the defendant’s home court and a special procedure for a pre-trial review or the fixing of a day for the hearing of the action. This is the reason why, when the paragraph applies, the automatic timetable in Ord 17, r 11 is expressly displaced. In its context the paragraph is dealing with a case where the plaintiff is not prepared to accept an admitted sum in full satisfaction of his claim, in contrast to the earlier parts of Ord 9, r 3, which deal with cases where the plaintiff is so satisfied.

6.7  In the present case the defendant sent a cheque to the plaintiffs for the amount he admitted was due shortly after the proceedings began. They accepted this as a payment on account, but they failed to notify the proper officer that the amount was not accepted as satisfying the claim. In those circumstances the proceedings did not become ‘an action to which Order 9, rule 3 (6) applies’ for the simple reason that one of the two conditions for the application of this paragraph was not fulfilled (see, now, para 16.7 of the revised version of Bannister).

6.8  The plaintiffs’ second ground for resisting the appeal was that the matter had been referred to arbitration by the court. This meant, they said, that the action fell outside the provisions of Ord 17, r 11, being ‘proceedings which are referred for arbitration under Order 19’ (see r 11(1)(c) for the relevant exception).

6.9  Order 19, r 2(3), as it then read, provided that any proceedings in which the sum claimed or amount involved did not exceed £1,000—

‘shall stand referred for arbitration by the district judge upon the receipt by the court of a defence to the claim, but the district judge may, on the application of any party, refer the proceedings for arbitration by the judge or by an outside arbitrator.’

6.10  The argument advanced to us was to the effect that this paragraph (now to be found in Ord 19, r 3(1) but with the higher limit of £3,000) required the district judge to refer the matter to arbitration, and that this must have happened in the present case, so that there was by judicial act a reference to arbitration under Ord 19, r 2(3), which accordingly took the action out of Ord 17, r 11.

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6.11  The short answer to this argument is that the words ‘the district judge’ identify the person who is to arbitrate, not the person who is to refer the matter to arbitration. Were this not so, then the rule would not identify the arbitrator at all. The words ‘shall stand for arbitration’ make it clear that provided the proceedings fall within the stipulated description, the matter will be arbitrated by the district judge without the need for an order to that effect, unless the district judge refers the proceedings to another arbitrator. In other words, in such cases the reference to arbitration is automatic, although later parts of Ord 19, r 2 (as it then was) made provision for such a reference to be rescinded in certain circumstances.

6.12  In the present case the proceedings did not fall within the stipulated description, since the amount claimed was in excess of £1,000. Accordingly, there could be no automatic reference to arbitration. The notice issued by the county court was not notice of any judicial determination that the matter should be referred to arbitration. It was simply an error on the part of an executive officer of the court who for some reason thought that there had been an automatic reference, an error which was corrected a few days later. It was not, and could not be, suggested that such an error could have the effect of referring the action to arbitration, whether under r 2(3) or otherwise. It follows that these proceedings were not referred for arbitration under Ord 19, so that the action was not excepted for this reason from Ord 17, r 11.

6.13  The judge considered that the action had not been automatically struck out for reasons which cannot now be sustained, as the plaintiffs accepted. Since we have rejected the only two grounds on which the plaintiffs now seek to uphold the judge’s judgment, it follows that this appeal is allowed.

7  Principles relating to extensions of time for appealing following a change in the law in Ord 17, r 11 cases

7.1  In The Supreme Court Practice 1997 vol 1, para 59/4/4 it is said, correctly, that it is entirely in the discretion of the court to grant or refuse an extension of time. Some of the decided cases which touch on different aspects of the exercise of this discretion may be helpful (subject to what we say below) in identifying the principles which the court should apply on an application to extend time, so as to bring about a measure of consistency. As the note says, the factors which are normally taken into account are: (1) the length of the delay; (2) the reasons for the delay; (3) the chances of the appeal succeeding if time for appeal is extended; and (4) the degree of prejudice to the potential respondent if the application is granted. The original modern authority for these propositions is C M Van Stillevoldt BV v El Carriers Inc [1983] 1 All ER 699, [1983] 1 WLR 207, to which we will refer again below. The point we wish to emphasise at this stage is that the extent to which a defendant may be entitled to rely on the fact that an appeal is now to be reopened will depend on the facts of the individual case. If a decision has been made not to appeal, and the defendant is told of this, the fact that he may later have to face an appeal that he thought was not to be pursued is a factor of considerable weight to put in the balance in his favour.

