Wisely v John Fulton (Plumbers) Ltd

Wadey v Surrey County Council

[2000] 2 All ER 545

Categories:        QUANTUM: SOCIAL SECURITY        

Court        HOUSE OF LORDS        

Lord(s):        LORD SLYNN OF HADLEY, LORD WOOLF, LORD HOPE OF CRAIGHEAD, LORD CLYDE AND LORD MILLETT        

Hearing Date(s):        21, 22 FEBRUARY, 6 APRIL 2000        

Interest – Damages – Personal injury – Special damages – Claimants receiving state benefits – Whether benefits received to be deducted when calculating interest on special damages – Social Security (Recovery of Benefits) Act 1997, s 17.

In two conjoined appeals, one Scottish and one English, the question arose whether, in an action for damages for personal injury, social security benefits received by the claimant which were disregarded in the assessment of special damages were to be disregarded for the purpose of calculating interest on those damages. The claimants in the two cases had sustained personal injury in the course of employment and had received damages which included a sum for past loss of earnings upon which interest was awarded. However, the social security benefits received by the claimants during the period in which they were off work were disregarded in the interest calculations because s 17a of the Social Security (Recovery of Benefits) Act 1997 provided that the amount of any listed benefits paid or likely to be paid was to be disregarded in assessing damages in respect of any accident, injury or disease. The Court of Session in the Scottish case held that interest on the loss of earnings over the relevant period ought to be calculated without deducting from the damages the sum received in benefits. The judge in the English case deducted the benefits before calculating interest, but his decision was reversed by the Court of Appeal. The defendants in the two cases appealed to the House of Lords

Held – On the true construction of s 17 of the 1997 Act, the direction that benefits were to be disregarded in assessing damages also extended to the calculation of interest on those damages. Thus the amount of any listed benefits paid or likely to be paid during the relevant period had to be disregarded in the assessment of interest on the damages which were to be assessed without account of those benefits. If Parliament had intended an outcome to the contrary, it could have directed that, in assessing the amount of interest payable, the amount of the award of damages should be treated as reduced by a sum equal to the amount of the recoverable benefits. In the absence of such a provision, the appropriate principle was that sums which were treated as irrelevant in assessing damages should not be treated as relevant when interest on the damages was calculated. Accordingly, the appeals would be dismissed (see p 547 b to e, p 556 c to e, p 558 b c e, p 561 a to h, p 563 a, and p 565 f, post).

Decision of the Court of Appeal [1999] 2 All ER 334 affirmed.

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Notes

For interest on damages for personal injuries, see 12 Halsbury’s Laws (4th edn) para 1204.

For the Social Security (Recovery of Benefits) Act 1997, see 40(S) Halsbury’s Statutes (4th edn) 14.

Cases referred to in opinions

Birrell Ltd v City of Edinburgh DC 1982 SC (HL) 75, HL.

Carmichael v Caledonian Rly Co (1870) 8 M (HL) 119, HL.

George v George C Peebles & Son 1998 SLT 685, Ct of Sess.

Greenock Harbour Trustees v Glasgow and South-Western Rly Co 1909 SC (HL) 49, HL.

Hodgson v Trapp [1988] 3 All ER 870, [1989] AC 807, [1988] 3 WLR 1281, HL.

Jefford v Gee [1970] 1 All ER 1202, [1970] 2 QB 130, [1970] 2 WLR 702, CA.

Kolbin & Sons v Kinnear & Co, Kolbin & Sons v United Shipping Co Ltd 1931 SC (HL) 128, HL.

London, Chatham and Dover Rly Co v South Eastern Rly Co [1893] AC 429, HL.

Macrae v Reed and Mallik Ltd 1961 SC 68, Ct of Sess.

Smith v Middleton 1972 SC 30, Ct of Sess.

Spence v Wilson 1998 SC 433, Ct of Sess.

Stirling and Dunfermline Rly Co v Edinburgh and Glasgow Rly Co (1857) 19 D 598, Ct of Sess.

Wilson v National Coal Board 1981 SC (HL) 9, HL.

Appeals

Wisely v John Fulton (Plumbers) Ltd

The defenders, John Fulton (Plumbers) Ltd, appealed against the interlocutor of the First Division of the Inner House of the Court of Session on 28 January 1999 refusing their reclaiming motion against the interlocutor of the Lord Ordinary  (Lord Johnston) on 8 January 1999 whereby, in accordance with a direction of the First Division of the Inner House (Lord Rodger LP, Lord Fuller and Lord Caplan) given on 21 July 1998, he made an award of interest on damages for personal injuries due to the pursuer, James Wisely, which disregarded any benefits paid to him in determining the damages on which interest fell to be assessed. The facts are set out in the opinion of Lord Hope of Craighead.

Wadey v Surrey County Council

The defendant, Surrey County Council, appealed from the decision of the Court of Appeal (Simon Brown, Otton and Schiemann LJJ) on 11 December 1998 ([1999] 2 All ER 334, [1999] 1 WLR 1614) allowing the cross-appeal of the plaintiff, John Wadey, from the decision of Judge Simpson on 1 April 1998 in the Wandsworth County Court whereby, in assessing damages for personal injury sustained by the plaintiff during the course of his employment by the defendant, he deducted social security benefits received by the plaintiff before calculating interest on special damages. The defendant’s appeal against the judge’s findings on liability was compromised between the parties. The facts are set out in the opinion of Lord Hope of Craighead.

Michael S Jones QC and Andrew Smith (of the Scottish Bar) (instructed by Simpson & Marwick, Glasgow) for the defenders.

James A Peoples QC and Gerald F Hanretty (both of the Scottish Bar) (instructed by Digby Brown, Edinburgh as agents of McDaid Farrell, Glasgow) for the pursuer.

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Jeremy Stuart-Smith QC and Edward Bishop (instructed by Vizards Oldham) for the defendant.

John Foy QC and Charles Pugh (instructed by Lawford & Co, Richmond) for the plaintiff.

Their Lordships took time for consideration.

6 April 2000. The following opinions were delivered.

LORD SLYNN OF HADLEY. My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hope of Craighead, Lord Clyde and Lord Millett. I find the arguments in these two cases very evenly balanced; there is much force in the appellants’ contentions as Simon Brown LJ also appears to have thought. However, in the end I consider that Lord Rodger LP in Wisely v John Fulton (Plumbers) Ltd 1998 SC 910 and Otton LJ in Wadey v Surrey CC [1999] 2 All ER 334, [1999] 1 WLR 1614 came to the right conclusion. Accordingly, I agree with my noble and learned friends that for the reasons they give the appeals in both cases should be dismissed.

LORD WOOLF MR. My Lords, I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Hope of Craighead, Lord Clyde and Lord Millett. I agree with them, and for the reasons that they give I too would dismiss both appeals.

LORD HOPE OF CRAIGHEAD. My Lords, these appeals, one from the Inner House of the Court of Session in Scotland and the other from the Court of Appeal, Civil Division, in England, both raise the same question. It is whether, in an action for damages for personal injuries, social security benefits received by the injured person that are disregarded in the assessment of special damages must be disregarded when interest is being calculated on those damages. All parties are agreed that this question should receive the same answer in Scotland and in England, as the Social Security (Recovery of Benefits) Act 1997 under which it is raised applies uniformly to both countries. The appeals were heard together, and—apart from a few introductory words—what I shall have to say in this speech applies equally to both of them.

The Scottish case is Wisely v John Fulton (Plumbers) Ltd 1998 SC 910. The pursuer sustained personal injuries as a result of an accident in the course of his employment with the defenders. He brought an action of damages against them in the Court of Session. The Lord Ordinary (Lord Johnston) held that he was entitled to damages. The damages for which the defenders were found liable included a sum for past loss of earnings on which interest fell to be awarded under the Interest on Damages (Scotland) Act 1958 as amended. That sum was calculated by taking the pursuer’s earnings prior the accident and applying them to the period for which he was off work to the date of the award. He was in receipt of social security benefits during this period, but the amount of those benefits was disregarded in the calculation. This was because s 17 of the 1997 Act states that in assessing damages in respect of any accident, injury or disease, the amount of any listed benefits paid or likely to be paid is to be disregarded. The Lord Ordinary was then faced with a problem about the calculation of interest.

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The 1997 Act contains no provision dealing with that matter, and there were conflicting decisions on this point in the Outer House. In George v George C Peebles & Son 1998 SLT 685, Lord Nimmo Smith held that interest was due only on that part of the award which represents the difference between the sum awarded as damages for past wage loss and the amount of the benefits received during the relevant period. In Spence v Wilson 1998 SC 433, Lord Eassie held that interest should be awarded on the whole of the sum awarded as damages for past wage loss. The Lord Ordinary took the appropriate course of reporting the case to the Inner House under the procedure which was available to him under r 34.1 of the Rules of the Court of Session 1994 for an authoritative decision on the matter before making his award. The First Division (Lord Rodger LP, Lord Sutherland and Lord Caplan) held that interest on the loss of earnings during the relevant period should be calculated without deducting the amount of the benefits. Spence v Wilson was approved and George v George C Peebles & Son was overruled.

The English case is Wadey v Surrey CC [1999] 2 All ER 334, [1999] 1 WLR 1614. The plaintiff had been awarded a sum of damages in Wandsworth County Court for the personal injury, loss and damage which he suffered as the result of injuries sustained in the course of his employment with the defendants as a fire fighter. Included in the award of special damages was a sum for past loss of wages which had been calculated, as the 1997 Act requires, without deducting the benefits which the plaintiff had received during the relevant period. When he assessed the interest which he should award under s 69 of the County Courts Act 1984 on the special damages the judge deducted the amount of those benefits. The defendants appealed against the judge’s findings on liability, and the plaintiff cross-appealed against his decision to deduct the benefits in assessing the interest on the special damages. The defendants’ appeal was later compromised, but the plaintiff proceeded with the cross-appeal. The Court of Appeal, Civil Division (Simon Brown, Otton and Schiemann LJJ), following Wisely v John Fulton (Plumbers) Ltd 1998 SC 910, allowed the appeal on the ground that the judge erred in deducting the benefits.

General principles

I think that it is appropriate, before turning to consider the provisions of the statutes, to take note of the general principles with reference to which interest is ordered to be paid on sums awarded by a court as damages. In Wisely’ s case (1998 SC 910 at 916) Lord Rodger LP said that the 1997 Act was essentially a practical compromise and that the court was best guided by looking to the terms of the Act itself rather than by trying to apply more general principles. That observation lies at the heart of the whole issue. As a general rule Parliament must be taken to have legislated against the background of the general principles of the common law. It may be found on an examination of the statute that Parliament has decided not to follow the common law. In that situation the common law must give way to the provisions of the statute. But an accurate appreciation of the relevant common law principles is nevertheless a necessary part of the exercise of construing the statute.

The general principle of the common law is that, apart from contract, a party will only be entitled to interest on money if the principal sum has been wrongfully withheld and not paid on the day when it ought to have been paid (see Carmichael v Caledonian Rly Co (1870) 8 M (HL) 119 at 131 per Lord Westbury and Kolbin & Sons v Kinnear & Co, Kolbin & Sons v United Shipping Co Ltd 1931 SC (HL) 128 at 137 per Lord Atkin). It has been recognised that interest is due where

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possession of land is taken before the price has been paid for it, and this rule has been applied to the acquisition of land by the purchasing authority by virtue of a compulsory purchase order made under a private or public act (see Greenock Harbour Trustees v Glasgow and South-Western Rly Co 1909 SC (HL) 49 and Birrell Ltd v City of Edinburgh DC 1982 SC (HL) 75 at 110–111 per Lord Fraser of Tullybelton). In Stirling and Dunfermline Rly Co v Edinburgh and Glasgow Rly Co (1857) 19 D 598 at 621 Lord Cowan said:

‘It would be contrary to all equity, to allow the purchaser to possess the subjects with their fruits, without accounting for interest on the price which he has continued to hold in his hands. The interest is equivalent for the fruits, and drawing the one he must pay the other.’

But a claimant had no general right under the common law to interest for being kept out of his money. This was regarded by many as unsatisfactory (see London, Chatham and Dover Rly Co v South Eastern Rly Co [1893] AC 429 at 437 per Lord Herschell LC).

This common law principle was applied to awards of damages. The practice both in England and in Scotland was that interest was not due on sums awarded as damages until the making of the award. As Thomson LJ-C said in Macrae v Reed and Mallik Ltd 1961 SC 68 at 72:

‘It has long been our practice that where, in actions of damages, damages are awarded interest runs only from the date of the final decree. The reason is that it is then, and only then, that the illiquid claim for damages is quantified and made liquid. Once there is a final decree for a specified sum that sum is payable at the date of the final decree, and if it is not then paid, it carries interest as payment is wrongly withheld. That is in consonance with the accepted principle as laid down in (Carmichael v Caledonian Rly Co (1870) 8 M (HL) 119, LR 2 Sc & Div 56) by Lord Westbury where he said (at p. 131): “Interest can be demanded only in virtue of a contract, express or implied, or by virtue of the principal sum of money having been wrongfully withheld, and not paid on the day when it ought to have been paid.”’

A statutory power to award interest for periods prior to the date of the award was introduced in England by s 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934. Under this power the court was enabled to award interest:

‘ … as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment …’

The current provisions regarding the awarding of interest on debts and damages are set out in s 35A(1) of the Supreme Court Act 1981 as amended by s 15(1) of and Pt I of Sch 1 to the Administration of Justice Act 1982 and in s 69(1) of the County Courts Act 1984 where the amount to bear interest exceeds £200. Section 69(1) of the 1984 Act, which in all material respects is in the same terms as s 35A(1) of the 1981 Act, provides:

‘Subject to county court rules, in proceedings (whenever instituted) before a county court for the recovery of a debt or damages there shall be included in any sum for which judgment is given unless the court is satisfied that there are special reasons to the contrary simple interest, at such rate as the court thinks fit or as may be prescribed, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment,

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for all or any part of the period between the date when the cause of action arose and—(a) in the case of any sum paid before judgment, the date of the payment; and (b) in the case of the sum for which judgment is given, the date of the judgment.’

A similar power was introduced in Scotland by the Interest on Damages (Scotland) Act 1958. As amended by the Interest on Damages (Scotland) Act 1971, s 1 of that Act provides:

‘(1) Where a court pronounces an interlocutor decerning for payment by any person of a sum of money as damages, the interlocutor may include decree for payment by that person of interest, at such rate or rates as may be specified in the interlocutor, on the whole or any part of that sum for the whole or any part of the period between the date when the right of action arose and the date of the interlocutor.

(1A) Where a court pronounces an interlocutor decerning for payment of a sum which consists of or includes damages or solatium in respect of personal injuries sustained by the pursuer or any other person, then (without prejudice to the exercise of the power conferred by subsection (1) of this section in relation to any part of that sum which does not represent such damages or solatium) the court shall exercise that power so as to include in that sum interest on those damages and on that solatium or on such part of each as the court considers appropriate, unless the court is satisfied that there are reasons special to the case why no interest should be given in respect thereof.’

The current practice in each country is to award interest on loss of wages for the past, and for past outlays, to cover the period between the incurring of these items of loss and the date of the award. The principle which is followed in England was explained in these terms by Lord Denning MR in Jefford v Gee [1970] 1 All ER 1202 at 1208, [1970] 2 QB 130 at 146:

‘Interest should not be awarded as compensation for the damage done. It should only be awarded to a plaintiff for being kept out of money which ought to have been paid to him.’ (Lord Denning MR’s emphasis.)

This principle was applied by the judge in Wadey’s case when he awarded interest on past loss of wages. The same principle was applied in each of the two conflicting decisions in the Outer House which preceded the decision of the Lord Ordinary in Wisely’s case to report the case to the Inner House for guidance before making his award. I think that it can be assumed from what Lord Nimmo Smith did in George v George C Peebles & Son and which the judge did in Wadey’s case that there is unlikely to be any difficulty in practice in ascertaining the amount of the benefits received during the relevant period and calculating the amount of the award for past wages loss which is to carry interest after deducting those benefits. The question is whether the court is permitted to make that calculation. This makes it necessary for me to turn now to the statutory provisions and in particular to the scheme for the recovery of benefits which the 1997 Act lays down.

The recovery of benefits— history

The original scheme for the recovery of social security benefits was set out in s 2(1) of the Law Reform (Personal Injuries) Act 1948. It had been recognised as a general principle by Beveridge that an injured person should not be

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compensated twice over for the same loss (see Social Insurance and Allied Services (Cmd 6404) (1942) p 101 (para 260)). He suggested that this principle could be preserved if the claimant repaid the benefits to the Ministry when he was awarded damages or the benefits which he received were taken into account in the assessment of damages. When the Monckton Committee came to examine this issue the general principle was recognised, but there was disagreement as to how it was to be applied under the new scheme (see Final Report of the Departmental Committee on Alternative Remedies (Cmd 6860) (1946) p 18 (para 38)). The majority recommended that the general principle on which legislation should be framed was that the claimant should not recover more by way of damages and benefits than he could have recovered from either source alone (see p 18 (para 38)). Two members dissented, on the view that the scheme for national insurance was very little different from private insurance so the claimant’s benefits should be left out of account altogether in the assessment of damages.

Section 2(1) of the 1948 Act appears to have been arrived at as a compromise between these two views. It provided that there was to be taken into account in the assessment of damages for any loss of earnings or profits accruing to the injured person from his injuries one half of the benefits which he had received during the period of five years beginning with the time when the cause of action accrued. But this system did not extend to the full range of welfare benefits. Only those specified in s 2(1) of the Act as amended from time to time were subject to the statutory rule that one half of the benefits received was to be offset in the calculation of damages. These were sickness benefit, invalidity benefit, non-contributory invalidity pension, severe disablement allowance, sickness benefit (formerly injury benefit) and disablement benefit. Attendance allowance and mobility allowance, family credit (formerly family income supplement), income supplement (formerly supplementary benefit), redundancy payments, reduced earnings allowance, statutory sick pay, and unemployment benefit were not subject to the statutory rule. In a series of decisions in both England and Scotland it was held that the whole of sums received in respect of benefits which were not subject to the rule must be deducted. This is in accordance with the general principle that damages are intended to be purely compensatory, and that what the court must measure is the net consequential loss and expense which has been incurred in arriving at the measure of the claimant’s damages (see Wilson v National Coal Board 1981 SC (HL) 9 and Hodgson v Trapp [1988] 3 All ER 870 at 875–876, [1989] AC 807 at 822–823 per Lord Bridge of Harwich).

In the application of this scheme in assessing damages only one half of the listed benefits was regarded as compensation for the loss of income or loss of profits due to the accident. That half was taken into account in the calculation by deducting it from the loss of income or profits to arrive at the net loss. The other half was disregarded in the same way as if it had been received from charity or under a private insurance policy. Awards of interest followed the same pattern. The one half of the benefits which was taken into account in the calculation did not bear interest. As it had been deducted from the principal sum awarded as damages, it reduced by the same amount the net loss on which interest was to be payable. But the disregarded half bore interest along with the rest of the award. As Lord Sutherland said in Wisely’s case 1998 SC 910 at 918, it was never suggested in Scotland that interest should not be payable on the whole of the loss of earnings so calculated even though the pursuer had received, during the relevant period, half of the benefits. In Wadey’s case [1999] 2 All ER 334 at 340, [1999] 1 WLR 1614 at 1620 Simon Brown LJ said that Jefford v Gee [1970] 1 All ER 1202, [1970] 2 QB 130

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made it plain that the plaintiff (whilst, of course, he received no interest on the moiety for which he gave credit against damages) did not have to give credit in the interest calculation in respect of his windfall receipt of the other moiety of the benefits paid.

The recommendation by Beveridge that the full amount of the benefits received by the injured person or his dependants as the result of an injury should be deducted in the assessment of damages was adopted when the whole subject of compensation for personal injury was considered by the Pearson Commission (see Royal Commission on Civil Liability and Compensation for Personal Injury (Cmnd 7054–I) (1978) ch 13). It recommended that the full amount should be deducted, and this view was accepted in principle by the government (see Social Security Act 1975: Reform of the Industrial Injuries Scheme (Cmnd 8402) (1981) ch 8). But it was concluded that a workable scheme for the direct recovery of this amount from the injured person or his dependants would not be practicable in view of its cost and the large number of cases which were settled extra-judicially. It was not until 1989, when the Social Security Act 1989 was enacted, that a system was introduced for the recovery in full of the benefits received from the compensation paid to the injured person under a court order or an agreed settlement.

Under the scheme which was enacted by s 22 of and Sch 4 to the 1989 Act the compensator was required before making a compensation payment to the injured person under a court award or an out of court settlement to obtain a certificate from the Secretary of State stating how much benefit was to be deducted. He was then to pay to the Secretary of State the amount shown in the certificate and to furnish to the person who was to be compensated a certificate of deduction specifying the amount which he had deducted from the compensation and paid to the Secretary of State. Section 22(2) provided that any right of the intended recipient to receive the compensation payment in question was to be regarded as satisfied to the extent of the amount certified in the certificate of deduction. The benefits which were to be recovered by the Secretary of State were to comprise the total amount of the prescribed benefits received in respect of the accident, injury or disease for which the injured party was to be compensated for a period of five years or, if less, for the period up to the date when the compensation payment was made. Section 22(6) provided:

‘Except as provided by any other enactment, in the assessment of damages in respect of an accident, injury or disease the amount of any relevant benefits paid or likely to be paid shall be disregarded.’

The 1989 Act made no provision as to how interest was to be calculated on the damages assessed under this rule. But shortly after it came into force this matter was the subject of an amendment. By s 7 of and para 6 of Sch 1 to the Social Security Act 1990 the following paragraph (para 24) was added to Sch 4 to the 1989 Act:

‘In assessing the amount of interest payable in respect of an award of damages, the amount of the award shall be treated as reduced by a sum equal to the amount of the relevant payment (if any) required to be made in connection with the payment of the damages and—(a) in England and Wales, if both special and general damages are awarded, any such reductions shall be treated as made first against the special damages and then, as respects any remaining balance, against the general damages; and (b) in Scotland, if damages are awarded both for patrimonial loss and for solatium, any such

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reductions shall be treated as made first against the damages for patrimonial loss and then, as respects any remaining balance, against the damages for solatium.’

The next stage in the history of this legislation was its consolidation in 1992 by the enactment of three new statutes. The provisions relating to the recovery of benefits from compensation payments were re-enacted in Pt IV of the Social Security Administration Act 1992. Section 82 of that Act reproduced the provisions of s 22(1) of the 1989 Act. Sections 22(2) and (6) of and para 24 of Sch 4 to the 1989 Act were re-enacted in ss 82(2), 81(5) and 103 respectively of the 1992 Act.

The scheme introduced by the 1989 Act was thus preserved in all its elements. But in three particular respects it was found to be unsatisfactory. First, it required the compensator to deduct the gross amount of the benefits from the compensation payment, which was defined in s 81(1) of the 1992 Act as meaning any payment falling to be made to the victim in consequence of the accident, injury or disease in question. The effect of this definition was to include any damages payable for pain and suffering in the amount against which the compensator was entitled to make the deduction. This fact was recognised in the provision which was made in s 103 for the calculation of interest, but it attracted criticism because the benefits were not regarded as compensation for pain and suffering. Secondly, it exempted persons making small payments of compensation, the amount of which was fixed by regulations at £2,500, from making the deduction (see the Social Security (Recoupment) Regulations 1990, SI 1990/322). The government was advised that this had led to the making of a disproportionate amount of settlements at or just below the small payments limit. It was said that insurers and compensators were gaining an advantage at the expense of victims who were settling their claims for less than their true value. Thirdly, the system for appeals against certificates of deduction was thought to be in need of some reform in the light of experience. These concerns led to the preparation of a revised scheme for the recovery of benefits which was introduced by the Social Security (Recovery of Benefits) Act 1997. This is the scheme which is before your Lordships in this appeal.

The scheme of the 1997 Act

The principal features of the scheme introduced by the 1989 Act are reproduced in the 1997 Act. It enables the Secretary of State to recover the whole amount of any listed benefits paid to a person in consequence of any accident, injury or disease during the relevant period where that person also receives a compensation payment for that accident, injury or disease from a third party. The compensator is liable to pay to the Secretary of State the whole amount of the listed benefits received by the claimant for the relevant period. He is then entitled to deduct that amount from the compensation which he is to make to the injured party. But there are some important differences. Under the new scheme the reduction in respect of recoverable benefits is restricted to particular heads of the compensation payment, with the result that other heads—in particular damages for pain and suffering—are insulated from, or ring-fenced against, the deduction. According to a system of calculation which is set out in s 8 and Sch 2, the only heads of compensation which are affected by it are those for loss of earnings, cost of care and loss of mobility during the relevant period against which are to be set the amount of any recoverable benefit which is attributed to those heads. There is no small payments limit

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under the new scheme, and a new procedure for appeals against certificates of recoverable benefit has been introduced.

The feature of the new scheme which has given rise to the question raised in these two appeals is the absence from the 1997 Act of the provision regarding the calculation of interest which was introduced by amendment as para 24 of Sch 4 to the 1989 Act and was then re-enacted in s 103 of the 1992 Act. The 1997 Act is concerned almost entirely with the system for the issuing of certificates of recoverable benefits, the liability of the person making the compensation payment and reviews and appeals against certificates. It contains only three sections directed to the courts. Section 15 contains a provision about the form which is to be followed when the court makes an order for a compensation payment unless the order is made with the consent of both parties. Section 16 deals with payments into court but does not extend to Scotland where this procedure does not apply. Section 17, which contains the only provision relating to the assessment of damages, re-enacts with only a few minor changes s 81(5) of the 1992 Act. It provides:

‘In assessing damages in respect of any accident, injury or disease, the amount of any listed benefits paid or likely to be paid is to be disregarded.’

The whole of Pt IV of the 1992 Act, including s 103 which dealt with interest, was repealed by s 33(2) of and Sch 4 to the 1997 Act.

In one significant respect the provisions about interest in s 103 of the 1992 Act have been rendered unnecessary by the new scheme. Awards of general damages and of solatium are no longer exposed to the risk of a reduction to reflect the amount paid under the scheme to the Secretary of State by the compensator. There is therefore no need for a provision directing the order in which the reduction is to be made as against special and general damages and as against patrimonial loss and solatium. But s 103 was in two parts. The second part, which contained a special provision about the order of ranking as between general and special damages and patrimonial loss and solatium, is the part which has been superseded under the new scheme. The first part, which contained a general provision about assessing the amount of interest payable in respect of an award of damages, would still have been relevant under the new scheme but it has not been re-enacted. The only guidance which the new scheme contains as to how this matter is to be dealt with is that to be found in s 17, which provides that the amount of any listed benefits is to be disregarded in assessing damages.

Discussion

The effect of s 17 is that damages must be assessed in a way which treats the amount which the claimant has received by way of listed benefits in exactly the same manner as any amounts which he may have received under, for example, a private insurance policy. They are to be disregarded, so the amounts awarded under the heads described in Sch 2 to the 1997 Act as loss of wages, cost of support and loss of mobility are to be assessed without making any deduction for the relevant benefits. The normal practice is for amounts which are treated as irrelevant in the assessment of damages to be disregarded when interest is being awarded on those damages. This is because the purpose of the award of interest is to compensate the claimant for lying out of the money to which he has been found entitled by the court when it is making the award of damages. Amounts which are to be disregarded are treated as irrelevant when the amount of damages is being assessed. It seems unlikely that there can be a sound reason in principle for treating sums received by the claimant from other sources which are

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irrelevant for the purpose of assessing damages as relevant when interest on those damages is being calculated.

On the other hand the context in which an award of damages is made for personal injury is one in which everyone now knows that a claimant who has received listed benefits during the relevant period will suffer a corresponding reduction in the compensation awarded by the court when the payment is made to him by the compensator. Section 8(3) of the 1997 Act provides that the gross compensation attributable to each head of compensation listed in Sch 4 is to be reduced by deducting the amount of the recoverable benefit shown against that head in the Schedule which the compensator is liable to pay to the Secretary of State for the relevant period. It is clear that the compromise which was adopted in 1948 has now been departed from entirely and that the scheme treats the whole of the listed benefits received during the relevant period as compensatory and deductible. It does not seem to be consistent with principle that the injured party should be awarded interest on sums awarded to him as damages for which he has already been fully compensated by the receipt of these benefits. As Lord Nimmo Smith observed in George v George C Peebles & Son 1998 SLT 685 at 688, the purpose of an award of interest on damages for loss of wages is to compensate the claimant for being deprived of the use of money which he would have received but for the accident. It did not appear to him to be appropriate to leave out of account the fact that the pursuer in that case had in fact received benefits in place of the earnings which he would otherwise have received. He did not feel driven by the repeal of s 103 of the 1992 Act to disregard the receipt of benefits in a manner which he regarded as unacceptable. The inference which he drew from the fact that s 103 had not been replaced by a new provision in the 1997 Act was that Parliament intended that the discretion conferred on the court by s 1(1A) of the Interest on Damages (Scotland) Act 1958 should continue to be exercised in the light of the whole circumstances of the case including the new scheme for the recovery of benefits.

In their submissions both Mr Jones QC for the appellants in Wisely’s case and Mr Stuart-Smith QC for the appellants in Wadey’s case relied on the same general principles. They referred to the discretion which has been given to the courts in both Scotland and England by statute as to the awarding of interest on damages. Mr Jones submitted that the court was entitled in the exercise of its discretion to take the benefits into account when calculating interest because there was no direction in the 1997 Act that it must not do so. He said that it was clear from the wording of s 1(1A) of the 1958 Act and from its long title that ‘interest’ within the meaning of that Act was being treated as an amount which was separate from the ‘damages’ on which it was awarded. He accepted that the practice in Scotland was for the court to include in the sum for which it decerns in respect of damages for personal injuries interest on those damages (see Smith v Middleton 1972 SC 30 at 39 per Lord President Emslie). But this was a United Kingdom statute, and the legislation showed that interest and damages had been regarded by Parliament as separate concepts. The same distinction had been recognised by s 103 of the 1992 Act which referred to interest ‘in respect of’ an award of damages. So the direction in s 17 of the 1997 Act should be read as a direction regarding the assessment of damages only, and not as a restriction on the discretion of the court when it was awarding interest on those damages. Mr Stuart-Smith referred to the guidance in Jefford v Gee [1970] 1 All ER 1202, [1970] 2 QB 130 on the awarding of interest in personal injury cases and to the provisions of s 69 of the County Courts Act 1984. The guiding principle was that a claimant should not be compensated by an award of interest for losing money

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when he has not suffered loss by being kept out of that money. The discretion available to the court under s 69 of the 1984 Act enabled effect to be given to that principle. The court was entitled to adopt a Janus-like approach to this matter. It was entitled to look beyond the amount of its award when assessing interest, as it knew that the sum which the claimant would receive from the compensator would be the net sum after deduction of the benefits.

At first sight there is much to be said for the appellants’ arguments, and I confess that I have not found it easy to decide what Parliament intended when it repealed s 103 of the 1992 Act and did not re-enact an equivalent provision about interest as part of the new scheme. But there are a number of factors which must be weighed in the balance alongside the arguments based on principle on which the appellants rely.

The first is the plain fact that it would have been open to Parliament to have enacted such a provision but that it has not done so. I see no reason to regard this as an oversight. Although it was no longer relevant to set out an order of ranking as awards of general damages and of solatium, it would still have been relevant if this was thought appropriate to direct that in assessing the amount of interest payable the amount of the award of damages should be treated as reduced by a sum equal to the amount of the recoverable benefits. In the absence of a provision to that effect, I would be inclined to read the direction in s 17 of the 1997 Act that benefits are to be disregarded in assessing damages as extending also to the calculation of interest on those damages. I would apply the principle which I suggested earlier that sums which are treated as irrelevant in assessing damages should not be treated as relevant when interest on the damages is being calculated.

The structure of the scheme supports this approach. The Act makes it clear that the system for returning the amount of the benefits received during the relevant period to the taxpayer is entirely separate from the court process. As Lord Rodger LP pointed out in Wisely’s case 1998 SC 910 at 914, the deduction of benefits is to be made under s 8 of the Act at the time when the compensator is discharging his liability to the claimant for the amount of the compensation payment, while the court deals with interest at the earlier stage when it is determining the amount of that liability. The system which ss 10 and 11 provide for the review of and appeal against a certificate of recoverable benefit, which determines the amount to be paid to the Secretary of State by the compensator and the amount of the deduction which he makes when discharging his liability to the claimant, is also designed to operate only at the later stage after the court has determined the amount of that liability. The appeal system enables both the person who applied for the certificate and the claimant to appeal against it on grounds which would be relevant to the calculation of interest if the amount to be deducted from the compensation was to be taken into account at that stage. But s 11(3) provides that no appeal may be made under that section until the claim giving rise to the compensation payment has been finally disposed of and the liability of the compensator to pay the Secretary of State under s 6 has been discharged.

Section 14 provides that where, following an appeal, a fresh certificate of recoverable benefits is issued and that in consequence of the review or appeal it appears that the total amount paid is more than the amount that ought to have been paid regulations may provide for the Secretary of State to pay the difference to the person who made the payment, or to the person to whom the compensation payment is made, or partly to one and partly to the other. But no mention is made in this section, or in reg 11 of the Social Security (Recovery of Benefits) Regulations 1997, SI 1997/2205 which provides that where the total

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amount paid was more than the amount that ought to have been paid the amount of the compensation payment made under s 8 of the Act is to be recalculated, of the recalculation of interest to take account of the fact that the amount of the recoverable benefits was overstated in the original certificate. Nor is there any provision for the recalculation of interest if a fresh certificate is issued which requires an additional amount to be paid to the Secretary of State by the compensator. This suggests that it was appreciated that complications would arise if interest on the damages had to be recalculated after the court had made its award of damages, and that these were best avoided by omitting any provision directing the court to disregard the amount of the benefits when assessing the amount of interest on the damages. As Lord Rodger LP said in Wisely’s case (at 916), the 1997 Act is essentially a practical compromise. The purpose of the scheme is to enable the taxpayer to recover the benefits in a manner which is as simple and practicable as possible.

There are a number of other points to which I would be inclined to attach less importance. At first sight it might be thought that the fact that, according to the ordinary rules applying to judgment debts, interest is payable on the full amount of the compensation payment awarded by the court between the date of its award and payment of the reduced amount by the compensator supports the view that interest should be paid on the full amount for periods prior to the date of the award. This is a consequence of the direction in s 17 that the benefits are to be disregarded in assessing damages. But the position was the same under the previous scheme as to the period after the date of judgment. The direction in s 103 applied only to the assessment of interest in respect of the award of damages for periods prior to the date of the award, not to interest due on the full amount for the period after the award was made and the previously illiquid claim for damages had been converted into a liquid debt. Similarly I do not think that it would be wise to make assumptions either one way or the other about the nature of the task which the court would face if it were to be required to disregard the benefits when assessing interest on the damages. The fact that judges sitting at first instance in both England and Scotland were able to obtain the necessary information and to make the calculation without any apparent difficulty suggests that nothing is to be made of this point on policy grounds. Nor is there any hint in the opinions of the judges in the Inner House of the Court of Session or the judgments of the Court of Appeal that the decisions which they took were reached on grounds of practice or policy. It was recognised in both courts that the issue is essentially one of statutory interpretation, as to which the best guide is the nature and effect of the scheme laid down by the statute.

There was some discussion both in the Inner House of the Court of Session and in the Court of Appeal as to whether, even though s 103 of the 1992 Act had been repealed, it would be open to the court to take the benefits into account under the statutory powers which enable the courts in both Scotland and England to award interest on damages. Lord Rodger LP in Wisely’s case (at 915), said that the argument that there were ‘reasons special to the case’ within the meaning of s 1(1A) of the 1958 Act not to award interest in respect of this element of wage loss was recognised by the appellants’ counsel to be implausible as it would apply in so many cases, and Mr Jones did not press this argument before your Lordships. He maintained that the general discretion available to the court under that section enabled the court to look beyond s 17 of the 1997 Act and take account of the fact that the listed benefits were to be deducted from the sum paid in settlement of the award of damages. Simon Brown LJ in Wadey’s case [1999] 2 All ER 334 at 341, [1999] 1 WLR 1614 at 1622 said that he saw some force in the

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argument that there were ‘special reasons’ within the meaning of s 69 of the 1984 Act but that there were powerful arguments to the contrary. Mr Stuart-Smith accepted that the argument that there were special reasons was a tenuous one, and he relied mainly on what he described as the second level of discretion which he said was inherent in the words ‘all or any part of the debt or damages in respect of which judgment is given’. But these differences in language between the Scottish and English statutes do not seem to me to be significant for present purposes, as I would hold that the point on both sides of the border must receive the same answer. The effect of s 17 of the 1997 Act, in the context of the scheme which the Act lays down, is that the amount of any listed benefits paid or likely to be paid during the relevant period must be disregarded in the assessment of interest on the damages which are to be assessed without taking account of those benefits.

Conclusion

There seemed to me at one stage to be much to be said for resolving the question which has been raised in these cases by a robust application of the principle that a claimant is to be awarded interest only for being kept out of his money to the known fact that, if he has been compensated for his loss during the relevant period by the receipt of listed benefits, the damages awarded to him will be reduced by the deduction of those benefits. But the history of this legislation shows that it has not been possible to solve all problems in a way which is consistent with this principle, and the scheme which Parliament has laid down in the 1997 Act for the return of those benefits to the taxpayer does not seem to me to permit this approach. I would dismiss the appeals.

LORD CLYDE. My Lords, these two appeals from the First Division of the Court of Session in Scotland and from the Court of Appeal in England raise a problem about the allowance of interest in relation to an award of damages for personal injury. Much of the relevant legislation is common to both countries and even where there are separate statutory provisions the language is not significantly different. It is agreed by all parties that the same solution to the problem should apply on both sides of the border. I deal more specifically with the Scottish case, because it was the earlier of the two decisions and indeed clearly influenced the judges of the Court of Appeal in England who followed and agreed with it. The issue concerns the interest to be awarded on that part of an award which relates to patrimonial loss, or special damages, as distinct from solatium, or general damages, in a case where the injured person has received certain state benefits in consequence of the injury for which he is claiming damages.

The general purpose of an award of interest at common law is recognised both in Scotland and England as being to compensate the creditor for the loss of enjoyment of the sum to which he was entitled. The position at common law in Scotland was expressed by Lord Westbury in Carmichael v Caledonian Rly Co (1870) 8 M (HL) 119 at 131, LR 2 Sc & Div 56 at 66 in these words:

‘Interest can be demanded only in virtue of a contract, express or implied, or by virtue of the principal sum of money having been wrongfully withheld, and not paid on the day when it ought to have been paid.’

But in the particular context of awards of damages for personal injury Parliament has intervened in order to enable an award of interest to run from a date prior to the quantification of the sum of damages. The relevant enactment for Scotland is s 1 of the Interest on Damages (Scotland) Act 1958, as amended by the Interest

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on Damages (Scotland) Act 1971, and the relevant provisions for England are in s 35A of the Supreme Court Act 1981, as amended by s 15(1) and Pt I of Sch 1 to the Administration of Justice Act 1982, and in s 69 of the County Courts Act 1984.

In general sums which an injured person has received consequent upon his injury should be taken into account in assessing the total of his patrimonial loss. Otherwise he would be overcompensated and the purpose and object of an award of damages would not be achieved. But there are various exceptions to that general rule, as was recognised in Hodgson v Trapp [1988] 3 All ER 870, [1989] AC 807. The receipt of state benefits by the injured person is obviously a relevant matter to be considered in this connection, but here Parliament has sought to solve the problem by making specific provision in that regard. Under s 2(1) of the Law Reform (Personal Injuries) Act 1948, which applied both to Scotland and to England, it was provided that in the assessing of damages for loss of earnings or profits there was to be taken into account one half of the value of certain specified benefits which had or probably would accrue to the injured person for a period of five years from the date of the cause of action. That system operated until it was replaced, except in cases of certain small compensation payments where it continued to apply, by a new scheme introduced by the Social Security Act 1989, as amended by the Social Security Act 1990. The present version of this is now to be found in the Social Security (Recovery of Benefits) Act 1997, which finally repealed s 2(1) of the 1948 Act. It is with the construction and application of the 1997 Act that the present appeals are concerned.

The new regime was significantly different from the former scheme. Essentially while under the former scheme the wrongdoer or tortfeasor was relieved from paying the whole of the patrimonial loss, since one half of the benefits was to be set against the sum in the award, under the new scheme the Secretary of State is able to recover from the person paying the damages, referred to as the ‘compensator’, a sum representing the benefits paid to the injured person and the compensator is then entitled to offset that sum against the amount which he is bound to pay to the injured person under the court’s order and is to that extent discharged from satisfying the order. Under the language of the Act a payment made to a person in consequence of an accident, injury or disease is a ‘compensation payment’. By virtue of s 1(3) of the 1997 Act voluntary payments as well as payments under a court order are included. For this purpose of the scheme the Act sets out in Sch 2 various heads of loss which may be found within a compensation payment and a list of the particular benefits to which each head is to relate. Any of the benefits in the list which have been or are likely to be paid in respect of the accident, injury or disease, during a period defined in detail in s 3 and referred to as the ‘relevant period’, constitutes a ‘recoverable benefit’. In paying the person entitled to a compensation payment the compensator is entitled to offset against the heads of loss specified in Sch 2 the recoverable benefits relative to each of those respective heads. The appellants claim that in awarding interest in an award for damages in respect of any past patrimonial loss the court should deduct the whole of the amount of the recoverable benefits and award interest only upon the net balance. The respondents claim that interest should be awarded on the whole amount of the past patrimonial loss, without any deduction in respect of the recoverable benefits.

The problems to which the interplay between the receipt of state benefits and the awarding of interest have given rise are not always readily reconcilable with principle. On the former system interest would be awarded on the net sum of the past pecuniary loss, that is to say, after deduction of one half of the benefits. The injured person thus received interest not only on the sum which he had actually

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been out of pocket, but also, to the extent of the amount of the other one half of the value of the benefits, on an amount which he had actually received by way of benefit. Furthermore the calculation of the benefits could be related to a period of five years and if the award by the court was made before the expiry of that period interest was being charged in respect of sums which the injured person had not yet received. In effect the sum awarded was taken to be the sum of the pursuer’s pecuniary loss and interest was applied to that sum as if it was the amount of his loss, and as if it was the sum which, to use the common law formula, had been wrongfully withheld. Under the new scheme it is accepted that some interest is to be paid in respect of the past elements in the court’s award, but no interest is provided for under the statutory scheme to be paid by the wrongdoer in respect of a delay in payment to the Secretary of State. The question then arises whether the intention was that this absence of obligation to pay interest to the Secretary of State should inure to the benefit of the wrongdoer, which might be thought unlikely, or, as would seem more probable, to the benefit of the injured person. The former would be achieved by the wrongdoer not being obliged to pay any interest in respect of the recoverable benefits and enjoying the use of the money until he paid it to the Secretary of State. The latter would be achieved by an obligation on the wrongdoer to pay interest to the injured person on the amount of the recoverable benefit. That points to a solution favourable to the respondents.

What seems to me very evident from the new scheme is that a separation is being made between the court’s function in the assessing and awarding of damages and the quite distinct mechanism for the recovery of the recoverable benefits from the wrongdoer. The latter process is managed independently of the court. It operates after the court has made its order. It concerns particularly the time of payment to the pursuer, not the time of the making of any order or decree by the court. It affects not the terms of the order but the satisfaction of the order by the compensator. It has its own procedures for the resolution of disputes, which may involve reference to a medical appeal tribunal. Under s 14 of the Act and reg 11 of the Social Security (Recovery of Benefits) Regulations 1997, SI 1997/2205 if it is found that the amount of the recoverable benefit has been over calculated and too much has been paid to the Secretary of State, then the balance is to be repaid by the Secretary of State to the compensator, the compensation payment is recalculated and the increase if any is paid to the person to whom the compensation payment was made. Nothing in that process touches upon the award made by the court. It is managed outwith the court processes. Significantly no provision is made for the recalculation of any interest upon the court’s award, although if the appellants were correct and the calculation of interest proceeded only upon a net figure of patrimonial loss the injured party would have been deprived of some element of interest which should if, the calculation had been correct in the first place, have been paid to him. But it is only to the amount of the compensation payment that the adjustment is made, and not to the order of the court. The distinction drawn in the Act between the function of the court in the making of an award and the function of the compensator in the adjustment of the amount to be paid under the award in light of the amount of the recoverable benefits supports the respondents’ solution.

It seems to me that the answer to the problem raised in these appeals lies essentially in s 17 of the 1997 Act. Its terms seem to me plain and unambiguous. It formerly appeared as s 22(6) of the 1989 Act, then as s 81(5) of the Social Security Administration Act 1992. In its final form in the 1997 Act it states: ‘In assessing damages in respect of any accident, injury or disease, the amount of any

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listed benefits paid or likely to be paid is to be disregarded.' The listed benefits are the benefits listed in Sch 2. The appellants did not suggest any convincing reason why this particular provision had been made. It seems to me that it is part of the overall scheme whereby the intention is that the court should have no concern with any adjustments which may be appropriate to take account of any benefits which the injured person may have received. Only in two other particular respects does the Act touch upon the function of the court. In s 15 the court is required to specify in its order the amount of any compensation payment which is attributable to any of the heads of compensation listed in Sch 2. By s 16 provision is made for regulations and rules of court in England relating to cases where a payment into court is made. In the absence of any provision requiring any modification of the award for the purposes of an award of interest it seems to me that s 17 requires the court to take the gross amount of the patrimonial loss as representing the sum of that loss. In such a case the ordinary course would be to award interest on the whole of that sum. That is what I consider is the effect of s 17. There may of course be some other receipts which will require to be deducted, but none of the listed benefits will be among them.

Counsel for the appellants were at pains to stress that throughout the legislation a distinction is preserved between damages and interest. That may well be so. But that consideration does not to my mind solve the problem. I do not find it necessary to treat the matter as one of construction of the word ‘damages’. The effect of the section is that in respect of the patrimonial loss the court is to assess the damages as if no benefits had been received. Thus putting aside any deduction in respect of receipts which might otherwise have to be made, and assuming for the sake of simplicity that the only patrimonial claim is for loss of earnings, the damages for the past loss are to be assessed as the total amount of the earnings which the injured person would have received had the accident not occurred. That the injured person may not have actually been out of pocket to that extent is to be disregarded. It is, as it were, to be assumed that he has received no benefits. But if that is the assumption on which the award of damages for past patrimonial loss is assessed, then when it comes to considering interest it should follow that it is on that sum of past loss of earnings that the interest should be calculated. That seems to me to be the necessary consequence of the disregarding of the benefits by the court in the assessing of damages which is required by the section. The gross loss of earnings will be taken to be the actual amount of the loss so far as the court is concerned, just as under the former scheme the loss was taken to be the gross loss less one half of the benefits. Just as under the former scheme interest was awarded on what was a somewhat artificial figure, so now it is awarded on a sum which in effect is to be taken by the court to be the relevant loss. The sum of the loss of earnings is to be taken as the sum which, as it were, has been wrongfully withheld. The same should hold true of any other losses listed in Sch 2 which the pursuer may claim. Certainly there is nothing in the 1997 Act to suggest that any other approach to an award of interest is to be adopted and the view which I reach is based principally upon the effect of s 17.

It would be desirable to preserve the theory on which interest is awarded subject to any assumptions which the legislation requires, and on the assumption which, as it seems to me, s 17 requires to be made, the respondents’ solution is compatible with the theory. The appellants sought to found upon the common law principle as providing the guidance to the correct solution, but even on their approach an inconsistency arises. It is not disputed that interest on the whole award will run from the date of the court’s order so that interest will run from the date of the order until payment on an amount which includes the sum of the

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recoverable benefits. It seems to me the less easy to stand on principle and insist on the absence of an allowance of interest on that same amount for the period before the order. Indeed that the victim is entitled to interest after the award seems to me to fit most neatly with a scheme whereby it is the victim and neither the wrongdoer nor the Secretary of State who is entitled to interest prior to the award.

While I accept that each of the alternative solutions put forward by the opposing parties to these appeals may be workable, I am impressed by the clean and simple approach which has been favoured by the courts below. It frees the court from the necessity of having and giving effect to a certificate of recoverable benefit, overcomes any problem which might arise about the difficulty of getting a certificate which is final and complete, and avoids any complication which might follow from a challenge to that certificate. Apart from the minor matters which I have mentioned in ss 15 and 16 the court can proceed without concern for the receipt of any of the listed benefits in the past or the future. The adjustment of the rights of the parties in relation to the sum payable under the award consequent upon the receipt of benefits is matter for other procedure outwith the court. The risk of a double recovery by the pursuer is met, not through the court process, but at the later stage of the making of the compensation payment. The First Division and the Court of Appeal have both preferred this solution, and in a matter which so closely involves the practice of the courts I consider that if the question was otherwise finely balanced I would be inclined to respect the view which they have adopted.

The other section which has given rise to difficulty is s 103 of the 1992 Act, which formerly appeared in para 6 of Sch 1 of the 1990 Act as an amendment to Sch 4 of the 1989 Act. More precisely the difficulty is due to the disappearance of that section in the 1997 Act. The short title to that Act indicates that it was to re-state with amendments Pt IV of the 1992 Act. The first part of the section provided for the reduction of the amount of the award by a sum equal to the amount of the relevant payment for the purposes of assessing the amount of interest payable. The latter part of the section provided for the reduction to be made first against the damages for patrimonial loss and thereafter against the damages for solatium. That latter provision became unnecessary under the 1997 Act because of the provisions in s 8 and Sch 2 to which I have already referred under which particular benefits are appropriated to certain heads of loss for the purpose of calculating the net amount of the compensation payment. It is argued that the earlier part of the section is merely setting the context for the latter part. But both in form and in language the first part can be seen to be of substantial importance in itself. In its form it is clearly divided into the two parts, joined by the word ‘and’. That by itself points to the twofold purpose which it serves. Beyond that the language of the first part goes far beyond a mere setting of the context for what follows. It contains the express direction ‘the amount of the award shall be treated as reduced by a sum equal to the amount of the relevant payment’. That indicates that but for that provision the amount of the award would not have been reduced, and that interest would have been payable upon the gross sum. The first part is stating what is in effect a substantial precondition for the operation of the second part. The express provision regarding interest contained in para 24 of Sch 4 to the 1989 Act thus cuts across what would in my view have been the ordinary consequence of s 22(6) of the 1989 Act, which is now s 17 of the 1997 Act. The disappearance in the 1997 Act of the former express

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provision regarding interest enables s 17 to have the natural effect which I have earlier suggested it should have.

I consider that the Court of Session and the Court of Appeal each reached a correct view and I would dismiss both appeals.

LORD MILLETT. My Lords, I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hope of Craighead and Lord Clyde. As Lord Hope has demonstrated, the present question cannot be resolved by a meticulous examination of the provisions of the Social Security (Recovery of Benefits) Act 1997 and their legislative history. This merely yields two rival interpretations, each of which is internally self-consistent, and which are both equally compelling and equally capable of being derived from the statutory language. The solution must lie in ascertaining the underlying rationale of the legislation.

My initial thought was that the answer was to be found in the purpose served by s 17 of the 1997 Act and its statutory predecessors in the Social Security Act 1989 and Social Security Administration Act 1992. These require the court to disregard the amount of any listed social security benefits paid or likely to have been paid when assessing damages for personal injury. Prior to the 1989 Act s 2 of the Law Reform (Personal Injuries) Act 1948 had directed that only one half of such benefits should be disregarded. The other half was taken into account in reducing the amount of the damages which was recoverable by the plaintiff. This represented a compromise, illogical on any footing, between the views of the majority and the minority members of the Monckton Committee in 1946 (see Final Report of the Departmental Committee on Alternative Remedies (Cmd 6860)). The majority recommended that the amount of the benefits should be taken into account in assessing damages in order to avoid what they saw as double recovery. The minority considered that benefits were paid for by the plaintiff through his taxes and accordingly should be treated in the same way as private insurance recoveries and left out of account.

The subject was revisited by the Pearson Commission in 1978 (see Royal Commission on Civil Liability and Compensation for Personal Injury) (Cmnd 7054-I). It adopted the view of the majority of the Monckton Committee and recommended that the full amount of any benefits received by the plaintiff should be taken into account in the assessment of damages. This was accepted in principle by the government in 1981. In a series of judicial decisions it was held that benefits not covered by the 1948 Act must be taken into account in the assessment of damages. This was an application of the rule, which Lord Bridge of Harwich described in Hodgson v Trapp [1988] 3 All ER 870 at 874, [1989] AC 807 at 819 as ‘fundamental and axiomatic’, that damages for negligence are intended to be purely compensatory. If in consequence of the injuries sustained the plaintiff has enjoyed receipts to which he would not otherwise have been entitled, prima facie those receipts are to be set off against his losses.

By the time of the 1989 Act the equation of social security benefits paid for out of general taxation with the receipt either of benevolence or of private insurance paid for by the plaintiff was discredited. Given the contemporary climate of opinion Parliament might have been expected to require the whole of the listed benefits which the plaintiff had received to be taken into account in the assessment of damages. Instead the 1989 Act provided that they were to be disregarded.

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What appears at first sight to be a paradox is, however, easily explained. The plaintiff does not receive the whole of the damages awarded to him. Although the benefits are disregarded in assessing the damages, that part of the judgment which represents them is payable to the Secretary of State and not to the plaintiff. The plaintiff receives only the balance or net sum which on the traditional view represents the true amount of his loss. On this view the historic link between the amount of the judgment recovered by the plaintiff and the amount of his loss is severed. The plaintiff is awarded a larger sum than he has truly lost so that the arrangements for reimbursing the Secretary of State out of the damages awarded to him do not leave him undercompensated. On this analysis, interest to judgment should be awarded on the reduced sum which represents the true amount of his loss and not on the artificially inflated figure of the judgment.