7.2  We are here concerned with the exercise of the court’s discretion in relation to granting an extension of time for appealing where, following a decision at first instance, the applicant originally decided not to appeal. In each of the cases we have had to consider, either as a two-judge division or a three-judge division, the law has subsequently been clarified so as to demonstrate either that the original ruling was wrong or, at the very least, that there is a strong

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argument that it was wrong. We have therefore been referred principally to a line of cases concerned with applications to extend time for appealing following a later decision of an appellate court which demonstrates that the first decision was wrong, or may well have been wrong. It should be remembered in this context that judicial attitudes can change over the years, and at the end of the day each case will depend on its own facts. We would deplore the citation of authority designed to show the way in which other courts in the past have carried out the necessary balancing exercise on different facts, since the facts in no two cases are the same. Statements of principle are, however, important, and we are therefore setting out below the way in which this court has developed the relevant principles over the years.

7.3  In Craig v Phillips (1877) 7 Ch D 249 in the days when 12 months were allowed for an appeal against a final judgment, the plaintiff was seeking leave to appeal from a decision given against him on 4 April 1876. That was a final judgment disposing of the whole suit, and as Jessel MR put it (at 251):

‘No fund remained in Court, there were no accounts to be taken, the whole litigation was at an end. If the Plaintiff meant to appeal, his appeal ought to have been brought within a year … Thereupon, subject to the judicial discretion of the Court of Appeal to enlarge the time for appealing, the right of the Defendant under the judgment of the Vice-Chancellor was complete.’

7.4  A judgment was then given in the Court of Appeal in a different case on 2 June 1877 (Twycross v Grant 2 CPD 469) in which one member of the court, Lord Cockburn CJ, described the judgment of Bacon V-C in Craig v Phillips (1876) 3 Ch D 722 as erroneous (see at 539). After referring to the lack of unanimity in that court, Jessel MR then said (7 Ch D 249 at 251–252):

‘But even going further, and supposing that there had been an unanimous opinion of the Court of Appeal in accordance with the view of the Lord Chief Justice, I think it would have made no difference with regard to the present application. It would only have come to this, that more than a year after the decision in Craig v. Phillips the Court of Appeal had come to a different decision on a vexed point of law. In my opinion that is not sufficient ground, in the absence of very special circumstances, to deprive a man of a judgment which has been given in his favour. I can understand a different view being taken in cases where the time limited for appeal is very short, as in appeals under the Winding-up Acts, and where accounts are still pending and the assets undistributed; in such a case a creditor whose proof had been refused might be allowed further time to appeal; but the same considerations do not apply to a case like the present. There are no special circumstances at all in this case; and it does not appear to me that the rights of the Defendant ought to depend on the accident that this vexed point of law was differently decided after the expiration of the year allowed for appealing.’

7.5  At the end of his judgment he also referred to the plaintiff’s delay following the judgment of the Court of Appeal, and said (at 252):

‘That is sufficient to dispose of this application. But I think it ought also to fail on the ground of the applicant’s delay in making it. The judgment in Twycross v. Grant was delivered in June, 1877, after the year for appealing had already expired. That judgment was not delivered secretly or in an

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unimportant case. On the contrary, it was immediately reported in the public journals, and it must have been known to every member of the profession who took an interest in the subject. I cannot therefore leave out of consideration the time which elapsed between the delivery of that judgment and the present application. I do not think the Plaintiff has shewn due diligence in coming to the Court on the 15th of December, on account of a decision delivered on the 2nd of June; and of course any person who comes to ask the Court to relax the provisions of the rules in his favour, must shew great diligence, and not unnecessary delay, in doing so.’