This view of the matter appeared to be supported by two considerations. First, the statutory disregard was originally enacted, not in a separate section as a free-standing provision in its own right, but tucked away in an obscure sub-paragraph as a subordinate element of the legislative scheme. This seemed to indicate that it did not represent a policy decision, which would have been remarkable for its contradiction of contemporary thinking, but merely a mathematical exercise. The judgment was to be grossed up so that it could be netted down later. Secondly, the provision introduced by amendment in para 6 of Sch 4 to the 1989 Act, later s 103 of the 1992 Act, expressly directed that the disregarded benefits should be taken into account to reduce the sum on which interest should be awarded. True, s 103 was not re-enacted in the 1997 Act, but this could be explained on the basis that the second part of the section was no longer necessary in the changed circumstances, while the first part had always been implicit in the statutory scheme and did not need to be expressly re-enacted.

This was the position at which I had arrived at the conclusion of argument. But there was room for doubt. Although interest to the date of judgment was awarded on the net amount after giving credit for the benefits, judgment was given for the gross amount and it was this amount which represented the judgment debt and carried interest from the date of judgment. I could find no rational basis for allowing interest on a greater sum after judgment than before it. Something must have gone wrong, and given the later history of the legislation in regard to interest, it seemed more logical to suppose that it was in the original enactment of s 103 or its predecessor rather than in the failure to re-enact it. Moreover, an analysis which did not abandon the traditional approach to damages should be preferred to one which did. Could one be found?

Further reflection has persuaded me that it can. I was asking the wrong question. The proper question is not: why did Parliament enact s 17 or its predecessors? That does not take the inquiry far enough. It is necessary to ask: why did Parliament enact the scheme which made s 17 necessary? Why, in other words, did Parliament require the benefits to be disregarded in the assessment of damages only to bring them into account when it comes to discharging the judgment debt? Why did it not simply direct that the amount of the benefits should be taken into account in reducing the amount for which judgment is given, and make arrangements for the tortfeasor to pay the amount in question to the Secretary of State? This would be in accordance with the traditional approach. The judgment would represent the amount which the plaintiff can recover and both would reflect the amount which the plaintiff has truly lost.

The answer must lie in the fact that the plaintiff has been made accountable to the Secretary of State for the repayment of the benefits he has received. This is what drives the whole of the statutory scheme. It is what dictates that the

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amount of the benefits should be deducted from the damages and made payable to the Secretary of State. Once this is appreciated, then the scheme’s underlying rationale becomes apparent and everything falls into place. The listed benefits are repayable to the Secretary of State, if not by the plaintiff, then at any rate at his expense. As such they must be treated like any other repayable receipts. If the plaintiff were personally liable to repay them, they would not reduce the amount of his loss and would be disregarded in the assessment of his damages. The fact that they are repayable only out of the damages makes no difference. The statutory scheme treats the listed benefits in the same way as the common law would treat interest-free non-recourse advances to the plaintiff against the ultimate award of damages. The certification process is merely machinery to enable the Secretary of State to be repaid by the tortfeasor out of the damages he would otherwise pay to the plaintiff. It has much the same effect as a garnishee order on a judgment debt in favour of a creditor of the plaintiff.

On this analysis the statutory scheme does not depart from the traditional approach of the common law. The listed benefits are disregarded in the assessment of damages because they are refundable by or at the expense of the plaintiff and accordingly do not diminish his loss. The damages carry interest before as well as after judgment in the normal way. The link between the amount of the judgment and the amount recoverable under the judgment is not broken since the plaintiff’s obligation to apply the damages in repayment of benefit is discharged by the tortfeasor. The plaintiff’s apparent double recovery of interest is due to the fact that the Secretary of State is content to be repaid without interest but this is a matter between the Secretary of State who paid the benefits and the plaintiff who received them and inures for the benefit of the plaintiff. It does not affect the amount of the tortfeasor’s liability, though it reduces the amount he would otherwise be liable to pay to the Secretary of State and increases the amount which he is liable to pay to the plaintiff. The legislative error lay in the enactment of s 103 and its predecessor and not in the failure to re-enact them in the 1997 Act.

For these reasons, as well as those contained in the speeches of my noble and learned friends Lord Hope of Craighead and Lord Clyde, I would dismiss these appeals.

Appeals dismissed.

Celia Fox  Barrister.

AIG Europe (UK) Ltd and others v The Ethniki

[2000] 2 All ER 566

Categories:        CONFLICT OF LAWS: ADMINISTRATION OF JUSTICE; Courts        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        EVANS, THORPE LJJ AND JONATHAN PARKER J        

Hearing Date(s):        16 JULY, 26 NOVEMBER 1999        

Conflict of laws – Jurisdiction – Challenge to jurisdiction – Reinsurance contract – Defendant insurance company domiciled in Greece reinsured by English reinsurers – Reinsurers issuing proceedings in England seeking declaration that they were discharged from liability under contract – Reinsurers claiming entitlement to sue in matters relating to contract in courts for place of performance of obligation in question – Whether English courts having jurisdiction over dispute – Obligation in question – Civil Jurisdiction and Judgments Act 1982, Sch 1, arts 5(1), 17.

A Greek company, H, was insured in respect of earthquake risks. A clause in the policy conferred jurisdiction over the trial of any dispute arising under the policy on the courts of Athens. The claimant reinsurer, AIG, which carried on business in London, agreed to reinsure the insurers, A, in respect of 34·5% of the risk. The contract stated ‘Conditions: Wording as original’ and contained a claims control clause, which provided that, as a condition precedent to any liability under the policy, the reassured should (i) notify the reinsurers within 72 hours of knowledge of any loss which might give rise to a claim under the policy and (ii) furnish the reinsurers with all information regarding such loss to facilitate their control over all negotiations, adjustments and settlements. In 1995 H made a claim under the primary policy in respect of damage caused to one of its factories, and disputes arose as to the amount recoverable under the policy. Thereafter, H issued proceedings in the Athens court claiming payment from E, which had succeeded to the rights and obligations of A. E issued the equivalent of third party proceedings against AIG in the Athens court. In December 1997 AIG commenced proceedings in England, claiming, inter alia, a declaration that it was discharged from any liability to indemnify E as a result of a breach of the claims control clause, and seeking damages for breach of an implied term of the reinsurance contract that A, on being notified of a claim under the primary insurance, would take the necessary steps to ascertain the amount of the loss fairly and carefully. E applied for the writ to be set aside, or alternatively for the proceedings to be stayed, on the grounds that the court had no jurisdiction by reason of certain provisions of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (as set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982), namely art 5(1)a, which provided that in matters relating to a contract, the courts of the place of performance of the obligation had jurisdiction, and art 17b, which provided that where parties had agreed that the courts of a contracting state were to have jurisdiction over disputes, those courts had exclusive jurisdiction. The judge held that where a claimant sought a declaration of non-liability without impugning the contract, relying instead upon the defendant’s alleged breach of contract, it

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was first necessary to identify the obligation in question. In the instant case, the principal obligation in question for the purposes of art 5(1), as identified by reference to the primary relief sought in the points of claim, was the claims control clause, which fell to be performed in England. Further, he held that the general words of incorporation contained in the slip policy were insufficient to incorporate an arbitration clause contained in the primary policy into the reinsurance contract and that the same principle applied to the clause conferring jurisdiction on the Athens court; it followed that art 17 of the convention did not apply and that the Athens court did not have jurisdiction over the dispute. E appealed, contending that the principal obligation for the purposes of art 5(1) was the alleged failure of A properly to investigate the claim in Greece, an obligation which fell to be performed in Greece, and that the terms of the contract ought to be given their literal effect and the jurisdiction clause therefore incorporated.

Held – (1) The correct approach to the identification of the obligation for the purpose of art 5(1) was to ask whether the claim depended upon or was based substantially on the principal obligation in question. In the instant case, the judge had correctly found that the principal obligation was the claims control clause, as AIG’s claim was based essentially on A’s failure to inform it of the claim received, which prevented it from despatching a loss adjuster to Greece, an obligation which required performance in London. The performance of a condition precedent to the liability of the other party could quite properly be described as fundamental, and its breach as the real ground of complaint. The ground of appeal under art 5(1) would therefore be rejected (see p 573 e to p 574 d and p 576 f, post); Kleinwort Benson Ltd v Glasgow City Council [1997] 4 All ER 641 followed.

(2) Although the approach of the courts towards the incorporation of arbitration clauses into bills of lading could not give rise to a general rule of construction, in both bills of lading and reinsurance contracts the parties intended that the subject matter of the original contract remained the same. That common feature was a good reason for asking whether the parties had intended general words of incorporation to incorporate the particular term from the other contract. In the instant case the judge had been correct to find that AIG and A had not intended the jurisdiction clause to be incorporated into the contract because it did nothing to define the risk and its terms were wholly inappropriate to disputes under a reinsurance contract. It followed that the construction of the contract was governed by English law. Accordingly, the appeal would be dismissed (see p 575 g to p 576 f, post); Aughton Ltd (formerly Aughton Group Ltd) v MF Kent Services Ltd (1991) 57 BLR 1 considered.

Decision of Colman J [1998] 4 All ER 301 affirmed.

Notes

For jurisdiction of the courts under the Brussels Convention, see 8(1) Halsbury’s Laws (4th edn reissue) paras 618–634, 641, and for cases on the subject, see 11(2) Digest (2nd reissue) 235–237, 1417–1421.

For the Civil Jurisdiction and Judgments Act 1982, Sch 1, arts 5, 17, see 11 Halsbury’s Statutes (4th edn) (1991 reissue) 1136, 1145.

As from 1 December 1991, Sch 1 to the 1982 Act was substituted by the Civil Jurisdiction and Judgments Act 1982 (Amendment) Order 1990, SI 1990/2591, art 12(1), Sch 1.

Page 568 of [2000] 2 All ER 566

Cases referred to in judgments

ARIG Insurance Co v SASA Ass Riass Spa (10 February 1998, unreported), QBD.

Aughton Ltd (formerly Aughton Group Ltd) v MF Kent Services Ltd (1991) 57 BLR 1, CA.

Boss Group Ltd v Boss France SA [1996] 4 All ER 970, [1997] 1 WLR 351, CA.

Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp Ltd [1981] 1 All ER 289, [1981] AC 909, [1981] 2 WLR 141, HL.

Credit Suisse Financial Products v Société Generale d’Enterprises [1997] CLC 168, CA.

Custom Made Commercial Ltd v Stawa Metallbau GmbH Case C-288/92 [1994] ECR I-2913.

Effer SpA v Kantner Case 38/81 [1982] ECR 825.

Estasis Salotti di Colzani Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH Case 24/76 [1976] ECR 1831.

Ets A de Bloos SPRL v Société en commandite par actions Bouyer Case 14/76 [1976] ECR 1497.

Fisher v Unione Italiana de Riassicurazione SpA [1998] CLC 682.

Kalfelis v Bankhaus Schröder Münchmeyer Hengst Case 189/87 [1988] ECR 5565.

Kleinwort Benson Ltd v Glasgow City Council [1997] 4 All ER 641, [1999] 1 AC 153, [1997] 3 WLR 923, HL.

Leathertex Divisione Sintetici Spa v Bodetex BVBA Case C-420/97 [1999] 2 All ER (Comm) 769.

Maciej Rataj, The, Tatry (cargo owners) v Maciej Rataj (owners) Case C-406/92 [1995] All ER (EC) 229, [1994] ECR I-5439, ECJ.

Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aanemers Vereniging Case 34/82 [1983] ECR 987.

OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep 160.

Shenavai v Kreischer Case 266/85 [1987] ECR 239.

Union Transport Group plc v Continental Lines SA [1992] 1 All ER 161, [1992] 1 WLR 15, HL; affg [1991] 2 Lloyd’s Rep 48, CA.

Appeal

The defendant insurer, Ethniki Hellenic General Insurance Company SA (Ethniki), successor to the rights and obligations of Astir Insurance Company SA appealed from a decision of Colman J on 18 June 1998 ([1998] 4 All ER 301) dismissing its application under RSC Ord 12, r 8 for the writ served on it by the claimant reinsurers, AIG Europe (UK) Ltd and seven others, to be set aside or, alternatively, for the proceedings to be stayed on the grounds that the English courts had no jurisdiction over the dispute by reason of the provisions of the Civil Jurisdiction and Judgments Act 1982, which gave effect to the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968, or its inherent jurisdiction, or both. The facts are set out in the judgment of Evans LJ.

Duncan Matthews (instructed by Constant & Constant) for Ethniki.

Peter Brunner (instructed by Hextall Erskine) for AIG.

Cur adv vult

Page 569 of [2000] 2 All ER 566

26 November 1999. The following judgment were delivered.

EVANS LJ.

1. Two issues arise in this appeal, both of them under the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (as set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982). The first is the familiar question whether proceedings may be brought in this country against a person not domiciled here, on the ground that art 5(1) applies:

‘A person domiciled in a Contracting State may, in another Contracting State, be sued: (1) in matters relating to a contract, in the courts for the place of performance of the obligation in question …’

The second issue, only a little less familiar, is whether the parties ‘have agreed that [the courts of a country other than England and Wales] are to have jurisdiction to settle any dispute’ (art 17).

Parties

2. The appellants, whom I shall call ‘Ethniki’, are an insurance company domiciled in Greece which in 1997 succeeded to the rights and obligations of another Greek insurance company, Astir Insurance Co SA (Astir).

3. In September 1994 Astir insured factory buildings and machinery owned by a Greek company, Hellenic Weapon Co AE (Hellenic), against, among other risks, damage caused by earthquakes, for the period of 12 months until September 1995.

4. Astir reinsured 34·5% of that risk with the respondents, whom I shall call ‘AIG’, by a contract of reinsurance evidenced by a slip policy completed on 28 November 1994.

5. An earthquake damaged one of Hellenic’s factories on 15 June 1995. Hellenic and Astir were unable to agree the amount for which the insurers were liable, and in September 1997 Hellenic started proceedings in Athens against Astir. In November 1997 Ethniki, now merged with Astir, issued the equivalent of third party proceedings against AIG.

6. AIG responded by starting this action against Ethniki in London, claiming declarations of non-liability to Ethniki on the ground that Astir/Ethniki was in breach of two undertakings which were conditions precedent to its liability under the reinsurance contract and of its alleged duties in relation to the ascertainment of loss.

7. Ethniki applied for the writ to be set aside, alternatively for the proceedings to be stayed, on the grounds that the court has no jurisdiction by reasons of arts 5(1) and 17 of the Brussels Convention. Colman J held that there were no good grounds for declining jurisdiction or for setting aside service of the proceedings.

8. The alleged breaches by Ethniki were of express terms which required performance in London: giving notice to AIG within 72 hours of becoming aware of Hellenic’s claim (claims control clause (A)) and providing AIG with all information about the losses concerned (claims control clause (B)). The claims control clause reads:

‘Notwithstanding anything herein contained to the contrary, it is a condition precedent to any liability under this policy that: (A) the Reassured shall, upon any knowledge of loss or losses which may give rise to a claim

Page 570 of [2000] 2 All ER 566

under this policy, advise the Underwriters thereof by cable within 72 hours; (B) the Reassured shall furnish the Underwriters with all information available respecting such loss or losses, and the Underwriters shall have the right to appoint adjusters, assessors and/or surveyors and to control all negotiations, adjustments and settlements in connection with such loss or losses.’

9. The third alleged breach of the reinsurance contract, for which AIG also claims damages, is of an express and/or implied term, pleaded as follows:

‘8. The effect of the Full Reinsurance Clause was that the plaintiffs were bound to follow the settlements of Astir unless: (i) Astir lacked good faith; or (ii) Astir failed to take all proper and businesslike steps to have the amount of the loss fairly and carefully ascertained (hereinafter called “the ascertainment of loss duties”). 9. Further or alternatively it was an implied term of the slip policy that Astir, on being notified of a claim under the primary contract, would carry out the ascertainment of loss duties.’

10. Extensive particulars of these alleged breaches are set out in the points of claim. In summary, the allegation is that, although Astir appointed its loss adjuster on the day of the loss, 15 June 1995, it failed to report the loss to AIG until 3 August 1995. AIG then appointed its own adjuster from London, Mr Larner of Marlow LMS Ltd, but he had already been deprived, the plaintiffs say, of the opportunity to visit the site immediately after the loss. The gravamen may lie in para 17(iii): ‘… the Plaintiffs were deprived of the opportunity to assume control of the adjustment in the early days following the loss.’

11. The alleged breach of claims control clause (B) is that Astir failed or refused to provide information to AIG and/or Mr Larner although requested to do so on numerous occasions between 28 September 1995 and 1 September 1997 (paras 21–22) and persistently failed to provide AIG with timely information in respect of the loss, including the proceedings brought against Astir in Athens (paras 23–26).

12. Paragraphs 19 and 20 set out the alleged failures in the ‘ascertainment of loss’. They are set out in fourteen numbered sub-paragraphs and are to the effect that Astir and/or its loss adjuster Mr Soutis failed to carry out an efficient and timely investigation into the loss and failed properly to prepare Astir’s defence to the claim, particularly as regards the amount recoverable from them.

13. The ascertainment of loss provisions, it is clear, fell for performance in Greece, or at least outside the United Kingdom. The case has been argued, both before Colman J and before us, on the basis that the terms requiring Astir to give notice and provide information were for performance in London, where AIG carries on business.

Article 5(1)

14. The relevant principles were set out by Lord Goff in Kleinwort Benson Ltd v Glasgow City Council [1997] 4 All ER 641 at 646–647, [1999] 1 AC 153 at 163–164 in numbered paragraphs, as follows:

‘(2) The first point which is clearly established in the European jurisprudence is that the basic principle is to be found in art 2. This is the principle of domicile … But it is clearly recognised that art 5 is in derogation from the basic principle of domicile in art 2 … and that as a result the provisions of art 5 are to be construed restrictively (see Kalfelis v Bankhaus

Page 571 of [2000] 2 All ER 566

Schröder Münchmeyer Hengst Case 189/87 [1988] ECR 5565 at 5585 (para 19)). In this connection, it is not to be forgotten that the defendant can always be sued in the courts of his domicile.

(3) Next, in considering the function of the various provisions of art 5, it is to be remembered that these provisions exist “because of the existence, in certain clearly defined situations, of a particularly close connecting factor between a dispute and the court which may be called upon to hear it, with a view to the efficacious conduct of the proceedings”: (see Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aanemers Vereniging Case 34/82 [1983] ECR 987 at 1002 (para 1)). In the case of art 5(1), the relevant court is specified as being the court “for the place of performance of the obligation in question” which is described in the Jenard Report (OJ 1979 C 59, p 1) as the court of the place of performance of the obligation on which the claim is based …

(4) It follows that, in order to identify the relevant court, it is necessary first to identify the obligation in question. This was made plain in Ets A de Bloos SPRL v Société en commandite par actions Bouyer Case 14/76 [1976] ECR 1497 at 1508 (para 11) in which the European Court of Justice held that the word “obligation” in art 5(1) refers to “the contractual obligation forming the basis of the legal proceedings”. The Court of Justice subsequently affirmed that “the obligation”—“cannot be interpreted as referring to any obligation whatsoever arising under the contract in question, but is rather that which corresponds to the contractual right on which the plaintiff’s action is based …” (See Custom Made Commercial Ltd v Stawa Metallbau GmbH Case C-288/92 [1994] ECR I-2913 at 2957 (para 23).’

15. It is also well established that the same approach to art 5(1) is adopted when the defendant denies the existence of a contract (see Effer SpA v Kantner Case 38/81 [1982] ECR 825 at 835–835 (para 7), quoted by Lord Goff in the Kleinwort Benson case [1997] 4 All ER 641 at 647, [1999] 1 AC 153 at 165, and cf Boss Group Ltd v Boss France SA [1996] 4 All ER 970, [1997] 1 WLR 351) and when the plaintiff seeks a dissolution of the contract on the ground of the wrongful conduct of the other party (see Ets A de Bloos SPRL v Société en commandite par actions Bouyer Case 14/76 [1976] ECR 1497 at 1508 (para 14), quoted by Lord Goff in the Kleinwort Benson case [1997] 4 All ER 641 at 647, [1999] 1 AC 153 at 165). In the Ets A de Bloos case the relevant obligation is the one ‘non-performance of which is relied upon to support such claims’. It has to be capable of being described mutatis mutandis as ‘the obligation on which the claim is based’ (cf Lord Goff in the Kleinwort Benson case [1997] 4 All ER 641 at 648–649, [1999] 1 AC 153 at 166).

16. Colman J held in Fisher v Unione Italiana de Riassicurazione SpA [1998] CLC 682 and again in the present case that the same test applies when the plaintiff claims a declaration of non-liability without impugning the existence of the contract. In such a case, it is necessary to identify ‘the obligation in question’ in a situation where the plaintiff relies upon the alleged breach of contract by the defendant in order to assert his own release from any obligation to perform the contract further (cf The Maciej Rataj, Tatry (cargo owners) v Maciej Rataj (owners) Case C-406/92 [1995] All ER (EC) 229, [1994] ECR I-5439 and the Boss Group case). Neither party has challenged the correctness of this part of the judgment, and I would agree with it.

17. It is also established that when more than one contractual obligation is in issue, then it is necessary to identify the principal obligation, for the purposes of

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applying art 5(1), upon the principle accessorium sequitur principale (see Shenavai v Kreischer Case 266/85 [1987] ECR 239 at 256 (para 19) and Union Transport Group plc v Continental Lines SA [1992] 1 All ER 161, [1992] 1 WLR 15 in the House of Lords (affirming [1991] 2 Lloyd’s Rep 48 at 51–52 per Lloyd LJ in the Court of Appeal).

18. A further question arises when it is possible to identify two ‘principal’ obligations ‘neither … subordinate to the other and … of equal rank’. This issue is currently before the Court of Justice of the European Communities in Leathertex Divisione Sintetici SpA v Bodetex BVBA Case C-420/97 [1999] 2 All ER (Comm) 769 upon a reference by the Belgian Court of Cassation, and we were given a copy of the opinion of the Advocate General M Philippe Léger dated 16 March 1999. We were invited, if we formed the view that this was or might be a correct analysis of the present case, to postpone our judgment accordingly. In the result, however, this need does not arise.

19. Against this background, AIG asserts that the principal obligation in issue in the present case, and the ‘obligation in question’ for the purposes of art 5(1), is the alleged breach by Astir/Ethniki of the terms requiring prompt notice and the provision of information, both of which are described as conditions precedent to its liability under the reinsurance contract and both of which were for performance in London. The judge adopted this view, noting (at 307) that ‘Omission to comply with the 72 hours’ claims notification obligation allegedly operated as a complete bar to a claim’ and concluding (at 308):

‘… the claims control clause should be identified as the principal obligation. Breaches of that clause are deployed as the basis for the primary relief sought in the points of claim—the general negative declaration. The presence of alternative claims for a negative declaration as to the reinsurers’ duty to follow the settlements of the reassured and for damages for breach of the ascertainment of loss obligation does not justify treating that obligation as the principal one in preference to the claims control clause.’

20. Ethniki’s submissions were summarised (at 306–307). They were to the effect that ‘the real core of the claim for a negative declaration or for damages is that the reassured failed adequately to investigate the claim in Greece’ (para (iv)) and that the ‘centre of gravity of the obligations in issue is in Greece, for it was the conduct of the defendants there which gave rise to all the breaches relied upon’ (para (vi)).

21. Mr Matthews maintained these contentions before us, and he was able to supplement them by submitting that the judge erred in his approach to the application of art 5(1). The judge stressed that the claims control clause was expressed as a condition precedent to AIG’s liability under the contract and he had regard to the manner in which the plaintiffs had formulated their claim for relief in the proceedings. His conclusion (quoted above) therefore identified the principal obligation by reference to that which was ‘deployed as the basis for the primary relief sought in the points of claim’. This was a wrong approach, Mr Matthews submitted, because the principal obligation should be identified by reference to the substance of the matters in issue, which in this case is the insurance company’s alleged failure to investigate the loss properly or timeously in Greece. By eliding ‘principal’ into ‘primary’ obligation, and by paying undue attention to the manner in which AIG’s claims were pleaded, the judge was distracted, he submits, from considering the substance of the matter in this way.

Page 573 of [2000] 2 All ER 566

22. His submission that the principal obligation may be identified by considering what is the ‘fundamental obligation’ and ‘the real ground of complaint’ is supported by the earlier House of Lords judgment in the Union Transport case [1992] 1 All ER 161 at 168, [1992] 1 WLR 15 at 22, 23 per Lord Goff).

23. I would also agree with Mr Matthews that, if the judge did equate ‘principal’ with ‘primary’, meaning first in time, then he was wrong to do so, but I do not think that he did. His conclusion was that breaches of the claims control clause, which was expressed as a condition precedent, were relied upon as grounds for the primary, meaning principal relief claimed, namely, the declaration of non-liability.

24. The judge quoted from his judgment in Fisher’s case where he concluded, after considering the decisions of the Court of Justice in the Ets de Bloos case and the Custom Made Commercial case, that the obligation in question for the purposes of art 5(1) has three essential characteristics, including ‘(3) the plaintiff has formulated his claim for relief in the proceedings on the grounds of performance or non-performance of that obligation’ (see [1998] CLC 682 at 687). He added, in the present case (at 305):

‘The process of identification of the obligation in question thus depends crucially on the way in which the plaintiff has formulated his claim for relief.’

25. I do not believe that the judge intended to suggest that the plaintiff can somehow select what he regards as the obligation in question by wording his claim document accordingly. That would foreclose the court’s identification of the principal obligation, in case of dispute, and there are ample references to the objective nature of this inquiry, not least in the Custom Made Commercial case [1994] ECR I-2913 at 2957 (para 23) ‘the contractual right on which the plaintiff’s action is based’. What the Court of Justice emphasised in that case, and what Colman J has held, is that the national court which determines the application of art 5(1) must consider the plaintiff’s claim document and identify from it the principal obligation upon which the claim is based. The plaintiff cannot camouflage the principal obligation by relegating it to a subordinate role by the way he chooses to express his claim. The court’s decision does not rest in the plaintiff’s hands.

26. The correct inquiry in the present case, therefore, is to ask whether AIG’s claim for a declaration of non-liability depends or is based principally (or ‘substantially’) on the alleged breaches of the claims control clause or on the accompanying allegations of breaches of the insurance company’s obligation to investigate the claim fully and timeously in Greece. If the two were or might be of equal importance then the question raised in the Leathertex case would arise. But in my judgment the judge was clearly correct in the conclusion he reached. My reasons are as follows. (1) AIG’s claim is based essentially on Astir’s failure to inform it promptly of the claim received in Athens. If notice had been given, then a London adjuster could and allegedly would have been appointed forthwith, and AIG’s reliance on Astir for information and for investigating and responding to the claim would have been greatly reduced, probably extinguished altogether. This picture derives from the points of claim, notwithstanding the prominence given to detailed particulars of alleged breach of the ascertainment of loss provisions, but not from the fact that the alleged breaches of the claims control clause appear first and are of terms described as condition precedents. (2) Due performance of a term described as a condition precedent to the other party’s liability under the contract can properly be described as ‘fundamental’,

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and its breach as the ‘real ground of complaint’, if the tests referred to in the Union Transport case are applied.

27. I therefore would reject this ground of appeal. This makes it unnecessary to consider the respondents’ notice, which asserts that the obligation in question in cases such as the present, where the plaintiff claims a declaration of non-liability on grounds of alleged breaches by the defendant, is the plaintiff’s contractual obligation, which he asserts is no longer binding on him. It seems to me that this cannot be right. The issue between the parties is whether there has been a breach of contract by the defendant which has released the plaintiff from further performance of its obligations under the contract. Those obligations themselves are not in dispute, and I do not see how they can be regarded as the ‘obligation in question’ in proceedings brought by the plaintiff, even though the purpose in bringing the proceedings is to establish a freedom from liability to perform the contract in future.

28. I should refer finally to the question of ‘fragmentation’, in other words, the possibility that the English court should have jurisdiction in respect of the alleged breaches of the claims control clause but not over those of the ascertainment of loss provisions. The latter are also relied upon as releasing AIG from liability and to that extent they can properly be described as subordinate to the former. The claim for damages would be the only candidate for divestment, and like the judge I would reject this course, which in any event Mr Matthews has not suggested to us.

Article 17

29. The issue arising under art 17 is whether the parties to the reinsurance contract agreed that the courts of Athens were to have jurisdiction to settle disputes; if they did, those courts have exclusive  jurisdiction by virtue of art 17.

30. The relevant term of the reinsurance contract is in the slip policy: ‘CONDITIONS: Wording as original.’

31. The underlying insurance policy included the following ‘Condition’:

‘Both contracting parties do hereby agree that they submit to the jurisdiction of the Courts of Athens the trial of any dispute, which shall arise out from [sic] the present policy and they now expressly waive the right to contest the above jurisdiction of the Courts of Athens for any reason.’

32. Mr Matthews makes the straightforward submission that the terms of the slip policy/reinsurance contract should be given their literal effect. The jurisdiction clause in the underlying policy was one of the ‘conditions’ expressly incorporated in the former.

33. The judge rejected this submission on the ground that general words of incorporation such as these do not suffice to bring an arbitration clause from the other contract referred to into the contract in which they appear; and he held that the same principle would be applied when the clause in question is a clause conferring jurisdiction not on arbitrators but on another court.

34. The judge therefore held (at 311):

‘In my view, it is to be inferred that the function of the incorporating words was confined to ensuring that the substantive or subject matter terms of the reinsurance matched the substantive or subject matter terms of the primary cover, except where expressly provided to the contrary.’

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He acknowledged, however, that it remains necessary to construe the particular contract in each case:

‘I do not suggest that to be an inflexible rule of construction. There may be cases where in all the circumstances prevailing between the parties when they made their contract it would be unrealistic to restrict the scope of incorporation so as to exclude a jurisdiction clause.’

35. He referred to his earlier judgment in OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep 160 both for the ‘normal’ rule in relation to arbitration clauses and for applying it to jurisdiction clauses also.

36. Mr Matthews does not challenge the judge’s conclusion as to arbitration clauses, but he disputes that the same, or any, rule applies in relation to jurisdiction clauses. Rightly, he points to significant differences between agreeing that disputes shall  be referred to arbitrators, by what has been described as a ‘self-contained contract collateral or ancillary to’ the substantive contract (see Aughton Ltd v MF Kent Services Ltd (1991) 57 BLR 1 at 31 per Sir John Megaw) and, on the other hand, agreeing as part of a contract that disputes under it shall be referred to the courts of a particular country. Such a term, he submits, cannot be regarded as a separate contract, like an arbitration agreement, which may be subject to a statutory regime and have its own proper law, independently of the contract in which it appears.

37. I respectfully adopt and agree with Sir John Megaw’s analysis of the authorities with regard to arbitration clauses and specifically with regard to the incorporation of charterparty arbitration clauses into bills of lading. There was a time when the objection to incorporation was expressed on semantic grounds (the arbitration clause was, or was not, a ‘term condition or exception’, etc) but this was overtaken by the closer analysis of the nature of an arbitration agreement which appeared from Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp Ltd [1981] 1 All ER 289, [1981] AC 909. The question is whether the same approach should be adopted towards incorporation of a jurisdiction clause.

38. It is clear in my judgment that the circumstances in which charterparty provisions are stated to be incorporated in a bill of lading are special and possibly unique, and they cannot give rise to any rule of construction which should apply whenever one contract incorporates the terms of another. The present case, even if it was typical of reinsurance contracts, has features which are relied upon by both parties and which could not arise in the bill of lading/charterparty context. Mr Matthews submits that the parties agreeing the reinsurance contract in London must have recognised that disputes under the insurance contract would arise in Greece and if litigation became necessary it would be most likely to be decided by the courts there. On the other hand, as the judge noted, the reinsurance contract is probably governed by English law, and the parties to it may be thought unlikely to have intended that disputes arising under it should be decided in Greece. Neither of these factors arises in the same way in a bill of lading/charterparty case.

39. Nevertheless, there is one feature which the two situations have in common. In both, the parties intend that the subject matter of the two contracts shall be the same. In the bill of lading, that the terms etc of carriage shall be those already agreed in the charterparty. In a reinsurance contract, that what may be called the scope of the insurance is identical with that in the underlying policy, particularly when the reinsurance includes a ‘pay as may be paid’ provision, as here. In my judgment, this is a good and sufficient reason for asking, in both

Page 576 of [2000] 2 All ER 566

contexts, what is essentially the same question: did the parties to the contract in which the general words of incorporation appear intend that their contract should include the particular term from the other contract referred to?

40. In my judgment, the judge was correct to answer this question in the negative as regards the jurisdiction clause in the present case. In the original insurance, the clause does nothing to define the risk, and if regard is had to its terms, they are wholly inappropriate to disputes arising between insurers and reinsurers under the reinsurance contract (as distinct from disputes under the original insurance, which could be binding on reinsurers notwithstanding that they were decided by the Greek courts).

41. Like the judge, I have considered this issue on the basis that the construction of the reinsurance contract is governed by its proper law, English law. It would perhaps be more correct to interpret and apply art 17 in accordance with Community law, as was done by this court in Credit Suisse Financial Products v Société Generale d’Enterprises [1997] CLC 168 at 170 (where the parties agreed on this approach) and as was held by Tuckey J in ARIG Insurance Co v SASA Ass Riass Spa (10 February 1998, unreported). But the result, in my judgment, is the same. The governing European authority is Estasis Salotti di Colzani Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH Case 24/76 [1976] ECR 1831) which requires ‘clear and precise demonstration’ in the reinsurance contract that the jurisdiction clause relied on was in fact the subject of a consensus between the parties. That test is not satisfied here.

42. I therefore would dismiss the appeal on this ground also, but not without acknowledging the help I have received from Mr Matthews’ written and oral submissions.

THORPE LJ. I agree.

JONATHAN PARKER J. I also agree.

Appeal dismissed.

Kate O’Hanlon  Barrister.

Legal & General Assurance Society Ltd v Pensions Ombudsman and others

R v Pensions Ombudsman and others, ex parte Legal & General Assurance Society Ltd

[2000] 2 All ER 577

Categories:        PENSIONS        

Court:        CHANCERY DIVISION AND QUEEN’S BENCH DIVISION (CROWN OFFICE LIST)        

Lord(s):        LIGHTMAN J        

Hearing Date(s):        18, 19 OCTOBER, 3 NOVEMBER 1999        

Pension – Pension scheme – Maladministration of pension scheme – Jurisdiction of Pensions Ombudsman – Whether party having right of appeal to High Court from determination by Pensions Ombudsman on preliminary issues – Whether ombudsman having jurisdiction to consider fairness of insurance contract used as scheme’s investment vehicle – Pension Schemes Act 1993, s 151(4).

C Ltd, the principal employer of a pension scheme, made a complaint to the Pensions Ombudsman against L Ltd, the former administrator of the scheme. The investment contracts offered by L Ltd had been used as the scheme’s investment vehicle, and the complaint focused primarily on the fairness of one of those contracts. Although the ombudsman agreed to determine certain preliminary issues relating to the complaint, he refused a request by L Ltd to determine, as a preliminary issue, the question of whether he had jurisdiction to investigate the fairness of the contract’s surrender terms. Subsequently, L Ltd sought to appeal to the High Court, under s 151(4)a of the Pension Schemes Act  1993, against certain determinations made by the ombudsman on the preliminary issues. It also challenged those decisions in judicial review proceedings, and in the same proceedings sought an order of prohibition preventing the ombudsman from investigating that part of the complaint which related to the fairness of the surrender terms. Two questions arose, namely whether an appeal lay against a determination by the ombudsman of a preliminary issue and whether the ombudsman’s remit extended to investigating the fairness of the surrender terms.

Held – On the true construction of s 151(4) of the 1993 Act, the provision for an appeal to the High Court from a determination of the Pensions Ombudsman was limited to appeals from final determinations. Thus the High Court had no jurisdiction to hear appeals from the decision of the ombudsman on preliminary issues. However, the absence of such a right of appeal did not preclude the availability of judicial review proceedings as a means of challenging the ombudsman’s decisions in cases where judicial review was available. In the instant case, the challenges to the ombudsman’s decisions could be the subject matter of judicial review proceedings. Moreover, the ombudsman’s remit was limited to investigating maladministration by L Ltd in its capacity as manager, and did not entitle him to re-open and consider the merits or fairness of the contract. That was a commercial contract, and neither the entry into it nor its continuance in force constituted an act of management. Accordingly, the fairness of the terms

Page 578 of [2000] 2 All ER 577

was outside the ombudsman’s remit and L Ltd should not be subjected to an investigation on that topic (see p 583 a e to h, p 587 e to h and p 588 a, post).

Notes

For the functions of the Pensions Ombudsman, and for determinations by him, see 44(2) Halsbury’s Laws (4th edn reissue) paras 664, 676.

For the Pension Schemes Act 1993, s 151(4), see 33 Halsbury’s Statutes (4th edn) (1997 reissue) 767.

Cases referred to in judgment

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

Edge v Pensions Ombudsman [1999] 4 All ER 546, CA.

R v Local Commissioner for Administration for the North and East Area of England, ex p Bradford Metropolitan City Council [1979] 2 All ER 881, [1979] QB 287, [1979] 2 WLR 1, QBD and CA.

Appeal and application for judicial review

In two related sets of proceedings, Legal & General Assurance Society Ltd (L&G) (i) appealed from decisions made by the first respondent, the Pensions Ombudsman, on the determination of preliminary issues in the investigation of a complaint made by the second respondent, CCA Stationery Ltd (CCA), in relation to the administration by L&G of the CCA Stationery Ltd Pension and Assurance Scheme, (ii) challenged those decisions in judicial review proceedings brought against the ombudsman, and (iii) in the same judicial review proceedings sought permission to apply for an order of prohibition preventing the ombudsman from investigating that part of the complaint which related to the fairness of the surrender terms of an insurance contract entered into between L&G and the trustees of the scheme. The Personal Investment Authority Ombudsman Bureau Ltd (PIAOB) was third respondent in the appeal and second respondent in the judicial review proceedings. The facts are set out in the judgment.

Nigel Inglis-Jones QC and Richard Hitchcock (instructed by Sacker & Partners) for L&G.

Monica Carss-Frisk (instructed by John Yolland) for the ombudsman.

James Strachan (instructed by Philip Roberts) for the PIAOB.

CCA was not represented.

Cur adv vult

3 November 1999. The following judgment was delivered.

LIGHTMAN J.

INTRODUCTION

1. This judgment is given in two sets of proceedings relating to decisions on preliminary issues by the first respondent, the Pensions Ombudsman (the ombudsman). The decisions are challenged by way of appeal in the first set and by way of judicial review in the second. The proceedings raise the questions whether an appeal lies against a determination by the ombudsman of a preliminary issue and whether the remit of the ombudsman extends to investigating the fairness of the provisions of an insurance contract entered into by trustees as the investment vehicle of their pension scheme.

Page 579 of [2000] 2 All ER 577

2. The ombudsman is a commissioner whose office is established under Pt X of the Pension Schemes Act 1993. The jurisdiction of the ombudsman is set out in Pt X of the 1993 Act as amended by ss 157–160 of the Pensions Act 1995, and as further provided in rules and regulations laid down from time to time pursuant to s 149(2), (3) of the 1993 Act. Under s 146 of the 1993 Act, the ombudsman may investigate and determine complaints of alleged maladministration in connection with any act or omission of the trustees or managers of an occupational pension scheme or personal pension scheme.

3. The second respondent, CCA Stationery Ltd (CCA), is the complainant in a complaint against the appellant, Legal & General Assurance Society Ltd (L&G), made to the ombudsman on 10 March 1998 (the CCA complaint). The CCA complaint is for practical purposes identical to a complaint (the Edwards complaint) made to the ombudsman on 15 September 1997 by an employee of CCA Mr Edwards. (I shall refer to the two complaints together as ‘the complaints’ and CCA and Mr Edwards together as ‘the complainants’.) CCA was the principal employer of the CCA Stationery Ltd Pension and Assurance Scheme (the CCA scheme.) The trustees of the CCA scheme (the trustees) used as its investment vehicle insurance contracts offered by L&G, a proprietary life office, which was (as well as insurer) the administrator of the CCA scheme at least until 24 February 1992. The first contract between the trustees and L&G was made in 1971 (the 1971 contract). The 1971 contract was replaced on or about 28 January 1980 by a second contract between the same parties (the 1980 contract). The 1980 contract in part VII sets out the terms for discontinuance (or surrender) of the 1980 contract:

‘1. Discontinuance of Payment of Premiums. If the [trustees] notify [L&G] of their intention to cease paying premiums hereunder º (the effective date of such notification º being hereunder referred to as “the date of discontinuance”) then º (2) the [trustees] shall be entitled upon giving written notice to [L&G] to exercise one of the following options: º (ii) to require that L&G shall immediately reduce the Total Cash Pool by the whole of the amount thereof and shall pay to the [trustees] either (a) a single cash sum calculated on the basis currently in use by [L&G] for this purpose or (b) at the option of [L&G] a series of payments made over a period not exceeding 24 months which are in the opinion of [L&G] equal in value to the said single cash sum; [or] (iii) º’

In late February 1992, the existing shareholders of CCA sold CCA, and the purchasers thereupon caused CCA to take steps to discontinue the 1980 contract and exercise the option contained in cl 1(ii) of part VII. In a report to CCA dated 13 March 1992 L&G informed CCA that, whilst the notional value of the pool assets was £3,707,000, it had calculated the single cash sum payable to the trustees at £2,973,000, and thereafter L&G paid this sum to the trustees. L&G however refused to disclose the ‘basis currently in use by’ L&G and used by L&G for the purpose of calculation of the single cash sum (the formula) on the ground that it was highly confidential. The combination of the difference between the notional value and the cash sum (which is capable of being viewed by those uninformed as to the reasons for the difference as a penalty payable on discontinuance) and the refusal on the part of L&G to disclose the formula has been the occasion for dissatisfaction on the part of CCA and members of the CCA scheme and has given rise to the complaints.

4. The primary focus of the complaints is upon the fairness of the 1980 contract and in particular the fairness of the surrender terms therein contained and the failure of L&G to disclose the formula. The complaints each allege:

Page 580 of [2000] 2 All ER 577

‘(a) a failure on the part of L&G to ensure that [the 1980 contract] provided sufficient funds in the event of a surrender together with a failure to notify the Employer, for whom they were managing the [CCA scheme], of the potential lack of funds which would be available on surrender; (b) a failure to provide fair surrender terms (L&G’s “current basis”), together with a failure to inform the Employer, on whose behalf they were acting, of the basis of the calculation under the surrender terms; (c) a failure to comply with the Pension Schemes Act 1993 as regards members’ statutory right to a cash equivalent.’

5. On 5 May 1998 L&G served upon the ombudsman and the complainants’ solicitors, Nabarro Nathanson (the solicitors), a notice raising preliminary issues (the preliminary issues) going to the jurisdiction of the ombudsman to investigate the complaints. Provision for preliminary issues is made by r 6(4)(b) of the Personal and Occupational Pension Schemes (Pensions Ombudsman) (Procedure) Rules 1995, SI 1995/1053. On 25 July 1998 the ombudsman issued a provisional determination (the provisional determination) in respect of certain of the preliminary issues. The ombudsman declined to consider others as preliminary issues. The effect of the provisional determination was that investigation of the Edwards complaint was provisionally discontinued, but the investigation of the CCA complaint was provisionally continued. On 28 August 1998 L&G made submissions in response to the provisional determination. On 7 January 1999 the ombudsman promulgated a final determination (the determination) to the same practical effect as the provisional determination.

6. L&G have commenced two actions in the High Court in respect of the determination, one (by way of appeal) in the Chancery Division and the other (by way of judicial review proceedings) in the Queen’s Bench Division (Crown Office List). Both actions came before me for trial at the same time. CCA was not represented and took no part in the proceedings. The ombudsman attended by counsel to assist the court. The proceedings in the Chancery Division were commenced by a notice of originating motion dated 4 February 1999. In the proceedings L&G appealed against three decisions of the ombudsman in the determination, contending that in making those decisions the ombudsman erred in law. Those decisions were: (a) that the CCA complaint was brought within the time limits by which his jurisdiction is bound; (b) that he is not deprived of jurisdiction to investigate in relation to the CCA complaint by operation of reg 4 of the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996, SI 1996/2475; and (c) that the fact, if such it be, that L&G was no longer responsible for the management of the CCA scheme at the relevant time does not affect the ombudsman’s jurisdiction over former managers. There is as yet no authority on the question whether an appeal lies against a determination by the ombudsman of a preliminary issue. That is the first question I have to decide on the appeal.

7. The proceedings in the Queen’s Bench Division (Crown Office List) were commenced by a notice of application dated 5 March 1999. There are two parts to this application. The first part is an application for permission to apply for an order of prohibition preventing the ombudsman from investigating that part of the CCA complaint which relates to the fairness or otherwise of L&G’s surrender terms. L&G had sought to raise as a preliminary issue the question whether it was within the remit of the ombudsman to investigate that part of the complaint and the ombudsman had declined to determine it. By an order dated 15 April 1999,  I granted permission to apply for such order. The second part is an application

Page 581 of [2000] 2 All ER 577

for permission to challenge the three decisions the subject of the appeal in the eventuality that it might be held that there is no jurisdiction in the High Court to entertain the appeal. By my order dated 15 April 1999 I adjourned this part of the application for permission until the date of the hearing of the appeal.

MATERIAL FACTS

8. The 1980 contract was (as was the 1971 contract) an insurance contract designed as a long term investment and administration vehicle for the trustees of small to medium sized occupational pension schemes. Under the 1980 contract, the trustees paid premiums to L&G—the contributions required in order to fund the benefits due under the CCA scheme—and L&G placed those in the with-profits section of its long term fund. While the 1980 contract remained ongoing, the premiums thus invested had guaranteed increments and also discretionary bonuses added to them in such a way as to provide a smoothed investment growth. The ongoing contract also provided a guarantee: provided that the trustees paid the premiums ascertained by L&G to be necessary in order to meet the liabilities of the CCA scheme, L&G guaranteed, while the 1980 contract remained ongoing, to pay the benefits due to scheme members as and when they fell due. This guarantee was fulfilled throughout the life of the 1980 contract. Also throughout the life of the 1980 contract L&G met periodically with CCA and the trustees. Amongst other things the purpose of these meetings was to review the funding position of the CCA scheme, the performance of the 1980 contract, and the propriety or otherwise of retaining the 1980 contract as the investment vehicle for the CCA scheme.

9. On 28 August 1991, L&G was informed for the first time that CCA was likely to be sold. In those circumstances the possibility of the CCA scheme, and therefore the 1980 contract, being discontinued was discussed. Mr Walmsley, who was until the sale of CCA its controlling director as well as one of the trustees, was anxious that a funding review be carried out swiftly, and L&G understood the reasons for this to be the nearness of the impending sale and the fact that he wished three senior employees to leave CCA on favourable early retirement terms. On 20 November 1991 L&G wrote to CCA and emphasised that, were the CCA scheme and the 1980 contract to be terminated, the CCA scheme would be in deficit. On 26 November 1991 L&G wrote to Halliwell Landau, solicitors retained by CCA in respect of the proposed sale, confirming its understanding that the 1980 contract was to continue after the sale, but stating that, were such not to be the case, discontinuance terms would be applicable. L&G went on to invite Halliwell Landau to discuss the discontinuance terms if they felt it relevant. In fact neither CCA (prior to the sale) nor their solicitors took that matter any further.

10. The first knowledge L&G had of the sale of CCA was from a letter dated 24 February 1992 from Mr Scholes, the new chairman and chief executive appointed after the sale of CCA had been completed. This informed L&G that it had been replaced with immediate affect as the administrator of the CCA scheme by Pearson Jones & Co (Trustees) Ltd, later PJC Pension Services (PJC), and that PJC were authorised to negotiate with L&G the discontinuance terms under the 1980 contract. On 26 February PJC wrote to L&G stating that it was taking over all administration services with immediate effect and requested L&G to let them have its discontinuance terms. By its reply to PJC dated 2 March 1992 L&G warned that due to the generally poor investment conditions as opposed to the declared bonuses under the 1980 contract, and due to the fact that the 1980 contract incorporated a capital guarantee, the amount

Page 582 of [2000] 2 All ER 577

available on discontinuance would be substantially lower than the nominal asset value of the contract shown, for instance, in the recent actuarial valuation. The 1980 contract was discontinued. On 13 March 1992, L&G supplied a discontinuance quotation to PJC and subsequently paid the sum which L&G calculated as due to the trustees.

RIGHT OF APPEAL

11. The first issue raised before me was whether it was possible to appeal to the High Court against a determination by the ombudsman of a preliminary issue. Apparently this question has never arisen before. It is obviously a question of the greatest importance since the determination of a preliminary issue may affect, or indeed be determinative of, the outcome of a complaint or question. This issue was raised by Ms Monica Carss-Frisk, counsel for the ombudsman, not in order to prevent the decisions of the ombudsman being reviewed, but to assist the court on the appeal by bringing to its attention a question which arises relating to the jurisdiction of the court. Far from seeking to take advantage of any technicality, she made it clear that the ombudsman was anxious to obtain as much guidance as was available from the court on the various questions of law raised in these proceedings and that, if it were held that an appeal was not available on the issues raised on the appeal by L&G, the ombudsman did not oppose those issues being determined in the judicial review proceedings. I should acknowledge the quality of the assistance that I received from her measured and incisive submissions in this case.

12. The availability of an appeal must depend upon the provisions of the 1993 Act and the 1995 rules. Section 146 of the 1993 Act confers jurisdiction on the ombudsman to investigate certain specified complaints and disputes. Section 149(2) provides that the Secretary of State may make rules with respect to the procedure that is to be adopted in connection with the making of complaints, the reference of disputes and the investigation of complaints made and disputes referred. Section 151 provides (so far as material) as follows:

‘Determinations of the Pensions Ombudsman.—(1) Where the Pensions Ombudsman has conducted an investigation under this Part he shall send a written statement of his determination of the complaint or dispute in question—(a) to the person by whom, or on whose behalf, the complaint or reference was made, and (b) to any person (if different) responsible for the management of the scheme to which the complaint or reference relates and any such statement shall contain the reasons for his determination.

(2) Where the Pensions Ombudsman makes a determination under this Part º he may direct [any person responsible for the management of the scheme to which the complaint or reference relates] to take, or refrain from taking, such steps as he may specify in the statement referred to in subsection (1) or otherwise in writing.

(3) Subject to subsection (4), the determination by the Pensions Ombudsman of a complaint or dispute, and any direction given by him under subsection (2), shall be final and binding on—(a) the person by whom, or on whose behalf, the complaint or reference has been made, (b) any person (if different) responsible for the management of the scheme to which the complaint or reference relates, and (c) any person claiming under a person falling within paragraph (a) or (b).

(4) An appeal on a point of law shall lie to the High Court º from a determination or direction of the Pensions Ombudsman at the instance of any person falling within paragraphs (a) to (c) of subsection (3).

Page 583 of [2000] 2 All ER 577

(5) Any determination or direction of the Pensions Ombudsman shall be enforceable—(a) in England and Wales, in a county court as if it were a judgment or order of that court, and º’

13. In my judgment, the provision for an appeal in s 151(4) is limited to appeals from final determinations and does not extend to appeals from interim determinations. The whole subject matter of s 151 is final determinations. Subsection (1) is concerned with determinations of ‘the complaint or dispute in question’, and that must mean ‘final determinations of the complaint or dispute’. Subsection (2) is concerned with the giving of directions consequent upon such a final determination. Subsection (3) makes the determinations covered by the section ‘final and binding’ and sub-s (4) makes them enforceable as if judgments or orders of the county court—again apposite only to final rather than interim determinations. Indeed there is no reference to interim determinations in the 1993 Act. The only reference to them is in reg 6(4) of the 1995 regulations made pursuant to s 149(2) of the 1993 Act. Regulation 6(4) provides that upon receiving a copy of the details of a complaint or dispute, the respondent may in its reply or in a separate notice to the ombudsman request a determination of any question as a preliminary issue. Beyond this barest of references to preliminary issues, nothing further is said even in the 1995 regulations.

14. Whilst it is true that a preliminary issue will or may result in a determination of that issue, such a determination is outside the ambit of s 151(4). Any conferment of a right of appeal to the High Court from a decision on a preliminary issue requires an amendment of s 151: the statutory power to make regulations conferred by s 149(2) cannot authorise any such right of appeal and reg 6(4) does not purport to do so. In the circumstances with great regret I must hold that there is no jurisdiction conferred on the High Court to hear appeals from decisions of the ombudsman on preliminary issues. This is most unfortunate: occasions can and will occur when appeals from determinations on preliminary issues, as much as on final determinations, are called for. It may be that appeals should only be allowed on preliminary issues with leave, but the lacuna precluding any appeal in any case is calculated to occasion serious injustice and inconvenience. The absence of a right of appeal does not preclude the availability of judicial review proceedings as a means of challenging the ombudsman’s decisions in cases where judicial review is available, but judicial review will not always be available and in any event it is scarcely sensible to have distinct grounds and channels for review of the ombudsman’s decisions in the case of interim and final determinations. Fortunately (by common consent) this is a case where the challenges to the decisions of the ombudsman are such that, since they cannot be determined by way of appeal, they can be the subject matter of judicial review proceedings. Therefore I give permission to L&G to proceed with the judicial review proceedings raising those challenges. I must now turn to each of the four questions of law raised in the judicial review proceedings.

TIME LIMITS

15. The time limits for investigations by the ombudsman are laid down in reg 5 of the 1996 regulations. This provides:

‘(1) Subject to paragraphs (2) and (3) below, the Pensions Ombudsman shall not investigate a complaint or dispute if the act or omission which is the subject thereof occurred more than 3 years before the date on which the complaint or dispute was received by him in writing.

Page 584 of [2000] 2 All ER 577

(2) Where, at the date of its occurrence, the person by or in respect of whom the complaint is made or the dispute is referred was, in the opinion of the Pensions Ombudsman, unaware of the act or omission referred to in paragraph (1) above, the period of 3 years shall begin on the earliest date on which that person knew or ought reasonably to have known of its occurrence.

(3) Where, in the opinion of the Pensions Ombudsman, it was reasonable for a complaint not to be made or a dispute not to be referred before the end of the period allowed under paragraphs (1) and (2) above, the Pensions Ombudsman may investigate and determine that complaint or dispute if it is received by him in writing within such further period as he considers reasonable.’

16. The ombudsman determined that the CCA complaint had not been submitted before the expiry of three years after the occurrence of the acts or omissions complained of (within reg 5(1)) or within three years of the date that CCA became aware of those acts or omissions (within reg 5(2)); but that it had been brought within such further period as was reasonable (within reg 5(3)). The first two of these propositions is common ground; contention focuses on the last of  these three propositions and on the words in reg 5(3) ‘if it is received by him º within such º period as he considers reasonable’. Mr Edwards as a member could at any time have made a complaint against L&G as manager. For the first time the 1995 Act on 6 April 1997 conferred on CCA as employer a statutory right to make a complaint against L&G as manager. CCA did not make a complaint until 10 March 1998. The short question is whether it was open to the ombudsman to hold as he did that the delay between 6 April 1997 and 10 March 1998 was in all the circumstances reasonable.

17. I must first set out the relevant chronology. (1) The 1980 contract was discontinued on or about 24 February 1992. (2) L&G provided its discontinuance quotation on 13 March 1992 and the last tranche of payments to the trustees was made on 31 March 1994. There was a continuing failure after 13 March 1992 on the part of L&G to disclose the formula. (3) The 1996 regulations were made on 25 September 1996, were laid before Parliament on 2 October 1996 and came into force on 6 April 1997. It may be assumed accordingly that CCA knew that it would have a right to make a complaint long before it became exercisable on 6 April 1997. (4) The solicitors on behalf of Mr Edwards made his complaint on 15 September 1997. It was a complaint made on his own behalf alone, and not on behalf of anyone else, though in it he claimed a payment of the full loss occasioned by the alleged maladministration to the scheme fund. On 17 September 1997, the ombudsman rejected his complaint as out of time. (5) On 23 September 1997 the solicitors requested the ombudsman to reconsider his decision. By letter dated 1 October 1997 the ombudsman wrote back setting out reasons why he would not uphold the complaint. (6) On 31 October 1997 the solicitors wrote to the ombudsman stating that CCA and Mr Edwards were working closely together in respect of a complaint to the ombudsman, and asking whether the ombudsman envisaged any problems if CCA submitted the same complaint. (I may add that it is common ground that Mr Edwards was being used as a stalking horse in respect of a complaint by CCA.) By his reply dated 31 October 1997, the ombudsman replied that it was believed that any complaint by CCA would necessarily be rejected as out of time. (7) By letter dated 22 December 1997 the solicitors requested the ombudsman to review

Page 585 of [2000] 2 All ER 577

both complaints. The ombudsman’s reply dated 10 February 1998 (the letter) was in the following terms:

‘I have shown Dr Farrand the file and he has decided to accept Mr Edwards’ complaint for investigation º  Before I arrange for the complaint to be forwarded to the manager in the normal way, I would like you to consider further the possibility of a complaint by the company as employer against the manager, as mooted by yourself. No such complaint has yet been made, but from what you have said it does appear that such a complaint would be appropriate and Dr Farrand has indicated to me that he accepts that such a complaint would not be time barred.’

The CCA complaint duly followed on 10 March 1998. (8) The ombudsman allowed L&G to make representations on the question whether the CCA complaint was out of time, but rejected those representations both in the provisional determination and the determination.

(a) Bias

18. The first question raised by L&G is whether the decision of the ombudsman that the CCA complaint was received ‘within such further period as he considered reasonable’ was tainted by pre-judgment or bias. The letter both invited the CCA’s complaint and pre-judged it as made within time without any opportunity being afforded to L&G to make representation on the issue. The total impropriety of this action on the part of the ombudsman was acknowledged by the ombudsman’s counsel before me. L&G argued that, though the ombudsman did subsequently allow L&G to make representations on this issue, the attitude and mindframe displayed by the ombudsman in the letter coloured his views on this issue at all later stages. The reasonable concerns on the part of L&G regarding the attitude of the ombudsman occasioned by the letter were undoubtedly aggravated by the refusal of the ombudsman at any time before this hearing to acknowledge that, in writing the letter in the terms which he did, he did anything wrong. Before me the ombudsman (somewhat surprisingly) sought to justify this attitude on the ground that the ombudsman could not be expected to ‘fall on his sword’, demean himself and acknowledge any such error. In my judgment L&G had every ground for feeling a sense of grievance and unease in respect of his impartiality and open-mindedness and it was incumbent on the ombudsman to seek to reassure L&G on this score. The obvious and proper way to reassure L&G was to acknowledge his error in pre-judging the issue in the letter. Where a person is entrusted with the role of investigating maladministration by others, he must surely be ready to acknowledge maladministration on his own part in the course of his investigation, most particularly when this is necessary to re-establish confidence in him. But whilst in the circumstances I have referred to anxiety on the part of L&G on the ground of perceived pre-judgment and bias which is fully understandable, since the ombudsman did in fact permit L&G to make representations and gave consideration to them in his determinations, I do not think that the evidence before me enables me to set aside the decision on that ground. Justice would better be seen to have been done if the decision on time limits could in the circumstances have been made by someone else, but that was not possible because the 1993 Act confines all decision-making to the ombudsman.

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(b) Unreasonableness

The second complaint by L&G is that the ombudsman’s decision on this question of the timing of the CCA complaint was Wednesbury unreasonable (see Associated Provincial Picture Houses Ltd v Wednesbury Corp [1947] 2 All ER 680, [1948] 1 KB 223). The ombudsman explains his decision in the determination as follows:

‘5.2 The second objection is that CCA did not bring the complaint until some 6 years after the relevant events, and that I did not have evidence before me as to the reasonableness of the complaint not being brought until then. However CCA were not able to bring a complaint until 6 April 1997, the date when complaints from employers were first brought within my remit. In my provisional determination of these matters I explained that I considered it reasonable for the complaint not to have been made when it could not have been º

5.4 I remain of the opinion that it was reasonable for the complaint not to be brought during the time that Mr Edwards’ complaint was being pursued. For much of the time [the solicitors] were attempting to persuade my officials, against their judgment, that Mr Edwards’ complaint should be investigated. [L&G] imply that a well informed prudent solicitor would have advised his client to complain much earlier than [the solicitors] actually did. Even if this were so, I do not think that either [the solicitors’] or CCA’s actions can be said to have been unreasonable in the circumstances.

5.5 For the reasons given above in my opinion, it was reasonable for CCA’s complaint not to have been submitted before the expiry of three years after they were first aware of the acts or omissions complained of. Also in my opinion the complaint was brought within such further period as was reasonable.’

19. As I have already said, no issue arises as regards the first sentence of para 5.5: that is common ground. Contention focuses on the second. It is clear that CCA decided to postpone bringing any complaint until after it knew whether the Edwards’ complaint was accepted: the Edwards’ complaint was intended as a stalking horse. What the ombudsman never inquired into was why CCA adopted this policy. I find it very difficult to understand how it can have been found that the adoption by CCA of this policy was reasonable when the reasons for doing so are totally unexplained and unexplored. It may be thought that reason required both complaints to proceed in tandem (as CCA ensured was the case once the ombudsman showed his hand on 10 February 1998). The delay by CCA was deliberate and substantial and persisted even during periods when the Edwards’ complaint had been rejected. I do not think that the CCA complaint was brought within a reasonable further period, but I hesitate to hold that no sensible ombudsman acting with due appreciation of his responsibilities would have held the period reasonable. Accordingly whilst I consider that the ombudsman’s decision is on the margins of rationality, with some hesitation I have concluded that I cannot disturb his decision on this ground.

REGULATION 4 OF THE 1996 REGULATIONS

20. The next issue raised by L&G was whether the jurisdiction of the ombudsman was excluded by reg 4 which precludes him from investigating any complaint or dispute which can be investigated by the Personal Investment Authority Ombudsman Bureau Ltd (the PIAOB). The ombudsman rejected the argument that he was so precluded referring to and relying on his understanding of the interpretation by the PIAOB of its own rules. The question of jurisdiction

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however depends, not upon how PIAOB interpret their rules, but upon the true construction of its rules. This question brings me to explain the participation of the PIAOB in these proceedings.

21. It is important that, when proceedings raise for determination issues of law which vitally affect some third party (eg the determination of that party’s statutory powers or duties), the third party should be notified of this fact at as early a date as is possible so that he can decide whether he should seek permission to intervene and seek leave to make submissions to the court. If this is not done, the court may adjourn proceedings to allow the third party this opportunity. Unfortunately this course was not taken in this case and PIAOB only learnt of this hearing shortly before it began. None the less at the commencement of the hearing Mr Strachan on behalf of PIAOB submitted a skeleton argument and applied for permission to be added as a party to address the court on the construction of its rules. I acceded to this application. The skeleton was of such exceptional clarity and force that on reading it L&G conceded that PIAOB had no jurisdiction in respect of the CCA complaint and abandoned this ground of appeal. I ordered L&G to pay PIAOB its costs which I assessed at £1,500 plus value added tax.

FAIRNESS OF SURRENDER TERMS

22. Before I turn to the third issue which is concerned with the question whether L&G’s conduct in respect of the discontinuance and calculation of the sum payable on discontinuance is an act of management, I think that it is convenient to turn to the related issue raised in the judicial review proceedings, namely whether the ombudsman has jurisdiction to inquire into the fairness or otherwise of L&G’s surrender terms.

23. The remit of the ombudsman is to investigate maladministration by L&G acting in the capacity of a manager. The concept of ‘maladministration’ is broad and includes bias, inattention, delay, incompetence, ineptitude, perversity, turpitude and arbitrariness: see R v Local Commissioner for Administration for the North and East Area of England, ex p Bradford Metropolitan City Council [1979] 2 All ER 881 at 898, [1979] QB 287 at 311–312. It is concerned with the decision-making process rather than the merits of a decision. I agree with Mr Inglis-Jones QC (for L&G) that the jurisdiction to investigate maladministration does not enable the ombudsman to reopen and consider the merits or fairness of the terms of the 1980 contract, which is a commercial contract between the trustees and L&G. The terms (and in particular the terms for discontinuance and the formula) may turn out to be advantageous or disadvantageous for the scheme members. But neither the entry into the 1980 contract nor its continuance in force constitutes an act of management, let alone within the purview of the ombudsman: nor in the ordinary course can the question of the perceived fairness or unfairness of the exercise by L&G of contractual rights granted by the 1980 contract to L&G for its own benefit fall within the remit of the ombudsman. The position of the ombudsman on this issue has been equivocal  before me as it has in correspondence preceding these proceedings. Thus eg in a letter dated 1 October 1997 the ombudsman wrote to the solicitors:

‘The question of a surrender penalty applied to an occupational pension scheme is not a matter over which a scheme member has any influence, it being strictly a contractual matter between the trustees and the insurers. Therefore it is my view that as regards the surrender penalty [Mr Edwards] as a member of the pension scheme can have no complaint against [L&G] as managers.’

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The ombudsman concedes that he can afford no relief to CCA if he finds unfairness, that he cannot alter the terms of the 1980 contract or vary the sum payable thereunder on discontinuance. It is plain that he has no greater power in this regard than the court: see Edge v Pensions Ombudsman [1999] 4 All ER 546. None the less he maintains that he is free to investigate this issue. In my judgment, the fairness of the terms is outside his remit and L&G ought not to be subjected to an investigation on this topic.

MANAGEMENT

24. I turn back to the third issue on the appeal. The short question raised is whether the process of the calculation of the sum payable on discontinuance made on 13 March 1992 is capable of constituting maladministration by L&G. In my view the refusal on the part of L&G to disclose the formula was in breach of the terms of the 1980 contract. The principle must be clear that (in absence of some contractual provision to the contrary) where a contract provides for a payment to be made calculated in accordance with a formula known to one party alone, that party must disclose the formula to the other party: one party cannot require the other to accept his calculation made in accordance with a formula without such disclosure and to accept his figure in blind faith that the calculation is correct. There is no provision in the 1980 contract requiring the trustees to accept the calculation made by L&G without disclosure of the formula and an opportunity to check the correctness of the calculation. If the calculation of the sum payable under the 1980 contract is an act of management by L&G, then it does seem to me open to the ombudsman to investigate the conduct of L&G as possible maladministration.

25. It is apparent that the full facts regarding the cesser of management functions by L&G have yet to be explored and it is not possible to say what stage had been reach on 23 March 1992. I am not prepared to hold that the calculation was not an act of management by L&G and that it is not an area within the remit of the ombudsman. Indeed there is much to be said for holding that the calculation and payment of the sums due under the 1980 contract were the concluding acts of management by L&G and that so long as L&G withheld the formula, this was an area which called for the attention of the ombudsman in order to protect the interests of members and the CCA. I should however mention that (under pressure from me), at a very late stage L&G agreed to provide the ombudsman and CCA in confidence with the formula and the ombudsman agreed to receive this information in confidence and only to pass it on to CCA in confidence. This action on the part of L&G should enable any doubts or anxieties about the correctness of the calculation by L&G (albeit belatedly) to be resolved without delay.

CONCLUSION

26. The parties should prepare a minute of order setting out in the form of declarations the answers which I have given to the issues raised before me. My decision leaves to the ombudsman limited areas for further investigation. When deciding how far to pursue them, the relevant considerations in his mind no doubt will include the late provision of the formula, the reasons for previously withholding it and the length of time that has elapsed since the dates of the events in question.

Declarations accordingly.

Celia Fox  Barrister.

Walker (Inspector of Taxes) v Centaur Clothes Group Ltd

[2000] 2 All ER 589

Categories:        TAXATION; Income Tax, Corporation Tax        

Court:        HOUSE OF LORDS        

Lord(s):        LORD SLYNN OF HADLEY, LORD NOLAN, LORD NICHOLLS OF BIRKENHEAD, LORD HOFFMANN AND LORD CLYDE        

Hearing Date(s):        2, 3 FEBRUARY, 6 APRIL 2000        

Income tax – Corporation tax – Advance corporation tax – Company ceasing to trade and transferring assets to associated company – Purchase price left outstanding with no provision for payment of interest – Company paying dividend to parent subject to payment of advance corporation tax – Company claiming to carry back surplus advance corporation tax – Whether company having accounting period when dividend paid – Whether company having ceased to be within charge to corporation tax – Income and Corporation Taxes Act 1988, ss 12(2), 239(3), 832(1).

C, a company, ceased trading on 6 January 1992 and sold its assets and undertaking to B, another company in the same group. The price was left outstanding, payable on demand but without interest. C carried on its former business as B’s unpaid agent. On 5 April 1993 C paid a dividend to B subject to advance corporation tax. On 30 September 1993 C opened a bank account to which interest was credited by the bank in December 1993. On 8 December 1993 C paid a second dividend to B subject to advance corporation tax. C sought to carry back the advance corporation tax paid in respect of both dividends pursuant to s 239(3)a of the Income and Corporation Taxes Act 1988, which provided, inter alia, that where in ‘any accounting period’ of a company there was an amount of surplus advance corporation tax the company might claim to have that amount treated as if it were advance corporation tax paid in respect of distributions made by the company in any of its accounting periods. The Revenue refused C’s claim in respect of the advance corporation tax relating to the first dividend on the ground that when C paid the first dividend it had no accounting period and therefore could not, under s 239(3), carry back the advance corporation tax paid. The Revenue considered that, by virtue of s 12(3)(c) of the 1988 Act, C’s accounting period ended when it ceased to trade on 6 January 1992 and, furthermore, that s 12(2)(a)b, which provided, inter alia, that an accounting period of a company began whenever the company, not then being within the charge to corporation tax, came within it, by acquiring a source of income ‘or otherwise’, did not apply, as the effect of the cessation of C’s trade and the transfer of its assets and undertaking to B was that C ceased to be within the charge to corporation tax and was still not within the charge when it became liable to pay corporation tax on the first dividend. C appealed, contending that, since s 832(1)c of the 1988 Act defined a source of income as being ‘within the charge to corporation tax or income tax if that tax is chargeable on the income arising from it, or would be so chargeable if there were any such income’, and that ‘references to a person, or to income, being within the charge to tax’, were to be ‘similarly construed’, it had not ceased to be within the charge to

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corporation tax because tax was chargeable on the income arising ‘to’ it  or would have been so chargeable if there had been any such income. The Special Commissioner allowed C’s appeal. The judge allowed an appeal by the Revenue and the Court of Appeal affirmed his decision. C appealed to the House of Lords.

Held – There was nothing in the language of s 832(1) which required the concept of ‘income’ being within the charge to corporation tax to be restricted to income derived from a source within that charge nor was there reason to restrict the concept of a person being within that charge to persons having a source of income within that charge. Section 832(1) defined a source of income as being within the charge to income or corporation tax if the income from that source was, or would be, liable to income or corporation tax. Similarly, income was within the charge to income or corporation tax if it was liable to income or corporation tax and a person was within the charge to income or corporation tax if he was liable to pay income or corporation tax. It followed that a company was within the charge to corporation tax if it was or would be liable to pay corporation tax on a source of income within the charge or it had income which was chargeable irrespective of source or it had realised chargeable gains or allowable losses or because some other event had occurred which created a liability to pay the tax. In the instant case, C had ceased to be within the charge to corporation tax when it disposed of its assets and undertaking. Thereafter it had no source of income within the charge and no chargeable gains within the charge. However, when it made the first distribution it came within the charge and began a new accounting period by virtue of s 12(2)(a) which, by using the words ‘or otherwise’, plainly contemplated that a company which was not within the charge and had not acquired a source of income could in some other way come within the charge. It covered any case in which something happened to create a liability to pay corporation tax. Accordingly, when C became liable to pay advance corporation tax it was by definition within the charge to tax and therefore had an accounting period. C could therefore carry back the advance corporation tax paid in respect of the first dividend. C’s appeal would therefore be allowed (see p 591 c to e, p 593 e to h, p 595 a to f and p 596 a b e f, post).

Notes

For the basis of and periods for assessment of corporation tax, see 22 Halsbury’s Laws (4th edn reissue) para 842.

For the Income and Corporation Taxes Act 1988, ss 12(2), 239(3), 832(1), see 44 Halsbury’s Statutes (4th edn) (1996 reissue) 12, 399 and 1275 respectively.

Case referred to in opinions

Brown (Surveyor of Taxes) v National Provident Institution [1921] 2 AC 222, HL.

Appeal

The taxpayer, Centaur Clothes Group Ltd (Centaur), appealed with leave of the Appeal Committee given on 9 December 1998 from the decision of the Court of Appeal (Nourse, Peter Gibson LJJ and Sir Patrick Russell) on 25 June 1998 ([1998] STC 814) dismissing its appeal from the decision of Sir John Vinelott sitting as a judge of the High Court on 22 November 1998 ([1997] STC 72) allowing the Crown’s appeal from a decision of a deputy special commissioner (Mr Paul W de Voil) released on 1 April 1996 ([1996] STC (SCD) 222). By that decision, the deputy special commissioner allowed an appeal by Centaur against

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the rejection of its claim to carry back advance corporation tax pursuant to s 239(3) of the Income and Corporation Taxes Act 1988. The facts are set out in the opinion of Lord Hoffmann.

David Goldberg QC and Conrad McDonnell (instructed by Patricia Alsop) for Centaur.

Nicholas Warren QC and Michael Furness (instructed by the Solicitor of Inland Revenue) for the Crown.

Their Lordships took time for consideration.

6 April. The following opinions were delivered.

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

LORD NOLAN. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hoffmann. I agree that, for the reasons he gives, this appeal should be allowed.

LORD NICHOLLS OF BIRKENHEAD. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hoffmann. I agree that, for the reasons he gives, this appeal should be allowed.

LORD HOFFMANN. My Lords, Centaur Clothes Group Ltd (Centaur) is a company in the William Baird group which traded in men’s clothing. On 6 January 1992 it ceased trading and sold its assets and undertaking to another company in the group called Baird Textile Holdings Ltd (Textile). The price of £4,290,249 was left outstanding, payable on demand but without interest. It also agreed to carry on its former business as unpaid agent for Textile. These arrangements might have been unusual between parties at arm’s length but made perfectly good sense within the group.

On 5 April 1993 Centaur declared a dividend of £2,087,113 out of accumulated profits. The payment created a liability under s 14 of the Income and Corporation Taxes Act 1988 to advance corporation tax. So Textile paid £695,704·10 to the Revenue on behalf of Centaur. On 8 December 1993 Centaur declared another dividend which resulted in a further payment of £265,645·16 by way of advance corporation tax.

Advance corporation tax, which was abolished by s 31 of the Finance Act 1998 with effect from 6 April 1999, was corporation tax charged by reference to the amount of a distribution rather than profits. It was chargeable ‘in advance’ because ordinarily it could afterwards be set off against the company’s liability to corporation tax charged upon its profits. Section 239(1) of the 1988 Act provided that a company which had paid advance corporation tax in an accounting period could set off the payment against its assessed liability to corporation tax in that accounting period. This was no use to Centaur: its accounting period had come to an end on 6 January 1992 when it ceased to trade (see s 12(3)(c) of the 1988 Act) and it had not subsequently earned any profit. But s 239(3) allowed the benefit of the payment of advance corporation tax to be carried back and set off against the company’s corporation tax liabilities for earlier years. The relevant words read:

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‘Where in the case of any accounting period of a company there is an amount of surplus advance corporation tax, the company may, within two years after the end of that period, claim to have the whole or any part of that amount treated for the purposes of this section … as if it were advance corporation tax paid in respect of distributions made by the company in any of its accounting periods beginning in the six years preceding that period … and corporation tax shall, so far as may be required, be repaid accordingly.’

‘Surplus’ advance corporation tax was defined, in relation to any accounting period, as advance corporation tax which could not be set against the company’s liability to corporation tax because the company had no profits for that period. Centaur therefore made a claim to have the two 1993 payments of advance corporation tax set off against the corporation tax paid in earlier years, when it had been carrying on business, and asked for the appropriate refund.

The Revenue refused the claim for the first dividend but accepted the claim for the second. This may seem rather odd. The reason given was that s 239(3) allows surplus advance corporation tax ‘in … any accounting period’ to be carried back. At the time when Centaur paid the first dividend, said the Revenue, it had no accounting period. Section 12 specifies when, for the purposes of corporation tax, accounting periods begin and end. By s 12(3)(c), as I have already mentioned, an accounting period ends when a company ceases to trade. So Centaur’s accounting period ended on 6 January 1992. By s 12(2)(b), if the company remains ‘within the charge to corporation tax’, a new accounting period will begin at once. If the company ceases to be within the charge, a new accounting period will begin (under s 12(2)(a)) only when the company again comes within it ‘whether by the company becoming resident in the United Kingdom or acquiring a source of income, or otherwise’. But the Revenue contends that the effect of the cessation of trade and the arrangements for transfer of the assets and undertaking to Textile was that Centaur ceased to be within the charge to corporation tax and was still not within the charge when it became liable to pay corporation tax on the first dividend. Therefore it had no accounting period and the payment of advance corporation tax has disappeared into a black hole from which no set-off can ever be extracted.

The reason for the paradox by which a company can be liable to pay corporation tax without being within the charge to that tax is, say the Revenue, that ‘within the charge to corporation tax’ is not an expression which can be construed by the light of nature. Section 832(1), the definition section, gives it a narrow and specialised meaning. The definition reads—

‘… a source of income is within the charge to corporation tax or income tax if that tax is chargeable on the income arising from it, or would be so chargeable if there were any such income, and references to a person, or to income, being within the charge to tax, shall be similarly construed.’

The Revenue argues that ‘similarly construed’ means that the definition must, so to speak, be read cumulatively. A source of income is within one or other tax if the income is, or would be, liable to that tax. Income is within the charge to a tax if it is from a source within the charge to that tax and a person is within the charge to a tax if he has a source of income within the charge to that tax. In the case of Centaur, the arrangements under which it transferred its assets and undertaking to Textile left it with no sources of income whatever.

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The outstanding debt carried no interest and the agency contract carried no remuneration. Therefore it was not within the charge to corporation tax.

After payment of the first dividend Centaur seems to have learned about the Revenue’s views on the matter and took the precaution of obtaining £2,000 from within the group, which on 30 September 1993 it placed in an interest-bearing deposit account at a bank. By the end of the year it had yielded £8 in interest. This was enough to satisfy the Revenue. The company had acquired a source of income chargeable to corporation tax. A new accounting period had therefore begun. This allowed Centaur to recover the £265,645·16 advance corporation tax paid on 8 December 1993.

The special commissioner (Mr Paul W de Voil) said that the Revenue’s submission was contrary to common sense:

‘On the Revenue’s argument, Centaur is to be repaid £265,000 because it had received a tiny amount of bank interest at the right time, and refused repayment on an entirely similar £695,000 because it had not received a tiny amount of bank interest at the right time.’ (See [1996] STC (SCD) 222 at 226–227.)

On appeal, Sir John Vinelott ([1997] STC 72) agreed that the result was ‘paradoxical’ and ‘arbitrary’ but held that it was inescapable. It was the natural meaning of the definition, which was not fairly capable of being given a different construction. The problem arose because when advance corporation tax was introduced by the Finance Act 1972 it was ‘bolted on’ to an existing structure of corporation tax going back to the Finance Act 1965 without regard to some of the difficulties which might arise. He allowed the Revenue’s appeal. The Court of Appeal (Nourse and Peter Gibson LJJ and Sir Patrick Russell) ([1998] STC 814),  in a judgment given by Peter Gibson LJ, affirmed his decision.

My Lords, I can find nothing in the language of the definition which requires the concept of ‘income’ being within the charge to corporation tax to be restricted to income derived from a source within that charge. Still less is there reason to restrict the concept of a person being within that charge to persons having a source of income within that charge. The definition of a source of income within the charge to income tax or corporation tax is hardly technical or sophisticated. It says that a source is within the charge to income tax if the income from that source is, or would be, liable to income tax. And likewise for corporation tax. How does one give a similar construction to ‘income’ and ‘a person’? I should have thought the answer was not difficult. Income is within the charge to income tax if it is liable to income tax and within the charge to corporation tax if it is liable to corporation tax. And a person is within the charge to income tax if he is liable to pay income tax and within the charge to corporation tax if he is liable to pay corporation tax. I shall in due course consider the implications of this construction, but for the moment it will do.

It is true that by s 9(3), the computation of income for the purposes of corporation tax is to be computed according to income tax principles and under the same Schedules and Cases. Income tax is traditionally a source-based annual tax, liability depending upon the existence of a source of income falling under one of the Schedules during the year of assessment (see Brown (Surveyor of Taxes) v National Provident Institution [1921] 2 AC 222). If the income tax had retained that ancient simplicity, it would be true to say that income could not be within the charge to tax unless there was a source within the charge and a person could not be within the charge unless he had a source of income within the charge. But that

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would be because of the nature of the income tax and not anything in the language of the definition.

It is, however, no longer true to say that liability to income tax depends upon the existence during the year of assessment of a source within the charge. There are cases (such as post-cessation receipts) when liability depends upon the existence of income defined by reference to a source which does not exist within the year of assessment. Or liability may depend upon an event, such as a balancing charge on the sale of an asset which has attracted a capital allowance, or the receipt of a capital sum from a particular kind of transaction, which is deemed to be taxable income received in that year of assessment or sometimes spread over several years of assessment. In the case of corporation tax, liability is also imposed upon chargeable gains. So there is no longer any basis for assuming that income, or a person, can only be within the charge to corporation tax in a given year of assessment if the income is from or the person has a source of income within the charge to that tax.

My Lords, one could give many examples of the strange consequences which would follow from the Revenue’s narrow construction of a ‘person within the charge to corporation tax’. I shall give one, wholly removed from the present facts. By s 524(1) of the 1988 Act, a United Kingdom resident company which sells patent rights for a capital sum is chargeable to corporation tax as if that sum were income chargeable under Case VI of Sch D and spread over six years. By s 526 the company is entitled to an allowance for expenses incurred in connection with the grant or extension of the term of the patent. By s 528(3)(b), if the allowance cannot be given full effect in an accounting period because there is not enough income or deemed income, the surplus may be carried forward to subsequent accounting periods as ‘long as the company remains within the charge to corporation tax’.

What, then, is the position of a company which has no business and no assets except a patent on which it has incurred expense and which it sells for a capital sum? If the deemed income in the first year after the sale is not enough to exhaust the allowance for expenses, can it be carried forward? In the subsequent years, the company has no assets except the proceeds of sale, which may (as in this case) not be a source of income. Is it ‘within the charge to corporation tax’? My Lords, in my opinion it plainly is. It has deemed income which is assessable to corporation tax. It would seem to me extraordinary if it could not set off its expenses against that liability. If one asks why the legislature was particularly concerned with the question of whether a given source of income was within the charge to income tax or corporation tax, I think that the principal reason will be found in the transitional provisions of the Finance Act 1965. Corporation tax replaced income tax and capital gains tax over a period from 6 April 1964 to 5 April 1966. In the case of income, the transition was by reference to sources and depended upon when the source was acquired or ceased and the company’s accounting periods in respect of income from that source. So a company could have some income still within the charge to income tax and some already within the charge to corporation tax and it was necessary to distinguish the two. The transition from capital gains tax to corporation tax occurred in the year 1965–66 when the company (if it had not done so before) came within the charge to corporation tax ‘in respect of any source of income or part of a source’ (see s 82(1) of the 1965 Act).

On the other hand, the concept of being ‘within the charge’ to a tax is also used in contexts in which the source is irrelevant or non-existent. I have given one

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example and counsel gave others with which I shall not trouble your Lordships. In such cases, if I may expand upon the simple construction which I gave earlier, I would say that income is ‘within the charge’ to corporation tax if it is derived from a source within that charge or is liable to corporation tax under some provision which makes it taxable without the existence of such a source. Likewise, a company is within the charge to corporation tax if it is or would be liable to pay corporation tax on a source of income within the charge or it has income which is chargeable irrespective of source or it has realised chargeable gains or allowable losses or because some other event has occurred which creates a liability to pay the tax.

My Lords, if this analysis is correct, then the Revenue are right in saying that Centaur ceased to be within the charge to corporation tax when it disposed of its assets and undertaking on 6 January 1992. Thereafter it had no source of income within the charge and no income or chargeable gains within the charge. Nor did any event occur to bring it within the charge until it made the first distribution on 5 April 1993. But then it came within the charge and under s 12(2)(a) a new accounting period began. The subsection reads:

‘An accounting period of a company shall begin for purposes of corporation tax whenever—(a) the company, not then being within the charge to corporation tax, comes within it, whether by the company becoming resident in the United Kingdom or acquiring a source of income, or otherwise …’

The relevant words are ‘or otherwise’. The subsection plainly contemplates that a company which was not within the charge and has not acquired a source of income can in some other way come within the charge. In my opinion, this covers any case in which something happens to create a liability to pay corporation tax. The accounting period may be a very short one if there is nothing else to keep the company within the charge. But it is an accounting period nevertheless.

Mr Warren QC, who appeared for the Revenue, said that the objection to this construction was that it would make s 12(6) unnecessary. The subsection provides that:

‘If a chargeable gain or allowable loss accrues to a company at a time not otherwise within an accounting period of the company, an accounting period of the company shall then begin for the purposes of corporation tax, and the gain or loss shall accrue in that accounting period.’

If an event creating a liability to pay corporation tax brings a company within the charge, then the realisation of a chargeable gain would start a new accounting period even without s 12(6). So the subsection would be redundant.

My Lords, I seldom think that an argument from redundancy carries great weight, even in a Finance Act. It is not unusual for Parliament to say expressly what the courts would have inferred anyway. As it happens, there was no provision corresponding to s 12(6) in the original scheme of corporation tax in the 1965 Act. It was introduced as a second thought by s 27 and para 12(2) of Sch 5 to the Finance Act 1966. And it also provides for the commencement of an accounting period when the event has not created a chargeable gain but has resulted in an allowable loss. I can see why the draftsman might have thought that an event which created no liability to corporation tax but could affect liability

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in respect of other profits or gains was not something which brought the company within the charge to tax.

My Lords, a conclusion that a company which is liable to pay corporation tax is within the charge to corporation tax seems to me to be in accordance with the common sense which appealed to the special commissioner. It would be an extraordinary case of the tail wagging the dog if the provisions about accounting periods, which are mere machinery, could destroy the substantive right to recover the tax. In the Court of Appeal, Peter Gibson LJ (at 821) noted that counsel for the Revenue had not put forward any ‘discernible legislative purpose’ in denying the recovery of advance corporation tax and said (at 825) that he reached his conclusion ‘with considerable unease’. That is usually a symptom of something having gone wrong, either with the legislative process or with the way the arguments have been presented. In this case I think that the arguments have been unnecessarily complicated in two ways. The first has been by an attempt to read the words ‘similarly construed’ in s 832(1) as requiring a procrustean insertion of the words ‘income’ and ‘person’ into the definition of ‘source of income within the charge’. In my view, all that is required is a construction according to the same simple principle. The second has been the attempt by counsel for the taxpayer to construe ‘within the charge to corporation tax’ as embracing every company which could, upon the remotest contingency, become liable to pay the tax. This provoked Mr Warren to construct ever more elaborate examples of companies which would, on the most fanciful grounds, be ‘within the charge’. In most such cases the question of whether the company was within the charge would be entirely academic because the question is only relevant when something happens which would affect the company’s liability to tax. But in my view these speculations are sterile and unnecessary. I think that when Centaur became liable to pay advance corporation tax it was by definition within the charge to tax and therefore had an accounting period. I would allow the appeal and restore the decision of the special commissioner.

LORD CLYDE. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hoffmann. I agree that, for the reasons he gives, this appeal should be allowed.

Appeal allowed.

Celia Fox  Barrister.

Surdonja v Ealing London Borough Council

Mohammed v Hammersmith and Fulham London Borough Council

[2000] 2 All ER 597

Categories:        HOUSING: LOCAL GOVERNMENT        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        HENRY AND POTTER LJJ        

Hearing Date(s):        27 OCTOBER, 21 JANUARY 2000        

Housing – Homeless person – Duty of housing authority to provide accommodation – Decision by local housing authority to refer applicant to another authority on grounds of ‘local connection’ – Material date for determining whether applicant having local connection – Relevance of occupation of interim accommodation for establishment of local connection – Scope of review of local housing authority’s decision to refer applicant to another authority – Housing Act 1996, ss 198, 199, 202.

Where an eligible applicant for accommodation under Pt VII of the Housing Act 1996 seeks a review, under s 202a of the Act, of a local housing authority’s decision to refer his application to another authority, the date of the review is the material date for determining whether the applicant has a ‘local connection’ with an area for the purposes of s 198b of the Act. If, however, there is no such review, the material date is the date of the decision. Moreover, occupation of interim accommodation pending the decision can constitute ‘normal residence’ contributing to a local connection under s 199(1)c of the Act. The weight to be given to the fact of such residence is a matter for the local housing authority in the initial decision, and later for the reviewing officer or panel. They will naturally pay attention to the extent to which the applicant has used the period of residence to establish the element of permanence and commitment to the district in question, ie local connection in a real sense. Furthermore, a review under s 202 must be wide enough in scope to consider all the up-to-date facts with all others afresh, to see whether such a local connection has been established (see p 604 f, p 605 d to h, p 606 g h and p 607 a to c, post).

Notes

For referrals to another local housing authority and for the right to request a review of the decision, see 22 Halsbury’s Laws (4th edn reissue) paras 261, 263.

For the Housing Act 1996, ss 198, 199, 202, see 21 Halsbury’s Statutes (4th edn) (1997 reissue) 906, 907, 910.

Cases referred to in judgments

Eastleigh BC v Betts [1983] 2 All ER 1111, [1983] 2 AC 613, [1983] 3 WLR 397, HL.

R v Hammersmith and Fulham London BC, ex p Avdic (1996) 30 HLR 1, CA; affg (1996) 28 HLR 897.

R v Newham London BC, ex p Smith (1996) 29 HLR 213.

Page 598 of [2000] 2 All ER 597

R v Southwark London BC, ex p Hughes (1998) 30 HLR 1082.

Appeals

Surdonja v Ealing London Borough Council

Ealing London Borough Council (Ealing) appealed from the decision of Judge Marcus Edwards at Brentford County Court on 22 March 1999 allowing an appeal by the respondent, Nikola Surdonja, from Ealing’s decision on 8 December 1998 to affirm, on a review under s 202 of the Housing Act 1996, its decision on 2 November 1998 to refer Mr Surdonja’s application for accommodation under Pt VII of the 1996 Act to Westminster City Council. The facts are set out in the judgment of Henry LJ.

Mohammed v Hammersmith and Fulham London Borough Council

Abdurahman Mohammed appealed from the decision of Judge Richard Walker at Wandsworth County Court on 17 June 1999 dismissing his appeal from the decision of the respondent, Hammersmith and Fulham London Borough Council (Hammersmith and Fulham), on 23 September 1998 to affirm, on a review under s 202 of the Housing Act 1996, its decision on 23 July 1998 to transfer Mr Mohammed’s application for accommodation under Pt VII of the 1996 Act to Ealing London Borough Council. The facts are set out in the judgment of Henry LJ.

Kelvin Rutledge (instructed by Richard Polson) for Ealing.

Jan Luba (instructed by Sutovic & Hartigan) for Mr Surdonja.

Stephen Knafler (instructed by Hammersmith & Fulham Community Law Centre) for Mr Mohammed.

Robert Levy (instructed by Louise Round) for Hammersmith and Fulham.

Cur adv vult

21 January 2000. The following judgments were delivered.

HENRY LJ.

1. We are asked to hear these appeals together, and to treat them as test cases to answer three issues which we are told are unresolved (at Court of Appeal level) yet frequently arise. All flow from the situation where an eligible applicant (homeless or threatened with homelessness and in priority need) applies to the receiving local housing authority (LHA) for assistance with his accommodation, and that LHA, instead of providing that assistance itself, refers the applicant to another LHA (the notified LHA) under s 198 of the Housing Act 1996 (the Act) to provide it. This the receiving LHA may do when inquiry reveals that the applicant has no ‘local connection’ with the receiving LHA, but has such a connection with the notified LHA to whom the reference is made. In all cases where I simply refer to a section number, the reference is to the Housing Act 1996.

2. As Turner J said in R v Southwark London BC, ex p Hughes (1998) 30 HLR 1082 at 1089:

‘Housing is about the most basic social requirement of an individual. It is not conceptual; it is factual. The Housing Act is intended to be of social effect.’

When dealing with the priorities of those of the homeless who are in priority need, the statute by definition deals with those who need support and stability the most. And, in addition to catering to British nationals, there are, as these two cases show, the problems of refugees, often from bloody civil conflict in their

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own lands (here Croatia and Somalia respectively). These appeals therefore concern real problems, real needs, and a shortage of resources to meets those problems and needs.

3. The three issues are: (i) what is the material date for determining whether the eligible applicant has a ‘local connection’? Is it: (a) the date he applies as homeless; (b) the date when the authority reaches its decision (under s 193(2)) whether to refer the application to another LHA or to secure that accommodation is available for the applicant; or (c) the date it reviews its decision? (paras 22–37). (ii) Can occupation by such an applicant of interim accommodation pending the decision or its review constitute ‘normal residence of his own choice’ for the purposes of s 199(1)(a) of the Act? (paras 37–48). (iii) What is the scope of the s 202 review: (a) must the reviewing officer consider all the facts of the case afresh? (b) may he do so? (c) or might he limit his role to considering any representations he receives from the applicant, and checking for evident errors in the initial decision? (paras 49–50).

4. In these cases, both applicants presented as homeless, Mr Surdonja to Ealing London Borough Council (Ealing) and Mr Mohammed to Hammersmith and Fulham London Borough Council (Hammersmith). Those receiving LHAs were under a s 184 duty to inquire as to the applicant’s eligibility for assistance, the duty owed to him, and (under s 184(2)) they may inquire whether the applicant has a local connection with the district of another LHA to which his application may be referred. Section 184(2) uses the ‘may’ in relation to the receiving LHA’s power to inquire into the possibility of referral, but they are not obliged so to do. They are quite entitled to take on responsibility for the applicant whether or not they would have established power to refer.

5. In each case the receiving LHA embarked on the inquiry under s 184, found that each household was eligible for accommodation to be provided, but in each case referred the duty to provide that assistance to another LHA, the notified LHA.

6. We are concerned here with the situation postulated in s 193(1) of the Act:

‘… where the local housing authority are satisfied that [the] applicant is homeless, eligible for assistance and has a priority need, and are not satisfied that he became homeless intentionally.’

7. In those circumstances, s 193(2) obliges the LHA receiving an application to ‘secure that accommodation is available for occupation by the applicant’ for a minimum of two years (see s 193(3)) unless the receiving LHA ‘refer the application to another local housing authority’.

8. The powers of referral to another LHA are dealt with in ss 198 to 201 of the Act. Section 198(1) provides that where the receiving LHA would be subject to the s 193(2) duty to secure that accommodation is available for the applicant but ‘consider that the conditions are met for referral of the case to another local housing authority’, they may notify that authority. The relevant conditions of referral to another LHA are met if:

‘(a) neither the applicant nor any person who might reasonably be expected to reside with him has a local connection with the district of the authority to whom his application was made, (b) the applicant or a person who might reasonably be expected to reside with him has a local connection with the district of that other authority …’ (See s 198(2).)

(Paragraph (c) deals with victims of domestic violence, and does not here apply.)

9. Thus the receiving LHA cannot refer the applicant to another LHA where the applicant (or any person in his household) has a local connection with the

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receiving LHA’s area. Nor can it refer where the applicant has no connection with its area nor with any other area. It can only refer where the applicant has no connection with it but has a local connection with the notified LHA.

10. ‘Local connection’ is defined by s 199 of the Act. Section 199(1) limits the meaning of ‘local connection’ in s 198 to connections caused by any one or more of four things:

‘(a) because he is, or in the past was, normally resident there, and that residence is or was of his own choice, (b) because he is employed there, (c) because of family associations, or (d) because of special circumstances.’

Those listed causes of a local connection emphasise matters that go to having a place in the community: choice, employment, the continuity of support that family associations can give, and all special circumstances which can contribute to such a socially beneficial ‘local connection’.

11. The requirement that to operate as a qualifying cause, normal residence must be ‘of his own choice’ does not exclude all involuntary reasons for non-qualifying residence. Subsection (3) identifies two disqualifying causes: service in the armed forces, or detention under Act of Parliament (eg prison). Subsection (5) gives the Secretary of State power to specify ‘other circumstances in which … (b) residence in a district is not to be treated as of a person’s own choice’ and he has not so specified.

12. In deciding whether the applicant has a local connection with the area being considered, it seems to me that the words of Lord Brightman in Eastleigh BC v Betts [1983] 2 All ER 1111, [1983] 2 AC 613 are still relevant, despite the fact that the statutory background (and in particular the ‘jumping the queue’ element) is not precisely as it was:

‘But “local connection” means far more than that. It must be built up and established; by a period of residence; or by a period of employment; or by family associations which have endured in the area; or by other special circumstances which spell out a local connection in real terms.’ (See [1983] 2 All ER 1111 at 1119, [1983] 2 AC 613 at 627.)

13. In Mr Surdonja’s case, by decision letter of 2 November 1998, Ealing found him to be eligible for assistance, not intentionally homeless, and with priority need (ie that he was owed a duty by some LHA to arrange temporary accommodation for his household) but referred his application to Westminster LHA on the grounds that neither he nor his wife had a local connection with Ealing, but he had a local connection with Westminster.

14. In Mr Mohammed’s case, by decision letter of 23 July 1998, Hammersmith and Fulham accepted that he was owed such a duty but referred that duty to Ealing on the basis that neither he nor his wife, Mrs Farah, had any local connection with Hammersmith, but she had a local connection with Ealing.

15. Each decision letter informed the applicant of his statutory right to a review. This was introduced for the first time by the 1996 Act.

16. In Mr Surdonja’s case, the letter said:

‘If you disagree with this decision you have the right to request a review, which will be carried out by Senior Officers in the Housing Department. If you wish to request a review, you must do so within 21 days of receiving this letter. You will be able to make written representations which the review panel will take into account. You may also send written representations made by other people on your behalf. The review panel will

Page 601 of [2000] 2 All ER 597

make its decision based on all the information available to it at the time it meets, including your written submissions. It is therefore essential that you tell us everything you consider relevant.’

The head of the panel conducting that review wrote on 20 November 1998, implicitly confirming that the panel would take into account all information received. In the light of those letters, it is somewhat surprising that Ealing’s first ground of appeal against the trial judge’s quashing of that decision letter was:

‘That the learned judge erred in law … in holding … that the material time for assessing local connection for the purposes of Section 198 was the date of the review (ie December 1998). The learned judge ought to have directed himself that the starting point for assessing local connection was the date of the … application for housing assistance (ie August 1998).’

17. In Mr Mohammed’s case, the letter read:

‘If you feel that the Council has acted unreasonably in deciding that your application should be referred, you have the right to request a review of this decision … within the next 21 days …’

18. In each case, a review was requested within time and in each case up-to-date letters supporting the claim for local connection with the receiving LHA were sent.

19. The statutory provision giving applicants the right to review a referral to another authority is found in s 202(1)(c), (d) and (e). Section 203 empowers the Secretary of State to make provision by regulation for the procedure to be followed in connection with a review. At the time of the review in these cases, the Allocation of Housing and Homelessness (Review Procedures and Amendment) Regulations 1996, SI 1996/3122 governed the review. It provided that the review should be conducted by an officer senior to the one who made the decision (see reg 3), the decision should be notified within eight weeks (see reg 4), and that the review should be carried out ‘on the basis of the facts known to them at the date of the review’ (see reg 8). This is also reflected in the official Code of Guidance, 1997 version at 17.11. Regulations 2 to 8 have since been replaced by the Allocation of Housing and Homelessness (Review Procedures) Regulations 1999, SI 1999/71, which regulations do not contain the passage from reg 8 quoted above.

20. In the event, in each case the review confirmed the decision taken. And in each case, the review decision letter expressly stated that all the matters raised subsequent to the decision under review had been taken into account: that is to say that the date of final decision was the date of the review.

21. Section 204 of the Act gives an applicant who has requested a review an appeal to the county court on a point of law if dissatisfied with the decision on the review, giving the court power to confirm, quash, or vary the decision. That is the scheme of the legislation.

22. The first issue is what is the material date for determining whether the eligible applicant has a ‘local connection’.

23. The three dates suggested are the date of the application (presenting as homeless), the date of the housing and referral decision, and the date of the decision letter after the review.

24. In the appeals with which we are concerned, the time elapsed between application and the end of the process with the review was 3 months in one case and five months in the other. Other reported cases suggest that such times are

Page 602 of [2000] 2 All ER 597

not untypical. The code envisages 30 working days between the commencement of the inquiry and the decision. The 1996 regulations provide that the review decision will be within eight weeks of the request for review unless the authority and the appellant agree a longer time.

25. The significance of the date for determination of the local connection is well illustrated by the facts in Mr Surdonja’s case. He had come to this country as a refugee from Croatia on 14 August 1997. He shared a studio flat in Westminster with his brother for a year while awaiting his wife and three small children, then all under seven, from Croatia. Over the year in question Mr Surdonja had done little or nothing to integrate himself into that community. His brother, after five years here, does not speak English. All changed when his wife arrived with their three children. His wife has an English speaking uncle in Ealing. When she arrived with her children in August 1998 they moved to the uncle’s home. But that could never be a viable long term solution—four adults and five children in a two bedroom house. So within a couple of days of the wife’s arrival in this country, they presented as homeless to Ealing. Ealing was to refer the housing duty to Westminster, on the basis that there was no local connection in Ealing, and Mr Surdonja had a local connection with Westminster. The judge was to quash Ealing’s decision referring the housing duty to Westminster on the basis that there was an arguable case not addressed by Ealing that by the time of the decision letter (some 3 months later) there was evidence by reason of residence and/or family association to support local connection with Ealing, which there was not and could not have been at the date of presenting as homeless.

26. The bulk of that time had been spent in interim accommodation provided under s 188 of the Act by Ealing. The nature of the case was that the local connection was established by residence in Ealing including the time in interim accommodation, together with all the facts connected with it, such as the support from the English speaking uncle, and the fact that the three traumatised children had, after great initial difficulties, settled into a local school—their mother having attended with them every day for the first month. Additionally, one parent (the documents are contradictory as to which) is attending the local tertiary college to learn English. All, it was argued, added up to a local connection.

27. That case for recognition of a local connection arose entirely from events after the application. At the date of application there was no case whatsoever for a local connection with Ealing. Ealing’s initial decision letter (2 November 1998) makes it clear that they had only considered as residence in the borough the time the family spent with the uncle, Mr Prosenica, from 23 August (the date of application) to 16 September, when Ealing provided interim accommodation. So if Ealing are right as to the relevant time to consider local connection, their appeal must succeed; there would be no arguable case for local connection if the cut-off date were either 23 August or 16 September.

28. There are certain similar features in Mr Mohammed’s case. Mr Mohammed and his wife, Mrs Farah, were displaced by the brutal civil war in Somalia. In late 1992 they went with their two sons (then five and four) to Kenya. In 1995 Mrs Farah came to the United Kingdom. She lived most of the time, until her husband’s arrival, in Ealing.

29. Mr Mohammed arrived in England on 31 January 1998. He had lost contact with his wife. He lived in Hammersmith with the blind son of a close friend, now dead. He was re-united with his wife. Together they applied (on 16 April 1998) to Hammersmith for assistance with their accommodation. That application was decided by letter dated 23 July 1998, which held that neither

Page 603 of [2000] 2 All ER 597

spouse had a local connection with Hammersmith, but Mrs Farah had one with Ealing. Accordingly, the housing duty was accepted and referred to Ealing. The applicants sought a review, which, on 29 September, confirmed the decision. The applicants then appealed to the county court (under s 204 of the Act) and on 17 June 1999 that appeal was dismissed. The county court decision is now challenged before us.

30. There are two grounds of challenge common to both appeals. First, in each case the local authority has continued to provide interim accommodation, initially until the date of original (pre-review, if applicable) decision (see s 188), and has voluntarily continued to provide that accommodation pending the outcome of this appeal, and in each case it is said that residence within the borough in that accommodation does not count. Second, the treatment of ‘family associations’ and ‘special circumstances’ when dealing with refugees arise in each case. As to this second point, we say no more than in our judgment the starting point is the position of the applicant and his household and, in having regard to both ‘family associations’ and ‘special circumstances’, while we do not discourage general rules such as are to be found in the Local Authority Agreement, we note that Parliament left those broad phrases undefined, and to be judged as a matter of fact and degree in every case. For instance, the actual closeness of the family association may count for more than the precise degree of consanguinity.

31. The first difficulty that the LHA face is that there is no support for their case in the statute. Where, as here, there is a statutory entitlement to a review, there may be two decision times—first the initial decision, and then the review. One would expect both tribunals to consider all relevant facts before them. If either stage of decision taking was to be artificially limited in what facts it could consider, one would expect the statute to make it plain. Otherwise, after the decision but before review the court would have to shut its eyes to a subsequent event which might either entitle or disentitle the applicant to the local connection in issue. In fact, as the applicants point out, the statute uses the present tense to describe the issue—see s 184(2), the duty to inquire ‘whether he has a local connection’.

32. Nor is there conclusive authority to support the LHA’s case. They rely on two cases, both decided before the 1996 Act introduced the statutory entitlement to a review of the decision.

33. The first case is R v Newham London BC, ex p Smith (1996) 29 HLR 213, a decision of Sir Louis Blom-Cooper QC sitting as a deputy judge of the High Court. I have little quarrel with the ratio of his decision on the law as it then stood (at 221):

‘In my judgment, a local authority may properly ask itself whether the applicant had a local connection … at the date of the application under Part III of the Housing Act 1985, so long as it is always prepared to review its decision in that regard, should the delay in its investigations under section 62 [cf s 184 of the 1996 Act] be prolonged in such a way as to call for a reconsideration of its decision on referral.’

34. The review was clearly an extra-statutory voluntary review. Now that the right to a review is statutory, that right is not dependent on there having been any delay, and all relevant matters put before the reviewing officer or panel must be considered.

35. Next, there is the Court of Appeal decision in R v Hammersmith and Fulham London BC, ex p Avdic (1996) 30 HLR 1. There a refugee from Bosnia moved from Dewsbury to London, where she applied as homeless. Hammersmith accepted that she was owed a duty, but referred her back to Kirklees (which covered the

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Dewsbury area) in September. Her solicitors then sent in more material which the LHA considered before, in January, refusing her again. The reconsideration of the case was voluntary. Simon Brown LJ (at 8) said (albeit obiter):

‘To my mind, however, it is far from clear that an appellant’s claim to be housed under Part III of the 1985 Act can be improved in this fashion merely because the local authority accede to a request to review the matter, as this authority have done after the initial decision was taken.’