7.6  Baggallay and Thesiger LJJ agreed with him, and both used the language of the necessity for ‘very special circumstances’ to be shown before exercising the court’s judicial discretion to enlarge the time.

7.7  In Esdaile v Payne (1889) 40 Ch D 520 the situation, in broad terms, which faced this court was that some defendants had appealed against the decision of the judge at first instance and others had not. Those that appealed lost in the Court of Appeal but then succeeded in the House of Lords. Following their success in the House of Lords, some of the others sought leave to appeal. Cotton and Bowen LJJ originally granted leave on the basis that it would be most unjust for the defendants who had not appealed to have to pay the tithes which were the subject of the litigation when in that very litigation it had been decided that they were in fact not so liable. But before their order was drawn up, the matter was re-argued when a further defendant who had not so far appealed applied for leave, and when some further evidential material had become available. This new evidence demonstrated that third parties had probably acted vis-à-vis the defendants who had not appealed on the basis that they were not going to appeal. This possible change of circumstance was enough to lead the court, now composed of Cotton, Lindley and Lopes LJJ, to refuse leave to appeal. In refusing leave, however, Cotton LJ said he was not sure that the first decision was right, now that fuller argument had been heard, and Lindley LJ added (at 534–535):

‘It may appear harsh that these Defendants should be bound by a decree which the House of Lords has decided to be wrong, but the more I consider the matter, the more I think it just. Suppose an action for tithes brought against six holders of property, and a decree made against them all. Five out of the six submit and allow the time for appealing to expire. It is important that a state of things so brought about should not lightly be disturbed. The sixth Defendant is bolder; he appeals; and at last he obtains from the House of Lords a decision in his favour. The other five then naturally wish to appeal. What ought to be done? In my opinion it is for the interest of the public that litigants should know as soon as possible when certainty has been reached, and that if people have deliberately elected to let the time for appealing go by, the Court should not give them leave to appeal without special circumstances. I make these remarks because I wish that there should be no doubt as to the general principle.’

7.8  In J Wigfull & Sons Ltd v J Jackson & Son Ltd [1916] 1 Ch 213 Neville J at first instance had rectified the register, removing the respondents’ trade mark. Three years later the Court of Appeal dissented in a different case from the view that that judge had adopted in relation to the construction of the Trade Marks Act 1905. The plaintiffs then applied for leave to appeal out of time (see sub nom Re J Wigfull & Sons’ Trade Marks [1919] 1 Ch 52). Although the earlier cases were

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cited to him, Swinfen Eady MR (at 59) stated the relevant test in the following simple terms: ‘… the Court has power to enlarge the time for appealing if it is just that, under the circumstances, an order enlarging the time should be made.’

7.9  He then referred to the fact that others might have used the mark in reliance on Neville J’s original decision over the three years since that decision was made, and to the fact that the only excuse for not appealing at the time was that a relevant decision of the Court of Appeal had been given later. The court refused leave, Eve J (at 60) referring to the well-settled rule that ‘the mere fact that a subsequent opinion of this Court shows that a judgment of an inferior Court was wrong gives no ground for enlarging the time’.

7.10  In Re Berkeley, Borrer v Berkeley [1944] 2 All ER 395, [1945] Ch 1, a slight softening of approach may be detected. In May 1943 Cohen J decided that on the basis of a recent judgment of Simonds J (Re Tredgold, Midland Bank Executor Co Ltd v Tredgold [1943] 1 All ER 120, [1943] Ch 69) an annuity in favour of Lady Berkeley was payable free of tax. No appeal was brought in time. In 1944 this court overruled Simonds J’s decision in the earlier case (see Re Sebag-Montefiore, Sebag-Montefiore v Alliance Assurance Co Ltd [1944] 1 All ER 672, [1944] Ch 331), and in October of that year an application for leave to appeal out of time was made by beneficiaries of the will who might receive nothing if Lady Berkeley received her annuity without deduction of tax. Lord Greene MR cited Re Wigfull & Sons’ Trade Marks and put the matter in this way ([1944] 2 All ER 395 at 397, [1945] Ch 1 at 4):