He said he found it unnecessary to deal definitively with the point on that occasion. What Simon Brown LJ was in fact questioning was whether the local authority should have acceded to the request for a review. I do not read him as suggesting that where statute grants the applicant a right of review, that review is limited to his case as originally put forward. That in my judgment would require express language which is not there. It would also, as I will develop, not contribute to the purpose of the legislation.

36. The point was considered by Turner J in R v Southwark London BC, ex p Hughes (1998) 30 HLR 1082 (see above). That too was under the 1985 Act, before there was a statutory right of review. Turner J (at 1089) concluded the passage quoted in para 2 of this judgment:

‘It may be thought therefore that there are compelling reasons why the circumstances of an individual, at the time the inquiry is carried out and the decision is made, must be the circumstances which the housing authority is required to investigate for the purpose of coming to their decision whether or not the applicant is homeless …’ (My emphasis.)

37. I agree with that, and it is clearly all the truer after the introduction of the statutory right of review. For the statutory appeal to the county court to lie, that appeal must be against the review (see s 204(1)). So the review is the final administrative stage, and the statutory appeal to the county court only lies after the review. Accordingly, I would answer the first issue that the material date for determination whether the eligible applicant or member of his household has a local connection is the date the LHA reviews its decision.

38. Linked to the first issue is the second issue: can occupation by the applicant of interim accommodation pending decision and review constitute normal residence ‘of his own choice’.

39. This seems to me to be a question of statutory construction. As set out in para 11 of this judgment, it is clear that s 199(3) gives a restricted statutory meaning to the phrase ‘of his own choice’, that meaning can only be extended by the Secretary of State, and he has not extended it. Therefore, even if the applicants did not occupy the interim accommodation out of choice (an existential concept not explored) their occupation would be of their own choice for the purposes of s 199(3).

40. Once the meaning of ‘choice’ is clarified, there is no problem as to ‘normally resident’. Both families are normally resident in their respective boroughs—they certainly are not normally resident anywhere else. As Lord Brightman made clear in the Eastleigh case, ‘normal residence’ is but a factor in the whole of the existence of a local connection. Part of the commitment which could help to turn normal residence into local connection is the schooling of the Surdonja children.

41. Support for the applicant’s case that interim residence pending final decision counts is to be found in reg 8 of the 1996 regulations, as to which see

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para 19. Though those regulations are expressed to be procedural, reg 8 is supported by the statutory Code of Guidance on the Act (1997 edn) which states:

‘17.11  The authority should then carry out the review on the basis of the facts as known to them at the date of the review, including written representations.’

Those words would seem conclusive of issue 2. Ealing however contend that this simply reflects the position under the old statutory instrument. They rely on the 1999 statutory instrument which removes the old reg 8(1)(b) with its general duty to ‘carry out the review on the basis of the facts known to them at the date of the review’ and replaces it with an entirely different reg 8(1)(b). I am puzzled by that amendment, and in doubt as to what, if anything, beyond the literal fact that something is replaced by something entirely different and unrelated, to read into it. If a drastic change was contemplated, I would not expect the guidance to remain unchanged in the form of the 1997 edition. But the original reg 8(1)(b) was in force when Ealing took their decision. They did not apply it. In my judgment they should have. And, while not suggesting they did, they should not have taken the 1999 draft regulations into account, even if they knew what they were, five weeks before they were signed. The same applies in Mr Mohammed’s case.

42. The question still remains as to what reg 8 in its form as at the date of review means when it says that: ‘… the authority shall … carry out the review on the basis of the facts known to them at the date of the review.’

43. The code, in para 17.11, expands that to add: ‘… including any written representations. It may in some cases be necessary to make further enquiries of the applicant.' Judge Marcus Edwards, in Surdonja, held (judgment, page 8) that the relevant circumstances must be: ‘… the circumstances of the individual [known to the authority] at the time the decision is made, or as thereafter updated at the time of review.' Judge Richard Walker, in para 12 of his careful judgment, read these words as including all further facts which, had they been known, might have led to a different conclusion, but excluding all changes in circumstances subsequent to the original decision. I prefer the judgment of Judge Marcus Edwards on this point. I cannot find support for the thesis advanced by Judge Richard Walker in the primary legislation, the regulations or the code. It seems to me clear that if, between decision and review, there was either a change of circumstance which might establish the local connection with the LHA to which the application had been made (eg that the applicant had obtained permanent employment in the borough) or, conversely one which disqualified him from looking to that LHA to meet his housing needs (eg ceasing to be entitled to priority need, or losing employment in the borough, or family associations in the borough moving away) then in either case the reviewing officer should take those changed circumstances into account. It follows that, as a matter of statutory construction, the reviewing officer must take into account all relevant facts at the date of review.

44. I am not persuaded to the contrary by the case mounted by the LHA  that the statute must be construed purposively to reflect the fact that the mischief aimed at is to relieve the pressure on boroughs which prove to be targets for applicants, and to spread the load more equitably between boroughs. The argument runs that to count towards a local connection the time spent in residence in a borough only by grace of being a beneficiary of the interim obligation imposed by s 188 on the LHA to which application is made, is to defeat the redistributive purpose of the legislation. It is also submitted that it is internally unfair, in that it is not a legal requirement that interim s 188

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accommodation be provided within the receiving LHA (see s 208) and it is also unfair that those accommodated within their desired district should be advantaged by their good fortune. More fundamentally, there is the ‘jumping the queue’ argument that played its part in the Eastleigh case. And linked to this is the third issue, the scope of the review.

45. First, the Act’s purpose. I accept that there was a redistributive ‘spreading the load between LHAs’ purpose to the Act. But that purpose was to be achieved not by any merit-free reallocation formula, but by rewarding applicants who had a local connection with the borough of their choice, where they applied. It was to be achieved by providing that the receiving LHA was not entitled to refer the statutory responsibility elsewhere when the applicant had a local connection with them. That is a statutory purpose which must equally be taken into account. The statute’s redistributive mechanisms are certainly no more significant when construing the Act than the reward the Act gives to those who have, by satisfaction of the local connection rules, become an active part of the community. That seems to me to be as important a purpose as a straight redistributive purpose.

46. Second, recognising good (or more significantly, involved) citizenship is a worthy legislative intention, and the incentive to applicants to establish a local connection with the LHA to which they apply more than compensates, in the balance sheet of public good, for the fact that other applicants whose s 188 housing is outside the district are not so well placed. In so far as it may seem unfair in that such persons do not have the same opportunity as those whose interim housing is within the borough, that is not a reason for denying the latter the benefit of a local connection if that is what they have created by the time of the review.

47. Third, the ‘jumping the queue’ unfairness. At the time of Lord Brightman’s speech in the Eastleigh case, if the qualifying applicant established a local connection with the LHA to which he had applied, he went to the top of the housing list. One of the innovations of the 1996 Act is that help given under s 193(3) is temporary (see sub-ss (3) to (7)). So, Mr Knafler and Mr Luba for the applicants are right to submit, that provision of the ‘full’ housing duty under s 193 results in the provision of temporary accommodation only, in which the homeless person remains until his ‘waiting list application’ eventually succeeds on its merits in accordance with the LHA’s general allocation scheme. So to that extent the element of queue jumping is reduced and any residual ‘unfairness’ is not sufficient to impose the construction the LHAs propose on the Act.

48. Accordingly, I would answer issue 1: the material date for determining whether a Pt VII applicant has a local connection is at the date of the review of the decision if reviewed, and otherwise the date of the decision. In answer to issue 2, occupation of interim accommodation under s 188 of the Act pending the decision can constitute ‘normal residence’ contributing to a local connection under s 199(1). The weight to be given to the fact of that residence is a matter for the LHA in the initial decision, and the reviewing officer or panel later, who will naturally pay attention to the extent to which the applicant has used that period of residence to establish that element of permanence and commitment to the district in question: local connection in a real sense, as used by Lord Brightman in the Eastleigh case above.

49. I turn to issue 3, the scope of the review and the duty of the reviewing officer. The LHA’s initial decision is an inquisitorial one. It is their duty to conduct a proper inquiry (albeit they often will have to rely on facts obtained from the applicant). After the applicant has initiated the LHA’s s 184 inquiry by

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applying under s 183, he has no obligations other than to assist the inquiry as required until the decisions as to housing duty owed and referral are taken. Then the applicant has a statutory right to request a review under s 202(1)(c), (d) and (e). I have already dealt with the outline provisions under paras 19 to 21, and with the practical application of the review at paras 40 to 43.

50. ‘Review’ is the appropriate word for the act of submitting for examination and revision an inquisitorial administrative decision affecting the applicant’s ‘most basic social requirement’ (per Turner J, R v Southwark London BC, ex p Hughes (1998) 30 HLR 1082 at 1089). Given the importance of the decision, and everything that has been said in this judgment thus far, the reviewing officer must consider all of the facts afresh. The code (1997 revision) still in para 17.11 limits the review to ‘facts as known to [the LHA] at the date of the review’. That is a necessary qualification, given the fact that the review is ordinarily a review of the file, in that it is a decision on the documents without a hearing. As I have previously said, I am not prepared to assume that that plain requirement survives in the code by oversight. The scope of the review must be wide enough to consider all the up-to-date facts with all others afresh, to see whether the local connection has been made out.

That is how I would answer the third issue.

51. Having answered the three issues in a way favourable to the applicants, I turn to the individual appeals.

52. In relation to Mr Surdonja’s application, the fundamental error of law relates to the dates when the question of local connection falls to be considered: the date of decision and the date of review, if applicable. Had the LHA rightly applied the law, they would have considered at the respective decision times the whole time over which the Surdonjas had been resident in the LHA district, and would not have ignored the period in interim accommodation under s 188.

53. At the date of decision (2 November 1998) para 2 dealt with normal residence in the LHA and restricted it to residence with Mr Prosenica, the wife’s uncle, at 37 Anstey Court—that is to say three week’s residence only, with all the time occupying interim accommodation in the borough under s 188 wrongly excluded. In their request for a review the applicant’s solicitors did not challenge this part of the finding, themselves only mentioning residence to say: ‘Although our client has not lived at 37 Anstey Court for very long …' The review decision letter does not mention residence at all, but both before Judge Marcus Edwards and before us, the LHA argued that the right date for consideration was the date of application, thus ignoring all residence through s 188 accommodation, as well as all the integration which the family have achieved, with the assistance of the wife’s uncle, since that date. In my judgment, the judge was right to conclude that the decision letter ‘makes no reference to the Panel having reviewed the possibility of local connection by reason of normal residence or family associations’ as well as having ignored what was achieved during the time of the s 188 accommodation.

54. The error of law was therefore fundamental, and precluded the LHA from asking themselves the right question. Such an error of law would normally be fatal to the decision, but by their notice of appeal, the LHA contends that, as the point as finally developed was not spelled out in the applicant’s solicitors’ letter submitted for consideration at the time of review, the LHA was not bound to consider it. The judge found that:

‘The duty of the local authority is to review the decision which it is requested to review, in this case the decision to refer. Their duty is to apply the provisions of the Act to the facts before them on the file, together with any

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further representations and evidence put before them. In my judgment they are not limited to, and should not limit themselves to, reviewing particular points, to the exclusion of other relevant, or potentially relevant, points. They must review the facts afresh, as a whole, and apply the Act to them.’

Those facts of course must be facts known to them, hence the judge’s reference to the facts in question being found in the documents. The decision taken here was fundamentally in error as to the law on the correct application of those facts, and the judge was right in his analysis of the principles involved and in the order he made. I would dismiss the LHA’s appeal in this case.

55. I turn then to Mr Mohammed’s case. Again, in his case it is clear that both in the decision letter (23 July 1998) and on review (letter of 23 September 1998) the LHA ignored all residence after the grant to the applicant of interim s 188 accommodation in the LHA area—that is to say they too misdirected themselves in law, and consequently only considered a further five months plus (or nearly eight months in all—see the judgment paras 37–47).

56. Secondly, complaint is made that the judge glossed the statute, and in so doing imposed too stringent a test on the establishment of a ‘local connection’. On review, the LHA’s reviewing officer said:

‘I have also considered the cumulative effect of all of these various factors, but I am not satisfied that the household’s stated need to live in this borough is an essential compassionate, social or support need … sufficient to have given rise to a local connection with this authority in real terms.’

57. The applicant’s case is that this is a misdirection. Proving a local connection is one thing: proving that you have an essential, compassionate social or support need is quite another. Forensic archaeology suggests that the source of this phrase is its use by the Hammersmith LHA in their 1996 decision letter in the case of R v Hammersmith and Fulham London BC, ex p Avdic (1996) 28 HLR 897 at 901, where it was quoted, without comment, at first instance and not referred to at all on appeal. In my judgment that is a clear misdirection in law. In so finding, I have gone back to Lord Brightman’s speech in Eastleigh BC v Betts. I have already made the point that the queue for permanent housing is no longer ‘jumped’ as a result of s 193, and have already accepted that the local connection should be real and not illusory, and where real, should be rewarded. There is no ‘purposive’ construction case for requiring that the applicant show an essential compassionate, social or support need to live in the LHA’s district. That is to put the test for a local connection too high.

58. I look no further than those two fundamental errors of law. The applicant is entitled to have the decision on his application reviewed on a correct legal basis. His case should be considered on the law as properly applied, and on the facts at the time of that review. I would allow this appeal.

POTTER LJ. I agree.

Ealing’s appeal dismissed. Mr Mohammed’s appeal allowed. Permission to appeal to the House of Lords refused.

Dilys Tausz  Barrister.

Attorney General v Foley and another

[2000] 2 All ER 609

Categories:        CIVIL PROCEDURE        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        PETER GIBSON, SCHIEMANN LJJ AND WILSON J        

Hearing Date(s):        10, 11 FEBRUARY, 1 MARCH 2000        

Vexatious proceedings – Civil proceedings order – Application by Attorney General – Whether Attorney General required to lead evidence that he had authorised application for civil proceedings order – Supreme Court Act 1981, s 42.

The Attorney General applied for civil proceedings orders under s 42a of the Supreme Court Act 1981 prohibiting the appellants from instituting civil proceedings without the leave of the High Court, on the ground that they had previously instituted vexatious proceedings. The evidence before the court included an affidavit, sworn by a solicitor in the Treasury Solicitor’s office, stating that she had conduct of the matter on behalf of the Attorney General and that she had been involved with a view to the Attorney General considering whether to make an application for a civil proceedings order. At the hearing, the appellants contended for the first time that the application was not being made by the Attorney General as required by the 1981 Act, and that accordingly the court had no jurisdiction to make the orders. That contention was rejected by the court which proceeded to make the orders sought. On appeal, the appellants contended that the Attorney General could not succeed in an application under s 42 in the absence of evidence that he had authorised the proceedings.

Held – There was no requirement for the Attorney General to lead evidence that an application under s 42 of the 1981 Act was being made by him. Like any other litigant, he was entitled to employ solicitors and counsel to make an application on his behalf and, in the absence of any challenge, solicitors making such an application were assumed to have authority to do so. If there was to be a challenge to the solicitor’s authority, it had to be taken by way of an early interlocutory application to stay the proceedings, supported by a witness statement. Moreover, the court would probably consider that a respondent had acted unreasonably if he mounted such a challenge without first raising the matter with the Treasury Solicitor by letter or if he failed to include in his witness statement, or attach to it, some evidence which raised doubt as to whether the Attorney General had authorised the application. However, the absence of a letter from the Treasury Solicitor in answer to an inquiry might constitute such evidence. The Attorney General should respond to the application in the ordinary way, ie by service of a witness statement by someone who could give admissible evidence that it was the Attorney General, perhaps acting by the Solicitor General, who had made the application and had authorised the Treasury Solicitor to act. It followed that the onus was on the party challenging the solicitor’s authority to lead evidence which lent support to that assertion, and in the absence of such evidence there was no need for the Attorney General to lead evidence in rebuttal. In the instant case, the challenge had been made too late without any evidence in support of it. Accordingly, the appeal would be dismissed (see p 613 j to p 614 a, p 615 a to g, p 616 b c and p 617 g, post).

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Dicta of Pill LJ in A-G v Hayward (1995) Times, 20 November and A-G v Williams [1996] COD 368 explained.

Notes

For vexatious litigants, see 37 Halsbury’s Laws (4th edn) para 143.

For the Supreme Court Act 1981, s 42, see 11 Halsbury’s Statutes (4th edn) (2000 reissue) 1083.

Cases referred to in judgment

A-G v Hayward (1995) Times, 20 November, [1995] CA Transcript 1477.

A-G v Williams [1996] COD 368, DC.

Ladd v Marshall [1954] 3 All ER 745, [1954] 1 WLR 1489, CA.

Richmond v Branson & Son [1914] 1 Ch 968.

Russian Commercial and Industrial Bank v Comptoir d’Escompte de Mulhouse [1923] 2 KB 630, CA; rvsd [1925] AC 112, [1924] All ER Rep 381, HL.

Warwick RDC v Miller-Mead [1962] 1 All ER 212, [1962] Ch 441, [1962] 2 WLR 284, CA.

Yorkshire Bank plc v Hall, Hall v Yorkshire Bank plc [1999] 1 All ER 879, [1999] 1 WLR 1713, CA.

Appeal

The appellants, Lewis Frank Foley and Harry Desmond Foley, appealed with permission of the Court of Appeal (Millett and Brooke LJJ) granted on 21 August 1997 from the decision of the Divisional Court (Rose LJ and Hooper J) made on 18 February 1997 granting an application by the respondent, the Attorney General, for the making of civil proceedings orders against the appellants under s 42 of the Supreme Court Act 1981. The facts are set out in the judgment of the court.

Timothy Straker QC and Mohammed Hashmot Ullah (instructed by Yogarajah & Co) for Lewis Frank Foley (who appeared in person after withdrawing instructions from his lawyers during the course of the hearing).

Raymond Croxon QC and Frank Slevin (instructed by Mahmood & Southcombe, Ilford) for Harry Desmond Foley.

Guy Sankey QC (instructed by the Treasury Solicitor) for the Attorney General.

Cur adv vult

1 March 2000. The following judgment of the court was delivered.

SCHIEMANN LJ (giving the judgment of the court).

1. In what circumstances does the Attorney General need to call evidence to satisfy the court that he has authorised the making of an application for a civil proceedings order against an allegedly vexatious litigant? What is the nature of the evidence which he must call? These are the questions with which this appeal is concerned. They are questions of some general interest since there has in recent years been a substantial rise in the number of such orders which are sought and made. Whereas in the years 1990–1994 15 litigants were declared vexatious, there were 44 in the years 1995–1999.

2. Lewis and Harry Foley appeal by permission of this court (Millett and Brooke LJJ) against the making by the Divisional Court (Rose LJ and Hooper J) of a civil proceedings order against each of them. The permission was limited to the issue whether proceedings were properly brought in the name of the Attorney General.

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3. Civil proceedings orders are made pursuant to s 42 of the Supreme Court Act 1981 which, as amended, reads as follows:

‘Restriction of vexatious legal proceedings.—(1) If, on an application made by the Attorney General under this section, the High Court is satisfied that any person has habitually and persistently and without any reasonable ground—(a) instituted vexatious civil proceedings, whether in the High Court or any inferior court, and whether against the same person or against different persons; or (b) made vexatious applications in any civil proceedings, whether in the High Court or any inferior court, and whether instituted by him or another; or (c) instituted vexatious prosecutions (whether against the same person or different persons), the court may, after hearing that person or giving him an opportunity of being heard, make a civil proceedings order, a criminal proceedings order or an all proceedings order.

(1A) In this section—“civil proceedings order” means an order that—(a) no civil proceedings shall without the leave of the High Court be instituted in any court by the person against whom the order is made; (b) any civil proceedings instituted by him in any court before the making of the order shall not be continued by him without the leave of the High Court; and (c) no application (other than one for leave under this section) shall be made by him, in any civil proceedings instituted in any court by any person, without the leave of the High Court …

(2) An order under subsection (1) may provide that it is to cease to have effect at the end of a specified period, but shall otherwise remain in force indefinitely.

(3) Leave for the institution or continuance of, or for the making of an application in, any civil proceedings by a person who is the subject of an order for the time being in force under subsection (1) shall not be given unless the High Court is satisfied that the proceedings or application are not an abuse of the process of the court in question and that there are reasonable grounds for the proceedings or application …

(4) No appeal shall lie from a decision of the High Court refusing leave required by virtue of this section.’

4. In this court, Mr Lewis Foley was represented by Mr Timothy Straker QC and Mr Ullah and Mr Harry Foley by Mr Raymond Croxon QC and Mr Slevin and the Attorney General by Mr Guy Sankey QC. We also had before us a careful and helpful submission (prepared at the court’s request before the Foleys had obtained legal aid and counsel) by Mr David Foxton acting as an amicus curiae for which we express our gratitude. Fairly shortly after Mr Straker had begun his submissions Mr Lewis Foley rose to inform us that he was dispensing with the further services of his legal team. He then addressed us himself for a while before deciding that he would re-instruct his legal team. This he did and Mr Straker continued with his submissions. However, shortly before he had concluded them Mr Lewis Foley once more indicated that he did not wish his legal team to continue to represent him. At this point they departed. We heard nothing from Mr Foley which calls for a reasoned response from this court and which was not contained in either the written or the oral submissions of Mr Straker which were made with his customary clarity and felicity. Since the hearing we have received letters from each litigant and from Peter Rubery Hayward and Terence Patrick Ewing who, having themselves been declared vexatious litigants some years ago, claim that they acted as unqualified legal advisers to the Foleys. We do not think it

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appropriate to consider the matters referred to in those letters in so far as they go beyond matters ventilated at the hearing.

5. Before the Divisional Court was a notice of motion signed on behalf of the Treasury Solicitor intimating that the court would be moved by counsel on behalf of the Attorney General for a civil proceedings order against each of the Foleys. The evidence before the Divisional Court on the question whether the making of the application had been authorised by the Attorney General (in so far as there was any) was contained in two affidavits sworn respectively on 16 February 1996 and 10 July 1996 by Ms Martin. In the first she swore that she was a solicitor in the office of the Treasury Solicitor and that she had conduct of this matter on behalf of the applicant and that she had been involved ‘with a view to consideration being given by Her Majesty’s Attorney General as to whether an application should be made to this court for a Civil Proceedings Order …' In the second affidavit, which was apparently prompted  by a request by Mr Lewis Foley that she should also refer to a number of other actions in which he had been involved, she refers to those other actions and exhibits relevant documents. She goes on to say in para 6:

‘I am instructed that a submission was put to the Solicitor General inviting him to agree to this application being made. A copy went to the Attorney General who initialled it and the Solicitor General endorsed the submission with his agreement to the making of the application.’

6. The Divisional Court hearing was on 18 February 1997. On that day, or possibly the day before, the Foleys (at that point unrepresented) raised, apparently for the first time, an assertion that the application for a civil proceedings order had not been and was not being made by the Attorney General. They submitted that in those circumstances the court had no jurisdiction to make the order. This contention was summarily rejected by the court in the following words in the judgment of Rose LJ (with which Hooper J agreed), ‘there is a sufficient evidential indication of the appropriate authority for the bringing of this application’.

7. The submission relied heavily on two passages in judgments of Pill LJ. The first is a dictum in A-G v Hayward (1995) Times, 20 November, [1995] CA Transcript 1477, a decision of this court (Staughton, Henry and Pill LJJ). In that case the appellant led evidence to the effect that the Attorney General had said to him that he had not been personally consulted about the case. A person in the legal secretariat to the law officers deposed to the contrary. The court accepted that there had been consultation with the Attorney General. The leading judgment was delivered by Henry LJ and Pill LJ agreed with it. He however went on to say:

‘… in any future applications under s 42, care should in my view be taken that appropriate information is provided in the affidavit in support of the application. An application under s 42 can have serious consequences, and the Attorney General’s involvement required by statute should be demonstrated plainly in the evidence submitted to the court with the application.’

Neither of the other Lords Justices expressed any view on that matter. It was not necessary for them to do so. The other passage is contained in A-G v Williams [1996] COD 368 a decision of the Divisional Court (Pill LJ and Newman J). Pill LJ said:

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‘There is evidence by way of affidavit before the court that a law officer has personally considered the papers in this case and authorised the making of the application. Bearing in mind the fundamental right under consideration, the right to bring proceedings before the courts, it is, in my view, appropriate that personal consideration is given to any proposed application by a law officer and that evidence of such consideration appears on the material before the court.’

8. When giving permission to appeal in the present case, Millett LJ indicated that he was far from convinced that these dicta correctly represented the law or that any burden of introducing evidence is placed upon the Attorney General from the outset. However, the court thought it right that the law should be examined on the appeal.

The effect of a civil proceedings order

9. Once a civil proceedings order has been made and any appeal against the making of that order has been dismissed, its effect is that the vexatious litigant cannot proceed with any case without the leave of the High Court. This places him at some disadvantage: in particular he is deprived of the right which other litigants have to test a decision of the High Court by seeking permission to appeal to the Court of Appeal.

Who can make the application for a s 42 order?

10. The 1981 Act authorised only the Attorney General to make the application. The ordinary citizen, no matter how vexed he may have been by a persistent litigant, cannot make such an application to the court. By s 1 of the Law Officers Act 1944:

‘(1) Any functions authorised … by any enactment … to be discharged by the Attorney General may be discharged by the Solicitor General, if … (c) the Attorney General authorises the Solicitor General to act in any particular case.’

11. The Law Officers Act 1997 has now replaced those provisions. It provides in s 1:

‘(1) Any function of the Attorney General may be exercised by the Solicitor General.

(2) Anything done by or in relation to the Solicitor General in the exercise of or in connection with a function of the Attorney General has effect as if done by or in relation to the Attorney General.’

12. However, that Act was not in force at the time that consideration was given to the institution of the present proceedings. The argument in front of us has proceeded on the basis that the 1997 Act has no direct application.

Is there a burden on the Attorney General to lead evidence that the application is made by him after proper consideration of the relevant material?

13. It was submitted on behalf of the appellants that the Attorney General could not succeed in an application under s 42 in the absence of evidence of his authorisation of the proceedings. We reject that submission. The Attorney General, like any other litigant, is entitled to employ solicitors and counsel to make an application on his behalf. In the absence of any challenge, solicitors making such an application are assumed to have authority so to do from their

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client. If there is a challenge to the authority of the solicitor it should be made as soon as possible. If it succeeds then there will be no need to examine the substance of the dispute. This has long been the case.

14. In Russian Commercial and Industrial Bank v Comptoir d’Escompte de Mulhouse [1923] 2 KB 630 at 671–672 Atkin LJ said:

‘I desire to add that even if there were a question of defective authority to sue, in my judgment it was not open to the defendants to raise the point as a matter of defence. The judgment of Warrington J. in the case of (Richmond v Branson & Son [1914] 1 Ch 968 at 974) appears to me to state the law in a matter of this kind, where the question is whether the action has been brought with the authority of an existing principal, himself capable of suing. In that case the learned judge says: “But the real question is the authority of the solicitor. Is that a question which can be raised as a relevant issue in the action and at the trial? No authority has been cited in support of the affirmative of such a proposition, and, in my opinion, it is impossible, according to the ordinary practice and procedure of the Court, to justify that proposition. The business of this Court could not be carried on if one were not entitled to assume the authority of the solicitor unless and until that authority has been disputed and shewn not to exist in the proper form of proceeding, namely, a substantive application on the part of the parties concerned to stay the proceedings on the ground of want of authority.”’

15. In Warwick RDC v Miller-Mead [1962] 1 All ER 212 at 215, [1962] Ch 441 at 451, Lord Evershed MR said:

‘… it was unfortunate and (strictly) quite wrong that the point taken by the defendant in the present proceedings—whether it was, in effect, a mere challenge of the solicitors’ authority to issue the writ in the council’s name or whether it was the real point involved in the present appeal, as it emerged in this court … was taken by way of “preliminary objection” on the hearing of the motion. In my judgment, if the defendant sought to stay the present proceedings or have them dismissed as disclosing no cause of action (which is the real point now raised by the defendant), and, equally, if the defendant sought to challenge the solicitors’ authority to initiate the present action in the council’s name and make the solicitors personally liable to pay the defendant’s costs, then, in either case, the defendant should have issued an appropriate summons or process in the action for the purpose.’

Danckwerts LJ added:

‘In this case, it is clear that the course of the proceedings has quite failed to comply with the proper procedure. The council began the proceedings on July 21, 1961, by a writ claiming that the defendant was causing a statutory nuisance, and on the same day produced a notice of motion for an interlocutory injunction. It was this notice of motion and nothing else which was before WIDGERY, J., as vacation judge. A preliminary objection was taken on behalf of the defendant, but it was an objection which went far beyond the question of interlocutory relief. It was an attack on the existence of the action. If this attack was to be pursued, the defendant ought to have been required to formulate and serve either a motion or summons for the dismissal of the action. Nothing of the sort occurred, and, in my opinion, the defendant was

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wholly out of order and his objection should not have been heard at this stage of the proceedings.’ (See [1962] 1 All ER 212 at 223, [1962] Ch 441 at 463–464.)

16. The contention of lack of authority is in every sense a preliminary—and, if successful, fatal—point; and it should be taken by early, interlocutory application to stay the proceedings. Accordingly, we expect such an issue to emerge in the following way: (1) in the claim form, and supporting witness statement or affidavit, as now provided by CPR Sch 1, RSC Ord 94, r 15, the Treasury Solicitor will, merely by his references to the Attorney General as the applicant and to himself as the solicitor acting in the matter, represent that the attorney makes the application and authorises him to act on his behalf in the proceedings; (2) there is no need for evidence in support of such representations to be given at that stage; (3) if a respondent seeks to challenge such representations, he should do so by the early filing of an application notice for a stay, supported by a witness statement; (4) the court would be likely to consider that a respondent who mounts such a challenge had acted unreasonably in not having raised the matter with the Treasury Solicitor by letter prior to issue of the application; on receipt of such a letter, the Treasury Solicitor would presumably wish to explain, in the light of what has been set out above, the circumstances by reason of which he contends he is authorised to act on behalf of the Attorney General in the proceedings; (5) the court would also be likely to consider that a respondent had acted unreasonably in filing an application notice to stay without the inclusion in or attached to his witness statement of some evidence which raises doubt as to whether the Attorney General had made the application. The absence of a  letter—or a satisfactory letter—from the Treasury Solicitor in answer to the inquiry suggested at (4) might constitute such evidence; or there could be other evidence the nature of which it would be foolish for us here to guess. (6) The Attorney General would respond to the application in the ordinary way, ie by service of a witness statement. The author would need to be someone who could give admissible evidence that it was the Attorney General (perhaps acting by the Solicitor General) who had made the application and had authorised the Treasury Solicitor to act. (7) The application to stay would  be listed in the Crown Office.

17. It will be seen that in our judgment it is for him who challenges the fact that the solicitor has authority to commence proceedings to lead evidence which lends support to that assertion. In the absence of such evidence we see no need for the Attorney General to lead evidence in rebuttal. We are conscious of submissions to the effect that a constitutional right is at stake. Counsel has not sought to argue that the making of a s 42 order is in itself invariably a breach of the litigant’s constitutional rights. It should be borne in mind that no order will be made by the court unless it is satisfied as required by the section. The citizen’s primary safeguard is the court not the Attorney General. The purpose of the involvement of the Attorney General is to save the citizen from applications by his fellow citizens and indeed to save the court from having to hear such applications. We suspect that the dicta by Pill LJ cited above were motivated by a consciousness that litigants in this type of litigation tend to take every conceivable point and there may be merit in meeting points which might be taken before they are in fact taken. They cannot, in our respectful judgment, be taken as authority for the proposition that a s 42 application purportedly made on the Attorney General’s behalf by the Treasury Solicitor must be held to be unauthorised in the absence of evidence to the contrary.

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Once a challenge has been made supported by evidence, what evidence is required from the Attorney General?

18. The answer to this will depend on the nature of the evidence led in support of the challenge.

The present case

19. The challenge was made far too late. It was supported by affidavits sworn on the date of the hearing which originally contained two paragraphs asserting a belief in each of the Foleys that the application was not made by the Attorney General or authorised by him. Those two paragraphs were, we understand, expressly disavowed by the Foleys before the Divisional Court and were struck out from the affidavit. No ground for any such belief was advanced. In those circumstances there was no need for the Attorney General to file any further affidavits and the Divisional Court was entitled to make the order which it made.

20. In the event, counsel for the Attorney General, by way of making assurance doubly sure, did seek to adduce in evidence before us a third affidavit, sworn after the Divisional Court hearing, by Mr Jonathan Jones who at the relevant time was employed in the legal secretariat to the law officers. He confirms that the application was made with the authority of the law officers. He swears that on 29 March 1995 he put a submission dealing with the cases of the Foleys to both the law officers. He continues:

‘The Attorney General initialled his copy of the submission on 30 March 1995 thereby authorising the Solicitor General to deal with the matter in accordance with Section 1(1)(c) of the Law Officers Act 1944. The Solicitor General endorsed his agreement to the making of the Section 42 application on his copy of the submission on 29 March 1995.’

21. These dates led to submissions on behalf of the Foleys that since the Solicitor General appears to have considered the matter on the day before the Attorney General had decided to authorise the Solicitor General to discharge this function it follows that, at the time that the matter was considered by him, the Solicitor General had no authority to consider it. Such submissions were premised on the fact that, at the time of the consideration by the Solicitor General and the making of the application, the Law Officers Act 1997 was not in force. Assuming in favour of the appellants that it is the launching of proceedings rather than the appearance of counsel before the court which is the latest time in relation to which authorisation has to be considered, we rule on these submissions on the basis that the 1997 Act is of no relevance. Even so, since the originating motion containing the application was not issued by the court until well after 30 March 1995 these submissions lack any force. It is the making of the application which has to be authorised. It clearly was. The fact that, before receiving authority from the Attorney General, the Solicitor General had applied his mind to the facts of the case in the, as it turned out fully justified, expectation that he would obtain specific authority to make an application if he thought fit, does not mean either that that he did not apply his mind properly to the case or that at the time the application was made it he was not authorised to discharge on behalf of the Attorney General the function of making an application under s 42 of the Supreme Court Act 1981.

22. No doubt foreseeing that this latest affidavit hardly lent strength to the Foleys’ case, counsel submitted that it should not be admitted on the basis that the tests in Ladd v Marshall [1954] 3 All ER 745, [1954] 1 WLR 1489 were not

Page 617 of [2000] 2 All ER 609

satisfied. We looked at it, taking the view that there was ample reason for the non-production of this evidence before the Divisional Court—no point had clearly been taken on the proper constitution of the action and the Attorney General’s authority until the date of the hearing in that court and it could not be foreseen that the Foleys would submit that further evidence as to authority was requisite. As we have held, in fact it was not. On the view we take of the law this affidavit is unnecessary and could be excluded on that ground. However, the appellants having argued for a different view of the law, we think it right to admit it.

23. We mention finally some common sense points. The appeal is limited to the question whether it has been shown that the Attorney General gave his consent to the making of an application to have the Foleys declared vexatious. It has not been suggested that counsel appearing for the Attorney General in the appeal has not been instructed to resist the allowing of the appeal. This leads one to the conclusion that if we had been minded to allow the appeal on the ground sought all that would have happened would have been a new application by the Attorney General in which an affidavit on the lines of the Jones affidavit would have been placed before the court and the court would then have had to consider all over again whether or not the conditions in s 42 had been fulfilled. All this would serve no useful purpose.

24. Mr Lewis Foley and Mr Croxon asked the court to order the Attorney General to produce the submission which had been made to him and which was referred to in the affidavits sworn on his behalf. Mr Sankey offered to produce it to the court but not to the Foleys. We did not accept that offer. In general the court will indeed order the production to the other side of any document referred to in an affidavit. Where one is concerned with a document passing between a litigant and his solicitor, or a document containing advice to a minister circulating within a government department, complex issues can arise. We saw no need to address them in the context of this case. The court will not make an order unless there is reason to suppose that compliance with the order will in some way advance the ends of justice. We heard no coherent argument to suggest that this would be the case if we  made the order sought by Mr Foley and Mr Croxon. This was a document referred to in, as we hold, an unnecessary affidavit. We therefore refuse to make an order for disclosure.

25. We therefore dismiss the appeals.

Reasons for refusing leave to appeal on other grounds

26. At the hearing before us, permission was sought by Mr Croxon to expand the grounds of appeal beyond the single point upon which permission had already been given. We refused that application for reasons which follow and raise no points of general interest.

27. Mr Croxon applies for leave to appeal on the grounds set out in paras 9–11 and 17–22 of the notice of appeal by Harry Foley dated 29 August 1997. The notice of appeal is irregular in as much as it incorporates two points for which leave was not given, but it is convenient for the purposes of this judgment to refer to it and to its numbering.

28. The first point sought to be argued is that Mr Harry Foley was not given by the Divisional Court a fair opportunity to argue some points—

‘in his skeleton argument relating to the lawful appointment of the Law Officers and their existence in law and whether their decisions to apply for a

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Civil Proceedings Order against the 2 Appellant might be subsequently challenged in the Divisional Court.'

The second point is that—

‘the Divisional Court erred in law in making the Civil proceedings order against the 2 Appellant for an indefinite period … which was disproportionate in effect without specifically considering whether the said order was individually merited in the circumstances of the 2 appellant seriatim from those pertaining to that of the 1 Appellant.’

29. Following delivery of the judgment in the Divisional Court Mr Harry Foley said this: ‘I wish leave to appeal, sir. You have not heard all my evidence of perjury. You did not give me the time to put my case forward on perjury which is on your desk now.’ The court, however, refused him leave.

30. It is common ground that this court has jurisdiction to expand a grant of permission to appeal but that this power should be sparingly exercised (see Yorkshire Bank plc v Hall, Hall v Yorkshire Bank plc [1999] 1 All ER 879 at 889–890, [1999] 1 WLR 1713 at 1725).

31. The proposed grounds of appeal relating to the appointment of the law officers were not pursued by Mr Croxon.

32. So far as evidence is concerned, Mr Harry Foley was permitted to adduce an affidavit sworn by him on 18 February 1996—the date of the hearing before the Divisional Court. It contains much argument and no relevant admissible evidence. The substance of the arguable points covered in the affidavit are dealt with in the Divisional Court’s judgment. As we understood Mr Croxon he did not wish to adduce more evidence at this stage.

33. So far as submissions before the Divisional Court on the first point are concerned, they cover much the same ground as those taken by his brother. Mr Harry Foley had submitted a closely typed skeleton argument of which the first 12 pages are substantially concerned with this point. Many authorities are cited and quoted.

34. We have seen nothing in the papers and heard nothing in the submissions to lead us to suppose that Mr Foley was unreasonably denied any opportunity to put material before the court whether by way of evidence or submission which might have advanced his case further.

35. In the course of submissions, Mr Croxon has clarified the second main point sought to be argued. The substance of the point is that Mr Harry Foley wished at the time of the hearing before the Divisional Court and wishes now to argue that any civil proceedings order against him should be limited in time and not be indefinite. He points out that there is no mechanism for discharging an indefinite civil proceedings order and that to be classed as a vexatious litigant is something no one would wish to be. He submits that Mr Foley would have liked to persuade the Divisional Court that the facts of the eight actions in which he was apparently involved did not show such behaviour in him as to warrant the making of an indefinite order. Mr Foley would have liked to have shown that in at least some of the actions which had been struck out he played a minor or non-existent part. Mr Harry Foley would like to have put material before the Divisional Court to the effect that Mr Lewis Foley was using his brother’s name without authority.

36. Such arguments are potentially a good reason for either not making an order or for limiting its effect. To take an extreme example, clearly if a litigant

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repeatedly starts actions or applications in someone else’s name without his knowledge then it would be unjust to pronounce that other vexatious. It is not submitted that the present case is such an extreme case but it is submitted that some of the elements of that position may be found in the present case.

37. However, these submissions face a major obstacle. Neither the evidence nor the written submissions of Mr Harry Foley give any indication that this type of argument was sought to be advanced before the Divisional Court. In the circumstances, there can be no possible criticism of the Divisional Court for not addressing it. Even the affidavit sworn by Mr Harry Foley after the judgment of the Divisional Court in support of his application for permission to appeal gives no hint that any arguments based on his brother’s alleged lack of authority to pursue the various actions would be pursued in this court.

38. Mr Croxon submitted that, even if the Divisional Court be beyond criticism in that respect, we should permit these points to be raised in order to do justice to his client who had, like so many litigants in person, been remiss in getting his tackle in order because he did not know what he was doing and was perhaps too much under the influence of his brother who was also not very clear about what had to be done. We are not persuaded by these submissions. Such submissions could only succeed if there were significant evidence to support them. Even now there is none.

39. Finally Mr Croxon submitted that the Divisional Court had not applied its mind to the question whether it would be right to make a limited as opposed to an indefinite order. He submitted that the involvement of his client in the eight actions which were laid at his door by the Divisional Court could be seen, by a study of the files exhibited to the affidavits sworn on behalf of the Attorney General, to have been less than full-blooded. It is clear from the transcript of judgment that the Divisional Court twice referred to the need to consider whether or not the order should be made indefinite. This shows that it did apply its mind to the question. The prospect of a minute examination of the eight case files showing that the making of an indefinite order was outside the discretion of the Divisional Court is not such that it would be right to give leave for that point to be argued, the more so since this court has already refused so to do.

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

Dilys Tausz  Barrister.

Zoan v Rouamba

[2000] 2 All ER 620

Categories:        CONSUMER; Consumer credit        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        HENRY, CHADWICK AND MAY LJJ        

Hearing Date(s):        23 NOVEMBER 1999, 21 JANUARY 2000        

Consumer credit – Agreement – Form and content of agreement – Hire charges – Claimant’s car damaged in accident with defendant’s car – Claimant entering into agreements for hire of cars while own car repaired – Each agreement entitling claimant to postpone payment of hire charges ‘until a date on or before 12 months after the date of this Agreement’ – Claimant seeking to recover hire charges as damages – Whether agreements falling within exemption to statutory regime on regulated agreements – Consumer Credit (Exempt Agreements) Order 1989, art 3(1)(a)(i).

Z claimed damages for the cost of hiring four substitute vehicles while his own vehicle, damaged by R’s negligence, was off the road  Each of the replacement vehicles was hired under a separate standard form contract with the same company. Condition 10.1 of those agreements allowed hire charges to remain outstanding ‘until a date on or before 12 months after the date of this Agreement’. Under condition 10.3, the hire charges became immediately due and payable upon the occurrence of the earliest of a number of events, including ‘10.3.1 the first anniversary of this Agreement’. At trial, R’s insurers contended that three of the hire agreements were unenforceable since they failed to comply with the statutory regime on regulated agreements established by the Consumer Credit Act 1974. The judge concluded that the agreements came within the exemption from that regime provided by art 3(1)(a)(i)a of the Consumer Credit (Exempt Agreements) Order 1989, namely an agreement for fixed-sum credit requiring payment ‘within a period not exceeding 12 months beginning with the date of the agreement’. R appealed.

Held – On the true construction of art 3(1)(a)(i) of the 1989 order, the expression ‘beginning with the date of the agreement’ included the date of the agreement itself. Thus a contract of hire providing for a deferral in the payment obligation fell outside the exemption provided by art 3(1)(a)(i) unless it required repayment within a period of twelve months which included the date of the agreement. In the instant case, when condition 10 of the agreements was read as a whole, it was beyond argument that the date ‘12 months after the date of this Agreement’ was intended to be the same date as the ‘first anniversary of this Agreement’ referred to in condition 10.3.1. Such a conclusion was consistent with giving the words ‘12 months after the date of this Agreement’ a construction which excluded from the twelve month period the day on which the agreement was made. It followed that the agreements required payment of the hire charges within a period which was one day longer than that prescribed by art 3(1)(a)(i) of the 1989 order. Accordingly, the agreements were not exempt for the purposes of the 1974 Act, and the appeal would therefore be allowed (see p 627 h, p 628 d e, p 629 b c e f and p 633 j, post).

Hare v Gocher [1962] 2 All ER 763 and Trow v Ind Coope (West Midlands) Ltd [1967] 2 All ER 900 applied.

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Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352 distinguished.

Notes

For exemptions from the statutory regime governing consumer credit agreements, see 9(1) Halsbury’s Laws (4th edn reissue) para 102.

For the Consumer Credit Act 1974, see 11 Halsbury’s Statutes (4th edn) (2000 reissue) 17.

For the Consumer Credit (Exempt Agreements) Order 1989, art 3, see 5 Halsbury’s Statutory Instruments (1999 issue) 289.

Cases referred to in judgment

Dimond v Lovell [1999] 3 All ER 1, [1999] 3 WLR 561, CA.

Giles v Thompson [1993] 3 All ER 321, [1994] 1 AC 142, [1993] 2 WLR 908, CA and HL.

Goldsmith’s Co v West Metropolitan Railway Co [1904] 1 KB 1, [1900–03] All ER Rep 667.

Hare v Gocher [1962] 2 All ER 763, [1962] 2 QB 641, [1962] 3 WLR 339, DC.

Investors Compensation Scheme Ltd v West Bromwich Building Society, Investors Compensation Scheme Ltd v Hopkin & Sons (a firm), Alford v West Bromwich Building Society, Armitage v West Bromwich Building Society [1998] 1 All ER 98, [1998] 1 WLR 896, HL.

Lympne Investments Ltd, Re [1972] 2 All ER 385, [1972] 1 WLR 523.

Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] AC 749, [1997] 2 WLR 945, HL.

Stewart v Chapman [1951] 2 All ER 613, [1951] 2 KB 792, DC.

Trow v Ind Coope (West Midlands) Ltd [1967] 2 All ER 900, [1967] 2 QB 899, [1967] 3 WLR 633, CA.

Young v Higgon (1840) 6 M & W 50, [1835–42] All ER Rep 278, 151 ER 317.

Cases also cited or referred to in skeleton arguments

Carapanayoti & Co Ltd v Comptoir Commercial Andre & Cie SA [1972] 1 Lloyd’s Rep 139, CA.

Dedman v British Building and Engineering Appliances Ltd [1974] 1 All ER 520, [1974] 1 WLR 171, CA.

Dodds v Walker [1981] 2 All ER 609, [1981] 1 WLR 1027, HL.

English v Cliff [1914] 2 Ch 376.

Haigh v Lewis & Co (Westminster) Ltd [1973] 8 ITR 360, NIRC.

McAll v Brooks [1984] RTR 99, CA.

Mills v Dunham [1891] 1 Ch 576, CA.

Sidebottom v Holland [1895] 1 QB 378, [1891–94] All ER Rep 617.

Appeal

The defendant, Beatrice Rouamba, appealed with permission of Judge Harris QC from his decision at the Northampton County Court on 19 July 1999, whereby he awarded the claimant, Nigel Zoan, damages for the cost of hiring substitute vehicles while his own vehicle was off the road for repairs to damage caused by the appellant’s negligence. The facts are set out in the judgment of the court.

Hilary Heilbron QC and Tim Kevan (instructed by Rollingsons) for Mrs Rouamba.

Ian Hunter QC and Frederick Philpott (instructed by Franklins, Northampton) for Mr Zoan.

Cur adv vult

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21 January 2000. The following judgment of the court was delivered.

CHADWICK LJ.

1. This is the judgment of the court in an appeal, with leave of the trial judge, from that part of the order of Judge Harris QC, made in the Northampton County Court on 19 July 1999, giving the claimant damages for the cost of hiring substitute vehicles while his own vehicle, damaged by the defendant’s negligence, was off the road.

2. The facts are simple. Mr Zoan owns and drives a Jeep Grand Cherokee motor car. It was damaged in a road traffic accident by a vehicle driven by Mrs Rouamba, the defendant. The accident was entirely the defendant’s fault. Happily no one was injured. Mrs Rouamba was insured, and her insurers conducted her defence. They admitted liability, and paid for the vehicle to be repaired. But they refused to pay for two heads of damage. The first, the diminution of value of the claimant’s vehicle, because the repairs did not restore it to its pre-accident value, need not concern us beyond noting that the claimant recovered £1,300 under that head.

3. But additionally, the claimant claimed the cost of hiring equivalent vehicles over the repair period while his vehicle was off the road. He recovered damages of £25,833·48 under that head of claim. The defendant appellant now appeals as to £10,702·45 of the damages awarded in relation to hire charges.

4. There were four separate contracts of hire, one for each vehicle. The respondents concede that the judge was right to treat them separately. Each of those contracts was on the standard form contract of Swift Rent-A-Car Ltd (Swift). One aspect of Swift’s business was the hiring out of replacement cars to those whose vehicles were off the road as a result of accidents that were not their fault. Swift under their contract extended credit to the hirer, so that, if he got on with his action, he would not have to pay the hire charges until he got his damages. Swift were notified of this appeal, but have not applied to be heard.

5. For the purposes of this appeal, there is one defence only: namely that three of the four contracts of hire for the replacement vehicles were ‘improperly executed and unenforceable’ because of the pleaded failure to comply with the statutory requirements of the Consumer Credit Act 1974, and the regulations made thereunder. The case below focused entirely on whether the three car hire agreements were exempt from that statutory regime on the ground that condition 10 of those agreements complied with art 3(1)(a)(i) of the Consumer Credit (Exempt Agreements) Order 1989, SI 1989/869. Both sides made concessions to define the issue for the judge:

‘The plaintiff in fact conceded that, if these agreements were not exempt agreements, then they were indeed unenforceable and, as the law currently stands, that he could not recover from the defendant as a result of Dimond v Lovell ([1999] 3 All ER 1, [1999] 3 WLR 561). The defendant in turn agreed that the fourth agreement was indeed exempt since the amount of credit exceeded £15,000.’

6. The judge’s reference to Dimond v Lovell [1999] 3 All ER 1, [1999] 3 WLR 561 requires some explanation. For a long time many claimants whose vehicles were put off the road by the negligence of others did not claim that head of damage. This benefited negligent drivers and their insurers. Car hire companies saw this niche in the market, and entered the market to fill it, with apparent commercial success. Motor insurers counter-attacked, claiming that such agreements were

Page 623 of [2000] 2 All ER 620

champertous, and therefore unlawful. This claim failed in their Lordships’ House in Giles v Thompson [1993] 3 All ER 321 at 351–352, [1994] 1 AC 142 at 154–155. We take Lord Mustill’s analysis of the forensic history:

‘The question has arisen in this way. A substantial proportion of motor accidents take place in circumstances where there is little room for doubt that one party is exclusively to blame: typically, where the car of one driver (hereafter “the motorist”) is stationary, for example at a traffic light, and where a car driven by another person (the defendant) is carelessly driven into the back of it. There are two types of damages which may be awarded to the motorist in any resulting litigation. First, there are damages for any personal injury which the motorist may have suffered. These will usually comprise general damages for pain, suffering and loss of amenity, and special damages for past and future loss of earnings. Secondly, there are damages related to the loss of or damage to the motorist’s vehicle. These will or may have two elements: a figure representing the diminution in value of the motorist’s vehicle, and another figure representing the financial loss suffered by the motorist because he or she cannot use the vehicle whilst it is either being replaced (if written off) or undergoing repairs. In practice these various elements are dealt with in various ways. The damage to the car itself is settled between insurers, apart from the excess on the motorist’s policy, which he may not trouble to pursue except as an appendage to a larger claim. The motorist’s claims for personal injuries may be substantial in amount, and will be made the subject of an action, if the motorist can finance the action either from his own resources, or from some form of insurance, or (if he is of very limited means) by legal aid. There remains the claim for loss of use of the car. In principle, if such a claim is made it will often be quantified by reference to the cost of hiring a substitute vehicle, and will be recoverable upon proof that the motorist needed a replacement car whilst his own was off the road. I say “if such a claim is made” for two reasons. First, because the loss of use is not recoverable under a comprehensive policy, so that there are no subrogated insurers to stand behind the claim, and in situations where there is no personal injury claim and where the damage to the motorist’s vehicle is dealt with as between insurers there are few motorists who will have the time, energy and resources to go to law solely to recover the cost of a substitute vehicle. Secondly, because there are many motorists who lack the inclination or the ready cash to hire a substitute on the chance of recovering reimbursement from the defendant’s insurers. Thus, there exists in practical terms a gap in the remedies available to the motorist, from which the errant driver, and hence his insurers, frequently profit. In recent years a number of commercial concerns (hereafter “the car hire companies”) have identified this gap and have sought to fill it in a manner advantageous alike to motorists and to themselves, by offering to motorists with apparently solid claims against the other parties to collisions the opportunity to make use of the car hire companies’ cars whilst their own are off the road. The terms on which this opportunity is given are said to be, in broad outline, as follows. (1) The car hire company makes a car available to the motorist whilst the damaged car is under repair. (2) The car hire company pursues a claim against the defendant, at its own expense and employing solicitors of its choice, in the name of the motorist for loss of use of the motorist’s car. (3) The car hire company makes a charge for the loan

Page 624 of [2000] 2 All ER 620

of the replacement car, which is reimbursed from that part of the damages recovered by the motorist from the defendant or his insurers which reflects the loss of use of the motorist’s car. (4) Until this happens the motorist is under no obligation to pay for the use of the replacement car. (5) These arrangements are conditional on the co-operation of the motorist in pursuing the claim and any resulting legal proceedings. (6) The car hire companies aim to confine the scheme to cases where the motorist is very likely to succeed in establishing the defendant’s liability, without any contributory negligence on the part of the motorist. Transactions on these general lines have been entered into in large numbers, to the discomfort of the defendants’ insurers, who have been faced with claims of which an element reflects the cost of a replacement vehicle which would not have been hired but for the existence of the scheme. The insurers have counter-attacked by alleging that the hiring agreements are champertous and accordingly unlawful, or otherwise contrary to public policy. Whilst no longer contending that actions which include an element of damages referable to the charges made, or said to be made, by the car hire companies are an abuse of the process of the court, and should therefore be struck out in their entirety, the insurers say that damages cannot be awarded for the hiring charges, since to do so would enable the motorist to rely on an unlawful contract.’

7. We know from Dimond’s case that in Giles’s case  no point on the Act arose. In Dimond’s case, another head of illegality was raised, successfully on this occasion. That case involved a different car hire company operating on a different contract. It is presently under appeal to their Lordships’ House. The appellants assert that the issue in this case (as defined above) was not dealt with in Dimond’s case, and that the question whether a clause providing payment within a year and a day achieves exemption from the Act is the major defence being litigated in a large number of credit hire cases going through the court. No application was made to stay this hearing to await result of the appeal in Dimond’s case. Nor was it suggested that we were bound by Dimond’s case on the point in this appeal. So we proceeded to hear this appeal.

8. It is common ground that, if the relevant hire agreements are properly to be regarded as consumer credit agreements within the meaning of s 8(2) of the Act, the short question raised by this appeal is whether the words used in condition 10.1 of the agreements are apt to take those agreements out of the regulatory regime imposed by that Act and the Consumer Credit Regulations 1983 and 1987.

9. The question whether or not a replacement vehicle hire agreement under which the obligation to pay the hire charge was deferred pending resolution of a claim by (or in the name of) the hirer against a third party was capable of being regarded as a consumer credit agreement for the purposes of the Act was considered by this court in Dimond’s case. This court held that it was. In particular, it was held: (i) that such an agreement, if made with an individual hirer, was a personal credit agreement within s 8(1) of the Act; and (ii) that if the amount of the credit provided did not exceed the limit prescribed under s 8(2)—£15,000 at the time relevant to this appeal—the agreement was a consumer credit agreement. Subject to one point—to which we are about to refer—the respondent did not seek to re-open that question on this appeal.

10. The amount of the deferred hire charge in Dimond’s case was well within the limit prescribed under s 8(2) of the Act. In the present case, however, the

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amount payable under the fourth of the hire agreements exceeded the prescribed limit. It was accepted by the appellant that that fourth agreement fell outside s 8(2) and was not a consumer credit agreement. But it was also accepted, by the respondent, that—as the judge had held—the four agreements had to be treated as separate contracts; so that the fact that the amount payable under all four agreements (taken together) exceeded the prescribed limit did not lead to the conclusion that the first three agreements could not be consumer credit agreements.

11. In this court, however, the respondent sought for the first time to rely on the fact that, although the credit actually provided under each of the first three agreements was less than £15,000, the agreements themselves imposed no limit. At the time when each agreement was made it was possible that the amount of the credit to be provided under it would exceed £15,000—as, in the event, happened in the case of the fourth agreement. The respondent sought, by way of notice under CPR Sch 1, RSC Ord 59, r 6(1)(b), to contend that an agreement which, as made, provided for credit without limit could not be a consumer credit agreement within s 8(2) of the Act; notwithstanding that, in the events which happened, the credit actually provided under the agreement did not exceed the limit prescribed by that section.

12. That respondent’s notice (the only copy of which we have seen is unsigned and undated) was never lodged with the court, and did not get into the core bundle, though we are told it was received by the appellants on 13 October, some time out of time. Accordingly, we were surprised to be confronted with it at trial when the time estimate for the hearing already seemed tight. We refused to admit it out of time, for reasons which follow.

13. First, the effect of this point would have brought Dimond’s case centre stage, and thus would potentially cause an overrun to another day in a tight schedule. And the connection with Dimond’s case appears to bring this new point close to, if not caught by, the stay imposed by Sir Richard Scott V-C on Dimond cases.

14. Second, if this point is right, it has taken a long time to emerge, and so is just the sort of point on which the views of, and filter imposed by, the judge at first instance would have been particularly valuable.

15. Third, both those points are strengthened by the fact that this new point was put forward as a test case. It is entirely different from and unrelated to the illegality defence which is already before the court. It is unsatisfactory for a test case not to have the benefit of the decision at first instance, particularly when the point sought to be put in issue was conceded before the judge.

16. Fourth, if it is a proper point to be tested by a test case, there will be no difficulty (apart from Sir Richard Scott V-C’s stay on all Dimond cases) preventing such a test case being set up at short notice.

17. We should make it clear that we have not formed any view on the merits of the point itself; or on the question whether, having regard to the decision in Dimond’s case, it could succeed in this court.

18. The position, therefore, is that this appeal has been argued on the basis that the first three agreements (the relevant agreements) are consumer credit agreements within s 8(2) of the Act. The issue is whether they are also regulated agreements.

19. A consumer credit agreement is a regulated agreement for the purposes of the Act if it is not an ‘exempt agreement’; that is to say, if it is not an agreement specified in or under s 16 of the Act—see s 8(3). Section 16(5) gives power to the Secretary of State to provide by order that the Act shall not regulate consumer

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credit agreements where the number of payments to be made by the debtor does not exceed the number specified for that purpose in the order. That power was exercised by the making of the Consumer Credit (Exempt Agreements) Order 1977, SI 1977/326. Article 3(1) of the 1977 order provided that the Act should not regulate a consumer credit agreement which fell within one of a number of descriptions. Those descriptions included, at art 3(1)(a)(i), a debtor-creditor- supplier agreement for fixed-sum credit under which the number of payments to be made by the debtor did not exceed four.

20. Fixed-sum credit is defined by s 10(1) of the Act. It means any facility under a personal credit agreement whereby the debtor is enabled to receive credit (whether in one amount or by instalments), not being running-account credit within s 10(1)(a). A debtor-creditor-supplier agreement is defined by s 12 of the Act. The expression includes a restricted use credit agreement falling within s 11(1)(a) of that Act. A restricted use credit agreement is a regulated consumer credit agreement to finance a transaction between the debtor and the creditor. It was held by this court in Dimond v Lovell [1999] 3 All ER 1 at 14, [1999] 3 WLR 561 at 574 (para 69)—in the judgment of Sir Richard Scott V-C, with which the other members of the court (Thorpe and Judge LJJ) agreed—that a replacement vehicle hire agreement in terms which (so far as material in this context) are indistinguishable from those of the relevant agreements in the present case was an agreement for fixed-sum credit within s 10(1)(b), a restricted use credit agreement within s 11(1)(a) and a debtor-creditor-supplier agreement under s 12(a) of the Act. On the basis that the relevant agreements are consumer credit agreements for the purposes of s 8(2) of the Act it is not in dispute that, if not exempt agreements, they would be debtor-creditor-supplier agreements for fixed-sum credit.

21. The 1977 order was revoked and replaced by the Consumer Credit (Exempt Agreements) Order 1980, SI 1980/52; and the 1980 order was, in turn, revoked and replaced by the Consumer Credit (Exempt Agreements) (No 2) Order 1985, SI 1985/757; but the relevant provisions in art 3(1)(a)(i) remained unchanged until the coming into operation of the 1989 order.

22. The 1989 order was made in the light of an EC Council Directive of 22 December 1986, Council Directive (EEC) 87/102 (OJ 1987 L42 p 48). The directive, which had as its expressed objective the provision of ‘a certain degree of approximation of the laws, regulations and administrative provisions of Member States concerning consumer credit’, was to have no application to credit agreements under which the consumer was required to repay the credit either within a period not exceeding three months or by a maximum number of four payments within a period not exceeding 12 months—see art 2.1(g). No doubt it was with that provision in mind that art 3(1)(a)(i) of the 1989 order was in a more restrictive form than that which had appeared in the earlier orders. The relevant article in the 1989 order is in these terms:

‘The Act [of 1974] shall not regulate a consumer credit agreement which is an agreement of one of the following descriptions, that is to say—(a) a debtor-creditor-supplier agreement being either—(i) an agreement for fixed-sum credit under which the total number of payments to be made by the debtor does not exceed four, and those payments are required to be made within a period not exceeding 12 months beginning with the date of the agreement; or …’

Page 627 of [2000] 2 All ER 620

23. Where, under some legislative provision, an act is required to be done within a fixed period of time ‘beginning with’ or ‘from’ a specified day, it is a question of construction whether the specified day itself is to be included in, or excluded from, that period. Where the period within which the act is to be done is expressed to be a number of days, months or years from or after a specified day, the courts have held, consistently since Young v Higgon (1840) 6 M & W 50, [1835–42] All ER Rep 278 that the specified day is excluded from the period; that is to say, that the period commences on the day after the specified day. Examples of such an ‘exclusive’ construction are found in Goldsmith’s Co v West Metropolitan Railway Co [1904] 1 KB 1 at 2, [1900–03] All ER Rep 667 at 667 (‘the powers of the company for the compulsory purchase of lands for the purposes of this Act shall cease after the expiration of three years from the passing of this Act’) and in Re Lympne Investments Ltd [1972] 2 All ER 385 at 387, [1972] 1 WLR 523 at 525 (‘the company has for three weeks thereafter neglected to pay’). In Stewart v Chapman [1951] 2 All ER 613 at 614, [1951] 2 KB 792 (‘a person … shall not be convicted unless … within fourteen days of the commission of the offence a summons for the offence was served on him’) Lord Goddard CJ ([1951] 2 All ER 613 at 616, [1951] 2 KB 792 at 798–799) observed that it was well established that ‘whatever the expression used’ the day from which the period of time was to be reckoned was to be excluded.

24. Where, however, the period within which the act is to be done is expressed to be a period beginning with a specified day, then it has been held, with equal consistency over the past forty years or thereabouts, that the legislature (or the relevant rule-making body, as the case may be) has shown a clear intention that the specified day must be included in the period. Examples of an ‘inclusive’ construction are to be found in Hare v Gocher [1962] 2 All ER 763 at 764, [1962] 2 QB 641 (‘if within [the period of two months beginning with the commencement of this Act] the occupier of an existing site duly makes an application … for a site licence’) and in Trow v Ind Coope (West Midlands) Ltd [1967] 2 All ER 900 at 911, [1967] 2 QB 899 at 926 (‘a writ is valid for … twelve months beginning with the date of its issue’). As Salmon LJ ([1967] 2 All ER 900 at 909, [1967] 2 QB 899 at 923) pointed out, the approach adopted in the Goldsmith’s Co case and Stewart’s case can have no application in a case where the period is expressed to begin on the specified date. He observed, that:

‘I cannot … accept that, if words are to have any meaning, “beginning with the date of its issue” can be construed to mean the same as “beginning with the day after the date of its issue’’.’ (See [1967] 2 All ER 900 at 910, [1967] 2 QB 899 at 924.)

25. The judge held that it was ‘obvious’, from the use of the expression ‘beginning with the date of the agreement’ in art 3(1)(a)(i) of the 1989 order, that the period of 12 months prescribed by that paragraph included the date of the agreement. In our view he was plainly correct to reach that conclusion. Notwithstanding the submissions advanced on behalf of the respondent, we can see no basis on which this court could refuse to apply the reasoning which led the majority (Harman and Salmon LJJ) in Trow’s case to hold that there is a real difference between a direction that a period of time is to begin with a specified date and a direction  that  a period is to be reckoned from that date.

26. It was submitted that to give an inclusive construction to the expression used in art 3(1)(a)(i) of the 1989 order would be inconsistent with the obvious purpose of that paragraph; because it would fail to give effect to Council Directive (EEC) 87/102. We find it impossible to accept that submission.

Page 628 of [2000] 2 All ER 620

First, it seems to us impossible to say, with any confidence, that art 2.1(g) was intended to exclude from the application of the directive agreements under which the consumer was required to repay the credit within a period of 12 months commencing on the day after the date of the agreement, but not to exclude agreements under which the period of 12 months commenced on the date of the agreement itself. There is no reason to think that, in framing art 2.1(g), the EC Council had in mind the approach to the reckoning of time developed in our domestic courts; nor that that approach would be followed in the Court of Justice of the European Communities or in the courts of other member states. Secondly, whatever might be the construction of art 2.1(g) as a matter of EC law, there is nothing in the directive which prevents a member state from giving effect to its obligations thereunder by exempting only agreements under which the repayment period does not exceed 12 months commencing on the date of the agreement itself; and by not exempting agreements under which the repayment period is longer by one additional day. The penultimate recital to the directive makes that clear. Thirdly, there can be no doubt that, in using the words ‘beginning with the date of the agreement’ in art 3(1)(a)(i) of the 1989 order, the Secretary of State did intend to prescribe, for the avoidance of doubt, the day on which the period of twelve months is to commence; and, in the light of the decision of this court in Trow’s case, must be taken to have known the effect (or, at the least, the likely effect) which those words would have as a matter of English law.

27. On the basis, therefore, that the relevant agreements will not be taken out of the regulatory regime imposed by the Act and the associated regulations by art 3(1)(a)(i) of the 1989 order unless repayment of the credit provided by each of those agreements is required, by the terms of the agreement, to be made within a period of 12 months which includes the date of the agreement, we turn to the provision for deferred repayment which is contained in condition 10.1. It should be considered in context. Condition 9 contains the primary obligation to pay hire charges. It is in these terms:

‘9. Payment

Save where the Owner has agreed to provide credit pursuant to Condition 10 the Hirer shall pay to the Owner the Hire Charges within 14 days of the end of the Hire Period.

9.2 …’

28. Condition 10 applies where, as occurred in the present case, the hire company, as ‘Owner’, allowed credit:

‘10 Credit on the Hire Charges

10.1 Where a Claim exists the Owner may at its complete discretion and subject to the provisions of this Condition allow the Hire Charges to remain outstanding until a date on or before 12 months after the date of this Agreement (the “Credit Period”).

10.2 The Hirer agrees to pay to the Owner interest on any outstanding Hire Charges at the Interest Rate from the due date for payment of the Hire Charges provided for in Condition 9.1 until actual payment.

10.3 The Hire Charges together with interest thereon shall become immediately due and payable by the Hirer upon the occurrence of the earliest of the following events:

10.3.1 the first anniversary of this Agreement …’

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29. ‘Claim’ is identified as:

‘ö… a claim by the Hirer to recover loss, including the cost of hiring the vehicle hereunder, resulting from damage sustained by the Hirer’s own vehicle involved in an accident, which claim is against a party other than the Owner or Hirer’s own insurers.’

30. The other events specified under condition 10.3 may or may not occur before the first anniversary of the agreement. When condition 10 is read as a whole it is, in our view, beyond argument that the date ‘12 months after the date of this Agreement’ referred to in condition 10.1 is intended to be the same date as ‘the first anniversary of this Agreement’ referred to in condition 10.3.1. That, of course, is consistent with giving to the words ‘12 months after the date of this Agreement’ a construction which excludes from the twelve month period the day on which the agreement was made. To give to those words a construction which excludes the day from or after which the period is to be reckoned is, itself, to adopt the approach consistently adopted by the courts in relation to similar expressions since Young’s case.

31. The problem to which that approach gives rise may be illustrated by reference to the first of the relevant agreements. The agreement is dated 3 March 1997. The first anniversary of 3 March 1997 is 3 March 1998. The last day of the period of 12 months after 3 March 1997 (excluding 3 March 1997 itself from that period) is 3 March 1998. But the last day of the period of 12 months beginning with the date of the agreement—that is to say, including 3 March 1997 within the period—is 2 March 1998. So the effect of giving to the words ‘12 months after the date of this Agreement’ which are used in condition 10.1 of the agreement a construction which excludes the date of the agreement itself is that (where the hire company allows credit under condition 10) the period within which payment of the hire charges is required to be made is one day longer than the period prescribed by art 3(1)(a)(i) of the 1989 order. The agreement is not within the description set out under art 3(1)(a)(i); it is not an exempt agreement for the purposes of s 8(3) of the Act; it is a regulated agreement to which the regulatory regime imposed by that Act applies.

32. The judge sought to avoid that consequence by giving to the words ‘12 months after the date of this Agreement’ in condition 10.1 a meaning which included the date of the agreement itself. He reminded himself of Lord Hoffmann’s summary of the principles by which contractual documents should be construed, set out in Investors Compensation Scheme Ltd v West Bromwich Building Society, Investors Compensation Scheme Ltd v Hopkin & Sons (a firm), Alford v West Bromwich Building Society, Armitage v West Bromwich Building Society [1998] 1 All ER 98 at 114, [1998] 1 WLR 896 at 912–913; and, in particular, to the principle (numbered 1 in Lord Hoffmann’s summary) that:

‘Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.’

33. The judge went on, at pages 7G–8G in the transcript of his judgment:

‘Applying these principles, what would the parties, using the form of words in question in this case, reasonably have been understood to mean by one of Lord Hoffman’s (sic) “reasonable people” considering the matter. I think

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that the answer is tolerably clear. He would conclude that a year from the date of the agreement, not a year from the day after the agreement, was being specified. A year and a day is a curious and unusual unit of time. Precisely a year, from and including a particular date, is not. In the context of this contract, 12 months after a particular day would be understood to mean, and I find does mean, the same as 12 months from a day; 12 months including the date of the agreement. All the more so if the terms of the Consumer Credit Exempt Agreement 1989 (sic) are to be taken as part of ‘all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’, in Lord Hoffman’s expression. Certainly they would have been part of the car provider’s background knowledge, and it could have no conceivable reason for providing for a period which neatly avoided exemption. The plaintiff, even though an experienced and successful businessman, would not, of course, have had the regulations explicitly in mind, although no doubt they were ‘available’ to him or his advisers had he wanted them. Against this relevant background, in my view, 12 months from and including the date of the agreement is what the parties in using those words would reasonably have been understood to mean by the expression, “12 months after the date of this agreement”.’

34. The first difficulty in the judge’s reasoning, as it seems to us, is that, absent reliance on the 1989 order, there is no basis for the conclusion that the expression ‘12 months after the date of this agreement’—or ‘12 months from the date of this agreement’, which the judge treated (correctly, in our view) as having the same meaning—would be reasonably understood to mean ‘12 months including the date of this agreement’. The usual meaning of the words ‘after’ or ‘from’ in the context of reckoning time, as the authorities make clear, is that the day ‘after’ or ‘from’ which a period of time is to be reckoned is not included within the period. There are good reasons for this. The event which gives rise to the need to determine when a limited period of time has ended (or will end) may itself happen at any time of the day on which it occurs. It is in order to avoid disputes as to fractions of a day—and to give to the party who must comply with the limit the maximum period for such compliance—that time is reckoned, in effect, from the last moment of that day; that is to say, the period begins to run from the first moment of the next day. To treat a period of a year ‘from the date of the agreement’ as commencing at the first moment after the end of the day on which the agreement is made is not (as the judge appears to suggest) to construe the words as if they read ‘a year from the day after the agreement’.

35. The second difficulty is that to construe the expression ‘12 months after the date of this agreement’ as meaning ‘12 months including the date of this agreement’ produces an inconsistency between the time restriction in condition 10.1 and that in condition 10.3.1. ‘The first anniversary of this Agreement’ is, plainly, one day later than the last day of the period of ‘12 months including the date of the agreement’; the first anniversary of 1 January 2000 is 1 January 2001, not 31 December 2000. The judge’s reasoning does not address this point.

36. The third difficulty is that, as the judge himself recognised, there is no basis for an assumption that the respondent, as ‘Hirer’ under the relevant agreements, would have had the Act or the 1989 order in mind at the time when he signed those agreements. It is, perhaps, pertinent to recall that, until the decision of this

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court in Dimond’s case was handed down on 29 April 1999, the law was widely thought to be as expressed by Professor Goode in his work Consumer Credit Legislation 1999—to which Sir Richard Scott V-C makes reference at paras 63–66 of his judgment in that appeal. To attribute to the hirer under a replacement vehicle hire agreement made in 1997 knowledge that the transaction into which he was entering might be affected by consumer credit legislation and the provisions for exemption in an order made pursuant to an EC directive is, in our view, to give to Lord Hoffmann’s  expression ‘knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’ a scope which he could not have intended.

37. We accept, of course, that if the inquiry as to the meaning of the words in condition 10.1 of the relevant agreements has to be approached on the basis that both parties to those contracts knew (or must be treated as knowing) (i) that, unless exempted, the agreements would be within the regulatory regime imposed by the consumer credit legislation, (ii) that there were provisions in the 1989 order which could be invoked to confer exemption—see the observations of Sir Richard Scott V-C, at para 51 of his judgment in Dimond v Lovell [1999] 3 All ER 1 at 11, [1999] 3 WLR 561 at 571—and (iii) that those provisions were available only where the period for repayment of the credit did not exceed 12 months, then it becomes arguable that both parties knew that the time restriction in condition 10 of the relevant agreements had been included in order to take advantage of the exemption. Indeed, it might be said that, given that approach, it was obvious to the hirer that that was the purpose which the hire company hoped to achieve by including the time restriction in condition 10. On that basis it could have been argued that was the common purpose of both parties; and that that common purpose is not to be frustrated by their failure to use the language which would have been apt to achieve it. Reliance would, no doubt, have been placed on the fourth of Lord Hoffmann’s principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 115, [1998] 1 WLR 896 at 913:

‘The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd ([1997] 3 All ER 352, [1997] AC 749)).’

38. We do not find it necessary to decide whether an argument advanced on that basis would succeed. The foundation for that argument has not been established. It is, in our view, impossible to attribute to someone in the position of the hirer at the time that the agreements were made the background knowledge which we have described.

39. We were referred to the decision cited by Lord Hoffmann in support of the fourth of his principles of interpretation— Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] AC 749. The question in that appeal was whether a tenant’s notice to determine a lease which was expressed to take effect on 12 January 1995 was validly served under a provision which

Page 632 of [2000] 2 All ER 620

entitled the tenant to determine the lease by not less than six months’ notice ‘to expire on the third anniversary of the term commencement date’ in circumstances in which the term had commenced on 13 January 1992. The landlord claimed, correctly, that the date specified in the notice (12 January 1995) was one day before the third anniversary of the term commencement date (13 January 1995). As Lord Goff of Chieveley ([1997] 3 All ER 352 at 355, [1997] AC 749 at 753) observed, the tenant had made an obvious mistake—in reading the clause in the lease as if it had provided for the notice to be served to expire ‘at the end of the third year of the term’ rather than ‘on the third anniversary of the term commencement date’— so that it was tempting to assist the tenant ‘when it must have been obvious to the landlord that the tenant intended to give an effective notice under the clause’. Lord Goff and Lord Jauncey of Tullichettle took the view that the temptation to assist the tenant had to be resisted. Although, looked at in the context of the provision in the lease, it was plain that the tenant had made a mistake, the mistake was not obvious from notice itself. The notice could not be construed so as to contradict the words actually used. The majority (Lord Steyn, Lord Hoffmann and Lord Clyde) took a different view. Lord Steyn ([1997] 3 All ER 352 at 369, [1997] AC 749 at 767) identified the issue as how a reasonable recipient would have understood the notice, construing the notice in the relevant objective context. He concluded:

‘Crediting a reasonable recipient with knowledge of the terms of the lease and third anniversary date (13 January), I venture to suggest that it is obvious that a reasonable recipient would have appreciated that the tenant wished to determine the leases on the third anniversary date of the leases but wrongly described it as 12 January instead of the 13 January. The reasonable recipient would not have been perplexed in any way by the minor error in the notices. The notices would have achieved their intended purpose.’ (See [1997] 3 All ER 352 at 370, [1997] AC 749 at 768–769.)

40. The intended purpose, in that context, was to inform the landlord that the tenant had decided to determine the lease in accordance with the right reserved—see Lord Steyn’s observation ([1997] 3 All ER 352 at 369, [1997] AC 749 at 768). Lord Hoffmann, in a passage which foreshadows what he was to say in the Investors Compensation Scheme case, pointed out that commercial contracts were to be construed in the light of all the background which could reasonably have been expected to be available to the parties; so that:

‘The fact that the words are capable of a literal application is no obstacle to evidence which demonstrates what a reasonable person with knowledge of the background would have understood the parties to mean, even if this compels one to say that they used the wrong words. In this area, we no longer confuse the meaning of words with the question of what meaning the use of the words was intended to convey.’ (See [1997] 3 All ER 352 at 380, [1997] AC 749 at 779.)

41. He could find no answer to the question why the rule for the construction of notices should be different from those for the construction of commercial contracts. Lord Clyde took a similar view to that of Lord Steyn:

‘No reasonable landlord would in my view be misled by the statement of a date which in the context of a clear intention to invoke cl 7(13) [of the lease] was inaccurate. The landlord would in my view recognise that in each case

Page 633 of [2000] 2 All ER 620

the reference to 12 January was to be read as a reference to 13 January and I would so construe the notices.’ (See [1997] 3 All ER 352 at 383, [1997] AC 749 at 783.)

42. In our view the decision of the majority in the House of Lords in the Mannai Investment case provides no support for the respondent’s contentions in the present appeal. It must be kept in mind, first, that in the Mannai Investment case there was no doubt that the landlord knew—or that any reasonable landlord must be taken to have known – what were the terms of the relevant clause in the lease; so that it was obvious not only that a mistake had been made by the tenant, but also what that mistake was. Secondly, the notice took effect unilaterally. The landlord’s intention was irrelevant. The only relevant question was what a reasonable person in the position of the landlord would have understood from the notice to be the intention of the tenant. There was no need to find an expressed consensus between landlord and tenant. By contrast, in the present case, (i) it has not been established that the hirer knew—or should be taken to know—the significance or the terms of art 3(1)(a)(i) of the 1989 order or what the hire company was seeking to achieve by the time restriction in condition 10.1 of the agreements; and (ii) it has not been established that, if the hirer did know or suspect what the hire company was seeking to achieve by that time restriction, the hirer shared the hire company’s intention. The intention of both parties is relevant to the interpretation of a contractual term. There is a need—which is not present when construing a notice which takes effect unilaterally—to find an expressed consensus between the parties to the contract.

43. We have sought to explain why we have not been persuaded that it could be appropriate to attribute to the hirer—or to a reasonable person in the position of the hirer—knowledge that the purpose of the hire company in relation to the time restriction in condition 10.1 was to obtain exemption under the 1989 order. It is unnecessary to decide whether, if that knowledge were to be treated as ‘reasonably available’ to a reasonable person in the position of the hirer, the hirer ought also to be treated as having agreed that condition 10.1 should have the effect which the hire company intended. But it is, we think, important to keep in mind that, as a general rule, a document will not be given the meaning for which one party, say ‘A’, contends merely because the other party knew or suspected, at the time, that that was what A was hoping to achieve. There must be some other reason to construe the document in that way. In the present case, it is by no means clear that, even if the hirer knew what the hire company was hoping to achieve by the time restriction in condition 10.1, he must be treated as having contracted on the basis that condition 10.1 did not have the meaning which the words used would naturally convey. In particular, there is no reason to attribute to the hirer an intention that the agreement should be exempt from the protection which the consumer credit legislation was enacted to provide for his benefit.

44. It follows that we would allow this appeal in relation to the hire charges incurred under the first three agreements.

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

Dilys Tausz  Barrister.

Westminster City Council v Haywood and another (No 2)

[2000] 2 All ER 634

Categories:        PENSIONS        

Court:        CHANCERY DIVISION        

Lord(s):        LIGHTMAN J        

Hearing Date(s):        3, 20 DECEMBER 1999        

Pension – Pension scheme – Jurisdiction of Pensions Ombudsman – Complaint to Pensions Ombudsman – Maladministration of pension scheme  – Court of Appeal holding that ombudsman having no jurisdiction to hear complaint – Decision statutorily reversed and complainant making fresh complaint to ombudsman based on same facts as first complaint – Ombudsman upholding complaint but concluding that maladministration causing no injustice – Whether ombudsman having jurisdiction to hear complaint – Whether respondent having right of appeal against determination of maladministration not causing injustice – Pension Schemes Act 1993, s 151 – Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996, reg 5 – Personal and Occupational Pension Schemes (Miscellaneous Amendments) (No 2) Regulations 1997, reg 9.

In 1993 H, a former employee of the appellant local authority, made a complaint of maladministration to the Pensions Ombudsman concerning the authority’s severance scheme. The complaint, relating to events in 1991, eventually reached the Court of Appeal, which rejected it on the grounds that H had not been entitled to long service benefits under the scheme, that therefore he was not a member of the scheme within the meaning of s 146(7) of the Pension Schemes Act 1993 and that accordingly the complaint fell outside the ombudsman’s jurisdiction. That decision was statutorily reversed by reg 9a of the Personal and Occupational Pension Schemes (Miscellaneous Amendments) (No 2) Regulations 1997, made under the 1993 Act, which provided that, for the purposes of s 146(7), ‘a person shall be regarded as a member of a scheme if he is, or had been, entitled to benefits under it’. In 1998, relying on that provision, H brought a fresh complaint before the ombudsman, based on the same facts as the 1993 complaint. The authority challenged the ombudsman’s jurisdiction to hear the complaint, contending that reg 9 did not have retrospective effect. Alternatively, it contended that the Court of Appeal’s decision gave rise to a res judicata precluding a further complaint identical to the 1993 complaint, that in any event the complaint had been made outside the three-year limitation period prescribed by reg 5(1)b of the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996 and that the ombudsman was not entitled to invoke reg 5(3) which allowed him to investigate and determine a complaint made out of time if, in his view, it was reasonable to bring the complaint outside the limitation period. Those contentions were rejected by the ombudsman who further held that the authority had been guilty of maladministration, that that maladministration had not caused H injustice consisting of financial loss, that he had suffered injustice consisting of distress and inconvenience but that it was inappropriate to make a direction for payment of compensation for that distress

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and inconvenience. The authority appealed to the High Court under s 151(4)c of the 1993 Act, challenging the ombudsman’s conclusion that he had jurisdiction to hear the complaint. The ombudsman contended that there was no right of appeal against a determination of maladministration that had not occasioned injustice.

Held – (1) A respondent to a complaint had the right to appeal against a determination by the ombudsman of maladministration, notwithstanding that it was accompanied by a determination that that maladministration had caused no injustice, or that it had caused injustice but that no consequential direction should be made. Such a respondent had a substantial and legitimate interest in clearing his name since a finding of maladministration was a serious slur on the reputation of the person concerned in management of the scheme and might be highly damaging, particularly if he was a professional manager. It followed that the authority was entitled to appeal even if the determination had merely decided that there was maladministration which had not occasioned injustice. In any event, the ombudsman had found maladministration causing injustice, albeit non-pecuniary in character (see p 642 f  to j, post).

(2) On its true construction, reg 9 of the 1997 regulations had retrospective effect in the sense that it allowed a person added to the class of members to complain of maladministration prior to the date on which it came into force. A conclusion to the contrary could not be justified by anything in the scheme or language of the 1993 Act and reg 9. Rather, the natural inference was that Parliament had intended, in the absence of a contra-indication in reg 9, that the same jurisdiction to investigate and determine complaints of maladministration should apply in the case of members as defined by that regulation as in the case of members under the original statutory definition. Moreover, any presumption against retrospectivity had limited weight in view of the nature of the legislation. The 1993 Act was social legislation, designed to improve the legal protection available to members of schemes. To find in social legislation of that character a form of retrospective protection against injustice was scarcely something which, on grounds of fairness or reasonableness, could not be expected of Parliament (see p 643 j to p 645 c, post).

(3) The doctrine of res judicata applied equally to determinations and directions of the ombudsman (and judgments on appeal from him) as to other judgments and determinations. Thus res judicata should be as much a bar to a complaint before the ombudsman as it would be to the commencement of legal proceedings to which it was an alternative, namely cases where the maladministration complained of consisted of interference with private law rights or breaches of private law duties. However, where the first claim was rejected not on the merits but because the court or equivalent body had no jurisdiction to entertain it, the claimant was not prevented from bringing a new claim, which was for all practical purposes identical to the old, if retrospective legislation conferred such jurisdiction on the court. In the instant case, the Court of Appeal had not determined the 1993 complaint on the merits, but rather had rejected it on the ground that the ombudsman had had no jurisdiction to entertain it. Accordingly, that decision did not operate as res judicata barring H from covering, in the complaint which he was now qualified to make, exactly the

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same ground as was covered by the 1993 complaint. Moreover, the ombudsman had clearly been correct to hold that reg 5(3) of the 1996 regulations applied and that he was entitled to investigate and determine the 1998 complaint on that basis. Accordingly, the ombudsman did have jurisdiction to hear the 1998 complaint, and the appeal would therefore be dismissed (see p 646 d e h j, p 647 c d and p 648 a b, post); Thrasyvoulou v Secretary of State for the Environment, Oliver v Secretary of State for the Environment [1990] 1 All ER 65 and Hines v Birkbeck College (No 2) [1991] 4 All ER 450 applied.

Notes

For the functions of the Pensions Ombudsman and determinations by him, see 44(2) Halsbury’s Laws (4th edn reissue) paras 664, 676.

For the Pensions Scheme Act 1993, s 151, see 33 Halsbury’s Statutes (4th edn) (1997 reissue) 766.

For the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996, see 18 Halsbury’s Statutory Instruments (1997 issue) 479.

Cases referred to in judgment

Barretto, Re, Wadsted v Barretto [1994] 1 All ER 447, [1994] QB 392, [1994] 2 WLR 149, CA.

Hewitt v Lewis [1986] 1 All ER 927, [1986] 1 WLR 444, CA.

Hines v Birkbeck College (No 2) [1991] 4 All ER 450, [1992] Ch 33, [1991] 3 WLR 557, CA.

L’Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd, The Boucraa [1994] 1 All ER 20, [1994] 1 AC 486, [1994] 2 WLR 39, HL.

Law Debenture Trust Corp plc v Malley (7 May 1999, unreported), Ch D.

Lemm v Mitchell [1912] AC 400, PC.

Marsal v Apong [1998] 1 WLR 674, PC.

Pickstone v Freemans plc [1988] 2 All ER 803, [1989] AC 66, [1988] 3 WLR 265, HL.

Port of Melbourne Authority v Anshun Pty Ltd (1980) 147 CLR 589, Aust HC.

R v Secretary of State for the Environment, ex p Hackney London BC [1984] 1 All ER 956, [1984] 1 WLR 592, CA.

Sunshine Porcelain Potteries Pty Ltd v Nash [1961] 3 All ER 203, [1961] AC 927, [1961] 3 WLR 727, PC.

Thoday v Thoday [1964] 1 All ER 341, [1964] P 181, [1964] 2 WLR 371, CA.

Thrasyvoulou v Secretary of State for the Environment, Oliver v Secretary of State for the Environment [1990] 1 All ER 65, [1990] 2 AC 273, [1990] 2 WLR 1, HL.

Westminster City Council v Haywood (No 1) [1997] 2 All ER 84, [1998] Ch 377, [1997] 3 WLR 641, CA; rvsg [1996] 2 All ER 467, [1998] Ch 377, [1996] 3 WLR 563.

Appeal

Westminster City Council appealed from a determination of the second respondent, the Pensions Ombudsman, on 6 January 1999 upholding a complaint made by the first respondent, Jeffrey James Haywood, of maladministration of the council’s severance scheme. The facts are set out in the judgment.

Elizabeth Slade QC and Timothy Pitt-Payne (instructed by Rick Lymer) for the council.

Elisabeth Laing (instructed by John Yolland) for the ombudsman.

Mr Haywood did not appear.

Cur adv vult

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20 December 1999. The following judgment was delivered.

LIGHTMAN J.

INTRODUCTION

1. This appeal by Westminster City Council (the council) arises from a determination by the second respondent, the Pensions Ombudsman (the ombudsman), of a complaint dated 15 June 1998 (the 1998 complaint) of maladministration in 1991 by the council made by the first respondent, Mr Jeffrey Haywood (Mr Haywood), on the ground that the ombudsman ought not to have entertained the 1998 complaint. The ombudsman held that there had been maladministration by the council; that the maladministration had caused Mr Haywood no pecuniary injustice; and that it had caused him non-pecuniary injustice in the form of distress and inconvenience, which had already been fully compensated for. The ombudsman accordingly refused to make any direction for payment of compensation. Mr Haywood has not appealed against this refusal but the council now seeks to appeal against the finding of maladministration. The first question raised on this appeal by the ombudsman is whether the council has a statutory right to appeal against that finding. If the answer to the first question is in the affirmative, the second question arises whether the ombudsman had jurisdiction to investigate the 1998 complaint of mal- administration by the council in 1991 and, if he did have jurisdiction, whether nevertheless he should have refused to entertain it on the grounds of res judicata or that it was time-barred.

FACTS

2. Mr Haywood was employed in local government for many years. By 1991 he was working for the council as a senior structural engineer in the property group of the managing director’s department. In late 1991 he was approaching his 50th birthday and was one of a number of employees whom the council was considering making redundant. He was given estimates of payments to which he would become entitled under the options available to him under two separate and distinct schemes, namely the council’s superannuation scheme (the super- annuation scheme) and the council’s severance and compensation scheme (the severance scheme). The estimates differed depending on whether he left on redundancy under the age of 50 or whether he left at or after the age of 50. In each case he would receive a lump sum and periodic payments under both schemes either immediately or on reaching pensionable age. He would also receive a statutory redundancy payment. He asked for his redundancy to take effect on his 50th birthday. In January 1992 Mr Haywood was informed that he was to be made redundant. He ceased employment on 12 April 1992 (his 50th birthday). Thereafter he received (as well as lump sum payments under both schemes and a statutory redundancy payment) an annual pension of £7,376·46 under the superannuation scheme and (for ten months) an annuity of £3,949·97 under the severance scheme.

3. On 8 February 1993 the council wrote to Mr Haywood and informed him that it had been advised that the severance scheme was unlawful in a number of respects, and in consequence his gross pension under the severance scheme would be reduced by approximately £158 per month with effect from February 1993. Mr Haywood’s monthly payments were thereafter reduced by £158 per month as indicated in the letter. This reduction was the subject of his first complaint to the

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ombudsman made on 1 March 1993 (the 1993 complaint). He complained of maladministration of the severance scheme, saying that he would have opted for the under-50 severance arrangement at the time of leaving the council’s employment if the council had told him (as it should have done) that it would or might be unlawful for the council to make the proposed payments under the severance scheme. Under the Pension Schemes Act 1993 Mr Haywood was qualified to make a complaint to the ombudsman if, and only if, the severance scheme was an occupational pension scheme and he was entitled to long service benefits under that scheme. Whilst it has at all times been agreed that these conditions were satisfied in respect of the superannuation scheme (as to which there was no complaint), issue was joined whether the conditions were satisfied in respect of the severance scheme. Mr Haywood maintained that both these conditions were satisfied; the council submitted that neither was satisfied. The jurisdiction of the ombudsman to entertain the 1993 complaint depended on who was right. I shall refer to the proceedings in respect of the 1993 complaint as Haywood (No 1) (see Westminster City Council v Haywood (No 1) [1997] 2 All ER 84, [1998] Ch 377).

4. New regulations made in 1994, namely the Local Government (Compensation for Redundancy) Regulations 1994, SI 1994/3025 partially alleviated the disappointment of Mr Haywood’s expectations under the severance scheme: Mr Haywood was paid £19,977·70 under these regulations, but it was not possible lawfully to restore his benefits to their original level. He accordingly continued to maintain his complaint.

5. On 25 July 1995 the ombudsman made his determination of the 1993 complaint (the 1995 determination). He determined that Mr Haywood was qualified to make the complaint and that accordingly he (the ombudsman) had jurisdiction to determine it; that there had been maladministration; and that such maladministration had caused both pecuniary and non-pecuniary injustice. He directed that: (a) the council should reinstate Mr Haywood’s monthly payment to its previous level; (b) the council should repay Mr Haywood with interest the reduction made since February 1993 (though the council could set off against this sum the lump sum compensation paid to Mr Haywood under the 1994 regulations); and (c) the council should pay Mr Haywood £1,000 as compensation for distress and inconvenience.

6. The council appealed. Robert Walker J upheld the appeal in part (see [1996] 2 All ER 467, [1998] Ch 377). He held that: (a) the superannuation and severance schemes could be regarded as forming a single scheme under which Mr Haywood was entitled to long service benefits, and that accordingly the ombudsman had jurisdiction to determine the 1993 complaint; (b) it was not maladministration for the council (as it was legally obliged to do) to reduce the payments to Mr Haywood in February 1993; (c) the ombudsman was entitled to find that the council’s failure to warn Mr Haywood that there was a doubt as to the legality of the severance scheme amounted to maladministration; (d) the ombudsman could not properly direct the council to restore Mr Haywood’s payments to their pre-February 1993 level because the reduction in payments was not caused by the maladministration established, namely the failure to warn; (e) the right remedy was to put Mr Haywood in the same position as if the council had provided him with correct information, not to put him in the same position as if the severance scheme was lawful; (f) there was no evidence that Mr Haywood would have been better off if properly advised, and so he was

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entitled to no compensation for financial loss; but (g) the ombudsman had been entitled to direct the council to pay Mr Haywood £1,000 as compensation for distress and inconvenience.

7. The council appealed against the decision of Robert Walker J. The ombudsman cross-appealed. The Court of Appeal allowed the appeal and dismissed the cross-appeal (see [1997] 2 All ER 84, [1998] Ch 377). The Court of Appeal held that: (a) the two schemes could not be regarded as forming a single scheme; (b) the severance scheme was an occupational pension scheme; but (c) Mr Haywood was not entitled to long service benefits under it and that accordingly the ombudsman did not have jurisdiction to determine the 1993 complaint.

The Court of Appeal also held (necessarily obiter) that the ombudsman’s direction that the council pay Mr Haywood £1,000 ought in any event to have been set aside because the non-financial injustice was fully compensated for in the overpayment to him of £1,580 over the ten months before the payments to him under the severance scheme had been reduced, an overpayment which he had not been asked to repay.

8. The gap in the jurisdiction of the ombudsman exposed by the decision of the Court of Appeal was filled by the Personal and Occupational Pension Schemes (Miscellaneous Amendments) (No 2) Regulations 1997, SI 1997/3038 and in particular reg 9 of the 1997 regulations (reg 9). The 1997 regulations were made on 18 December 1997, laid before Parliament on 22 December 1997, and came into force on 12 January 1998. Regulation 9 (which I set out later in this judgment) dispensed with the need for a complainant to be entitled to long service benefits.

9. Relying upon reg 9 as having retrospective effect, on 15 June 1998 Mr Haywood presented a second complaint (the 1998 complaint). The 1998 complaint was practically identical to the 1993 complaint. The council made a number of detailed written representations to the ombudsman in response to the 1998 complaint. As well as responding to the complaint on its merits, the council argued that the ombudsman should not entertain the 1998 complaint on four grounds; namely that (a) the severance scheme was not an occupational pension scheme; (b) reg 9 did not have retrospective effect and accordingly the ombudsman could not investigate alleged acts of maladministration which took place in 1991 as required by the 1998 complaint; (c) the decision of the Court of Appeal in Haywood (No 1) gave rise to a res judicata precluding a further complaint identical to the 1993 complaint; (d) that the 1998 complaint was time-barred.

The council made it clear to the ombudsman and to me that the first of these grounds (involving as it does a challenge to the decision of the Court of Appeal in Haywood (No 1)) must be reserved for a higher court and I say nothing about it.

10. On 6 January 1999 the ombudsman made his determination of the 1998 complaint (the 1999 determination). He determined that: (a) reg 9 did have retrospective effect and accordingly he did have jurisdiction to consider the 1998 complaint; (b) the council was guilty of maladministration in offering Mr Haywood benefits under the severance scheme at a time when it was aware of concerns about the legality of such payments; (c) Mr Haywood had not suffered injustice consisting of financial loss as a result of that maladministration; (d) (as I read the 1999 determination) Mr Haywood had however suffered injustice consisting of distress and inconvenience; and (e) but nevertheless no

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direction for payment of compensation was appropriate in respect of the distress and inconvenience on account of his receipt of the overpayment of £1,580.

11. On 29 January 1999 the council appealed against the part of the 1999 determination finding maladministration, on the grounds that the ombudsman ought not to have entertained the 1998 complaint for the four reasons I have previously stated. The ombudsman in turn submits that I should not entertain this appeal.

LEGISLATIVE SCHEME

12. It is, I think, helpful before I address in turn each of the four issues raised that I set out the distinctive features of the relevant legislation relating to the ombudsman. (a) The office was constituted on 1 October 1990 under the provisions of the Social Security Act 1990, now consolidated in the 1993 Act. It is common ground that for all relevant purposes the provisions of the 1990 Act and the unamended 1993 Act are identical. (b) The ombudsman is the creation of statute brought into existence to fulfil specified statutory functions laid down in the legislation, and for the proper performance of these functions he is vested with specified statutory powers and discretions and subjected to specified statutory obligations. He is subject to principles of public law which the court will enforce in the exercise of its appellate and supervisory jurisdictions. (c) The functions of the ombudsman are set out in s 146 of the 1993 Act. The relevant provision is to the effect that he ‘may’ investigate and determine complaints made by actual or potential beneficiaries of an occupational or personal pension scheme who allege that they have sustained injustice in consequence of maladministration in connection with any act or omission of a person responsible for the management of the scheme and may direct remedial action: see s 146(1) of the 1993 Act (as amended). The word ‘may’ connotes that the ombudsman has a discretion (which is to be judicially exercised) whether or not to investigate and determine any particular complaint duly made to him. It is to be expected that he will exercise his discretion in favour of investigating and determining complaints duly made unless there is a sufficient reason to the contrary and it will be incumbent on the ombudsman to spell out that reason. (d) The 1993 Act does not confer on members of a scheme any private law right nor does it impose on the managers of schemes any private law obligations. What the 1993 Act does is confer on members a public law right to complain to the ombudsman and a legitimate expectation that the ombudsman will therefore perform his public law duties which may lead him to make a direction righting wrongs done to them. (e) (Leaving aside for a moment the question on whose complaints he may do so) the ombudsman has at all times been expressly authorised to investigate complaints notwithstanding the fact that they arose, or related to a matter which arose, before 1 October 1990. (The provision to this effect in the 1990 Act is now re-enacted in s 146(5) of the 1993 Act.) (f) Neither the 1990 Act nor the 1993 Act contain any limitation period in respect of complaints that can be entertained by the ombudsman, but both contain provisions authorising the Secretary of State by statutory instrument to regulate procedure. In exercise of this power contained in the 1990 Act the Secretary of State on 1 April 1991 by the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1991, SI 1991/588 laid down time limits. The current regulation made pursuant to the 1993 Act laying down time limits is reg 5 of the Personal and Occupational Pensions Schemes (Pensions Ombudsman) Regulations 1996, SI 1996/2475.

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(g) (i) Section 146(1) of the 1993 Act (as originally enacted) authorised the ombudsman to investigate and determine complaints made by an ‘authorised complainant’. Section 146(7) defines ‘authorised complainant’ as a member of the scheme or a widow or widower or dependant of a deceased member. Section 146(8) defines ‘member’ in relation to a pension scheme as including a person who is or has been in pensionable service under the scheme. Section 181(1) provides that ‘pensionable service’ has the meaning given in s 70(2). Section 70(2) provides that ‘pensionable service’ means service in employment which qualifies the member (on the assumption that it continues for the appropriate period) for long service benefit under the scheme; and s 70(1) provides that ‘long service benefit’ means the benefits that will be payable under the scheme on the assumption that he remains in relevant employment and continues to render service which qualifies him for benefit until he attains normal pension age. Section 181(4) of the 1993 Act empowered the Secretary of State by statutory instrument to make provision as to the persons who are to be regarded as members. (ii) The Pensions Act 1995 in s 157(1) substitutes for the words ‘authorised complainant’ the words ‘actual or potential beneficiary of an occupational or personal pension scheme’ and in s 157(7) gives the same definition of ‘actual and potential beneficiary’ as had previously been given for ‘authorised complainant’. Accordingly this amendment is linguistic only and has no material effect. (iii) (As I have already said) the Court of Appeal in Haywood (No 1) held that the severance scheme was an occupational pension scheme, but that for the purposes of that scheme Mr Haywood was not in pensionable service because he was not entitled to long service benefit and that accordingly the ombudsman had no jurisdiction to entertain a complaint made by him in respect of the management of the severance scheme. (iv) In order to supply the lacuna in those protected by the 1993 Act as revealed by the decision of the Court of Appeal in exercise of the power conferred by s 181(4) of the 1993 Act, the Secretary of State included in the 1997 regulations reg 9 which provides as follows:

‘Persons entitled to benefits to be regarded as members for the purposes of section 146(7) of the 1993 Act

1A. For the purposes of section 146(7) … (persons who are actual or potential beneficiaries) a person shall be regarded as a member of a scheme if he is, or has been, entitled to benefits under it.’

Accordingly, Mr Haywood thenceforth became a member and was qualified to make a complaint, and therefore to make the 1998 complaint of maladministration in 1991 (and accordingly prior to the 1997 regulations) if s 146(5) applied in case of a complaint made by him.

THE COUNCIL’S RIGHT OF APPEAL

Statutory construction

13. Section 151 of the 1993 Act provides as follows:

‘(1) Where the Pension Ombudsman has conducted an investigation under this Part he shall send a written statement of his determination of the complaint or dispute in question—(a) to [the parties] … and any such statement shall contain the reasons for his determination.

(2) Where the Pensions Ombudsman makes a determination under this Part … he may direct any person responsible for the management of the

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scheme to which the complaint or reference relates to take, or refrain from taking, such steps as he may specify in the statement referred to in subsection (1) or otherwise in writing.

(3) Subject to subsection (4), the determination by the Pensions Ombudsman of a complaint or dispute, and any direction given by him under subsection (2), shall be final and binding on—[the parties] …

(4) An appeal on a point of law shall lie to the High Court … from a determination or direction of the Pensions Ombudsman …

(5) Any determination or direction of the Pensions Ombudsman shall be enforceable—(a) in England and Wales, in a county court as if it were a judgment or order of that court … ’

14. This issue raises questions as to the meaning of the words ‘appeal’ and ‘determination’. Implicit in the word ‘appeal’ is the limitation that a party can only appeal against a determination or direction which is adverse to him, but it is not so implicit that the determination or direction should be wholly (rather than only partially) adverse. A determination must decide (implicitly if not explicitly) in turn a series of questions, the later only arising if the earlier is decided in the affirmative. These questions are as follows: (a) whether the ombudsman has jurisdiction to investigate and determine the complaint (the mirror image of the question whether the complainant is qualified to make the complaint); (b) whether the discretion to investigate and determine is to be exercised; (c) whether there has been maladministration; (d) whether the maladministration caused injustice to the complainant; and (e) whether any consequent direction ought to be made. In my view the language of s 151(4) is apposite to allow an appeal against an adverse determination of any of these questions. (It may be noted that in Haywood (No 1) an appeal by the council succeeded on the ground that the ombudsman had no jurisdiction to determine it.) I am accordingly quite satisfied that a respondent to a complaint can appeal against a determination of maladministration notwithstanding that it is accompanied by a determination that it caused no injustice, or that it caused injustice but that no consequential direction should be made. This is only just, for a finding of maladministration is a serious slur on the reputation of a person concerned in the management of a scheme and (in particular if he is a professional manager) may be highly damaging. He has accordingly a substantial and legitimate interest in clearing his name. I am reinforced in this view by the judgment to the same effect of Rimer J in Law Debenture Trust Corp plc v Malley (7 May 1999, unreported). The court is well able to protect its process and the respondents to appeals from admissible but unmeritorious and insubstantial appeals.

15. Accordingly, even if (as the ombudsman contends) the 1999 determination merely decided that there was maladministration but that it did not occasion injustice, I hold that the council was entitled to appeal. But I also hold (as I have already said) that on a fair reading of the 1999 determination the ombudsman did find that there was maladministration causing non-pecuniary injustice for which no compensation should be directed. I should add that the appeal in this case serves a useful purpose beyond deciding the issues raised on the appeal between the council and Mr Haywood, for there are some seven other complainants to the ombudsman against the council in like position to that of Mr Haywood. The authoritative determination of the issues raised on this appeal is calculated

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to save the time and money involved in ventilating the same issues in those proceedings.

RETROSPECTIVE EFFECT

16. The issue raised is whether the effect of reg 9 is to entitle Mr Haywood to complain of maladministration which took place in 1991 prior to the date that the 1997 regulations came into force. The guiding principles of construction are authoritatively stated by Lord Reid in Sunshine Porcelain Potteries Pty Ltd v Nash [1961] 3 All ER 203 at 206, [1961] AC 927 at 938:

‘Generally, there is a strong presumption that a legislature does not intend to impose a new liability in respect of something that has already happened, because generally it would not be reasonable for a legislature to do that …  But this presumption may be overcome not only by express words in the Act but also by circumstances sufficiently strong to displace it.’