‘I find no difficulty in reconciling the statement that the different decision is not necessarily a ground for enlarging the time with the statement that the court can enlarge the time if it is just in the circumstances to do so. It seems to me that the principle to be extracted is that it is not sufficient for a party to come to the court and say that a subsequent decision of a superior court has determined that the principle of law on which his case was decided was wrong. The court will say to him: “That bald statement is not enough. What are the facts? What is the nature of the judgment? Who are the parties affected? What, if anything, has been done under it?” and so forth. In other words, the whole of the circumstances must be looked at. If the court in the light of those circumstances, considers it just to extend the time, then it will do so.’

7.11  In Ward v James [1965] 1 All ER 563, [1966] 1 QB 273 Sellers and Russell LJJ granted leave to appeal out of time in November 1964 from an order made by Roskill J in July 1963 directing trial by jury in a personal injuries action. The defendants did not seek to appeal against the order when it was originally made, but they did so after three decisions of this court had cast doubt on the proposition that it was right to order trial by jury in a personal injuries action when the injuries were severe. In granting leave to appeal out of time Sellers LJ said that he recognised that a mere alteration in the law might not be sufficient ground for extending time (see [1965] All ER 563 at 567, [1966] 1 QB 273 at 278). However, the authorities cited to the court were all cases of appeals against a final judgment, and they were not therefore applicable to an interlocutory appeal of the present character, particularly where the form of the trial was an issue and the action was still some way from reaching trial. In the event a five-judge court, while giving general guidance on the way the discretion to order jury trials

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should be exercised, affirmed the judge’s order because of the defendants’ acquiescence in it for many months and the lateness of their appeal.

7.12  Lord Greene MR’s approach in Re Berkeley was followed in Property and Reversionary Investment Corp Ltd v Templar [1978] 2 All ER 433, [1977] 1 WLR 1223. In that case Judge Fay QC held in November 1974 that since landlords had failed to comply with the strict letter of a rent review clause, their tenant was entitled to go on paying the original rent until at least the time of the next rent review, which was due to take place in 1979. In March 1977 the House of Lords cast doubt on the necessity for strict compliance with the wording of a rent review clause in a similar context (see United Scientific Holdings Ltd v Burnley BC [1977] 2 All ER 62, [1978] AC 904). After citing Lord Greene MR’s judgment in Re Berkeley Roskill LJ said ([1978] 2 All ER 433 at 435, [1977] 1 WLR 1223 at 1225):

‘It is therefore plain that it is not enough for counsel for the landlords to say that the recent decision of the House of Lords clearly shows that Judge Fay’s decision was wrong. He must show there are special reasons why he should be allowed to argue that the judgment should not stand.’

7.13  The landlords were willing to undertake not to claim back rent for the two and a half years which had elapsed since Judge Fay’s decision, and the issue in dispute was therefore limited to the question whether the landlords should be entitled to argue in this court that they should be entitled to recover the higher rent for the 18 months until the next rent review, or whether they should have to wait until that review before being entitled to increase the rent. Roskill and Cumming-Bruce LJJ concluded that the continuing contractual relationship provided the necessary special circumstances for allowing the landlords leave to appeal out of time. As Cumming-Bruce LJ said ([1978] 2 All ER 433 at 436, [1977] 1 WLR 1223 at 1225–1226): ‘… it does not seem just that future obligations between the parties to the lease should depend on the construction now shown to be wrong.’