17. The principles have been further elaborated by Lord Mustill in L’Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd, The Boucraa [1994] 1 All ER 20 at 29–30, [1994] 1 AC 486 at 524:

‘My Lords, it would be impossible now to doubt that the court is required to approach questions of statutory interpretation with a disposition, and in some cases a very strong disposition, to assume that a statute is not intended to have retrospective effect. Nor indeed would I wish to cast any doubt on the validity of this approach for it ensures that the courts are constantly on the alert for the kind of unfairness which is found in, for example, the characterisation as criminal of past conduct which was lawful when it took place, or in alterations to the antecedent natural, civil or familial status of individuals. Nevertheless, I must own to reservations about the reliability of generalised presumptions and maxims when engaged in the task of finding out what Parliament intended by a particular form of words, for they too readily confine the court to a perspective which treats all statutes, and all situations to which they apply, as if they were the same. This is misleading, for the basis of the rule is no more than simple fairness, which ought to be the basis of every legal rule. True it is that to change the legal character of a person’s acts or omissions after an event will very often be unfair; and since it is rightly taken for granted that Parliament will rarely wish to act in a way which seems unfair it is sensible to look very hard at a statute which appears to have this effect, to make sure that this is what Parliament really intended. This is, however, no more than common sense, the application of which may be impeded rather than helped by recourse to formulae which do not adapt themselves to individual circumstances, and which tend themselves to become the subject of minute analysis, whereas what ought to be analysed is the statute itself.’

The question of retrospectivity requires an examination of two inter-related matters, namely the statutory scheme and language and the fairness and reasonableness in the legislature in the particular case giving a statutory provision retrospective effect. Both these considerations leave me in no doubt that reg 9 does have retrospective effect in the sense that a complaint by a person added to the class of members is entitled to complain of maladministration occurring prior to the date the regulation came into force.

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18. My reasons are as follows. (1) The 1993 Act is social legislation designed to improve the legal protection available to members of schemes in two ways: (a) it affords a cheap summary and informal alternative to proceedings in the ordinary courts; and (b) it affords recourse whenever injustice has been caused by maladministration whether or not the maladministration constitutes a civil wrong and accordingly whether or not there is an available remedy in private law. (2) The 1993 Act does something less than create new private rights or duties, render unlawful what was previously lawful, create new criminal penalties or override accrued limitation defences, which are classic situations for the strict application of the presumption against a statute having retrospective effect: see eg Re Barretto, Wadsted v Barretto [1994] 1 All ER 447, [1994] QB 392 and Marsal v Apong [1998] 1 WLR 674. What it does is provide a form of redress to members of schemes through the medium of the ombudsman against maladministration, a concept which embraces reprehensible conduct on the part of managers of schemes of two distinct characters, namely that which does and that which does not involve an interference with a private law right or a breach of a private law duty. (3) The provision of the ombudsman as an alternative medium to the ordinary courts for redress of maladministration involving an interference with pre-existing private law rights or breaches of pre-existing private law duties could occasion no concern on grounds of retrospectivity. Any such concern must be limited to the provision of the ombudsman as a medium for the redress of complaints of maladministration involving no such interference. Such concern may be considered to carry limited weight, since standards have always been expected of those who manage schemes, and the legislation is merely designed to maintain those standards and afford to the victim the possibility of recourse to the ombudsman when the conduct of the managers has fallen below those standards. (4) Section 146(5) of the 1993 Act expressly provides that the ombudsman may investigate and determine any complaint by actual or potential beneficiaries notwithstanding that it arose or relates to a matter which arose before 1 October 1990, the date on which his office was constituted. This provision makes plain that Parliament saw no objection in principle to the legislation having this retrospective effect and placing under scrutiny the management of schemes during periods pre-dating the legislation in respects when no such scrutiny had been possible; further by s 181(4) the Secretary of State was given power by regulation to fill gaps in the definition and he did so by reg 9. (5) Nothing in the scheme or language of the 1993 Act and reg 9 justifies any discrimination between the jurisdiction exercisable by the ombudsman in case of complaints by members as originally defined in the 1990 and 1993 Acts and in case of complaints by members as defined by regulation made under those Acts. Section 146(5) is equally applicable to both. The natural inference (giving full weight to the language of the 1993 Act) is that the legislature intended (in the absence of a contra-indication in the regulation) the same jurisdiction to investigate and determine complaints of maladministration to apply in the case of both categories of complainant. There would be no rational basis for differentiating between the complaints of these different members. The legislation enabled a redefinition to be made by regulation the very day the legislation came into force: it would be extraordinary if the complaints of members added by regulation should be restricted to subsequent acts of maladministration. It is not as though the redefinition and inclusion of additional members was the product of some separate legislation; it is the product of regulations made under the 1993 Act itself: contrast the LOffice

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Cherifien case. There is no contra-indication in reg 9: indeed, since its statutory purpose is to fill a gap in the protection afforded, the more natural inference is that all members of the class should likewise be entitled to complain of past maladministration.

19. In short, any presumption against retrospectivity in case of legislation such as the present can be of limited weight. To find in social legislation of this character a form of retrospective protection against maladministration causing injustice is scarcely something which on grounds of fairness or reasonableness could not be expected of the legislature. The legislature has expressly provided for such retrospectivity in case of ‘members’ as originally defined, the scheme and language of the 1993 Act and reg 9 require like treatment of ‘members’ included within the definition by reg 9, and there is no sufficient reason to adopt any other construction. I should add that I find limited assistance in the explanatory note attached to the 1997 regulations which is relied on by the ombudsman as indicative of retrospectivity. The note is admissible to identify the mischief which the regulation was attempting to remedy: Pickstone v Freemans plc [1988] 2 All ER 803 at 818, [1989] AC 66 at 127 per Lord Oliver of Aylmerton. The note states that the provisions of reg 9 ‘clarify the extent of the jurisdiction of the Pensions Ombudsman’. This is an indication that reg 9 was regarded as declaratory and the presumption against retrospectivity does not apply to declaratory legislation. The difficulty is that reg 9 was not declaratory: it was intended to change the law as established by the Court of Appeal in Haywood (No 1) and it is effective to do so. The council argued that a serious and substantial reason for holding that reg 9 had no retrospective effect lay in the lack of Parliamentary attention given to the 1997 regulations to be inferred from the particular Parliamentary procedure pursuant to which the 1997 regulations were made and from the fact that the regulations were placed before Parliament shortly before Christmas. I regard this argument as neither serious nor having any substance whatsoever.

RES JUDICATA

20. The council have submitted that, even if reg 9 has retrospective effect (as I have held), none the less the ombudsman was precluded from investigating the 1998 complaint by reason of the doctrine of ‘res judicata’, which was brought into play by the judgment of the Court of Appeal in Haywood (No 1). This submission raises a number of distinct questions.

(a) The first such question is whether a complainant before the ombudsman can be bound by the doctrine of res judicata arising from a previous determination of the ombudsman and judgments on appeal from that determination. A distinctive feature of proceedings before the ombudsman is the inquisitorial character of the proceedings and in Thoday v Thoday [1964] 1 All ER 341 at 351–352, [1964] P 181 at 197 Diplock LJ left open whether the doctrine of res judicata developed by the common law under the adversary system of procedure should be extended to courts which exercised an inquisitorial function. In my view the form of procedure is not today determinative of application of the doctrine. A modern and authoritative statement of the doctrine of res judicata is to be found in the speech of Lord Bridge of Harwich in Thrasyvoulou v Secretary of State for the Environment, Oliver v Secretary of State for the Environment [1990] 1 All ER 65 at 70–71, [1990] 2 AC 273 at 289:

‘The doctrine of res judicata rests on the twin principles which cannot be better expressed than in the terms of the two Latin maxims “interest

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reipublicae ut sit finis litium” and “nemo debet bis vexuri pro una et eadem causa”. These principles are of such fundamental importance that they cannot be confined in their application to litigation in the private law field. They certainly have their place in criminal law. In principle they must apply equally to adjudications in the field of public law. In relation to adjudications subject to a comprehensive self-contained statutory code, the presumption, in my opinion, must be that, where the statute has created a specific jurisdiction for the determination of any issue which establishes the existence of a legal right, the principle of res judicata applies to give finality to that determination unless an intention to exclude that principle can properly be inferred as a matter of construction of the relevant statutory provisions.’

The 1993 Act, as it seems to me, creates a comprehensive statutory code for the investigation and determination of complaints made by qualified complainants of maladministration causing injustice. Subject only to any appeal, the determination (together with any consequent direction) is made by s 151 of the 1993 Act final and binding on the parties and enforceable as if it were a judgment of the court. As a matter of principle and common sense, the doctrine of res judicata should apply equally to determinations and directions of the ombudsman (and judgments on appeal from him) as to other judgments and determinations, and res judicata should as much be a bar to a complaint before the ombudsman as it is a bar to the commencement of legal proceedings to which (in cases where the acts of maladministration complained of consist of interference with private law rights or breaches of private law duties) it is an alternative. I should add that, if contrary to my view for any technical reason the doctrine of res judicata were held to have no application, it would be a proper exercise of his discretion by the ombudsman in the interests of finality not to allow an issue already determined to be reopened before him: consider R v Secretary of State for the Environment, ex p Hackney London BC [1984] 1 All ER 956 at 964–965, [1984] 1 WLR 592 at 602.

(b) The second question is whether the doctrine of res judicata applied in this case so as to bar investigation and determination by the ombudsman of the 1998 complaint. The council maintains that the bar is created by the decision of the Court of Appeal in Haywood (No 1). There is a body of authority on the availability of a plea of res judicata where a claim has been made which failed by reason of the current state of the law, and where later, after the state of the law has been retrospectively changed, a new claim is made which for all practical purposes is identical to the old. In each case it is of course essential to consider the precise terms of the retrospective legislation which may direct varying degrees of retrospective operation, but subject to any such clear statutory provision to the contrary the principles (as it appears to me) are as follows. (i) Where the first claim is rejected on the ground that the court—a term intended to include any other equivalent body with adjudicative (as opposed to administrative functions)—had no jurisdiction to entertain the claim, this rejection may operate as res judicata in respect of the issue whether the court at the time of the claim had jurisdiction to entertain the claim, but it does not operate as res judicata in respect of the merits of the claim. The claimant is accordingly free to renew his claim before another court which does have jurisdiction or (if the jurisdiction of the first court is expanded) before that same court: see eg Hines v Birkbeck College (No 2) [1991] 4 All ER 450, [1992] Ch 33.

Page 647 of [2000] 2 All ER 634

(ii) Where the court has jurisdiction to entertain the first claim and decides it on the merits adversely to the claimant by reason of a shortcoming in the general law as it stands, res judicata precludes the claimant making the same claim on the same facts again later even after a retrospective change in the law remedying that shortcoming: see Lemm v Mitchell [1912] AC 400 and Port of Melbourne Authority v Anshun Pty Ltd (1980) 147 CLR 589 at 611. (iii) The dismissal of a claim on the merits occasioned by a shortcoming in the general law will not operate as res judicata precluding the claimant at a later date making a claim to the same relief where he has become entitled to that relief on different facts under retrospective legislation: see Hewitt v Lewis [1986] 1 All ER 927 at 930, [1986] 1 WLR 444 at 447–448.

21. I turn now to apply these principles to the facts of this case. The decision of the Court of Appeal in Haywood (No 1) operated by way of res judicata to bar any later claim by Mr Haywood that under the provisions of the 1993 Act as enacted he was qualified to make a complaint in respect of the severance scheme. But reg 9 changed the law and qualified him to make a complaint to the ombudsman in respect of the severance scheme. Since the decision of the Court of Appeal in Haywood (No 1) rejected the 1993 complaint on the ground that the ombudsman had no jurisdiction to entertain it (and did not determine the complaint on the merits), it does not operate as res judicata barring Mr Haywood in the complaint which he is now qualified to make from covering exactly the same ground as was covered by the 1993 complaint.

TIME-BAR

22. The 1996 regulations contain in reg 5 the current time limits for making complaints to the ombudsman. The relevant provisions are as follows:

‘(1) Subject to paragraphs (2) and (3) below, the Pensions Ombudsman shall not investigate a complaint or dispute if the act or omission which is the subject thereof occurred more than 3 years before the date on which the complaint or dispute was received by him in writing …

(3) Where, in the opinion of the Pensions Ombudsman, it was reasonable for a complaint not to be made or a dispute not to be referred before the end of the period allowed under paragraphs (1) and (2) above, the Pensions Ombudsman may investigate and determine that complaint or dispute if it is received by him in writing within such further period as he considers reasonable.’

23. The council submitted that the 1998 complaint was time-barred because the acts complained of occurred more than three years before the date on which the complaint was received and accordingly triggered reg 5(1); and that reg 5(3) was inapplicable because, though Mr Haywood was not qualified to make the complaint until after the 1997 regulations came into force, he cannot say that it was reasonable to have made no complaint before the end of this three-year period commencing in 1991, because he had in fact made a complaint within that period, namely the 1993 complaint. This is an extraordinary submission, for it amounts to this, that a complainant cannot invoke reg 5(3) if he could previously have made, or has previously made, a complaint which he was not qualified to make and which accordingly would have been or was invalid; and that a complaint can become time-barred even before it can lawfully be made. Plainly reg 5(3) is concerned with the position where a complainant qualified to make a

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complaint has deferred doing so and whether he has done so for a good and sufficient reason. The ombudsman’s decision that reg 5(3) was applicable and on this basis to investigate and determine the 1998 complaint was clearly correct: indeed it was the only conclusion which he could rationally have reached. I accordingly reject this objection to the assumption of jurisdiction by the ombudsman.

CONCLUSION

24. I accordingly hold that the council is entitled to appeal against the 1998 determination, but I also hold that the council’s challenge to the 1998 determination fails and I accordingly dismiss the appeal.

Appeal dismissed.

Celia Fox  Barrister.

Danae Air Transport SA v Air Canada

[2000] 2 All ER 649

Categories:        ADMINISTRATION OF JUSTICE; Arbitration        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        KENNEDY, WARD AND TUCKEY LJJ        

Hearing Date(s):        14, 15, 29 JULY 1999        

Arbitration – Award – Remission – Grounds for remission – Arbitrators making mathematical error in award and awarding costs against appellant on basis of that error – Appellant seeking order that award be remitted to arbitrators – Whether award could be remitted on basis of mathematical error – Arbitration Act 1950, s 22.

DAT acted as agent for AC until the latter wrongfully terminated its contract. In ensuing arbitration proceedings, AC made an offer to settle in a Calderbank letter, but that offer was rejected by DAT and the matter proceeded to determination. After making their final award, the arbitrators took account of the Calderbank offer in determining costs. Despite DAT’s submissions to the contrary, the arbitrators concluded that the sum awarded to DAT fell short of the offer, and they therefore awarded AC the post-offer costs. DAT contended that the arbitrator’s conclusion was based on a self-evident mathematical error, but it was unable to launch an appeal because the arbitration agreement had excluded all rights of appeal. DAT therefore applied, inter alia, to have the award remitted to the arbitrators under s 22a of the Arbitration Act 1950. The judge accepted that the arbitrators had made a mathematical error, but concluded that such an error fell outside the scope of s 22 since it did not constitute an excess of jurisdiction or a procedural mishap. Accordingly, the judge dismissed the application, and DAT appealed.

Held – Where arbitrators had deliberately made a simple mathematical error, that error could properly be characterised as a procedural mishap, and in exceptional circumstances the court had power to remit the award if the error had not been admitted. In the instant case, the arbitrators had made such an error, and the court therefore had jurisdiction to remit the costs award under s 22 of the 1950 Act. In other words, there had been a deviation from the route which the reference should have taken because ordinary mathematical principles had not been applied. The parties had been entitled to expect that the arbitration would be conducted without such a mishap or misunderstanding. Accordingly, the appeal would be allowed and the costs award remitted to the arbitrators (see p 658 f to p 659 b j to p 660 a, p 661 e f, and p 666 h, post).

King v Thomas McKenna Ltd [1991] 1 All ER 653 applied.

Decision of Longmore J [1999] 1 All ER (Comm) 794 reversed.

Notes

For remission of arbitration awards, see 2 Halsbury’s Laws (4th edn reissue) paras 690–695.

Section 22 of the Arbitration Act 1950 has been repealed by the Arbitration Act 1996, s 197(2), Sch 4.

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Cases referred to in judgments

Blexen Ltd v G Percy Trentham Ltd [1990] 2 EGLR 9, CA.

King v Thomas McKenna Ltd [1991] 1 All ER 653, [1991] 2 QB 480, [1991] 2 WLR 1234, CA.

Mutual Shipping Corp of New York v Bayshore Shipping Co of Monrovia, The Montan [1985] 1 All ER 520, [1985] 1 WLR 625, CA.

President of India v Jadranska Slobodna Plovidba [1992] 2 Lloyd’s Rep 274.

Cases referred to or cited in skeleton arguments

Charm Marine Inc v Elborne Mitchell [1997] CA Transcript 1363.

Everglade Maritime Inc v Schiffahrtsgesellschaft Detlef von Appen mbH [1993] 3 All ER 748, [1993] QB 780, CA.

Harrison v Thompson [1989] 1 WLR 1325.

Keighley, Maxsted & Co and Durant & Co, Re [1893] QB 405, [1891-4] All ER Rep 1012.

Margulies Bros Ltd v Dafnis Thomaides & Co (UK) Ltd [1958] 1 All ER 777, [1958] 1 WLR 398.

Moran v Lloyds [1983] 2 All ER 200, [1983] QB 542, CA.

Appeal

Danae Air Transport SA appealed with the leave of Longmore J from his decision on 8 February 1999 ([1999] 1 All ER (Comm) 794) dismissing its application under s 22 of the Arbitration Act 1950 for an order remitting to the arbitrators their final arbitration award dated 26 October 1998 (Bruce Coles QC and William McKie; George Theophanous dissenting) in arbitration proceedings between Danae and the respondent, Air Canada. The facts are set out in the judgment of Tuckey LJ.

Stephen Tomlinson QC and Philip Shepherd (instructed by Brown Cooper) for Danae.

Michael Collins QC and Vernon Flynn (instructed by Dibb Lupton Alsop) for Air Canada.

Cur adv vult

29 July 1999. The following judgments were delivered.

TUCKEY LJ (giving the first judgment at the invitation of Kennedy LJ).

Introduction

By a final award published in London on 26 October 1998 the arbitrators ordered the claimants, Danae Air Transport (Danae), to pay the costs of the award from 15 August 1995 (£519,659) and the respondents’, Air Canada’s, costs from that date (a substantial sum still to be assessed). The arbitrators made this costs award because they thought that Danae had not beaten a Calderbank offer made by Air Canada on 15 August 1995. Danae contend, and Longmore J accepted, that in reaching this conclusion the arbitrators made a basic arithmetical error. They had in fact beaten the offer so they should have been awarded all their costs. However, the arbitration agreement between the parties excluded all rights of appeal. Danae therefore sought to have the award remitted or set aside under ss 22 and/or 23 of the Arbitration Act 1950. The judge rejected this application but gave leave to appeal saying, ‘My decision results in undoubted injustice to [Danae]’.

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Danae acted as Air Canada’s agent in Greece until April 1989 when, as the arbitrators found, their appointment was wrongly terminated. At the time of termination Danae held money from the sale of tickets which they were obliged to pay over to Air Canada but they held on to it as partial security for their claim. In the arbitration which started in early 1995 Air Canada counterclaimed this money held by Danae. Although the principal amount held by Danae in this way had been agreed by August 1995 there were arguments about the period during and the rate at which Air Canada should receive interest.

The essence of the Calderbank offer was that Air Canada would forego their counterclaim and pay Danae an additional $Can500,000. Danae rejected the offer. It is agreed that the effect of the arbitrator’s final award, adjusted so as to reflect interest up to August 1995, was that Danae were awarded $Can1,904,481 on their claim and Air Canada were awarded $Can1,026,811 on their counterclaim. The arbitrators ordered the counterclaim to be set off against the claim, so on these figures Air Canada had to pay Danae $Can877,670 and Danae did not have to repay the money which they were holding. It is self-evident from this summary that Danae did better (by $Can377,670) by going on with the arbitration than they would have done if they had accepted the Calderbank offer.

And yet the arbitrators by a majority (Bruce Coles QC and William McKie) held otherwise. They made their order for costs on the basis that Danae had failed to beat the offer by about $Can400,000. The financial consequences of this error from Danae’s point of view, if it cannot be corrected, are enormous. They will end up paying well in excess of £1m when, if the arbitrators had not made the error, they had good prospects of not having to pay anything and receiving a substantial additional costs order in their favour.

I shall have to trace the history of how this has come about in a little more detail but that is the position in a nutshell. Air Canada simply say the judge was right. The courts cannot interfere. They say they are not taking advantage of the arbitrator’s error although they have not given any convincing reason to justify this assertion. This stance suggests that they know that it would be unacceptable for a large international airline to admit that they are taking advantage of an obvious error in their favour at the expense of a former agent of lesser means. But that is exactly what they are doing.

History

Following the publication of the arbitrators’ fourth interim award in September 1997 the parties turned their attention to the question of costs and in particular to whether Danae had beaten the offer. Each side on their own initiative and not in response to one another produced schedules which analysed the value of the award in the same way. By coincidence the arbitrators had awarded $Can500,000 to Danae as damages for ‘moral prejudice’. This was therefore the same amount as Air Canada’s cash offer and the two amounts cancelled one another out. The comparison between the award and the offer could therefore be made by a straight comparison between the award to Danae on their claim (ignoring the $Can500,000) and the award to Air Canada on their counterclaim. At this stage the latter only exceeded the former by on Air Canada’s figures about $Can44,000 and on Danae’s about $Can35,000.

These schedules were used at a hearing before the arbitrators on 24 September 1997 at which a number of costs and interest issues were argued. I need only refer to two of these issues. The first arose out of the terms of the Calderbank offer.

Page 652 of [2000] 2 All ER 649

It included the payment of all Danae’s costs with the exception of certain costs which had been incurred in the recent past or would be incurred if the arbitration settled, which the offer proposed should be borne equally. Danae calculated that their share of these costs was $Can57,185. They submitted that the value of Air Canada’s offer should be reduced by this amount. Of course this relatively small amount was crucial having regard to the difference between claim and counterclaim.

The second issue arose out of what is described as the ‘Ballotta incident’. Mr Ballotta had been a senior employee of Air Canada until November 1989 who, contrary to his assertion, as the arbitrators subsequently found, had ‘clearly been concerned with the events which gave rise to the arbitration’. Nevertheless Air Canada appointed Mr Ballotta as their arbitrator and in spite of Danae’s protests resisted all attempts to remove him for two years during which the progress of the arbitration was considerably delayed. Danae argued that Air Canada should be deprived of interest on their counterclaim for the period of this delay. The value to Danae of this argument, as subsequent events to which I will come show, was $Can400,000.

Air Canada resisted Danae’s attempts to improve their position on both these issues. They relied on the figures in their schedule which showed that the amount of the award exceeded the amount of the offer. Their written submissions on this point concluded with the following paragraph:

‘In addition to the amounts awarded in drachma, Danae was awarded Can$500,000 in tort. By coincidence this amount equates precisely to the additional sum offered to Danae in the sealed offer. It follows that the net amount awarded to Danae by the arbitrators is not only substantially less than that contained in the sealed offer, but is less even than the amount of the additional Can$500,000 then offered to Danae in addition to the value of Air Canada’s counter-claim.’

I do not really understand the last sentence of this paragraph but it certainly does not suggest the error which the arbitrators subsequently made.

The hearing was followed by an exchange of correspondence with the arbitrators in which the solicitors for the parties each took a number of confusingly bad points but again the error which the arbitrators subsequently made was not suggested, or at least clearly suggested.

The arbitrators produced a draft final award in November 1997. This is where the error first appeared. They valued the offer by adding the value which Air Canada had put on their counterclaim in the Calderbank letter ($Can818,500) to the $Can500,000. But they valued the award by subtracting their award on the counterclaim from their award on the claim. On the figures they used this showed that Danae had failed to beat the offer by about $Can800,000. No one had suggested that the calculation should be done in this way. It was palpably wrong because the arbitrators were not comparing like with like. If the value of the counterclaim was to be added to the amount of the cash offer for the purpose of valuing the offer it should not have been subtracted for the purpose of valuing the award. On the basis that Danae failed to beat the offer the draft final award had said that they were to pay the costs of the award and Air Canada’s costs from 15 August 1995. Air Canada were to pay Danae’s costs up to that time.

The arbitrators accepted Danae’s arguments on the first issue to which I have referred so they reduced the value of the offer by $Can57,185. On the Ballotta

Page 653 of [2000] 2 All ER 649

incident they said that as they had already dealt with interest on the counterclaim in an earlier award and as no submissions had been made to them about the incident before they made that award they had no jurisdiction to deal with the matter.

The draft final award, as one would expect, caused great concern in the Danae camp. Their solicitors made increasingly frantic efforts to persuade the arbitrators of their error. They bombarded them with letters, submitted an accountant’s report and eventually persuaded them to hold a further hearing. Air Canada’s stance was that having published their award in draft, the arbitrators could not reconsider their decision and that they had not made any error. Indeed, their solicitors asserted that the arbitrators were ‘plainly and obviously correct’.

But this error was not the only thing which concerned Danae. Contrary to what was said in the draft final award, they had raised the Ballotta incident in submissions to the arbitrators before they made their earlier award. In a letter of 21 January 1998 Mr Coles accepted this. What is more, however, he disclosed that in fact at that time the arbitrators had decided to disallow interest on the counterclaim for the entire two-year period. The award which they had made did not reflect this decision. This was due to ‘an error in typing up the final version’ of the award. Mr Coles suggested various methods by which the error could be rectified which required the parties’ agreement. No agreement was forthcoming.

The final hearing before Mr Coles took place on 21 May 1998. At this hearing both parties maintained the stance they had adopted in correspondence since publication of the draft final award.

The final award was published, as I have said, on 26 October 1998. The arbitrators decided they could correct the error in their earlier award to reflect their decision about the Ballotta incident. This had the effect of reducing Air Canada’s counterclaim by $Can400,000. They decided that had jurisdiction to do this under the slip rule contained in s 17 of the 1950 Act and under the United Nations Commission on International Trade Law (UNCITRAL) rules which the arbitration agreement enabled them to apply ‘with flexibility and discretion’.

But the error in the draft final award was repeated although the effect of the correction for the Ballotta incident was that the majority thought that Danae had failed to beat the offer by about $Can400,000. This is how they reached this result:

Value of offer

Air Canada’s valuation of counterclaim         $Can818,500

Cash offer         $Can500,000

Less                 $Can57,185

Total:                 $Can1,261,315

Value of award (at 15/08/95)

Claim                 $Can1,904,481

Less counterclaim         $Can1,026,811

Total:                 $Can877,670

Difference:         $Can383,645

In fact the arbitrators valued the claim and counterclaim at 31 July 1998 so the difference was greater than these figures show, but this is not significant. They sought to justify this conclusion for reasons which I find very difficult to follow.

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Mr Collins QC, counsel for Air Canada, submitted (very faintly, it is fair to say) that they were right. They were not, for the reasons I have given.

The final chapter in this story relates to the arbitrators assessment of the costs of the arbitration. In their final award they assess them at a total of £740,955·52. In a letter of 24 June 1999 the solicitors who acted as secretaries to the arbitration say that the total should in fact have been £845,825·24. The letter ends by saying that if a further sum for the solicitors’ costs is added, the costs before 15 August 1995 are £303,534,39 and since that date £542,838·55. No suggestion is made as to how these errors should be corrected.

The law

This arbitration was not governed by the Arbitration Act 1996 although if it had been broadly similar issues would have arisen as arise on this appeal. The relevant provisions of the Arbitration Act 1950 are:

‘17. Unless a contrary intention is expressed in the arbitration agreement, the arbitrator … shall have power to correct in an award any clerical mistake or error arising from any accidental slip or omission [Article 36 of the UNCITRAL rules gives arbitrators the power to correct ‘errors in computation, any clerical or typographical errors, or any errors of similar nature’] …

22.—(1) In all cases of reference to arbitration the High Court … may from time to time remit the matters referred, or any of them, to the reconsideration of the arbitrator …

23. … (2) Where an arbitrator … has misconducted himself or the proceedings … the High Court may set the award aside …’

The relevant provisions of the Arbitration Act 1979 are:

‘1.—(1) In the Arbitration Act 1950 … section 21 (statement of case for a decision of the High Court) shall cease to have effect and, without prejudice to the right of appeal conferred by subsection (2) below, the High Court shall not have jurisdiction to set aside or remit an award on an arbitration agreement on the ground of errors of fact or law on the face of the award.

(2) … an appeal shall lie to the High Court on any question of law arising out of an award made on an arbitration agreement; and on the determination of such an appeal the High Court may by order—(a) confirm, vary or set aside the award; or (b) remit the award to the reconsideration of the arbitrator … together with the court’s opinion on the question of law which was the subject of appeal …’

The power to set aside or remit an award for error on the face of the award was a common law remedy although whether it could have been invoked for errors of fact is doubtful.

The interaction between s 1 of the 1979 Act and s 22 of the 1950 Act where the discretion to remit is expressed in wide terms has been considered in a number of cases. In this case however both parties accepted the general statement of principle by Lord Donaldson MR in King v Thomas McKenna Ltd [1991] 1 All ER 653 at 660–661, [1991] 2 QB 480 at 491 where he said:

‘In my judgment the remission jurisdiction extends … to any cases where, notwithstanding that the arbitrators have acted with complete propriety, due to mishap or misunderstanding some aspects of the dispute which has

Page 655 of [2000] 2 All ER 649

been the subject of the reference has not been considered and adjudicated upon as fully or in a manner which the parties were entitled to expect and it would be inequitable to allow any award to take effect without some further consideration by the arbitrator. In so expressing myself I am not seeking to define or limit the jurisdiction or the way in which it should be exercised in particular cases, subject to the vital qualification that it is designed to remedy deviations from the route which the reference should have taken towards its destination (the award) and not to remedy a situation in which, despite having followed an unimpeachable route, the arbitrators have made errors of fact or law and as a result have reached a destination which was not that which the court would have reached. This essential qualification is usually underlined by saying that the jurisdiction to remit is to be invoked, if at all, in relation to procedural mishaps or misunderstandings. This is, however, too narrow a view since the traditional grounds do not necessarily involve procedural errors. The qualification is however of fundamental importance. Parties to arbitration, like parties to litigation, are entitled to expect that the arbitration will be conducted without mishap or misunderstanding and that, subject to the wide discretion enjoyed by the arbitrator, the procedure adopted will be fair and appropriate. What they are not entitled to expect of an arbitrator any more than that of a judge is that he will necessarily and in all circumstances arrive at the “right” answer as a matter of fact or law. That is why there are rights of appeal in litigation and no doubt would be in arbitration were it not for the fact that in English law it is left to the parties, if they so wish, to build a system of appeal into their arbitration agreements and few wish to do so, preferring “finality” to “legality”.’ (Lord Donaldson MR’s emphasis.)

In an earlier case, Mutual Shipping Corp of New York v Bayshore Shipping Co of Monrovia, The Montan [1985] 1 All ER 520 at 525, [1985] 1 WLR 625 at 632, where the arbitrator had mistakenly attributed the evidence of one party to the other and, consequently, made an award in favour of the wrong party, in remitting the award to the arbitrator Donaldson MR said:

‘Section 22 empowers the court to remit an award to an arbitrator for reconsideration. It provides the ultimate safety net whereby injustice can be prevented, but it is subject to the consideration that it cannot be used merely to enable the arbitrator to correct errors of judgment, whether of fact or law, or to have second thoughts, even if they would be better thoughts.’

In that case the arbitrator admitted the mistake but Donaldson MR said:

‘… the arbitrator admits that he made an accidental error, but I should not like it to be thought that such an admission is a prerequisite to the exercise of the court’s jurisdiction to remit. If the arbitrator says nothing and there is a strong prima facie case that there has been an accidental error, the award could be remitted to him with a direction to reconsider it and to revise it if, but only if, there was such an error.’ (See [1985] 1 All ER 520 at 525, [1985] 1 WLR 625 at 632.)

Robert Goff LJ said:

‘Without laying down any hard and fast rule, I think that as a general rule the court should not intervene in cases of simple mistake unless there is a clear admission by the arbitrator that he has made a mistake. Nowadays,

Page 656 of [2000] 2 All ER 649

arbitrators should be able to correct any clerical mistakes in their awards, or any mistakes in their awards arising from accidental errors or omissions, under s 17. The most likely case which may arise in which the court may be asked to exercise its power to remit an award on grounds of error will be where an arbitrator, having made a mistake, is not certain whether he has power to correct his award under s 17, as he may not be when one party disputes his power to do so. In such a case, or if the arbitrator otherwise declines to exercise his power, the aggrieved party may apply to the court for a remission. Such cases apart, I cannot but think that the court’s power of remission will be very rarely exercised in cases of mistake; but, as I have said, I do not wish to restrict the width of the power to order remission in the interests of justice.’ (See [1985] 1 All ER 520 at 530, [1985] 1 WLR 625 at 638.)

Sir Roger Ormrod was less restrained. He said:

‘Whichever way of looking at this problem is correct it is clear to my mind that the parties themselves cannot blindfold the court, only the court itself can do that and in the vast majority of cases it will do so. But in those rare cases where an error occurs, of the kind which we are considering in this case, the court cannot decline to interfere without gravely prejudicing in the eyes of the lay world the machinery of justice. For my part I do not think that either conclusion will significantly endanger the finality of arbitration awards. Section 17 is limited to clerical mistakes or accidental errors. Section 22 is limited by the discretion being subject to the constraints imposed by the overriding importance of preserving finality in all but the most exceptional situations.’ (See [1985] 1 All ER 520 at 532, [1985] 1 WLR 625 at 641; Sir Roger Ormrod’s emphasis.)

In a number of cases the courts have had to consider the application of these principles to costs awards. In Blexen Ltd v G Percy Trentham Ltd [1990] 2 EGLR 9 it was contended that in deciding whether the claimants had beaten a sealed offer the arbitrator failed to take account of the fact that the respondents had succeeded in reducing the claim by amendments made after the offer. In allowing an appeal against an order remitting the award Lloyd LJ, after referring to s 23 of the 1950 Act, said (at 10):

‘But the question is whether that power exists when the only misconduct alleged is an error of fact or law in a reasoned award. I am quite clear that it does not. To hold otherwise would defeat one of the main purposes of the 1979 Act. Whatever may have been the position as to costs in the old days, the only course open today, where an arbitrator states his reasons, is to challenge those reasons by seeking leave to appeal under … the 1979 Act. This the claimants never did.’

In the King case [1991] 1 All ER 653 at 664, [1991] 2 QB 480 at 495, Lord Donaldson MR said:

‘I therefore conclude that there is now no remedy for bona fide error on the part of the arbitrator in the matter of costs where the arbitration is subject to an exclusion agreement and not all parties consent to an appeal.’

However, the court in that case upheld a decision to remit where an arbitrator had made a costs award in ignorance of a sealed offer because counsel had not

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told him clearly that there was one or asked for the issue of costs to be held over. Lord Donaldson MR characterised this as a procedural mishap.

Finally, in President of India v Jadranska Slobodna Plovidba [1992] 2 Lloyd’s Rep 274 the dissatisfied party to a costs award applied for the award to be remitted on the ground that there was no basis on which the arbitrators could possibly have exercised their discretion on costs in the way they did. In dismissing this application Hobhouse J said (at 279):

‘The procedure and remedy under s. 22 may only be invoked where there has been some excess of jurisdiction, some distinct element of misconduct or procedural mishap, not simply some alleged unjudicial exercise of the discretion. Examples of such distinct misconduct could be making an award which went outside the rival contentions of the parties or making an award without giving both parties an opportunity to be heard. The King case was one of procedural mishap. Such complaints can only be raised on a motion under ss. 22 or 23; they cannot be raised by way of an appeal under s. 1. Sections 22 and 23, therefore, do not become wholly irrelevant; they simply become unavailable where the complaint is a failure by the arbitrator to apply the principles governing the judicial exercise of his discretion.’

I do not discern from these authorities any special rules relating to the remission of costs awards. If there have been deviations from the route by which the decision comes to be made, ss 22 and 23 are available to remedy the situation. If the arbitrators have followed an unimpeachable route but have made errors in the exercise of their discretion then the only remedy, if it has not been excluded, is by way of appeal on a question of law under s 1 of the 1979 Act.

The judgment

The judge accepted what I have just said about the law. By reference to what Hobhouse J said in the President of India case, he held that there was no excess of jurisdiction. The arbitrators were invested with the power to award costs. Nor was there a procedural mishap. Nothing happened by accident and the Ballotta incident did not in the event make any difference to the result. However the draft final award came about, Air Canada subsequently argued that the arbitrators approach was correct so the final award did not go outside the rival contentions of the parties. He therefore dismissed the application for remission having granted leave to Danae to rely on s 23 as well as s 22. On his direction the proceedings were served on the arbitrators together with the judgment to enable them to respond if they wanted to. They have not.

The appeal

Mr Tomlinson QC, counsel for Danae, submits that the judge took too restrictive a view of his powers under s 22, which should have enabled him to right the injustice which he concluded Danae had suffered. This was not an error of law but a procedural mishap because the arbitrators made a simple mathematical error. Whilst the parties had to accept the possibility that the arbitrators would make the wrong decision they had not accepted that they would fail to apply the absolutes of mathematics. Alternatively, the draft final award did produce a conclusion which was outside the rival contentions of the parties and the Ballotta incident was undoubtedly a procedural mishap. Since the

Page 658 of [2000] 2 All ER 649

award will have to be amended to correct the recently discovered errors it should in any event be remitted.

Mr Collins submits that the judge was right for the reasons he gave. There is no escape from the fact that this is a challenge to the arbitrators’ decision as such and not to the route by which it was reached. The arbitrators resolved issues which were before them as to how the offer and the award should be valued and their decision could only have been challenged on appeal. If the draft final award was outside the rival contentions of the parties this was beside the point because for the best part of the following year the parties debated the very point which the arbitrators then decided. Whilst the Ballotta incident was a procedural mishap, it was not one which had any impact on the final award because that award took it into account. If the recently discovered error requires the award to be remitted, it should only be remitted for that purpose. There is no jurisdiction to remit it for any other purpose.

Conclusions

In the course of his submissions Mr Collins accepted that a simple error of arithmetic by arbitrators can ordinarily be amended under the slip rule (s 17 of the 1950 Act and/or the UNCITRAL rules). Either party raising such an error would not be challenging any conclusion or decision of the arbitrators as to the primary facts. Mr Collins conceded that in such a case if the arbitrators did not make the correction their failure to do so would be a procedural mishap.

I think he was right to make this concession. He of course maintained that this was not a simple error of arithmetic. What is more he relies on the fact that it was not accidental or admitted. It was made after consideration of endless argument and justified, rightly or wrongly, by lengthy written reasons.

The fact that such an error is not accidental or admitted will not of course alter its character. It remains a simple error even if it is made deliberately and there is a continuing refusal to correct it. Nor does it matter that one party encouraged the making of the error and the refusal to correct it by arguing that there was no such error.

To take Mr Tomlinson’s example, if the arbitrators had thought that 2+2=5 and made an award which they refused to correct on this basis, could the court remit under s 22? I think they could. The court would not be inhibited by the fact that the mistake was not accidental or admitted. Deliberately making a simple error of this kind could properly be characterised as a procedural mishap and in exceptional circumstances the court has power to remit if the error is not admitted. (See The Montan.)

So I think the question for our decision is whether the error in this case was a simple error of mathematics and nothing more. I think it was. In order to compare like with like, what the arbitrators had to do can be expressed as follows:

O(ffer) = $Can442,815 ($Can500,000 – $Can57,185)

A(ward) = $Can877,670 ($Can1,904,481 – $Can1,026,811)

Page 659 of [2000] 2 All ER 649

error. No real process of reasoning is required to make the comparison properly. It is an error of recognition as much as anything else.

It follows that I think that the court does have jurisdiction to remit the costs award under s 22 on the narrow ground of arithmetical error resulting from procedural mishap. In other words there has been a deviation from the route which the reference should have taken because ordinary principles of mathematics were not applied. The parties were entitled to expect that the arbitration would be conducted without a mishap or misunderstanding of that kind.

However, I also think that the case is made out for remission on the wider ground advanced by Mr Tomlinson. The way in which the arbitrators dealt with the Ballotta incident was undoubtedly a procedural mishap. If it had not happened, by September 1997 instead of a difference of approximately $Can40,000 between the claim and counterclaim, the difference would have been about $Can360,000 in Danae’s favour. No fine-tuning arguments would have made any difference. The correct approach adopted by each of the parties independently in their schedules would have shown that Danae had comfortably beaten the offer and the arbitrators would not have had the opportunity to make the error which they did. As it was, the Ballotta incident provided the opportunity for the arbitrators to make this error. They first did so, it seems to me, by going outside the rival contentions of the parties. This was also a procedural mishap. The combined effect of both mishaps carried through into the final award in the sense that if neither of them had occurred I do not think the majority would have made the error which they did. I do not think it is any answer to say that the final award took account of the Ballotta incident or that Air Canada adopted the error after it was first made. This is beside the point if, but for the procedural mishaps, the error would not have occurred.

Finally I think Mr Collins is right about the effect of the recently discovered error. Jurisdiction to remit part of an award cannot justify remission at large.

Mr Collins submitted that if we allowed this appeal we should not remit the costs award to the arbitrators, but set it aside. This course was justified, he argued, by the fact that there was no guarantee that if remitted the arbitrators would not repeat their error and because this arbitration has already lasted too long and cost too much. I certainly agree that this arbitration has lasted too long and cost too much but that is no reason why it should not at least end with a just result. I am sure that if the award is remitted so that the arbitrators can reconsider their costs award in the light of this judgment and the judgment of Longmore J, they will produce a just award. Simply setting aside the costs award will not do so.

I should like to end this judgment by saying that Mr Tomlinson invited us to extend the limits of the discretion to remit which have been set in the cases to which I have referred if that was necessary to do justice in this case. I do not think this is necessary. I think the decision I have reached falls within the general principles laid down in the King case. Every case of this kind involves an attack on the arbitrators’ decision but the basis for remission is not that the decision itself is wrong but that there has been a procedural mishap in the way in which it has been reached. Naturally, I am pleased to be able to reach this conclusion to right an obvious injustice, but I am conscious of the risk that hard facts make bad law. I do not intend to do so and do not think that I have done so.

For these reasons I would allow this appeal and remit the costs award to the arbitrators for their reconsideration in the light of this judgment. It will be for

Page 660 of [2000] 2 All ER 649

them to decide how they wish to do this and of course what costs award they should make.

WARD LJ. I have read in draft the judgments of Tuckey and Kennedy LJJ. I am happy to find any way to agree that the appeal be allowed and the matter remitted to the arbitrators for their reconsideration.

I express myself thus to make it plain that unless the appeal is allowed, an egregious injustice will have been perpetrated and the integrity of international arbitration in London, in which we take pride, and in which the High Court has still a correcting role to play, will have been sullied.

The role now played by s 22 of the Arbitration Act 1950 is necessarily severely restricted. Restricted entry must be zealously maintained because: (i) the achievement of finality through arbitration must not be undermined; (ii) freedom to exclude appeals must be upheld; and (iii) attempts to challenge awards must be channelled through the narrow gateway of leave to appeal.

That said, the jurisdiction conferred by s 22 is unfettered. See, for example, Blexen Ltd v G Percy Trentham Ltd [1990] 2 EGLR 9 at 12, where Lloyd LJ said:

‘Where an unfettered discretion has been granted by Parliament it is never desirable to hedge it about with too much guidance, in case the guidance comes to be regarded as an inflexible rule of law or practice. It can be no such thing.’

And King v Thomas McKenna Ltd [1991] 1 All ER 653 at 659, [1991] 2 QB 480 at 489, where Lord Donaldson MR said:

‘In ascertaining the limits of the court’s jurisdiction, properly so called, I can see no reason why s 22 and the other section should not be construed as meaning what they say. Certainly so far as s 22 is concerned, there is no element of doubt or ambiguity. The jurisdiction is wholly unlimited.’

Later in the same case Lord Donaldson MR said:

‘In my judgment the remission jurisdiction extends beyond the four traditional grounds to any cases where, notwithstanding that the arbitrators have acted with complete propriety, due to mishap or misunderstanding some aspects of the dispute which has been the subject of the reference has not been considered and adjudicated upon as fully or in a manner which the parties were entitled to expect and it would be inequitable to allow any award to take effect without some further consideration by the arbitrator. In so expressing myself I am not seeking to define or limit the jurisdiction or the way in which it should be exercised in particular cases, subject to the vital qualification that it is designed to remedy deviations from the route which the reference should have taken towards its destination (the award) and not to remedy a situation in which, despite having followed an unimpeachable route, the arbitrators have made errors of fact or law and as a result have reached a destination which was not that which the court would have reached. This essential qualification is usually underlined by saying that the jurisdiction to remit is to be invoked, if at all, in relation to procedural mishaps or misunderstandings. This is, however, too narrow a view since the traditional grounds do not necessarily involve procedural errors. The qualification is however of fundamental importance. Parties to arbitration, like parties to litigation, are entitled to expect that the arbitration will be

Page 661 of [2000] 2 All ER 649

conducted without mishap or misunderstanding and that, subject to the wide discretion enjoyed by the arbitrator, the procedure adopted will be fair and appropriate. What they are not entitled to expect of an arbitrator any more than of a judge is that he will necessarily in all circumstances arrive at the “right” answer as a matter of fact or law.’ (See ([1991] 1 All ER 653 at 660–661, [1991] 2 QB 480 at 491; Lord Donaldson MR’s emphasis.)

Provided this residual power is most sparingly exercised only in the truly exceptional case, then it can be described as remaining available so as not ‘to restrict the width of the power to order remission in the interests of justice’, to quote Robert Goff LJ in Mutual Shipping Corp of New York v Bayshore Shipping Co of Monrovia, The Montan [1985] 1 All ER 520 at 530, [1985] 1 WLR 625 at 638. The judgment of Sir Roger Ormrod in that case expressed the same view but in his characteristically robust way.

I would wish to emphasise, however, that vigilance must be exercised, lest a free and easy unstructured resort to doing justice leads to a plethora of totally hopeless applications. It may be true in a sense that any result is unjust where the arbitrator has made an error of law or fact but such ‘ordinary’ injustice will never entitle the use of s 22. That is because the risk that the arbitrator, or the judge, will err is a known and acceptable risk and the slings and arrows of such misfortune fall over a very generous ambit. It is, however, not difficult to see when they exceed that boundary. The point at which injustice becomes unacceptable is when it is rank or ‘gross and obvious’, to borrow Sir Roger’s favourite and famous phrase, repeated in The Montan [1985] 1 All ER 520 at 531, [1985] 1 WLR 625 at 639, or, if one wishes the language to be more elegant, when it becomes, in the words of s 68 of the Arbitration Act 1996, a ‘substantial injustice’.

It is because this palpable error has produced just that kind of injustice that I cheerfully agree to characterise it as a simple arithmetical error, or a procedural mishap or a deviation from the accepted path, for what happened is each of those things, and I would allow the appeal and remit the matter accordingly.

KENNEDY LJ. The facts are set out in the judgment of Tuckey LJ, with which I agree. Those facts demonstrate that when the arbitrators turned to consider the question of costs they made a fundamental and important error. They concluded, wrongly, that the net value of the award to Danae Air Transport SA (Danae), taking into account the counterclaim, was less than the Calderbank offer made by Air Canada in August 1995, and the arbitrators then made their award of costs upon the basis of that false conclusion. All of us are capable of making simple errors in relation to figures, but what I find astonishing is that the error should have been persisted in by the arbitrators after it was pointed out. It is troubling that it should have been adopted by Air Canada and their legal representatives, and even more troubling that it should be persisted in by them in the light of the judgment of Longmore J. Of course it is unattractive for those who represent Air Canada to be put in the position of having to argue in this court that a reputable airline is entitled to hold onto a huge award of costs even though it knows that the award was made as a result of what Mr Tomlinson QC for Danae understandably describes as a simple arithmetical mistake, but that in reality is the only tenable argument which can be put forward on behalf of Air Canada. The argument that there is not and never was any mistake is not tenable, and Mr Michael Collins QC sensibly devoted relatively little of what he had to say to

Page 662 of [2000] 2 All ER 649

that argument. I say no more about it. All I propose to deal with in the remainder of this judgment is the extent of this court’s jurisdiction to interfere.

When the parties to a dispute decide to refer the dispute to arbitration they have deliberately chosen not to litigate in the courts, and one of the objects of the Arbitration Acts, and of the authorities decided under those Acts, is to support the system of arbitration by ensuring that those who have chosen arbitration maintain their choice. A party who is dissatisfied with all or part of an arbitrator’s award cannot then simply opt out and raise the matter in the courts. But the courts can never be shut out entirely, not least because in the last resort they must enforce the arbitrators’ award, and it is the extent of the residual jurisdiction which is the central issue in this case. Sections 22 and 23 of the Arbitration Act 1950, so far as material, provide that:

‘22.—(1) In all cases of reference to arbitration the High Court or a judge thereof may from time to time remit the matters referred, or any of them, to the reconsideration of the arbitrator or umpire …

23. … (2) Where an arbitrator … has misconducted himself or the proceedings, or an arbitration or award has been improperly procured, the High Court may set the award aside …’

As Lord Donaldson MR said in King v Thomas McKenna Ltd [1991] 1 All ER 653 at 659, [1991] 2 QB 480 at 489:

‘… I see no reason why s 22 and the other sections should not be construed as meaning what they say. Certainly so far as s 22 is concerned, there is no element of doubt or ambiguity. The jurisdiction is wholly unlimited.’

However, as Lord Donaldson MR also made it clear in that case:

‘I think that a clear distinction has to be made between the nature and scope of the remedy which Parliament has entrusted to the courts under s 22 and the use which the courts are prepared to make of it in the exercise of a judicial discretion and in the light of precedent.’ (See [1991] 1 All ER 653 at 658, [1991] 2 QB 480 at 488.)

The first controlling factor is the very nature of arbitration proceedings—the matter to which I have already referred, and since the passing of the Arbitration Act 1979 it has not been possible for a party to an arbitration to seek the assistance of the High Court in respect of an error on the face of the record. Leave to appeal can be obtained on a point of law, but that avenue can, as in the present case, be blocked by an exclusion agreement, so the interpretation of ss 22 and 23 has to be approached with those statutory constraints in mind. But, that said, s 22 does have an important role. As Donaldson MR said in Mutual Shipping Corp of New York v Bayshore Shipping Co of Monrovia, The Montan [1985] 1 All ER 520 at 525, [1985] 1 WLR 625 at 632:

‘Section 22 empowers to court to remit an award to an arbitrator for reconsideration. It provides the ultimate safety net whereby injustice can be prevented, but it is subject to the consideration that it cannot be used merely to enable the arbitrator to correct errors of judgment, whether on fact or law, or to have second thoughts, even if they would be better thoughts.’

In The Montan the arbitrator mistakenly attributed the evidence of the expert witnesses to the wrong parties, so that he ordered the charterers to pay the

Page 663 of [2000] 2 All ER 649

owners when he should have ordered the owners to pay the charterers. Unlike the arbitrators in the present case he admitted his error, but counsel for the owners contended, as counsel for Air Canada contends in this case, that it was too late for the error to be corrected. This court disagreed, and although before us Mr Collins places some reliance on the arbitrator’s admission it is clear that it was not critical. Donaldson MR said:

‘… the arbitrator admits that he made an accidental error, but I should not like it to be thought that such an admission is prerequisite for the exercise of the court’s jurisdiction to remit. If the arbitrator says nothing and there is a strong prima facie case that there has been an accidental error, the award could be remitted to him with a direction to reconsider it and to revise it if, but only if, there was such an error.’ (See [1985] 1 All ER 520 at 525, [1985] 1 WLR 625 at 632.)

Robert Goff LJ was inclined to be somewhat more restrictive, saying ‘as a general rule, the mistake must be admitted by the arbitrator’, but he made it clear that he had no desire ‘to restrict the width of the power to order remission in the interests of justice’ (see [1985] 1 All ER 520 at 530, [1985] 1 WLR 625 at 638).

In The Montan the arbitrator accidentally made a major error which, as Donaldson MR said, ‘if uncorrected, would lead to the charterers paying the owners, when it is the owners who should be paying the charterers’. As Mr Tomlinson submits, that is the position in this case. If the error is uncorrected the party which has succeeded ends up having to pay as if it had lost. Donaldson MR continued:

‘No court could lend the power of the state to the enforcement of such an award, and no court should stand by when it has power to correct such an accidental error, and I stress the word “accidental”.’ (See [1985] 1 All ER 520 at 525, [1985] 1 WLR 625 at 632.)

Mr Collins submits that the present case is different because the error was not accidental. Danae made submissions and the arbitrators apparently considered them before making their final award. To that Mr Tomlinson’s response is that where, as here, the error is the result not of any of the functions which the parties entrusted to the arbitrators—such as evaluation of witnesses, drawing of inferences, and even application of relevant principles of law—but rather it is the result of the arbitrators’ failure to apply basic mathematical principles which, until the problem arose, everyone would reasonably have concluded that the arbitrators would both understand and apply, then the error can properly be described as accidental. In any event it may not always be appropriate to see whether an error can properly be described as accidental. That approach, though useful, is not definitive. As Lord Donaldson MR made clear in the later King case, it is not easy to define the limits of the court’s powers to intervene. He said:

‘Whilst it may be impossible, or at least undesirable, to seek to determine those limits, save on a case by case basis, I personally find it helpful to ask myself what in truth the parties accepted when they agreed to arbitrate, although I am far from saying that this is the exclusive touchstone.’ (See [1991] 1 All ER 653 at 660, [1991] 2 QB 480 at 490.)

Mr Tomlinson invites us to consider whether the parties in truth accepted, when they agreed to arbitrate, that the arbitrators would be free to

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misunderstand or misapply basic mathematical principles, and to answer that question in the negative. In my judgement that is a powerful argument. Mr Collins’ response is, and can only be, that when the parties agreed to arbitrate they vested in the arbitrators jurisdiction to resolve all issues which might arise, fettered only by an obligation to act in good faith, and that once a final award is made that is an end of the matter. If that is right then, as it seems to me, The Montan was wrongly decided, unless it can be distinguished on the basis that in that case the arbitrator recognised his error, and, as I have already said, that was a matter which the members of the court considered but which they did not regard as critical. The case was decided after the implementation of the 1979 Act, so the statute law was the same as the law we have to apply, and when dealing with s 22 of the 1950 Act Sir Roger Ormrod said:

‘The section gives the court an entirely unfettered discretion but it is accepted that the overriding importance of preserving the finality of awards imposes severe constraints on its exercise. The section and its predecessors were, presumably, inserted to preserve the powers of the court at common law or, perhaps more accurately, the practice adopted by the courts before the law was codified. Codification converts a practice into a discretion and subtly changes its complexion. Just as under the common law the court in its prerogative jurisdiction, interfered with the decisions of inferior tribunals in strictly limited circumstances, so it interfered with arbitral awards, if the interests of justice demanded and the circumstances permitted. I find it impossible to imagine that the court, on facts like those before us in this case, would not have intervened under the old practice and I can see no justification for not intervening now under s 22.’ (See [1985] 1 All ER 520 at 532, [1985] 1 WLR 625 at 640.)

He rejected the argument that the use of s 22 would endanger the finality of arbitral awards, saying that for that reason the section will not be used to grant relief ‘in all but the most exceptional situations’ (see [1985] 1 All ER 520 at 532, [1985] 1 WLR 625 at 641). Mr Tomlinson submits that in the present case we have a most exceptional situation, and if relief is refused that will not in reality support arbitration. It will simply, in the words of Sir Roger Ormrod, prejudice in the eyes of the lay world the machinery of justice.

Perhaps the high water mark of the hands-off approach which Mr Collins invites us to adopt is to be found in Blexen Ltd v G Percy Trentham Ltd [1990] 2 EGLR 9. In that case the arbitrator’s award was less than the amount of a pre-existing sealed offer, and costs were awarded accordingly. The claimants then persuaded a judge to remit the award on the basis that the arbitrator had been guilty of technical misconduct within the scope of s 23(2) because he had disregarded later amendments to the defence which reduced the award, and which if known at the time of the offer might have induced the claimants to accept it. When granting leave to appeal Bingham LJ doubted whether a reasoned award on costs could be challenged on grounds of misdirection or legal error otherwise than by leave under the 1979 Act. When giving judgment in this court Lloyd LJ, with whom the other two members of the court agreed, said at that he was ‘quite clear’ that the power to set aside or remit for misconduct does not survive when ‘the only misconduct alleged is an error of fact or law in a reasoned award’. He continued:

Page 665 of [2000] 2 All ER 649

‘To hold otherwise would defeat one of the main purposes of the 1979 Act. Whatever may have been the position as to costs in the old days, the only course open today, where an arbitrator states his reasons, is to challenge those reasons by seeking leave to appeal on a question of law under section 1(3) of the 1979 Act. This the claimants never did.’ (See [1990] 2 EGLR 9 at 10.)

In the present case no application could be made under s 1(3) because of the exclusion agreement. Lloyd LJ then went on to find (at 11) ‘no shadow of misconduct on the part of the arbitrator in the way he dealt with costs, not even misconduct of the most technical kind’. Finally Lloyd LJ said (at 12):

‘Further than that I do not find it necessary or desirable to go. Each case, as is so often said, must be considered in the light of its own particular facts. Where an unfettered discretion has been granted by Parliament it is never desirable to hedge it about with too much guidance, in case the guidance comes to be regarded as an inflexible rule of law or practice. It can be no such thing.’

Three points seem to me to be of significance when considering the decision in the Blexen case. First, the complaint had no obvious merit. The arbitrator did not, as alleged, disregard the amendments altogether, and the weight which he attached to them was plainly within his remit. Secondly, the decision under appeal was the decision made pursuant to s 23(2). Before us it has been no part of the case for Danae that the arbitrators misconducted themselves, technically or otherwise. Thirdly, although there is nothing in the report in the Blexen case to show that reference was made to the decision in The Montan, the final paragraph of the judgment of Lloyd LJ does show that the court was alive to the need not to fetter the statutory discretion.

In the King case an inexperienced advocate appearing for the respondents allowed the arbitrator in his final award to deal with the costs of the arbitration when, because there was a sealed offer, the issue of costs should have been held over. The result was an inequitable award in respect of costs, which was remitted to the arbitrator pursuant to s 22(1). The Montan and the Blexen case were both considered, and Lord Donaldson MR, having reviewed the history of s 22 concluded that the proper approach was as set out earlier in this judgment, namely to recognise that by statute the discretion is wide, but that there are compelling reasons to restrict the use of the statutory power. He said:

‘In my judgment the remission jurisdiction extends beyond the four traditional grounds to any cases where, notwithstanding that the arbitrators have acted with complete propriety, due to mishap or misunderstanding some aspects of the dispute which has been the subject of the reference has not been considered and adjudicated upon as fully or in a manner which the parties were entitled to expect and it would be inequitable to allow any award to take effect without some further consideration by the arbitrator. In so expressing myself I am not seeking to define or limit the jurisdiction or the way in which it should be exercised in particular cases, subject to the vital qualification that it is designed to remedy deviations from the route which the reference should have taken towards its destination (the award) and not to remedy a situation in which, despite having followed an unimpeachable route, the arbitrators have made errors of fact or law and as a result have reached a destination which was not that which the court would have

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reached. This essential qualification is usually underlined by saying that the jurisdiction to remit is to be invoked, if at all, in relation to procedural mishaps or misunderstandings. This is, however, too narrow a view since the traditional grounds do not necessarily involve procedural errors. The qualification is however of fundamental importance. Parties to arbitration, like parties to litigation, are entitled to expect that the arbitration will be conducted without mishap or misunderstanding and that, subject to the wide discretion enjoyed by the arbitrator, the procedure adopted will be fair and appropriate. What they are not entitled to expect of an arbitrator any more than of a judge is that he will necessarily and in all circumstances arrive at the “right” answer as a matter of fact or law.’ (See [1991] 1 All ER 653 at 660–661, [1991] 2 QB 480 at 491; Lord Donaldson MR’s emphasis.)

Mr Tomlinson submits that, due to misunderstanding, the costs aspect of the dispute has not been considered and adjudicated upon in a manner which the parties were entitled to expect, and that it would be inequitable to allow that part of the award to take effect without some further consideration by the arbitrators. There has been a deviation from the route which the reference should have taken because ordinary principles of mathematics were not applied. The parties were entitled to expect that the arbitration would be conducted without a mishap or misunderstanding of that kind.

The last of the authorities cited to us to which I need refer is President of India v Jadranska Slobodna Plovidba [1992] 2 Lloyd’s Rep 274. In that case the charterers were ordered to bear all of their own costs of the arbitration, and to pay about two-thirds of the owners’ costs. The charterers contended that there was no basis for such a conclusion, and sought an order that the issue of costs be remitted for reconsideration. Hobhouse J said (at 279):

‘The procedure and remedy under s. 22 may only be invoked where there has been some excess of jurisdiction, some distinct element of misconduct or procedural mishap, not simply some alleged unjudicial exercise of the discretion. Examples of such distinct misconduct could be making an award which went outside the rival contentions of the parties or making an award without giving both parties an opportunity to be heard. The King case was one of procedural mishap. Such complaints can only be raised on a motion under ss. 22 or 23; they cannot be raised by way of an appeal under s. 1. Sections 22 and 23, therefore, do not become wholly irrelevant; they simply become unavailable where the complaint is a failure by the arbitrator to apply the principles governing the judicial exercise of his discretion.’

In my judgment, despite the persuasive arguments advanced by Mr Collins, the authorities do not show that the wide jurisdiction granted to the courts by ss 22 and 23 cannot be used so as to grant relief in a case such as this. For that reason I too would allow the appeal.

Appeal allowed.

Kate O’Hanlon  Barrister.

South Oxfordshire District Council v Secretary of State for the Environment, Transport and the Regions and another

[2000] 2 All ER 667

Categories:        TOWN AND COUNTRY PLANNING        

Court:        QUEEN’S BENCH DIVISION, CROWN OFFICE LIST        

Lord(s):        GEORGE BARTLETT QC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT        

Hearing Date(s):        25 NOVEMBER, 20 DECEMBER 1999        

Town and country planning – Appeal to Minister against refusal of permission for development – Challenge to decision of inspector – Appeal by local planning authority against grant of planning permission by inspector – Whether party challenging inspector’s decision in planning permission appeal precluded from raising argument not advanced at inquiry.

S, a landowner, appealed against a refusal of planning permission by the local planning authority. After a public inquiry, the Secretary of State’s inspector allowed the appeal and granted planning permission. The authority challenged that decision in High Court proceedings. At the hearing, the authority sought permission to make amendments to its notice of motion, alleging that the inspector had failed to take into account certain material considerations. The Secretary of State and S opposed two of the proposed amendments on the grounds that they raised matters that had not formed part of the authority’s case at the inquiry. In doing so, they relied on a case in which the Divisional Court had refused to allow a party to challenge a decision, made in an enforcement notice appeal, on a ground that had been expressly withdrawn at the inquiry.

Held – There was no general rule that a party to a planning appeal decision was to be prevented from raising, in a challenge to that decision, an argument that had not been advanced in representations made on the appeal. If the inspector had omitted a material consideration which could have affected his decision, the decision might on that account be rendered unlawful, notwithstanding that the matter was not raised in the representations. In an enforcement notice appeal on the other hand, the withdrawal of, or a failure to raise, a particular ground of appeal rendered that ground immaterial. In such an appeal the issues were defined through identifying the grounds relied on, and that definition determined what was and was not material as a matter of law. In an appeal against the refusal of planning permission, by contrast, the issue defined by the appeal was whether planning permission should be granted and the test of materiality was essentially that of relevance. However, a party’s failure to raise at the inquiry a contention which he sought to advance in challenging the inspector’s decision was undoubtedly of significance if, having omitted the contention from the grounds set out in the notice of motion, the party later sought to amend those grounds so as to include it for the first time. In the instant case, the interests of justice did not warrant permitting the authority to introduce at a late stage of proceedings arguments that the inspector had failed to take into account considerations that had not been raised at the inquiry. Accordingly, those amendments would not be permitted (see p 677 g  j to p 678 d, post).

West Cheshire Caravan Co Ltd v Ellesmere Port BC [1976] EGLR 143 distinguished.

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Notes

For proceedings challenging the validity of actions of the Secretary of State in respect of planning matters, see 46 Halsbury’s Laws (4th edn reissue) para 25.

Cases referred to in judgment

Snowden v Secretary of State for the Environment [1980] JPL 749, DC.

Stringer v Minister of Housing and Local Government [1971] 1 All ER 65, [1970] 1 WLR 1281.

Wallington v Secretary of State for Wales [1991] 1 PLR 87, CA.

West Cheshire Caravan Co Ltd v Ellesmere Port BC [1976] 1 EGLR 143, DC.

Cases also cited or referred to in skeleton arguments

Ashbridge Investments Ltd v Minister of Housing and Local Government [1965] 3 All ER 371, [1965] 1 WLR 1320, CA.

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

Bolton Metropolitan DC v Secretary of State for the Environment [1996] 1 All ER 184, [1995] 1 WLR 1176, HL.

Burton v Secretary of State for Transport [1988] 2 EGLR 35, CA.

City of Edinburgh Council v Secretary of State for Scotland [1998] 1 All ER 174, [1997] 1 WLR 1447, HL.

Clarke Homes Ltd v Secretary of State for the Environment (1993) 66 P & CR 263, CA.

Cord v Secretary of State for the Environment [1981] JPL 40, DC.

Croydon London BC v Gladden [1994] 1 PLR 30, CA.

George Wimpey & Co Ltd v New Forest DC [1979] JPL 314.

R v Secretary of State for Transport, ex p de Rothschild [1989] 1 All ER 933, CA.

Save Britain’s Heritage v Secretary of State for the Environment [1991] 2 All ER 10, [1991] 1 WLR 153, HL.

Secretary of State for the Environment v M J T Securities Ltd (1998) 75 P & CR 188, CA.

South Somerset DC v Secretary of State for the Environment [1993] 2 EGLR 203, CA.

Top Deck Holdings Ltd v Secretary of State for the Environment [1991] JPL 961, CA.

Application

South Oxfordshire District Council applied pursuant to s 288 of the Town and Country Planning Act 1990 for an order quashing a decision by an inspector appointed by the first respondent, the Secretary of State for the Environment, Transport and the Regions, granting planning permission for a helicopter landing pad at Lower Bolney Farm, Harpsden, Henley-on-Thames, on an appeal by the second respondent, Urs Ernst Schwarzenbach, against the council’s refusal to grant such permission. The facts are set out in the judgment.

Joseph Harper QC (instructed by Robin Hooper, Wallingford) for the council.

David Elvin (instructed by the Treasury Solicitor) for the Secretary of State.

David Holgate QC (instructed by Nicholson Graham & Jones) for Mr Schwarzenbach.

Cur adv vult

20 December 1999. The following judgment was delivered.

GEORGE BARTLETT QC. In this case the applicant planning authority apply under s 288 of the Town and Country Planning Act 1990 to have quashed a decision of an inspector appointed by the first respondent granting planning

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permission on appeal for a helicopter landing pad at Lower Bolney Farm, Harpsden, Henley-on-Thames, and discharging conditions in two earlier planning permissions. The inspector held an inquiry on 2–4 December 1998. The second respondent, Mr Schwarzenbach, is the owner of a large house called Thames Side Court which stands in extensive ground beside the River Thames to the south of Henley. Mr Schwarzenbach also owns fields at Lower Bolney Farm which adjoin Thames Side Court and which he uses for the training, stabling and grazing of polo ponies under a planning permission granted in 1994. That permission, which permitted the erection of 49 stables, contained the condition:

‘That notwithstanding the provisions of Art 3 of, and Sch 2, Pt 4, Class B to the Town and Country Planning General Development Order 1988 (as amended), the land shall not be used for the purposes of landing and taking off of helicopters either in association with the recreational development hereby permitted, or otherwise, except in accordance with any planning permission granted by the Local Planning Authority in respect thereof. Reason: to safeguard the character of the area and protect local amenities.’

Over the last ten years Mr Schwarzenbach has been landing a helicopter in a number of locations adjacent to Thames Side Court in reliance on the 28-day permitted development rights granted by the Town and Country Planning (General Permitted Development) Order 1995, SI 1995/418 (GPDO), and its predecessor General Development Orders. In 1995 he applied for planning permission to use the 1994 permission land for the landing/taking off of helicopters. The council refused permission. Mr Schwarzenbach appealed against the refusal, and a public inquiry was held in February 1997.

In April 1997 the inspector dismissed the appeal. He said that he had ‘no doubt that the level of noise from your client’s helicopter is unacceptable at the residential locations from which I heard it’; and he concluded that ‘noise and disturbance from the helicopter using the preferred landing site would materially harm the residential amenities of people who live in the area’ and ‘would materially harm the character of the locality generally contrary to Development Plan policies.' He rejected the appellant’s contention that the potential use for helicopter landings of the curtilage of his house (under s 55(2)(d) of the 1990 Act) and of other areas of land under the GPDO constituted a fall-back position that justified the grant of planning permission. His reasons for rejecting the argument were that the council could always make a direction under art 4 of the GPDO removing the permitted development rights, even though there was no evidence that they had considered doing so, and that there might be some limitation on the use of the curtilage. Mr Schwarzenbach applied to the High Court to quash that decision under s 288. His notice of motion raised a number of grounds related to the inspector’s rejection of the fall-back argument. The decision was quashed by consent on 8 December 1997.

The appeal was considered afresh at the inquiry in December 1998. A substantial number of local residents, the parish council and a local action group appeared at the inquiry and objected to the proposal. In her decision letter of 4 March 1999 the inspector said that she considered that there were three main issues:

‘9. … The first is the effect of the proposal on the living conditions of neighbouring residents, with particular reference to noise and disturbance. The second is the effect on the character and appearance of the surrounding

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rural area, having regard for the effect on the landscape and the valley of the River Thames. The third issue is the extent to which the appellant would be able to use his land, and that of his neighbours, for helicopter landing and take-off, even if this appeal were to fail, and the effects of the level of use which would then ensue.’

Dealing with the first issue, the inspector considered the evidence of noise and the number of helicopter movements. At the inquiry it had been the appellant’s proposal that the number of movements should be limited to 400 a year on not more than 120 days, with a maximum of six movements in any one day, the total number of annual movements being consistent with those in the previous ten years. The inspector said that she considered that:

‘21. … The landing and taking off of a helicopter three times a day, for each of 120 days a year principally in the summer months, as is proposed, could be disturbing and annoying to neighbouring residents.’

She expressed her agreement with the view of an inspector in another inquiry that:

‘22. ... the effect on residential amenity would not be reduced to an acceptable degree either by virtue of the short term duration of each aircraft noise event nor by their relative infrequency.’

She then said:

‘25. … I consider that the proposal would conflict with Policy EN1 of the Structure Plan and Policy R4(ii) of the Local Plan. As the noise would be most intrusive in summer when residents would be outside or would have windows open, I conclude that the proposal would be materially harmful to the living conditions of neighbouring residents, with particular reference to noise and disturbance.’

On the second issue, differing from the previous inspector, she concluded that the proposal would not be seriously harmful to the character and appearance of the surrounding rural area, having regard to the effect on the landscape and the valley of the River Thames.

The inspector then went on to consider the fall-back position. She referred to Snowden v Secretary of State for the Environment [1980] JPL 749, which, she said, confirmed the principle that the decision-maker should consider what the appellant could do without any change in his planning position if planning permission were refused; and that the decision-maker should be satisfied that there is a real prospect of the fall-back situation being realised. She then summarised the appellant’s case:

‘33. In this case, you argued that the Appellant possesses rights under s 55(2)(d) of the 1990 Act and Pt 4 Class B of Sch 2 to the GPDO 1995 to land his helicopter on land at Lower Bolney Farm and in the curtilage of his dwellinghouse. In your opinion, s 55(2)(d) would not involve any control on the number of flights in a year or a day, or on the timing of flights, and though Pt 4 Class B of Sch 2 would limit permitted development rights to 28 days in a year, controls on the number of flights a day and their timing would not be available. This leads you to the view that the proposal would

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offer a greater degree of control over use of the Appellant’s land for taking off and landing a helicopter than the fall-back position.’

At para 50 the inspector concluded:

‘50. In reaching my conclusion on the third issue, I have given substantial weight to the evidence of use of the fall-back position, and my inspection of the areas concerned including the demonstration flights. In my opinion, the Appellant would be able to use his land, and that of his neighbours, for helicopter landing and take-off for more than 84 days a year without control on the numbers and timings of flights, if this appeal were to fail. I am satisfied that there is every prospect of the fall-back position being adopted in those circumstances. The effects of that level of use would, in my opinion, be at least as harmful as the proposal before me. Though I found that the helicopter was harmful to the living conditions of neighbouring residents, I intend to allow this appeal because of my conclusions in respect of the fall-back position, and because of the possibility of attaching conditions to a grant of permission which would mitigate the effects on local amenity to a sufficient degree.’

The fall-back position identified by the inspector concerned the potential use by Mr Schwarzenbach of particular areas of land as follows: (1) The curtilage of his dwelling house, in reliance on s 55(2)(d) of the 1990 Act, which provides that the use of land within the curtilage of a dwelling house for any purpose incidental to the enjoyment of the dwelling house as such does not involve development. (2) Land outside the curtilage of the dwelling house (and outside the area of the 1994 permission where condition 18 prevented the take-off and landing of helicopters) but under Mr Schwarzenbach’s control, in reliance on the 28-day permitted development rights contained in Pt 4 Class B of Sch 2 to the GPDO. (3) Land in two neighbouring ownerships, also in reliance on permitted development rights.

The inspector concluded that 28-day GPDO rights could be exercised in respect of each of three areas of land, thus giving a total of 84 days; so that, if additionally Mr Schwarzenbach used the curtilage of the house for 36 days, this would give the total of 120 days for which he now sought planning permission.

Mr Joseph Harper QC, who appears for the applicant council, argues that the inspector erred in reaching her conclusion in respect of each of the three elements. The grounds of challenge were set out in the notice of motion. In the course of the hearing, Mr Harper sought permission to amend the notice by adding additional grounds. There was no objection to certain of the proposed additions by Mr David Elvin for the first respondent and Mr David Holgate QC for the second respondent, and I allowed those. I refused permission for the other amendments because they sought to advance arguments that could have been raised, but were not raised, at the inquiry. If they had been raised, the second respondent would almost certainly have wished to call further evidence and/or have advanced arguments to deal with them. I will say what the points were later. It is sufficient for me to say now that I did not consider the interests of justice required that the council should be allowed to pursue them on this application.

The first element in the fall-back position was the use that Mr Schwarzenbach could make of the curtilage of his house. Mr Harper submitted that it was for the appellant at the inquiry to demonstrate that the use upon which he relied was

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‘incidental to the enjoyment of the dwellinghouse as such’. The inspector recorded (at para 4 of her decision letter) the contention on behalf of the appellant ‘that the helicopter is used for personal, business and pleasure purposes by your client, his family and immediate staff’. She considered the arguments advanced at the inquiry in paras 34 to 40 of her decision letter. She recorded (at para 37) the council’s argument that:

‘... use of the helicopter by other members of the polo team and for business purposes would not be ancillary to the dwellinghouse as such, and could point to a material change of use of the land as a matter of fact and degree.’

She dealt with this by reference to an appeal decision relied on by the council, and concluded: ‘In this case, I do not consider that the movements of a helicopter in the curtilage would detract from its residential function and appearance.' The inspector then went on:

‘38. You also drew my attention to the case of Wallington v Secretary of State for Wales [1991] 1 PLR 87, in which the Court of Appeal held that s 55(2)(d) exempted from planning control a use incidental to the enjoyment of a dwellinghouse as such, even though such use had involved a material change of use of the building  In addition, the Court found that the incidental test was to be applied to the house in question, not to houses in general. I note that your client’s very large house and grounds would accommodate a helicopter landing and taking off more easily than most dwellinghouses.

39. In the current case, I consider that your client uses his helicopter for personal, business and leisure uses in the same way that many people would use a private car. I accept that use of the stated purposes would be incidental to the use of his dwellinghouse. The Council queried whether the Appellant or a company under his control owned his dwellinghouse but, whatever the details of the ownership, I have no evidence that the dwellinghouse is not used as a dwellinghouse. PPG 24, Annex 3, para 18 refers to the increased use of helicopters from the gardens of private houses and other premises, and accepts that they may often be incidental to or ancillary to the principal use of the land and as such do not generally require a separate planning permission.

40. Bearing in mind that each planning proposal should be determined on its merits, I have taken account of the ample size of your client’s dwellinghouse and curtilage and the relatively dispersed settlement pattern of this area. The Council consulted the Civil Aviation Authority (CAA) about the safety of using the grounds of the house for landing a helicopter. The CAA did not rule out the use of a twin-engined helicopter on safety grounds, such as the S76 used by your client. I can see no reason why your client could not land and take-off from the curtilage of his dwellinghouse without limitation, provided the use is incidental to the use of the dwellinghouse under the permitted development rights conferred by s 55(2)(d).’

Mr Harper suggests that the inspector’s conclusions in respect of the curtilage land are flawed in two respects. Firstly, it is said that she failed to apply the test laid down in Wallington v Secretary of State for Wales [1991] 1 PLR 87. Secondly, it is said that she was not entitled on the evidence before her, to conclude and/or she gave no adequate reasons for concluding, that, were planning permission to

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be refused, there was a reasonable probability that the second respondent would use the curtilage on a regular basis for such purpose.

In Wallington’s case, an inspector had held that keeping 44 dogs in a rural dwelling on a plot of 0ÿ1 hectare was not a use incidental to the enjoyment of the dwelling house as such, and the Court of Appeal held that he had not erred in law in doing so. The meaning of the provision was ‘of and incidental to the enjoyment of the dwelling house as a dwelling house’ (see per Slade LJ at 92), and the words ‘incidental to’ contemplated that the dwelling house in question at all material times remained used as a dwelling house, not as anything else, and that the other use in question is no more than ancillary to that use as a dwelling house. Thus, said Mr Harper, a use can lose its character as an incidental use through excess. He submitted that the inspector had failed to take account of the extent to which helicopter movements were for business purposes or were associated with the polo use. The inspector had recorded (at para 15) that the majority of the helicopter movements were made in the polo season between May and July, and she should have considered whether, therefore, they were associated with that use rather than with the enjoyment of the dwelling house as such. In saying that Mr Schwarzenbach used his helicopter in the same way that many people would use a private car, the inspector failed, says Mr Harper, to take account of all the differences between helicopter and car use and whether these might not have planning significance. And in any event, he says, it does not follow that because some part of the use might be incidental to the enjoyment of the dwelling house as such, it all is. He suggests that the inspector treated all the helicopter movements as incidental to the enjoyment of the dwelling house as such without any evidence to that effect.

I do not think the inspector’s reasons disclose any error on her part as to the proper approach under s 55(2)(d) of the 1990 Act; nor does it appear that her conclusion on the helicopter use was one to which on the evidence she could not have come. She correctly asked herself whether the helicopter use would be incidental to the enjoyment of the dwelling house as such and answered that question taking into account the nature of the house and the purposes of the helicopter use. I do not think that it was necessary for the inspector, in finding that the appellant used the helicopter in the same way as many people use a private car, to explore the possible differences there might be between the two. She was clearly accepting that the helicopter was a personal means of transport to take the appellant (and his family and immediate staff) to and from his dwelling house. There is nothing in the decision itself to suggest that this was not a conclusion that was open to her on the evidence, and, in answer to Mr Harper’s suggestion that there was no evidence on which she could have concluded that all the helicopter movements were incidental to the dwelling house use, Mr Holgate referred to the evidence given to the inquiry by John Llewellyn Phillips (and produced by him in a statement in these proceedings). Mr Phillips’s proof of evidence said this:

‘I am advised that the helicopter is used for family purposes including picking up children from boarding school or college at half-term and end of term, and to take Mr and Mrs Schwarzenbach to and from London and to Farnborough when they fly to Switzerland. Fine art purchases are also transported; and Mr Schwarzenbach uses it to go to polo matches. No other helicopter lands at Lower Bolney Farm and passengers are family and friends.’

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In his statement in these proceedings Mr Phillips says that he was not cross-examined on that evidence. It cannot be said, in the light of this, in my view, that the conclusion that the helicopter use was not incidental to the enjoyment of the dwelling house as such was one to which the inspector could not have come.

Mr Harper’s second contention relates to the inspector’s conclusion on the likelihood of the curtilage being used for helicopter landing. In para 40, at the end of her consideration of the arguments on s 55(2)(d), she had concluded that there was no reason why Mr Schwarzenbach should not land and takeoff from his curtilage without limitation. At para 45, having concluded that he could use three other areas for 28 days each a year, she said:

‘This would enable him to land or take-off with his helicopter for 84 days a year, in addition to the use which he could make of the curtilage of his dwellinghouse. If he used the latter for 36 days a year, that would give him the 120 day use for which planning permission is now sought. I consider it likely that, if this appeal were dismissed the Appellant would use these alternative landing places, as he has used different sites in the past.’

Then at para 50 the inspector said:

‘In my opinion, the Appellant would be able to use his land, and that of his neighbours, for helicopter landing and take-off for more than 84 days a year without control on the numbers and timings of flights, if this appeal were to fail. I am satisfied that there is every prospect of the fall-back position being adopted in those circumstances.’

The case for Mr Schwarzenbach at the inquiry was that over a period of ten years his helicopter had landed and taken off on areas of land beyond his curtilage. The number of days and the number of movements for which he now sought permission (120 days, 400 movements per annum) were about the same as had occurred in the past. He evidently wished to continue using his helicopter to this extent. The inspector found that the extensive grounds of his house would accommodate a helicopter landing and taking off. In these circumstances for her to conclude that, if planning permission was refused, the curtilage was likely to be used for this purpose for at least 36 days a year was, in my judgment, one to which she could reasonably come. There was material upon which she was entitled to reach this conclusion, and I do not see that any further explanation was needed as to why she had reached it.

One of the areas of land which the inspector found that Mr Schwarzenbach would be able to use for helicopter landing on 28 days a year was that part of Lower Bolney Farm lying outside the area to which the 1994 planning permission, and thus the prohibition in condition 18, applied. Her conclusions in paras 45 and 50 that, if planning permission were refused, Mr Schwarzenbach would be likely to avail himself of his ability to use other areas of land, applied to this area as well as to the curtilage. Mr Harper seeks to challenge her conclusion in relation to this area of land with the same argument that he raised on the curtilage land—that there was no evidence on which the inspector could have concluded that it was likely that the land would be so used. I need say no more than that this argument must fail for the same reason as it had in my judgment to fail in relation to the curtilage of the dwelling house.

The two other areas of land on which the inspector concluded that Mr Schwarzenbach could take advantage of the 28-day GPDO consent were

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identified as areas F and G. They were both outside Mr Schwarzenbach’s ownership. The inspector said this about them:

‘44. … The areas marked F and G on your plan are each in separate ownership and I consider that these are different planning units. At the Inquiry, letters from the owners of these neighbouring areas of land were provided as evidence that consent had been given for your client to land his helicopter at both locations. Though the adequacy and currency of this evidence was questioned, there was no firm evidence to set against it and show that neighbours would refuse permission for the use of their land by the Appellant’s helicopter in the future.’

The inspector then went on, in para 45, which I have already referred to and quoted from, to conclude that they each could be used by Mr Schwarzenbach for 28 days a year, and that, if planning permission were refused, Mr Schwarzenbach would be likely so to use them.

Mr Harper’s principal ground of challenge in relation to the inspector’s conclusions on areas F and G is to argue that the inspector erred in placing on the council the onus of proving that the owners of the land would refuse permission and that there was no evidence before her to show that both the landowners of these two areas would indeed make their land available to Mr Schwarzenbach for helicopter landings on 28 days a year. He places reliance on the letters referred to by the inspector in her decision letter. The first, dated 29 April 1996 was from Mrs Delia Etherington to Mr Maunsell, Mr Schwarzenbach’s estate and business manager. It said:

‘Re: Helicopter Landings—Bolney Ferry Boathouse Field

Following our telephone conversation, I write to confirm that I agree to helicopter landings in the above field, provided that: (a) a payment is made of [ ... ] per landing. (I understand that you will kindly record the number of landings and send me payment accordingly.) (b) There is initially a trial period till 31st December 1996. (c) The helicopter lands as near as possible to the top gate, (ie the one put in by yourselves across the Right of Way that goes through Lower Bolney Farm). (d) All access to and from the helicopter is through this top gate and not through our field gate. (e) We are able to prevent landings on any particular day if we let you know in advance. If you clear a landing space and pathway in the long grass, please could you keep it to a minimum so that we don’t loose too much hay. Many thanks, and good luck to the Black Bears this year!’

Mr Maunsell replied on 1 May 1996, as follows:

‘Dear Mrs Etherington,

Thank you for your letter of 29 April 1996, the contents of which I have discussed with Mr Schwarzenbach. He agrees with all your conditions, but would ask, in the event of wishing to prevent landings on a particular day, that you give us a minimum of 24 hours notice. We plan to peg out an area soon and would like to invite you to come and give the selected site your final stamp of approval before we use it. I will let you know when this has been done. As regards payment for landings, I confirm that we will record the number of landings, and undertake to send you a cheque in the appropriate amount monthly in arrears. Thank you again for your positive and helpful approach in this matter.’

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On 2 February 1997, Mr Maunsell wrote to Mr R E Hopper, the owner of the other area of land, as follows:

‘I wonder if I could ask you to confirm that you are prepared for Mr Schwarzenbach to land his helicopter on the piece of your land immediately to the north of Lower Bolney Farm. We would of course have to ensure that Carol is informed of any intention to land, so that horses do not bolt and damage themselves. We should also perhaps re-visit the site to peg out the proposed area, and further discuss any adjustment to existing fences that might be necessary for safety reasons. Thank you in anticipation of your help in this matter.’

Mr Hopper replied on 11 February 1997:

‘Dear Mr Maunsell

Thank you for your letter of 2nd February. I have no objection to Mr Schwarzenbach landing his helicopter on my land, as I have already agreed verbally. I also agree that we should re-visit the site as you suggest.’

Mr Holgate asks me to take into account also what is said in Mr Phillips’s statement about evidence that was given to the inquiry on these matters by Mr Maunsell. Mr Phillips says that at the stage in the inquiry when evidence from local residents was being heard, the chairman of the Harpsden Parish Council, Mrs V Rubinstein, said that she had spoken to Mrs Etherington and had been told that no agreement was in place for helicopter movements on area F. Later the inspector allowed Mr Maunsell to be called on behalf of the appellant. Mr Phillips summarises that oral evidence as follows:

‘Mr Maunsell stated that he had telephoned Mrs Etherington following the evidence of Mrs Rubinstein and that Mrs Etherington had felt that her position had been misunderstood by Mrs Rubinstein. Although Mr Schwarzenbach had not in fact used area F for the last 18 months, Mrs Etherington stated that if he wanted the helicopter to land tomorrow the permission she had granted in the past would still stand. The Inspector then gave everyone present at the inquiry an opportunity to cross-examine Mr Maunsell. Mr Hooper expressly declined to cross-examine and stated that he would rely upon the evidence given by Mr Maunsell. The Inspector asked no questions of Mr Maunsell.’

Mr Harper contends, as I have said, that the inspector, in the passage I have quoted, placed on the council the onus of proving that the owners of the land would refuse permission. It was for the appellant, if he was to rely on the fall-back argument, to establish the necessary facts. I do not think that Mr Harper correctly analyses what the inspector was saying. What she was saying, in my judgment, was that there was evidence, in the form of the letters, to show that Mr Schwarzenbach would be allowed to land his helicopter on areas F and G. That the letters were at the very least some evidence of this is, in my judgment, indisputable. The inspector then said (no doubt with reference to what Mrs Rubinstein had said of her conversation with Mr Etherington) that there was no firm evidence to set against this and show that Mr Schwarzenbach would not be allowed to use areas F and G. Thus there was evidence, from the letters, that he would be allowed to use areas F and G, and no firm evidence to the contrary. That was what the inspector was saying and, in my judgment, she was entitled on the evidence to say it. I do not think that any error of law is

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disclosed. Nor do I think, as Mr Harper sought to contend in a contingent argument, that her reasons for so concluding were inadequate. It was not necessary for her to go further, as Mr Harper suggests, and say why she placed reliance on the letters.

Mr Harper, as I have said, sought permission to amend his notice of motion by adding additional grounds to enable him to advance all the contentions that had been included in his skeleton argument. Mr Elvin and Mr Holgate resisted two of the amendments. The first was to add the contention that the inspector had omitted a material consideration by failing to consider whether use in accordance with the licences of the areas of land not in his ownership, though in each case amounting to only 28 days each, involved a material change of use to a use which included the permanent intermittent use of that land for the take-off and landing of helicopters. That would be the case, Mr Harper said, if the land was permanently kept available for take-off and landings, even though they occurred on not more than 28 days a year.

The second amendment sought to add the contention that the inspector, in granting planning permission, failed to control the fall-back so that it could no longer be relied on, in addition to the permission that was granted, whether by Mr Schwarzenbach or otherwise. Restriction on the location had been imposed by condition 2 in the permission granted in the decision letter, and this, said Mr Harper, was ineffective in relation to areas F and G.

Mr Elvin and Mr Holgate said that these amendments should not be permitted. They raised matters that had not formed part of the council’s case at the inquiry. Had the argument on permanent intermittent use been raised, it would have been necessary to investigate the facts further to see whether the land would indeed be kept available on a permanent basis for the helicopter use, and the inspector would have had to make further findings of fact. On the second matter, the alleged inadequacy of condition 2 to control the fall-back, Mr Elvin and Mr Holgate pointed out that at the inquiry the council had in fact agreed the terms of the conditions to be imposed if planning permission were granted. If at that stage condition 2 had been claimed to be inadequate, some alteration could have been advanced to overcome its deficiency. Both counsel relied on West Cheshire Caravan Co Ltd v Ellesmere Port BC [1976] 1 EGLR 143 in which the Divisional Court had refused to allow a decision to be challenged on a ground that had been expressly withdrawn at the inquiry, and I was referred briefly to that decision. I accepted the contention of Mr Elvin and Mr Holgate and I refused to permit the amendments.

I would add, however, that the West Cheshire Caravan Co case does seem to me clearly distinguishable from the facts of the present case. It concerned an enforcement notice appeal in which the appellant had at the inquiry expressly abandoned ground (b) (the ground that the matters alleged in the notice do not constitute a breach of planning control). Before the court the appellant sought to argue that the inspector should have addressed the question whether there had in fact been a breach of planning control, notwithstanding the withdrawal of ground (b). Perhaps unsurprisingly the argument was rejected.

I do not think that there can be any general rule that a party to a planning appeal decision is to be prevented from raising in a challenge to that decision an argument that was not advanced in representations made on the appeal. If the inspector has omitted a material consideration which could have affected his decision the decision may on that account be rendered unlawful, notwithstanding that the matter was not raised in the representations. In an

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enforcement notice appeal, on the other hand, where an appellant does not raise, or withdraws, a particular ground of appeal (as the appellant in the West Cheshire Caravan Co case withdrew ground (b)) the effect is to render that ground immaterial. An appeal under what is now s 174 of the 1990 Act defines the issues through an identification of the grounds relied on, and what is and is not as a matter of law material is determined by such definition of the issues. In an appeal against the refusal of planning permission, by contrast, the issue, defined by the appeal, is whether planning permission should be granted; and the test of materiality is essentially that of relevance (see Stringer v Minister of Housing and Local Government [1971] 1 All ER 65, [1970] 1 WLR 1281).

The failure of a party to raise at the inquiry a contention which he seeks to advance in a challenge to the decision is, in my view, undoubtedly of significance if, having omitted the contention from the grounds set out in the notice of motion, he later seeks to amend those grounds so as to include it for the first time. In the present case it did not seem to me that the interests of justice warranted permission being granted to introduce at a very late stage of the proceedings arguments that the inspector left out of account considerations which the applicant council had not raised at the inquiry.

Mr Harper sought to advance one further contention which was not foreshadowed in his notice of motion or skeleton argument. This arose from a question that I asked in the course of argument. As finally formulated the contention was that the inspector should have taken into account the precariousness of the licences granted (or expected) on areas F and G; that she failed to consider whether a permanent planning permission, good for all time, could be justified on the basis of a fall-back position which was based on licences that could be terminated by the licensors at any time. This again was a contention that had not been advanced at the inquiry. Mr Harper submitted that it fell within one of the permitted amendments to his notice of motion (para 6A(b)). If it did not do so, he said that he did not seek permission to amend his notice of motion further in view of my rejection of his other amendments.

The contention is not in my view covered by ground 6A(b) which was intended to relate to the curtilage land. It does not, therefore, arise for my determination. I would, however, observe that, although planning permission unlimited in time was granted, the nature of the use which it permitted was essentially personal to Mr Schwarzenbach, so that any consideration of the precariousness of his arrangements with the owners of F and G would have had to be related to the fact that Mr Schwarzenbach’s need for the landing facility would not continue for ever. The contrast between a permanent planning permission and a precarious fall-back position is thus perhaps not so marked as it may have appeared to be.

None of the grounds of challenge advanced by the applicant council are made out, and the application is refused.

Application refused.

Dilys Tausz  Barrister.

Reichhold Norway ASA and another v Goldman Sachs International

[2000] 2 All ER 679

Categories:        CIVIL PROCEDURE        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        LORD BINGHAM OF CORNHILL CJ, OTTON AND ROBERT WALKER LJJ        

Hearing Date(s):        28 JUNE 1999        

Practice – Stay of proceedings – Exercise of discretion – Plaintiff purchasing shares in company in reliance on report prepared by defendant – Plaintiff referring claim against seller under sale agreement to foreign arbitration – Plaintiff commencing High Court proceedings for negligent misstatement against defendant – Whether court correctly exercising discretion to stay proceedings.

A Norwegian company, J, sold the shares in P, one of its subsidiaries, to R. J had engaged the defendant to act as its financial adviser in connection with the sale. The sale agreement provided that the buyer’s only remedy for any breach of warranty should be damages, and that the buyer should not be entitled to rescind the contract for any reason. It further contained an express choice of Norwegian law and provision for arbitration in Oslo. After the sale R gave notice to J of a possible claim under the sale agreement. In March 1998 R commenced proceedings in the High Court against the defendant alleging negligent misstatement and claiming damages of $US 40m. The defendant applied for a stay of the proceedings until after the determination of the arbitration pending between R and J in Norway. R opposed the application on the ground that, as a claimant with a genuine claim against the defendant within the jurisdiction, it had an absolute right to bring proceedings in England, regardless of any claim it might have against anyone else, and that accordingly the court had no jurisdiction to interfere; or, alternatively, that, if it did have jurisdiction to interfere in the claimant’s choice it could do so only in exceptional circumstances which were not present in the instant case. The judge held that he did have jurisdiction to stay the proceedings and concluded that it was in the interests of justice that he should grant the stay. R appealed, challenging the judge’s exercise of his discretion.

Held – Having regard to the fact that forensic practice was changing and developing towards greater control by the courts over the course of proceedings, the Court of Appeal would be very slow to interfere with procedural directions of a judge unless those directions were vitiated by error of law or manifest error. In the instant case, the judge’s decision was not vitiated by any such error, since he had neither left out anything which he should have taken into account, nor taken account of anything which he should not have, and had given a fair and judicious summary of all the matters properly to be considered. Accordingly, the appeal would be dismissed (see p 689 c d and p 690 d j to p 691 b, post).

Decision of Moore-Bick J [1999] 1 All ER (Comm) 40 affirmed.

Notes

For stay of court proceedings pending arbitration, see 2 Halsbury’s Laws (4th edn reissue) paras 616–620.

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Cases referred to in judgment

Abraham v Thompson [1997] 4 All ER 362

Ashmore v Corp of Lloyd’s [1992] 4 All ER 486, [1992] 1 WLR 446, HL.

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] 2 All ER 575, [1964] AC 465, [1963] 3 WLR 101, HL.

Molnlycke AB v Procter & Gamble Ltd [1992] 4 All ER 47, [1992] 1 WLR 1112, CA.

Spiliada Maritime Corp v Cansulex Ltd, The Spiliada [1986] 3 All ER 843, [1987] AC 460, [1986] 3 WLR 972, HL.

Thermawear Ltd v Linton [1995] CA Transcript 1175.

Cases referred to or cited in skeleton arguments

Barrow v Bankside Members Agency Ltd [1995] 2 Lloyds Rep 472.

Canada Steamship Lines Ltd v R [1952] 1 All ER 305, [1952] AC 192, PC.

Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 All ER 664, [1993] AC 334, HL.

Cox v Bankside Members Agency Ltd [1995] 2 Lloyds Rep 437, CA.

Davies (Joseph Owen) v Eli Lilly & Co [1987] 3 All ER 94, [1987] 1 WLR 1136, CA.

de Dampierre v de Dampierre [1987] 2 All ER 1, [1988] AC 92, HL.

Interest Rate Swap Litigation, Re (1991) Times, 19 December.

Seaconsar Far East Ltd v Bank Markazi Jomhouri Islamic Iran [1994] 1 Lloyds Rep 1, HL.

Shell Chemicals UK Ltd v P & O Roadtanks Ltd [1995] 1 Lloyds Rep 297, CA.

Witter (Thomas) Ltd v TBP Industries Ltd [1996] 2 All ER 573.

Appeal

The plaintiffs, Reichhold Norway ASA and Reichhold Chemicals Inc, appealed from the order of Moore-Bick J ([1999] 1 All ER (Comm) 40) sitting in the Commercial Court on 25 November 1998 whereby, on the application of the defendants, Goldman Sachs International, he ordered that all further proceedings in the action should be stayed under the inherent jurisdiction of the court preserved by s 49(3) of the Supreme Court Act 1981 pending the final determination of the arbitration proceedings commenced by the plaintiffs against Jotun AS in Norway on 17 September 1998. The facts are set out in the judgment of Lord Bingham of Cornhill CJ.

Christopher Carr QC and John McCaughran (instructed by Charles Russell) for Reichhold.

Gordon Pollock QC and David Foxton (instructed by Freshfields) for Goldman Sachs.

LORD BINGHAM OF CORNHILL CJ. On 25 November 1998 Moore-Bick J sitting in the Commercial Court ordered, on the application of the defendants in these proceedings, Goldman Sachs International, that all further proceedings in the action should be stayed under the inherent jurisdiction of the court preserved by s 49(3) of the Supreme Court Act 1981 pending the final determination of the arbitration proceedings commenced by the plaintiffs in these proceedings, Reichhold Norway ASA (Reichhold) and Reichhold Chemicals Inc, against Jotun AS in Norway on 17 September 1998 (see [1999] 1 All ER (Comm) 40). Reichhold appeal against that order which Goldman Sachs seek to uphold.

Before the judge the issues between the parties were whether on the facts the judge had jurisdiction to stay the proceedings as he did and, if he did, whether he could properly exercise his discretion so as to make such an order. On appeal the

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central issue is whether the order which the judge made was one which he could properly and lawfully make.

The facts are summarised in the judgment and may for present purposes be briefly stated. Towards the end of 1996 Jotun AS wished to explore the possibility of selling one of its subsidiary companies named Jotun Polymer Holding AS. It engaged Goldman Sachs to act on its behalf to investigate the commercial possibilities of sale, to arouse interest among potential bidders, to handle the negotiations and to give financial advice. This engagement was the subject of an agreement made between Jotun AS and Goldman Sachs on 20 December 1996, which contained an indemnity clause in these terms:

‘The Company [Jotun AS] also will indemnify and hold Goldman Sachs harmless against any losses, claims, damages or liabilities to any person arising out of or in connection with the engagement or any matter referred to in the attached letter or this Annex A, except to the extent that any such loss, claim, damage or liability results from the gross negligence or bad faith in performing the services that are the subject of the attached letter or this Annex A of Goldman Sachs or any of its affiliates to which it may delegate any of its functions hereunder.’

Reichhold Chemicals became interested in exploring the possibility of purchase and entered into negotiations. For that purpose, understandably, Reichhold needed access to detailed information about the business of Polymer, such information being known between the parties as the evaluation material (so-called no doubt because it assisted Reichhold to evaluate the benefits of the purchase and to value the business).

There was accordingly a confidentiality agreement entered into between Jotun AS and Reichhold Chemicals which contained a term to this effect. It was addressed to Reichhold and read:

‘… you understand and accept that neither the Company [Jotun AS], nor any of its respective directors, officers, employees, agents, representatives and advisors have made or make any representation or warranty expressed or implied as to the accuracy or completeness of the Evaluation Material. You agree that none of them shall have any liability to you or any of your representatives or advisors resulting from the use of the Evaluation Material.’

Negotiations and investigations were entered into and a draft sale agreement was exchanged containing a number of warranties concerning the usual operation of the business, the absence of material adverse change since the date of the last accounts, the absence of any material reduction in the assets or increase in the liabilities and so on.

On 5 June 1997, as it appears, a report was forwarded by Polymer to its parent, Jotun, indicating a significant decrease in profitability for the year 1997 as compared with 1996. On the following day, 6 June, a memorandum was addressed by Goldman Sachs to Reichhold in the course of which it was said: ‘Management does not currently foresee any reason to adjust the budget for 1997.’

On 11 July 1997 an agreement was made for the sale of the shares. The agreement is a very lengthy document. It contained warranties to very much the same effect as in the draft agreement. It provided in cl 5.3 that the buyer’s only remedy for any breach of warranty or of any provision of the agreement should

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be damages and that there should be no right to rescission. It contained in cl 5.4.1 an agreement between the seller and the buyer that the seller should pay to the buyer on demand the amount necessary to put the buyer into the position in which it would have been if the warranties in the agreement had been true and accurate in all respects.

Clause 6.5 contained a provision that claims should be unenforceable unless pursued within nine months of notification of the relevant claim.

Clause 17 contained a Norwegian law clause and a provision that any difference or disagreement between the parties should be resolved by arbitration in Oslo.

The agreement was duly completed in September 1997 and the shares were transferred into the name of Reichhold Norway AS, although nothing turns on any distinction between the two plaintiffs.

On 22 December 1997 Reichhold gave notice to Jotun of a possible claim under the sale agreement. That notification was followed in March by a letter before action addressed to Goldman Sachs. On 30 March 1998 the writ was issued in these proceedings by the plaintiffs against the defendants. It is enough to say that the claim made in the writ was a Hedley Byrne claim based on the Goldman Sachs memorandum of 6 June, to which I have already referred (see Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] 2 All ER 575, [1964] AC 465). The damage claimed by the plaintiffs was some $US 40m.

On 19 May 1998 Goldman Sachs issued this summons seeking a stay of the proceedings. Later, on 17 September 1998, Reichhold began arbitration proceedings against Jotun under the arbitration clause in the agreement, this action, it would seem, being prompted by the time provision in the sale agreement. At the end of October the suggestion was made by lawyers acting for Reichhold that the arbitration proceedings should be treated as dormant, with no steps being taken to complete the establishment of the tribunal and with each party waiving any relevant time limit, but to that invitation lawyers acting for Jotun gave a non-committal reply.

Evidence was filed relating to the Goldman Sachs summons to stay the proceedings and the matter came in due course before the judge.

The judge gave a summary of the argument addressed by Mr Pollock QC on behalf of Goldman Sachs (see [1999] 1 All ER (Comm) 40 at 46). He drew attention to the following points. First, since the substance of Reichhold’s complaint was that it had paid too much for Polymer, the natural and most efficient way of pursuing a remedy was by arbitration against Jotun in Norway under the sale agreement seeking damages. Second, it was suggested that that was a relatively straightforward claim in legal terms and any difficulty about the quantum of damage would be inevitable wherever the claim was pursued. Third, it was suggested that the proceedings in the arbitration could be expected to reach a conclusion quickly and relatively cheaply. Fourth, it was urged that Reichhold could expect to recover in full against Jotun in the arbitration if it had a good claim, and there was no reason to think that Jotun would be unable to honour any award. By that route it was urged, fifth, that Reichhold could expect to obtain justice in a speedy and efficient manner. By contrast, sixth, the present action against Goldman Sachs was more complex, more difficult as a matter of law and was inconsistent with the method contemplated by all parties for resolving disputes of this kind. In those circumstances Mr Pollock argued that the

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court could and should stay all further proceedings in the action until the completion of arbitration proceedings in Norway.

In the judge’s assessment Mr Pollock’s argument rested essentially on three propositions: first, that a plaintiff was no longer entitled to exercise unfettered control over the conduct of proceedings, even when they had been commenced in this country as of right; secondly, that the court should take an active role in managing proceedings before it in order to ensure that justice was achieved as between the parties, while at the same time safeguarding the interests of other litigants; and thirdly, that when considering how justice could best be done between the parties, the court should view the matter objectively in order to assess how that might be achieved at least inconvenience and expense to all involved.

The judge then turned to consider the counter-arguments addressed by Mr McCaughran on behalf of Reichhold. The judge recorded his primary submission as being that a plaintiff with a genuine claim against a defendant within the jurisdiction (not being a claim liable to be struck out as in any way abusive) had an absolute right to bring proceedings against the defendant here. That, it was submitted, was so regardless of whether he might have a claim against anyone else in respect of the same or a similar loss elsewhere. The judge said (at 46):

‘In other words, Mr McCaughran submitted that the claimant is entitled to choose whom to sue and when and the court has no right to interfere with the exercise of his choice, whatever may be the motive behind it. Alternatively, [Mr McCaughran] submitted that if the court does have jurisdiction to interfere in the claimant’s choice of defendant and forum, it can do so only in exceptional circumstances …’

which were not present in this case.

On the issue of jurisdiction the judge (at 46–47) expressed himself briefly in these terms:

‘The court’s power to stay proceedings is part of its inherent jurisdiction which is expressly preserved by s 49(3) of the Supreme Court Act 1981. It is exercised under a wide range of circumstances to achieve a wide variety of ends. Subject only to statutory restrictions, the jurisdiction to stay proceedings is unfettered and depends only on the exercise of the court’s discretion in the interests of justice. I am in no doubt, therefore, that I do have jurisdiction to stay the present proceedings; the question is whether it would ever be right to do so in a case such as the present, and if so under what circumstances.’

The judge then turned to consider at some length the matters which he regarded as relevant to the exercise of his discretion. At the outset he accepted that in principle a plaintiff who had claims against a number of different people was entitled to choose for himself whom to sue and whom not to sue. He is entitled, the judge said, to take proceedings against some and not others for whatever reasons seem best to him, and subject only to the need to control abuse of its process the court is not concerned with the reasons for his choice or the motives that lie behind it. The judge observed that hitherto this had been well accepted, although he did not wish to rule out the possibility that the orthodox view on this question might change. He went on, however, to say (at 47):

Page 684 of [2000] 2 All ER 679

‘… choosing whom to sue is one thing; choosing in what order to pursue proceedings against different defendants may be another, especially when two related sets of proceedings are being, or could be, pursued concurrently.’