7.14  In C M Van Stillevoldt BV v El Carriers Inc [1983] 1 All ER 699, [1983] 1 WLR 207 Griffiths LJ was concerned with an application for leave to appeal out of time from a decision of Staughton J that he had no jurisdiction to extend the time of appointment of an arbitrator. The registrar of this court had refused an extension of time, relying, inter alia, on the fact that this was the second time that the would-be appellants were craving indulgence, the whole case being concerned with the late appointment of the arbitrator. Griffiths LJ held that the registrar was entitled to take that fact into account (see [1983] 1 All ER 699 at 704, [1983] 1 WLR 207 at 213), but in the exercise of his own discretion he extended time, holding that the delay was short (days not weeks); there were personal reasons of the solicitor (the burden of work and his wife’s illness, plus, for some short part of the delay, being lulled into a false sense of security by the opposing solicitors); there was certainly an arguable case on appeal; and, finally, there was no question of the opposing side being prejudiced ‘save for this fact of course, that they will now have to face the appeal rather than the [would-be appellants] having the door slammed in their faces at this stage’.

7.15  In The Supreme Court Practice 1997 vol 1, para 59/4/4 this dictum is taken as authority for the proposition that:

‘The fact that a judgment or order which is otherwise final will be re-opened if the application is granted does not count as prejudice for these

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purposes, because that is inherent in every application for an extension of time for appealing …’

What Griffiths LJ said does not seem to us to be correctly reflected in this note, which should be approached with some caution. It may well be that where the delay in appealing is as short as it was in that case, the fact that the case will be reopened will carry little weight, but the longer time goes by, particularly if the defendant has been told, or reasonably assumes, that no appeal will be pursued, the greater the weight that will be attached to this factor.

7.16  In Norwich and Peterborough Building Society v Steed [1991] 2 All ER 880, [1991] 1 WLR 449 this court was concerned with an applicant who was seeking leave to appeal six and half months out of time. The whole of that period had been taken up with his efforts to obtain legal aid. It was a case in which, as McCowan LJ pointed out, he always intended to appeal. At the outset of his judgment McCowan LJ said that the things which a court takes into account in deciding whether to grant an extension are ‘first, the length of delay; secondly, the reasons for the delay; thirdly, the chances of the appeal succeeding; and, fourthly, the degree of prejudice to the respondent if the application is granted’ (see [1991] 2 All ER 880 at 881–882, [1991] 1 WLR 449 at 450). After weighing up the different factors in that case, the court granted leave to appeal out of time.

7.17  In Re Dennis (a bankrupt) [1994] CA Transcript 158 judgment at first instance was given in May 1992, and the unsuccessful party decided not to appeal. In February 1993 counsel by chance came across an 1801 decision which was highly relevant to the issues in the case. He drew this decision to the attention of his instructing solicitors and suggested that different counsel should now be instructed. The solicitors applied for legal aid the next day, and emergency legal aid was eventually granted on 22 March 1993. On 14 April 1993 new counsel was instructed, and the application for leave was made on 23 April 1993. The court considered the four factors identified by McCowan LJ in the Norwich and Peterborough case. After showing that the court had been referred to Craig v Phillips and Property and Reversionary Investment Corp Ltd v Templar, Bingham MR said that he thought it was important that the case was not one—

‘in which a party seeks to appeal because a later decision throws doubt on the decision in question, but is an application made for the reasons I have indicated, that through a failure to discover an old authority the case was put to the judge on a basis that may have led to a wrong decision.'

He finished his judgment by putting the matter in this way:

‘One starts from the position that it is the duty of the parties to appeal within the time limit and therefore the court does not by any means as a matter of course, and indeed at all readily, grant leave to appeal out of time. It particularly does not do so if the party has taken a decision not to appeal and has then changed its mind. But ultimately, and overriding or embracing all the factors which go into the exercise of discretion on a matter of this kind, is the question as to what the interests of justice require on the facts of a particular case.’

7.18  Although certain properties had been sold since the judgment at first instance, the proceeds of sale remained undistributed and there was thus ‘no relevant prejudice’. The court therefore upheld the registrar’s decision to grant leave to appeal out of time.

Page 193 of [1997] 4 All ER 181

7.19  The only other rulings we need to mention are three which have been very recently given in the context of Ord 17, r 11. In Seagaram v Grant [1996] CA Transcript 1878 this court was concerned with a boundary dispute between neighbours in which substantial costs had already been incurred. On 14 June 1995 the judge held that the action had been automatically struck out, and the plaintiffs decided not to appeal. Instead an unsuccessful application was made to reinstate the action. New solicitors were instructed on 23 October 1995, and they sent instructions to counsel in early December to consider the claim against the first solicitors. Through quite exceptional personal circumstances counsel did not deal with the papers until May 1996. At this stage she appreciated that on the authority of Downer & Downer Ltd v Brough, Protim Services Ltd v Newcomb [1996] 1 WLR 575, which was reported in The Times on 19 January 1996, the judge’s original decision that the case had been struck out was wrong. An application for leave to appeal was then lodged ten months out of time. (It is right to add that a second action could have been started, but a question would have arisen as to whether the costs of the first action would have to be paid if this second action was not to be stayed.)

7.20  This court granted leave to appeal out of time. Lord Woolf MR said:

‘It is of course always difficult in a situation of this sort to find the proper balance. However, on the facts that are before this court, I am satisfied that the balance comes down in the plaintiffs’ favour. The period of delay is undoubtedly substantial. It is a period where the court would normally today want very clear reasons for giving that length of extension, and, speaking for myself on this matter, it does seem to me that one would normally expect this to be the maximum amount of delay which one could ordinarily regard as being acceptable to this court if the answer to the other issues to be considered point to an extension of time.’

7.21  Sadiq v London Buses Ltd [1997] CA Transcript 264 was a case in which negligence had been admitted: it was therefore a meritorious claim. On 17 May 1995 the judge held that it had been automatically struck out. This court’s decision in Ferreira v American Embassy Employees Association [1996] 1 WLR 536 was published in The Times on 30 June 1995 and it showed that the judge’s decision was wrong. The plaintiff’s solicitors took immediate steps to try to protect their client, but they adopted the wrong route by asking the judge in the county court to rectify matters. That application failed on 20 September, and leave to appeal was sought from this court within a fortnight of that date. Leave to appeal out of time was granted. Brooke LJ said:

‘In my judgment the circumstances in which Roskill LJ spoke as he did in Property and Reversionary Investment Corp Ltd v Templar [1978] 2 All ER 433, [1977] 1 WLR 1223 are quite different from the present, where the delay is comparatively short, the reason for the delay has been explored, which, although it shows a lack of understanding by the plaintiff’s solicitor of the nature of the court’s inherent jurisdiction, nevertheless shows a commendable desire to save time and costs involved in bringing an appeal to this court, and we are concerned with comparatively new provisions of the County Court Rules which this court is working out on a case-by-case basis, and, in the context of this case, by chance the relevant decision was taken shortly after the judge made his ruling in this case.’

Page 194 of [1997] 4 All ER 181

7.22  In Noviello v Ele International Ltd [1997] CA Transcript 265 the plaintiffs had applied for an extension of time for requesting a hearing date on 28 July 1994. The guillotine date was 14 August 1994, and in November 1994 the district judge extended time. The plaintiffs out of caution issued a second set of proceedings on 22 December 1994. On 30 March 1995 the judge reversed the district judge. He held that the action was struck out, and he refused to reinstate it. On 30 June 1995 the decision in Ferreira’s case was published in The Times which showed that the first of these rulings was wrong. The application for leave to appeal was not made until 5 September 1995. (The second action was struck out under Ord 9, r 10 on 22 December 1995, no steps having been taken to pursue it.)

7.23  The plaintiffs’ advisers put forward no explanation for the two months’ delay between the decision in Ferreira’s case and the lodging of the application for leave, and in his judgment Brooke LJ stressed that such delays ought to be explained. However, given that the process of straightening out whether it was right to appeal to this court following the decision in Ferreira’s case was a complex one and the long vacation had intervened, he considered that the overall interests of justice required that the application should not fail simply because no reasons were given. In the result the court granted leave to appeal out of time, and the subsequent appeal was immediately conceded.