He observed that in such a case the court itself had a greater interest, not only because there might be undesirable consequences if concurrent proceedings were pursued, but also because the outcome of one set of proceedings may have an important effect on the conduct of the other. As an illustration of the court’s power to manage and to prioritise the actions proceeding before it, he made reference to the well-known management rules which were laid down and followed in the Commercial Court in the Lloyd’s litigation. The judge said (at 47):

‘In such circumstances the parties to the individual actions no longer enjoy the unfettered right (if indeed they ever did) to determine how the proceedings should be conducted; it is recognised that the court is entitled to impose on them procedures which it considers appropriate in the light of the nature and content of the litigation as a whole.’

He made reference to Ashmore v Corp of Lloyd’s [1992] 4 All ER 486, [1992] 1 WLR 446 and Thermawear Ltd v Linton [1995] CA Transcript 1175. He added (at 47):

‘However, it may be less easy to justify active management of that kind in a case where proceedings between different parties are taking place in other forums, for example, in arbitration or proceedings in other jurisdictions. That is one of the questions raised by this application.’

The judge then pointed out that, since the court’s jurisdiction to stay proceedings was discretionary and the circumstances in which an application for a stay might be made were almost infinitely variable, he found it difficult to accept Mr McCaughran’s submission that it would never be proper for the court to grant a stay of an action pending the outcome of proceedings. But he did accept that such a step should only be taken if there were very strong reasons for doing so and the benefits which were likely to result from doing so clearly outweighed any disadvantage to the plaintiff. He said (at 48):

‘Ultimately, however, it must be a matter for the court to consider the circumstances of the case before it and come to its own conclusion. One factor of importance is likely to be the relationship between the parties to the proceedings both here and abroad.’

The judge then gave what is in my judgment an important and helpful summary of the commercial effect of the relationships between the parties in this case. He said (at 48):

‘In the present case that relationship arises out of the three agreements to which I have already referred. Whether or not Goldman Sachs as a third party to the confidentiality letter is entitled to invoke its terms against Reichhold, or whether they are apt to cover the particular facts of this case are not matters which can be decided on this application. However, I think it is reasonably clear from the confidentiality letter and from the draft sale agreement that the commercial basis on which Reichhold pursued the negotiations with Jotun was that it should have no recourse against Jotun or anyone acting on its behalf, including Goldman Sachs, in respect of the

Page 685 of [2000] 2 All ER 679

accuracy of any of the material disclosed during the negotiations but instead would obtain under the sale agreement warranties of the accuracy of the accounts and of the development of the business in the period since the most recent audited accounts. In commercial terms that seems to me to make perfectly good sense because a warranty of that kind could be expected to provide a straightforward remedy against the seller which should adequately protect the buyer’s position while leaving it to the seller to make whatever arrangements he thought fit with those acting on his behalf. In the present case the third side of the triangle, that is, the relationship between Goldman Sachs and Jotun, was covered by the engagement letter under which Jotun agreed to indemnify Goldman Sachs against any liability to Reichhold. Viewed as a whole, therefore, there was a coherent arrangement under which Reichhold would have its remedy under the sale agreement for any misleading or inaccurate information, but would be limited to that remedy, and Jotun alone would be liable to provide that remedy. Any dispute between them was to be decided in arbitration in accordance with the contract.’

The judge then returned to his summary of Mr Pollock’s submissions to the effect that, as Mr Pollock argued, in the circumstances which had arisen, there was every practical reason for Reichhold to pursue a claim against Jotun under the sale agreement and no sensible reason for its proceeding against Goldman Sachs in this country. The judge considered there was a lot of force in that argument. He considered that if, in truth, Reichhold’s complaint was well-founded it would certainly appear to have had a good claim under the warranties in the sale agreement. The claim against Goldman Sachs, on the other hand, the judge regarded as more complicated for the reasons which he had already indicated.

He considered that Mr Pollock was right in saying that there was likely to be substantial argument about whether Goldman Sachs owed Reichhold a duty of care at all, let alone as to whether it was negligent. For that reason alone, in the judge’s opinion, the proceedings here would seem to represent a more difficult route to success for Reichhold than the arbitration in Norway. The judge observed (at 49):

‘In these circumstances it is not easy to see why Reichhold should wish to pursue these proceedings in preference to the arbitration and no explanation of any kind has been offered. Mr McCaughran simply fell back on the proposition that Reichhold is entitled to take that course if it so wishes and the court should not interfere.’

The judge considered at some length the interrelationship between the arbitration proceedings and the court proceedings, discussing the possibility, if the action went ahead, that Goldman Sachs, as defendant, would join Jotun as a third party seeking an indemnity under the terms of its engagement and that Jotun would then seek to rely on its agreement with Reichhold to restrain the bringing of proceedings against Goldman Sachs. The judge also considered the possibility that the arbitration might be left in abeyance.

The judge said (at 50):

‘It is important to emphasise that the question which has to be decided on this application is not whether Reichhold should be required to pursue a

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claim which it does not wish to pursue at all, but whether it should be required to pursue its pending claim against Jotun before it proceeds further with this action. If Reichhold had abandoned or compromised its claim against Jotun this application would not have been made or, if made, would have had no prospect of success. But the fact is that the claim against Jotun is still pending. Reichhold wishes to maintain its claim against Jotun and will pursue it if necessary. In the absence of any explanation for its desire to pursue this action in preference to the arbitration, the most recent exchange of correspondence between the parties’ Norwegian lawyers looks like nothing more or less than a tactical move on Reichhold’s part. Viewed objectively there is, on the material before me, no advantage to Reichhold in taking that course; on the contrary, it appears to be the less favourable option. In those circumstances the only prejudice which Reichhold is likely to suffer if this action is stayed is a delay of about a year. Since delay of that kind can be compensated by an award of interest if Reichhold is ultimately successful, that might be considered a small price to pay for the prospect of avoiding complex and costly litigation.’

The estimate of a year derived from opinions offered as to the likely course of the arbitration in Norway. Since the judge’s order, we are told, the arbitration has indeed been progressed and it has not been suggested that that estimate was in any way unreliable.

The judge referred to two further submissions which were made by Mr McCaughran for Reichhold. The first drew attention to the House of Lords’ decision in Spiliada Maritime Corp v Cansulex Ltd, The Spiliada [1986] 3 All ER 843, [1987] AC 460 dealing with forum non conveniens. Mr McCaughran submitted, by analogy, that in a case such as the present the court should not lightly interfere with the exercise by the plaintiff of its right to pursue proceedings here, save in the most exceptional circumstances. The judge observed that he recognised the burden on the defendant who sought a stay on grounds of forum non conveniens, but regarded that situation as somewhat different from that which arose in the case with which he was dealing. He said (at 51):

‘In the case where a stay is sought on the grounds of forum non conveniens the availability of an alternative forum for the determination of the dispute means that the court is effectively being asked to decide in which of two competing forums the action shall proceed. In practical terms it is not a question of when but whether the plaintiff should be allowed to pursue the action here. To that extent the exercise of the court’s discretion to stay the proceedings involves a greater interference with the plaintiff’s rights than the order sought in this case.’

The judge accepted that there was a very real burden on the defendant in the case before him to satisfy the court that the ends of justice would be better served by granting a stay, but did not accept that there was any heavier a burden than would arise on an application based on grounds of forum non conveniens. The judge also referred to a second argument of Mr McCaughran’s based on the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (as set out in Sch 1 to the Civil Jurisdiction and Judgments Act 1982) (the Brussels Convention) and the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1988 (as set out in Sch 3C to 1982 Act) (the Lugano Convention) and the priority

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given to the court first seised. The judge recognised the value of a simple and clear rule of that kind, but pointed out that the case before him fell outside the conventions and therefore enabled the discretion of the court to be exercised in a way which seemed best on the particular facts. The judge summarised his conclusion in this way (at 51–52):

‘I come then to weigh up the factors for and against granting a stay in this case. The fact that Reichhold has commenced proceedings here as of right is in my view an important factor in its favour, but apart from that there is little of a positive nature to be said against granting a stay. The existence of concurrent proceedings in Norway would ordinarily be a powerful factor in favour of doing so, especially in a case where those proceedings overlap to such a significant degree and could be expected to reach a conclusion within a relatively short space of time. However, that factor inevitably loses some of its force in the light of the steps which have been taken to put the arbitration in abeyance. Unless Reichhold changes its mind (which, in the absence of any agreement, it may) it seems quite possible that the arbitration may remain dormant for some time, but it remains in being and I do not think one can discount the possibility that Reichhold may change its mind or that it may be necessary at some point for it to revive the arbitration in order to ensure that the right to pursue it is not lost altogether. If that were to occur one would be faced with all the undesirable consequences of concurrent proceedings. Moreover, the very fact that Reichhold is maintaining the proceedings against Jotun must I think be a factor to be taken into account since it shows that Reichhold is minded to pursue those proceedings, if necessary, in the longer term. One therefore comes back to the broader question of the manner in which the dispute involving all three of these parties is to be resolved. In the somewhat unusual circumstances of the present case I do not think that the court is obliged to give undue weight to the mere preference of one party. Considerations of cost and convenience and of the interests of justice generally seem to me to weigh heavily in favour of granting a stay. As to that, the primary consideration as far as Reichhold is concerned is that it should receive such compensation as it is entitled to for whatever loss it has suffered as quickly as possible and with the minimum of inconvenience and expense. No other factor has been suggested. In particular it is worth emphasising that Mr McCaughran did not seek to argue that Reichhold had some legitimate reason, over and above obtaining compensation, for pursuing Goldman Sachs rather than Jotun. As far as Goldman Sachs and Jotun are concerned, the interests of justice require that they should have a full and proper opportunity to meet the claims against them, also at a minimum of inconvenience and expense and, in the case of Jotun, in the agreed forum. If Reichhold wishes to pursue a claim against Jotun at all, then, for the reasons I have given, all these ends are in my judgment most likely to be achieved if the arbitration takes priority. Of course one cannot be absolutely certain of that because whichever claim is pursued first there is the possibility that Reichhold will wish to pursue the other if it is not wholly successful in the first, but I have to decide this application on the basis of the evidence before me making the best assessment I can of the likely outcome. Against all that very little has been put forward by way of counter-argument. It is very striking that Reichhold

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has not sought to support its case for allowing these proceedings to continue by putting forward any reasoned grounds as to the practical advantages of pursuing the action here in advance of the arbitration, nor has it sought to suggest that it would suffer any prejudice if the action were stayed other than a relatively brief delay which could be adequately compensated by an award of interest. The risks which attend litigation everywhere are not said to be greater in Norway than England; if anything the difficulties attaching to the claim against Goldman Sachs here are greater than those which affect the claim against Jotun. In these circumstances I have reached the conclusion that the right course in this case is to stay these proceedings pending the final determination of the arbitration in Norway.’

In challenging that judgment Mr Christopher Carr QC, for Reichhold, accepts that the court has a very wide discretion to grant a stay. He does not challenge, as I understand, the existence of a power to make an order such as the judge did. But he submitted with considerable vigour that it was a power which could never properly be exercised in a case such as this. His argument proceeded by a number of steps. First, he said, this is not a case in which the plaintiffs’ suit in this country can be stigmatised as abusive, oppressive, or in any way vexatious or brought in bad faith. That is accepted; Mr Pollock makes no contrary submission. Secondly, Mr Carr submitted that there is no reported case before the present in which a judge has made an order precisely analogous with the order which the judge made here. That also is accepted. Mr Pollock accepts that the present order represents an advance on previous precedents. Thirdly, and most importantly, Mr Carr submitted that the judge’s order violated a fundamental principle that a plaintiff making a bona fide claim, not tainted with abuse, oppression or any vexatious quality, may sue in the English court any defendant over whom the court has jurisdiction. He submitted that the court has no role to decide whom a plaintiff may or may not sue here or, as he put it, a plaintiff does not have to obtain a passport from the court to sue a defendant in this country over whom the court has jurisdiction.

In support of these submissions Mr Carr relied, in particular, on two citations from authority. He relied, first, on Abraham v Thompson [1997] 4 All ER 362 at 374 per Potter LJ:

‘In my view, the starting point in any case where a stay is sought in circumstances which are not provided for by statute or rules of court, should be the fundamental principle that in this country an individual (who is not under a disability, a bankrupt or a vexatious litigant) is entitled to untrammelled access to a court of first instance in respect of a bona fide claim based on a properly pleaded cause of action, subject only to the sanction or consideration that he is in peril of an adverse costs order if he is unsuccessful, in respect of which the opposing party may resort to the usual remedies of execution and/or bankruptcy if such order is not complied with. This principle is of course subject to the further proviso that, if the court is satisfied that the action is not properly constituted or pleaded, or is not brought bona fide in the sense of being vexatious, oppressive or otherwise an abuse of process then the court may dismiss the action or impose a stay whether under the specific provisions of the rules of court or the inherent jurisdiction of the court.’

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Our attention was also drawn to a passage in the judgment of Millett LJ (at 377).

Secondly, Mr Carr drew our attention to Molnlycke AB v Procter & Gamble Ltd [1992] 4 All ER 47 at 58, [1992] 1 WLR 1112 at 1124, where Dillon LJ, in a judgment with which the other members of the court agreed, said:

‘It is long-established that a plaintiff who has been injured by a number of joint tortfeasors can choose which he will sue. He does not have to sue all of them. But the defendants have no right whatsoever to dictate which the plaintiff shall sue or to make the choice for him.’

In argument Mr Carr also placed reliance on the current doctrines governing cases on lis alibi pendens and forum non conveniens, both of which, he submitted, depended on showing disadvantage to the defendant from suit in this jurisdiction.

In resisting Mr Carr’s argument, Mr Pollock took issue not so much with the general thrust of the argument as with the absolute nature in which it was expressed. Thus Mr Pollock did not assert that a plaintiff had to obtain a passport from the court in order to sue a particular defendant, and he pointed out that the judge had never lent support to any such statement of principle. But Mr Pollock did assert that forensic practice was changing and developing and that the movement was very clearly towards greater control by the courts over the course of proceedings. The Court of Appeal should, he argued, be very slow to interfere with procedural directions of a judge unless those directions were vitiated by error of law or manifest error, neither of which were demonstrable here. Mr Pollock placed reliance on Ashmore v Corp of Lloyd’s [1992] 4 All ER 486, [1992] 1 WLR 446, and in particular to strong statements of principle by Lord Roskill and Lord Templeman, both of them emphasising the extent to which it was now accepted that judges should manage the proceedings before them. Observations to a similar effect in Thermawear Ltd v Linton [1995] CA Transcript 1175 were referred to.

With reference to Abraham’s case, Mr Pollock submitted that the observations of Potter LJ were somewhat wider than could be justified if account was taken of the various circumstances in which the court would restrain the conduct of proceedings before it. It is, however, plain that that decision was obviously correct since what the defendant was trying to do was to obtain security for costs against a plaintiff in a manner for which the Rules of the Supreme Court which govern applications for security make no provision at all. Had a stay been granted pending the provision of security by the third party in that case, and had security not been provided, the effect would have been to stifle proceedings in this country effectively for ever. That, Mr Pollock submits, is not the case here.

With reference to the Molnlycke case, Mr Pollock pointed out that the question was whether the plaintiff should be allowed to pursue a German company in the United Kingdom in addition to American and British companies which it was already suing. It was in that case a once and for all decision, and the principle as already quoted was that the court would not tell a plaintiff whom he might sue. Mr Pollock, however, suggested that in this case the court was not seeking to do so. There was no question of precluding Reichhold from suing Goldman Sachs. All that had happened was that the judge had delayed the action for a period estimated to be about a year.

In seeking to justify the making of the present application and the order made by the judge, Mr Pollock posed a series of examples. Supposing, he said,

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Reichhold issued proceedings in England against Jotun and separately against Goldman Sachs; the court could order that the action against Goldman Sachs should await the outcome of the proceedings against Jotun. Similarly, he said, suppose Reichhold gave notice of arbitration against Jotun in England pursuant to an English arbitration clause and also sued Goldman Sachs in court proceedings, in that case also, he suggested, the court could order that the action against Goldman Sachs should await the outcome of the arbitration reference against Jotun. He did not submit that in either of those cases the court would necessarily make that order, but only that on appropriate facts it properly could. If those propositions were correct, then he posed the bull question: what difference does it make in principle that the arbitration is in Norway instead of this country? Mr Pollock contrasted the effect of the judge’s order in this case with an order staying actions on grounds of lis alibi pendens or forum non conveniens. In those cases the stay would in all probability be permanent and the plaintiff would be driven from the judgment seat. That was not, he argued, the case here. Reichhold’s claim against Goldman Sachs remains alive and well, but delayed for a year to await the outcome of the arbitration in Norway and in the expectation (on the part of the judge) that the action might then not be effective at all.

I would for my part accept the submissions made by Mr Pollock, subject to all the qualifications which were inherent in them. Mr Carr went on to submit that to uphold the judge’s order would open the door to a flood of applications, some successful and some unsuccessful, would involve the court in trying to adjudicate on matters which were barely justiciable, would introduce a new dimension of uncertainty and would give a charter to evasive and manipulative defendants. He suggested that the court would run a risk, if it made such orders, of infringing art 6 of the European Convention on Human Rights (Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmd 8969). In reliance on all these matters he suggested that the court should draw back from taking the first and fatal step.

Mr Pollock did not suggest that this would be the only such application of its kind if the judge’s order were upheld, and he would have had difficulty making such a submission since another application has already been successfully made. He did, however, suggest that the court was well able to control its own business, and he accepted that the grant of stays such as this would be a rarity, account always being taken of the legitimate interests of plaintiffs and the requirement that there should be no prejudice to plaintiffs beyond that which the interests of justice were thought to justify. It is plain that in exercising this jurisdiction the court would have to be mindful of the effect of art 6.

I for my part recognise fully the risks to which Mr Carr draws attention, but I have no doubt that judges (not least commercial judges) will be alive to these risks. It will very soon become clear that stays are only granted in cases of this kind in rare and compelling circumstances. Should the upholding of the judge’s order lead to the making of unmeritorious applications, then I am confident that judges will know how to react.

It remains to consider the judge’s exercise of his discretion here. I have endeavoured to summarise his judgment fully, without quoting all of it verbatim. It is in my judgment evident that he assessed and evaluated the factors which he was called upon to consider. Although it is suggested in Reichhold’s skeleton argument that the judge misdirected himself in approaching the various factors

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which he had to consider, I for my part am persuaded that he left nothing out of account, took account of nothing of which he should not have taken account, and gave a fair and judicious summary of all the matters properly to be considered. I find no misdirection of law. This was, therefore, a decision within the discretion of the judge, not vitiated by misdirection or manifest error. I would dismiss the appeal.

OTTON LJ. I agree.

ROBERT WALKER LJ. I also agree.

Appeal dismissed. Permission to appeal refused.

Kate O’Hanlon  Barrister.

SC Rolinay Sea Star Srl v Owners and/or demise charterers of the Bumbesti

The Bumbesti

[2000] 2 All ER 692

Categories:        SHIPPING: ADMINISTRATION OF JUSTICE; Courts        

Court:        QUEEN’S BENCH DIVISION (ADMIRALTY COURT)        

Lord(s):        AIKENS J        

Hearing Date(s):        16, 17, 22 JUNE 1999        

Admiralty – Jurisdiction – Action in rem – Claim arising out of agreement relating to use or hire of ship – Foreign arbitration award in respect of dispute under charterparty – Claim in Admiralty Court founded on dispute – Whether court having jurisdiction in rem to hear and determine claim on arbitration award – Supreme Court Act 1981, s 20(2)(h).

In February 1995 the defendants, a Romanian corporation, chartered the vessel Dacia to the claimants for three years. The charter provided that it was governed by Romanian law and that disputes between the parties would be resolved by arbitration. Subsequently, disputes did arise, and following two references to arbitration, two awards were made in Constantza, Romania, awarding the claimants damages for the wrongful early termination of the charter. Thereafter, two other vessels owned by the defendants were ordered to be detained by way of execution of the awards. In June 1999 the claimants commenced an action in the English Admiralty Court against the defendants, founded on the second arbitration award, and the following day the vessel Bumbesti was arrested in Liverpool. The sworn evidence to lead the arrest stated that the arbitration award remained wholly unsatisfied, that the aid of the court was sought to enforce payment of or security for the same and that security of $US300,000 was sought. The defendants applied to set aside the proceedings and/or release the vessel from arrest on the grounds: (i) that the court had no jurisdiction in rem in respect of the claim; and (ii) that the arrest of the Bumbesti was an abuse of the process of the court because the claimants already had adequate security for the claim made in the detention of the two vessels in Constantza. The claimants contended that the court had jurisdiction in respect of the claim by virtue of s 20(2)(h)a of the Supreme Court Act 1981, under which the court had jurisdiction to hear and determine ‘any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship’.

Held – On the true construction of s 20(2)(h) of the 1981 Act, an action on an arbitration award was not one on an agreement which was ‘in relation to the use or hire of a ship’. Accordingly, the court had no jurisdiction thereunder to consider the claim, and the action and the claim form would be struck out and the service of the claim form set aside. It followed that the arrest of the vessel could not be maintained in respect of the claim, and since, on the evidence, the sale value of the vessels at Constantza was enough to meet the claimants’ claim, so that the detention of the two vessels was adequate security, the court would release the Bumbesti from arrest, subject to an undertaking being given by the defendants (see p 700 j to p 701 a g, p 702 a b, p 703 f  and p 704 d, post).

The Beldis [1935] All ER Rep 760 followed.

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Notes

For the Admiralty jurisdiction of the High Court, see 1(1) Halsbury’s Laws (4th edn reissue) paras 307–312.

For the Supreme Court Act 1981, s 20, see 1 Halsbury’s Statutes (4th edn) (1998 reissue) 12.

Cases referred to in judgment

Alina, The, Brown v The Alina (1880) 5 Ex D 227, CA.

Antonis P Lemos, The [1985] 1 All ER 695, [1985] AC 711, [1985] 2 WLR 468, HL.

Beldis, The [1936] P 51, [1935] All ER Rep 760, CA.

Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd’s Rep 446.

Bloemen (F J) Pty Ltd v Gold Coast City Council [1972] 3 All ER 357, [1973] AC 115, [1972] 3 WLR 43, PC.

Bremer Oeltransport GmbH v Drewry [1933] 1 KB 753, [1933] All ER Rep 851, CA.

Gascoyne v Edwards (1826) 1 Y & J 19, 148 ER 569.

Gatoil International Inc v Arkwright-Boston Manufacturers Mutual Insurance Co [1985] 1 All ER 129, [1985] AC 255, [1985] 2 WLR 74, HL.

Harbour Assurance Co (UK) Ltd v Kansa General International Assurance Co Ltd [1993] 3 All ER 897, [1993] QB 701, [1993] 3 WLR 42, CA.

Heyman v Darwins Ltd [1942] 1 All ER 337, [1942] AC 356, HL.

Jade, The, The Escherscheim, The mv Erkowit (owners) v The Jade (owners), The mv Erkowit (cargo owners) v The Eschersheim (owners) [1976] 1 All ER 920, [1976] 1 WLR 430, HL; affg [1976] 1 All ER 441, [1976] 1 WLR 339, CA; affg [1974] 3 All ER 307, [1975] 1 WLR 83.

Rena K, The [1979] 1 All ER 397, [1979] QB 377, [1978] 3 WLR 431.

St Anna, The [1983] 2 All ER 691, [1983] 1 WLR 895.

Zeus, The (1888) 13 PD 188, DC.

Cases referred to or cited in skeleton arguments

Bazias 3, The [1993] 2 All ER 964, [1993] QB 673, CA.

City of Mecca, The (1879) 5 PD 28.

Despina GK, The [1983] 1 All ER 1, [1983] QB 214.

Hartlepool, The (1950) 84 Ll L Rep 145.

Jalamatsya, The [1987] 2 Lloyds Rep 164.

Moschanthy, The [1971] 1 Lloyds Rep 37.

R v City of London Court Judge [1892] 1 QB 273, CA.

Stella Nova, The [1981] Com LR 200.

Varna, The [1993] 2 Lloyds Rep 253, CA

Application

The defendants, Cia de Navigatie Maritimie Petromin SA, the owners and/or demise charterers of the vessel Bumbesti, applied to set aside proceedings brought by the claimants, SC Rolinay Sea Star Srl, and/or to release the Bumbesti from arrest in Liverpool. The facts are set out in the judgment.

David Garland (instructed by Ince & Co) for the defendants.

Christopher Smith (instructed by Hill Dickinson, Liverpool) for the claimants.

Cur adv vult

Page 694 of [2000] 2 All ER 692

22 June 1999. The following judgment was delivered.

AIKENS J.

1. This is an application to set aside these proceedings and/or to release the vessel Bumbesti from arrest. The claim form was issued on 8 June 1999 and the vessel was arrested in Liverpool on 9 June 1999. Initially the application notice sought an order to set aside the arrest. The ground stated was that the arrest was an abuse of the process of the court because the claimants already had adequate security in respect of the claims made. However Mr Garland for the defendants/applicants made it clear in opening his application that the defendants had a further ground, which was that the Admiralty Court had no jurisdiction in rem in respect of the claim made by the claimants. During the hearing I gave leave to amend the application notice to include this point. Accordingly the application is now put on two bases, which are as follows. (1) That the action in rem and/or the claim form should be set aside under CPR 3.4(2)(b), on the ground that the court has no jurisdiction in rem in respect of the claim sought to be made by the claimant in these proceedings. If this ground is successful, then the vessel must be released from arrest, subject to any caveats against release. Ground (2) is that the vessel should be released from arrest pursuant to the Admiralty Court’s power to do so under para 6.6(1)(b) of the Admiralty Court Practice Direction which supplements CPR Pt 49, on the basis that the arrest is an abuse of the court process because the claimants already have adequate security for the claim made.

2. The facts

The defendants are called Cia de Navigatie Maritimie Petromin SA, which is a Romanian corporation. It owned the vessel Dacia. The vessel was bareboat chartered to the claimants by a charterparty dated 27 February 1995. The charter was for three years and was due to expire on 27 March 1998. The charter provided (by cl 26) that it was governed by Romanian law. Clause 26 also stipulated that disputes would be ‘solved’ by arbitration which was to be organised by the ‘Chamber of Commerce, Industry and Navigation of Constantza County, in accordance with the Rules of Arbitrational Procedure’ of that chamber. Clause 55 of the charter provided that disputes between the parties were to be ‘solved in accordance with the laws of the Romanian State, such laws governing this Charter (see Clause 26)’. It was therefore common ground at the hearing that the proper law of the charter was Romanian law and that the procedural law of the arbitrations which have taken place was Romanian law.

3. Disputes did arise under the charter. The claimants, as charterers, alleged that the defendants wrongfully terminated the charter early in January 1998. This resulted in two arbitration references. Two awards were made by the Constantza Court of Arbitration. They were called arbitration award no 1 and no 12. Award no 1, dated 3 March 1998, ordered the defendants, as owners of the vessel, to return her to the claimants for the balance of the charter period, ie 53 days. The claimants were also awarded damages of $US186,532 and further sums in respect of stamp duty and legal fees. The vessel was not returned for the balance of the charter. In arbitration award no 12, dated 10 November 1998, the tribunal awarded the claimants a further $US238,072 as damages for the wrongful early termination of the charter. It also awarded further sums in respect of stamp duty and costs. The total sum awarded to the claimants was therefore $US424,604 plus stamp duty and lawyers’ fees.

Page 695 of [2000] 2 All ER 692

4. The claimants appealed the arbitration awards. The appeal from award no 1 was dismissed by the Constantza Court of Appeal on 30 March 1999 and by the Supreme Court of Justice on 14 April 1999. The appeal from award no 12 was dismissed by the Constantza Court of Appeal in April 1999. However, leave has been granted to appeal to the Supreme Court and the hearing will take place on 2 December 1999. The defendants have obtained an order from the Romanian Supreme Court for the general suspension of any enforcement of award no 12 until 13 July 1999.

5. The claimants have attempted to enforce the two awards. On 4 February 1999 the claimants applied to the Constantza court for execution of all movables and immovables of the defendants in order to meet the sums due on both awards. In respect of award no 1 the claimants have put up two bank letters of guarantee following the arrest of the Bumbesti in Greece and the Netherlands. Those bank guarantees are, in my judgment, sufficient to meet any liability that the defendants have on that award. The bank guarantee in Greece is the subject of proceedings there, but I am satisfied that, quite apart from the vessels in Constantza, the claimants have adequate security for award no 1.

6. On 4 February 1999 the claimants applied to the Constantza court for execution against the defendants in respect of the two awards. Subsequently, two identical bulk carriers that are owned by the defendants, the Tirgu Lapus and the Tirgu Neamt, were seized in Constantza pursuant to commands of the Constantza court made on 9 February 1999. The commands required the defendants to pay the sums due under the two awards within 24 hours, or, if they failed to do so, then the vessels, which were identified in the commands, would be ‘prosecuted and auctioned off’. The exact legal characterisation of the process by which the vessels have been detained is in dispute between the parties. But the present position appears to be that both vessels remain detained by order of the Constantza court, despite attempts by the defendants to rescind the orders. Further, an order for the sale, by public auction, of the two vessels was made by the court at some date in April 1999. The auction was set to take place on 30 April 1999. A buyer was found for the two vessels at a price of $US660,000 for the pair, but the deposit was not lodged in time. So the sale was cancelled. Subsequently, on 8 June 1999, the order permitting enforcement against the Tirgu Lapus was cancelled by the Constantza court. However two stamped certificates (one for each vessel), both dated 15 June 1999 and issued by the Constantza harbour master’s office, state, in English, that the vessels are arrested. That state of affairs is accepted by both parties.

7. The claim form in this action was issued on 8 June 1999. It states that the claimants bring their action ‘founded on’ the arbitration award dated 10 November 1998 (ie award no 12). On the following day, 9 June 1999, the Bumbesti was arrested in Liverpool. The sworn evidence to lead the arrest states that the award no 12 remains wholly unsatisfied and that the aid of the court is sought ‘to enforce payment of or security for the same’. The sworn evidence states that security of $US300,000 is sought.

8. The issues

The principal issues are as follows.

(1) Whether the Admiralty Court has jurisdiction in rem to hear and determine a claim to enforce the arbitration award no 12 made by the Constantza court. The only basis of the court’s in rem jurisdiction relied on by the claimants is s 20(2)(h) of the Supreme Court Act 1981. By that paragraph the Admiralty Court has jurisdiction to hear and determine ‘any claim arising out of any

Page 696 of [2000] 2 All ER 692

agreement relating to the carriage of goods in a ship or to the use or hire of a ship’. (It is common around that if the claim comes within that paragraph then, pursuant to s 21(4) of the 1981 Act the in rem jurisdiction of the court could be invoked. No point was taken by the defendants on s 21(4)(a) that this claim did riot ‘arise in connection with a ship’.)

(2) Assuming that the Admiralty Court has jurisdiction, then whether the Bumbesti should be released from arrest because the claimants already have adequate security for their claim to enforce award no 12 because of the detention of the two vessels in Constantza, so that the arrest of the Bumbesti is an abuse of the process of the court.

9. Principal issue one: the nature of the claim to enforce the award no 12

The proper law governing the arbitration procedure and the award no 12 was agreed to be Romanian law. However I received no evidence that Romanian law differs from English law on the nature of an arbitration award and the effect of an award being made. In English law it is clear that if a claim for damages is referred to arbitration and an arbitration award is made awarding the payment of damages, this creates a new right of action for the enforcement of the award that replaces the original cause of action. Strictly speaking the doctrine of ‘merger’ does not apply in the way that it does to an action brought in court and there could be debate on the precise juridical basis for the rule relating to awards: see Mustill and Boyd on Commercial Arbitration (2nd edn, 1989) p 410. But it has been accepted since at least Gascoyne v Edwards (1826) 1 Y & J 19, 148 ER 569 that a claimant cannot bring a further claim in personam on the original cause of action (if the original cause of action was for damages) once he has an award. (As noted below, it is possible to bring an action in rem: see The Rena K [1979] 1 All ER 397, [1979] QB 377).

10. The ‘brief details of claim’ indorsed on the claim form in this case state:

‘The Claimants bring their action founded on the Arbitration Award dated 10 November 1998, made by The Chamber of Commerce, Industry, Navigation and Agriculture, (CCINA), Constantza, Romania. The said award was in respect of the premature termination of the charterparty dated March 1995, of the MV “Dacia”, at that time owned by the Defendant.’

It is therefore clear that the claim is one to enforce the award. What is the nature of a claim to enforce an award? It could be a claim for a debt, being the sum awarded. Alternatively it could be a claim for unliquidated damages, for a breach, by the party due to pay, of an implied obligation to fulfil the award made. Both solutions have been suggested in the cases. However the preferred analysis by the Court of Appeal in the leading case of Bremer Oeltransport GmbH v Drewry [1933] 1 KB 753, [1933] All ER Rep 851 was that a claim on an award is a claim for damages for the breach of an implied term in the submission to arbitration that any award made would be fulfilled (see [1933] 1 KB 753 esp at 764, [1933] All ER Rep 851 esp at 857 per Slesser LJ with whom Romer LJ agreed). That analysis was adopted by Lord Pearson in giving the advice of the Privy Council in F J Bloemen Pty Ltd v Gold Coast City Council [1972] 3 All ER 357 at 363, [1973] AC 115 at 126. He emphasised that in the case of an arbitration award a new cause of action arises once the award is made, but that the award ‘cannot be viewed in isolation from the submission under which it was made’. Therefore a claimant wishing to enforce an award in English proceedings has to prove not only the award, but also the submission to arbitration which gave the arbitrators power to

Page 697 of [2000] 2 All ER 692

make their award and which contained the implied term that the parties would fulfil any award made pursuant to the submission.

11. That gives rise to a further question: which ‘submission’ to arbitration is being referred to here? As Mustill J made clear in Black Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyd’s Rep 446 at 455, there are two ‘submissions’ which govern the arbitration of disputes under a substantive contract. First there is the contract to submit future disputes to arbitration; this will often be annexed to the substantive contract between the parties, in this case the bareboat charterparty. Secondly there is the contract that is created when a particular dispute arises and the parties refer that dispute to arbitration. The implied term to fulfil the award made must, in my view, be contained in the contract that is created between the parties when the individual dispute arises and it is referred to arbitration. However, in practice there is bound to be reference to the initial general submission to refer disputes to arbitration, as that is the basis upon which individual references will be made.

12. On this analysis, in order to succeed on their claim, the claimants must plead and prove the individual submission to the Constantza Court of Arbitration and the award no 12 that they made on 12 April 1999 pursuant to that submission. But no more than that need be proved. There is no need to plead and prove the underlying dispute arising under the charterparty.

13. Is the claim to enforce the award within s 20(2)(h) of the Supreme Court Act 1981?

The next question must be: does this claim to enforce the award fall within the terms of s 20(2)(h) of the Supreme Court Act 1981? Mr Smith says that it does and he relies upon the decision of Sheen J in The St Anna [1983] 2 All ER 691, [1983] 1 WLR 895 in which the judge held that an action to enforce an award made in respect of a contract for the hire of a ship was within para (h). Mr Garland has submitted that The St Anna was wrongly decided and that Sheen J should have followed the decision of the Court of Appeal in The Beldis [1936] P 51, [1935] All ER Rep 760, which, he said, was binding. In view of these submissions, it is necessary to consider briefly the statutory history of para (h) and some of the decisions that have dealt with it.

14. The statutory history of para (h)

The history has been considered by the House of Lords in a number of recent cases: see The Jade, The Escherscheim, The mv Erkowit (owners) v The Jade (owners), The mv Erkowit (cargo owners) v The Eschersheim (owners) [1976] 1 All ER 920, [1976] 1 WLR 430, Gatoil International Inc v Arkwright-Boston Manufacturers Mutual Insurance Co [1985] 1 All ER 129, [1985] AC 255 and The Antonis P Lemos [1985] 1 All ER 695, [1985] AC 711. From these cases the history of para (h) is established as follows:

(1) Paragraph (h) in the 1981 Act reproduced, in the same words, para (h) of s 1(1) of the Administration of Justice Act 1956. That section had been enacted to give force in England to the International Convention for the Unification of Certain Rules relating to the Arrest of Sea-going Ships (Brussels, 10 May 1952; TS 47 (1960); Cmnd 1128) (the arrest convention). In the arrest convention a number of ‘maritime claims’ in respect of which a ship could be arrested are set out at art 1 under the terms of the convention. The wording of the convention is exactly reproduced in the Scottish section of the 1956 Act (s 47(2)(d) and (e)). But although two paragraphs have been rolled into one in s 1(1)(h) of the 1956 Act, their effect is not materially different.

Page 698 of [2000] 2 All ER 692

(2) The wording of the arrest convention list of ‘maritime claims’ was itself based upon the list of the types of claim set out in s 22(1)(a)(xii)(1) of the Supreme Court of Judicature (Consolidation) Act 1925, for which the Admiralty jurisdiction of the High Court could be invoked. This re-enacted s 5 (1)(a) of the Administration of Justice Act 1920. That was the first Act to confer Admiralty jurisdiction on the High Court to consider this type of claim. Neither the High Court of Admiralty, nor its successor (from 1875), the Probate Divorce and Admiralty Division of the High Court, had jurisdiction over claims of the type now covered by para (h).

(3) However, prior to 1920 the county court did have a limited Admiralty jurisdiction for that type of claim. The jurisdiction was conferred by the County Courts Admiralty Jurisdiction Act 1868, amended by the County Courts Admiralty Jurisdiction Amendment Act 1869. Section 2(1) of the latter Act provided that county courts appointed to have Admiralty jurisdiction could try and determine ‘any claim arising out of any agreement made in relation to the use or hire of any ship …’

(4) Therefore the wording in the 1981 Act can trace its ancestry back to the 1869 Act. The differences in the words used are not significant, as Brandon J observed in The Escherscheim [1974] 3 All ER 307 at 317, [1975] 1 WLR 83 at 93.

15. The early cases on the construction of para (h)

The three House of Lords cases I have referred to have also considered the courts’ construction of the predecessors of para (h) and that paragraph in the 1981 Act. The courts construed the 1869 Act paragraph restrictively. They were reluctant to give the county court a wider Admiralty jurisdiction than the High Court, particularly in relation to charterparty disputes, as that would interfere with the common law courts which had always asserted exclusive jurisdiction in such cases. Thus it was only in The Alina, Brown v The Alina (1880) 5 Ex D 227 that the Court of Appeal held that claims arising out of charterparties were covered by s 2 (1) of the 1869 Act. But in a significant case after The Alina, The Zeus (1888) 13 PD 188, the Divisional Court held that a claim arising out of a contract to load a ship with coals was not within s 2 of the 1869 Act. Mr Garland relied on that case and the fact that it was approved in the House of Lords in both the Gatoil case (see [1985] 1 All ER 129 at 137, [1985] AC 255 at 270 per Lord Keith of Kinkel) and The Antonis P Lemos (see [1985] 1 All ER 695 at 702, [1985] AC 711 at 730 per Lord Brandon). In those cases the House of Lords held that The Zeus was authority for a narrow construction of the words ‘relating to’ in s 2 of the 1869 Act and its statutory successor paragraphs.

16. The Beldis [1936] P 51, [1935] All ER Rep 760

The wording of s 2(1) of the 1869 Act was again considered by the Court of Appeal (Merriman P, Scott LJ and Swift J) in The Beldis. A claim had been referred to arbitration to recover overpaid charter hire in respect of a charter for a ship called the Belfri. An award was made in favour of the plaintiffs in the subsequent action, Anglo Soviet Shipping Co. They started a county court action in rem against a sister ship of The Belfri, called The Beldis. The claim was to recover the sum awarded by the tribunal. The defendant owners did not appear and judgment was entered against them in default. The mortgagees then intervened. The parties put one agreed issue before the county court judge. That was whether an Admiralty action in rem could be maintained against the Beldis when the original claim arose out of a charterparty for the Belfri. He decided that it could be maintained. When the matter came before the Court of Appeal

Page 699 of [2000] 2 All ER 692

Merriman P raised the issue of whether there was jurisdiction in rem to deal with this type of claim at all. It appears from the report of the argument (see [1936] P 51 at 58) that Mr Owen Bateson for the appellant mortgagees did not take up the jurisdiction point, although he did refer the court to three cases on the issue, including The Zeus.

17. In a reserved judgment the court held that the claim on the award did not come within s 2(1) of the 1869 Act. Therefore the county court could not exercise jurisdiction in rem. Merriman P accepted that if the action had been for the claims that were the subject of the reference to the arbitrator, then they would have fallen within the section, following The Alina (see [1936] P 51 at 61, [1935] All ER Rep 760 at 764). But he held that this was entirely different from a claim on the award. He pointed out that a plaintiff claiming on an award has only to plead and prove ‘that certain matters in dispute have been submitted to an arbitrator and that he has made his award in the plaintiff’s favour’. Merriman P emphasised that it was not necessary, indeed positively wrong, to plead the nature of the original dispute. He concluded that he was not prepared to hold that ‘a claim upon an award held under the arbitration clause in a charterparty is a claim arising out of any agreement made in relation to the use or hire of a ship‘. He held it was a ‘common law claim upon the award and nothing else’. Merriman P went on to hold that, if there had been jurisdiction, it was not possible to bring the action in rem against a sister ship that was unconnected with the cause of action. Both Scott LJ and Swift J agreed with him on the second point of decision.

18. Scott LJ noted that when the 1869 Act was passed, there was a statutory means for enforcing arbitration awards by obtaining from one of the three common law courts a rule absolute for payment of the sum awarded (see [1936] P 51 at 82–83, [1935] All ER Rep 760 at 774–775). Therefore, he remarked, it was unlikely that an Admiralty jurisdiction would be created to enforce an arbitration award, unless the statutory wording clearly did so. He concluded that the wording of s 2(1) clearly did not confer this jurisdiction. He also pointed out that the history of the statutory extension of the Admiralty Court’s jurisdiction in the 1840 and 1861 Acts was in—

‘precise, plain and carefully guarded terms; and, in the case of those founded on contract, the cause of action was one directly based upon the maritime contract described in the section.’

In his view, because of this approach, it would be ‘entirely wrong’ to hold that an action on an award arising out of such a maritime contract was included by the words of’ the 1840 and 1861 Acts which gave the Admiralty Court jurisdiction over certain types of contractual claim, eg in relation to towage and bills of lading. He concluded that the legislature must have adopted a similar approach to the county court jurisdiction in Admiralty. He therefore concluded ([1936] P 51 at 83, [1935] All ER Rep 760 at 775):

‘… it would in my judgment be plainly wrong to say that under s. 2, sub-s. 1 of the Act of 1869 a county court has Admiralty jurisdiction to entertain an action on an award upon a voluntary submission, merely because the arbitration was held pursuant to an arbitration clause in a charterparty for the reference of disputes arising out of that charterparty’.

19. The decision in The Beldis stood undisturbed until 1983. In The Escherscheim [1974] 3 All ER 307 at 318, [1975] 1 WLR 83 at 94 Brandon J commented on it, saying that the basis of the decision was that the relevant claim did not arise out of the agreement (ie the charterparty), although the agreement

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related to the use or hire of a ship. He commented that the ground of decision in The Beldis ‘does not seem to be consistent with Bremer Oeltransport GmbH v Drewry which was apparently not cited’. As already noted, the Court of Appeal in that case had held that an action on an award was founded on the breach of an implied term in the agreement to submit the differences of which the award was the result. Therefore the court held that, for the purposes of the existing Ord XI, r 1(e), the claim on an award was one ‘to enforce a contract made within the jurisdiction’. (This was so, even though the award itself was made in Hamburg.) I am not sure that Brandon J was correct to suggest that in The Beldis the Court of Appeal were emphasising that it was the first part of the sentence of the section (ie ‘claim arising out of any agreement’) that was not fulfilled. Merriman P refers to the whole sentence and Scott LJ recognised that the action on the award arose ‘indirectly’ out of the maritime contract (see [1936] P 51 at 63, 83, [1935] All ER Rep 760 at 765, 774). However it should be noted that Brandon J did not say that The Beldis was decided per incuriam although he clearly had doubts about it.

20. The St Anna [1983] 2 All ER 691, [1983] 1 WLR 895

The issue of whether an action on an award could be the subject of an Admiralty action in rem arose in this case, in which the plaintiffs sought judgment in default of defence. The action was on an award made in favour of charterers and against the owners of the St Anna. That vessel had been arrested and sold by the Admiralty Marshal at the suit of numerous claimants. The plaintiffs had issued a writ in rem against the proceeds of sale of the vessel. Sheen J heard argument only from the plaintiffs, but both The Beldis and the Bremer Oeltransport case were cited, as were the passages of Brandon J in The Escherscheim and relevant textbooks. Having referred to both cases, Sheen J concluded: (1) that the Bremer Oeltransport case was clear authority for the proposition that an action based upon an award is an action for the enforcement of the contract which contains the submission to arbitration, ie the charterparty; (2) an action to enforce an award necessitates pleading and proving the arbitration submission and the award; (3) a claim to enforce a charterparty is within the Admiralty jurisdiction of the High Court; and (4) because one ground of decision of The Beldis was inconsistent with the Bremer Oeltransport case:

‘This leaves me free to decide which authority I should follow. As the decision in [the Bremer Oeltransport case] was not brought to the attention of the Court of Appeal during argument in The Beldis, and as I find myself convinced by the reason in the latter case, I have no hesitation in following it.’

21. Mr Smith drew my attention to the fact that The St Anna has been followed in the Hong Kong and Singapore Courts. He also submitted that it has been referred to in text books without criticism, save for a cautionary note in Dicey and Morris on The Conflicts of Laws (12th edn, 1993) pp 605 and 608. So far as counsel can discern, there is no reported decision either following it or dissenting from it in England. However in the Gatoil case in the House of Lords, Lord Keith of Kinkel refers, without comment, to the decision of the Court of Appeal in The Beldis but The St Anna was not cited. Nor was it in The Antonis P Lemos.

22. Conclusion on principal issue 1: Is a claim on an arbitration award within para (h) of s 20(1) of the Supreme Court Act 1981?

I have come to the conclusion that the answer I must give to this question is No. I think that it is not within the paragraph as a matter of construction. I also

Page 701 of [2000] 2 All ER 692

consider that I am bound by the decision of the Court of Appeal in The Beldis. My reasons are as follows.

(1) The ‘claim’ in this case is the action on the award. That ‘claim’ clearly ‘arises out of’ the agreement to refer the disputes that had arisen under the bareboat charterparty. In The Antonis P Lemos the House of Lords held that the phrase ‘arises out of’ in para (h) should be given a broad construction, so as to mean ‘in connection with’: see [1985] 1 All ER 695 at 703, [1985] AC 711 at 731. Upon the analysis of the Court of Appeal in the Bremer Oeltransport case a claim on an award ‘arises out of’ or is ‘in connection with’, the agreement to refer the particular dispute to arbitration, or the agreement to refer future disputes generally to arbitration.

(2) However, that agreement to refer disputes is not, itself, an ‘agreement in relation to the use or hire of a ship’. This is because the arbitration agreement, whether it is the individual reference or the general agreement to refer, is a contract that is distinct from the principal contract, ie the bareboat charterparty in this case. The distinction between the contracts is, as Mr Garland submitted, made clear in cases such as Heyman v Darwins Ltd [1942] 1 All ER 337, [1942] AC 356 and Harbour Assurance Co (UK) Ltd v Kansa General International Assurance Co Ltd [1993] 3 All ER 897, [1993] QB 701, and see s 7 of the Arbitration Act 1996.

(3) In The Antonis P Lemos [1985] 1 All ER 695 at 702–703, [1985] AC 711 at 730 the House of Lords accepted that the authorities on para (h) of the 1981 Act and its statutory predecessors made it clear that a narrow meaning must be given to the expression ‘in relation to’ in that paragraph. The agreement to refer to arbitration individual disputes that have arisen out of a charterparty, or the agreement to refer future disputes in general that arise out of a charterparty, must be agreements that are indirectly ‘in relation to the use or hire of a ship’. But, in my view, they are not agreements that are sufficiently directly ‘in relation to the use or hire of a ship’. The arbitration agreement is, at least, one step removed from the ‘use or hire’ of a ship. The breach of contract relied upon to found the present claim has nothing to do with the use or hire of the ship; it concerns the implied term to fulfil any award made pursuant to the agreement to refer disputes. In my view the breach of the contract relied on when suing on an award does not have the ‘reasonably direct connection with’ the use or hire of the ship that Lord Keith held in the Gatoil case was necessary to found jurisdiction under this paragraph: see [1985] 1 All ER 129 at 137, [1985] AC 255 at 271.

(4) Therefore, upon the proper construction of para (h), an action on an award is not one on an agreement which is ‘in relation to the use or hire of a ship’. This was the conclusion of the Court of Appeal in The Beldis. The current paragraph is the statutory successor to the wording that was considered in that case. Unless there is some material distinction in the wording, then I believe that I must follow the construction given by the Court of Appeal to the wording in that case. There is no significant distinction, as Brandon J pointed out in The Escherscheim [1974] 3 All ER 307 at 317, [1975] 1 WLR 83 at 93.

(5) With great respect to Sheen J, I cannot accept his view that the decision in The Beldis was ‘inconsistent with’ the Bremer Oeltransport case. The latter case was not dealing with the proper construction of this head of Admiralty jurisdiction. And the analysis in both cases of the constituents of an action on an arbitration award is remarkably similar. Both make it clear that the submission to arbitration must be pleaded and proved as well as the award itself.

(6) Even assuming that an action on an award is one ‘in connection with’ the underlying submission to refer, there remains the question, critical to the present issue, of whether that submission is sufficiently directly related to the use or hire

Page 702 of [2000] 2 All ER 692

of a ship to make the matter fall within para (h). That point was not at issue in the Bremer Oeltransport case, but it was in The Beldis, which decided the point against the claimants. I am satisfied that the decision was not ‘per incuriam’ and that I must follow it.

23. Therefore I have concluded that Mr Garland is correct in his submission that the Admiralty Court has no jurisdiction to consider this claim under para (h) of s 20(1) of the Supreme Court Act 1981. Accordingly, the action and the claim form must be struck out and the service of the claim form must be set aside. It must also follow that the arrest of the vessel cannot be maintained in respect of this claim.

24. The second principal issue: that the arrest is an abuse of the process of the court as the claimants already have adequate security

This point obviously only arises if I am wrong on the first issue. Both parties accept that the court has the power to release the vessel from arrest under para 6.6(1) of the Practice Direction forming the Admiralty Court Guide. Mr Smith for the claimants accepted that there should be a release if the court is satisfied that the claim to enforce award no 12 is otherwise adequately secured. The only ‘security’ considered was the detention of the two vessels at Constantza. There was some debate as to how ‘adequate’ the security had to be. Mr Smith contended that the security had to be as good as the arrest of the Bumbesti both in terms of amount and the ‘quality’ of the protection. But he accepted that the nature of the protection of the security did not have to equate exactly with an arrest by the English Admiralty Court. Mr Garland ultimately accepted these tests. Therefore there are two issues that I have to deal with under this heading: (1) is the correct value of the vessels, as detained in Constantza sufficient to discharge the claim; and (2) is the protection over the vessels that is provided by the Constantza court order adequate?

25. The amount of the claim on award no 12

As already noted, the total claim under award no 12 is for damages of $US238,072, plus stamp duty and lawyers’ fees. The parties agreed that the latter two figures probably amount to about $US9000, making a total of $US247,072. Under the award there is no entitlement to interest on the principal sum. Even if I assume that interest can be awarded somehow, then the maximum figure for which the claimants could legitimately seek security is, in my view, $US300,000.

26. Value of the vessels as detained in Constantza

The evidence on value was conflicting. The Tirgu Neamt is 21 years old, is in class but is laid up. The Tirgu Lapus is nearly 21 years old and has been out of class since October 1998. A Romanian company has put a ‘market value’ on the Tirgu Neamt of $US750,000. Mr Garland says that should be accepted and as the vessels are identical, it is the market value of the Tirgu Lapus also. But if the vessels were sold in Constantza, whether pursuant to a court auction or privately, it would be at a ‘forced sale’ value. The valuation report does not say that the figure of $US750,000 represents the sum that would be obtained in a ‘forced sale’ of the vessels in their present condition and I am sure that sum would not be realised.

27. Mr Garland next relies on the figure that was offered by a Cypriot company that had agreed to buy the vessels through the Constantza court but then failed to pay the deposit. The total price for both vessels was agreed at $US660,000. As this sale did not go ahead I am sceptical about the utility of the

Page 703 of [2000] 2 All ER 692

sum agreed. I am also sceptical about the ‘offer’ apparently made to the defendants by NG Moundreas Shipping SA on 9 June 1999. The price ‘offered’ for both vessels was $US470,000. There was no evidence of how this offer came to be made and, given that the vessels were detained in Constantza at the time, I must doubt whether it was a genuine offer.

28. Lastly there is evidence of the value of the vessels from the well-known ship sale and purchase brokers English White Shipping Ltd. That gives a valuation of $US600,000 for each of the vessels, assuming them to be ‘in seaworthy condition, capable of proceeding under their own power, in average condition for their age and in Class’. I have concluded that these conditions are not satisfied in either case. The Tirgu Lapus is out of class and the Romanian company’s valuation report on Tirgu Neamt states that ‘in order for the vessel to be operated on [sic], high investments are necessary’. That must mean that Tirgu Neamt is probably neither seaworthy, nor capable of proceeding under her own power nor in average condition for her age, even if she is still, technically, in Class.

29. English White also gives a scrap valuation of the vessels. The net value would depend on where the vessels were to be delivered, because the cost of towage to any destination far from Constantza would be high. The two scrap markets suggested by English White are the Indian subcontinent and Turkey. If the vessels were sold for delivery to the former, the net sale proceeds would probably be only $US40,000; if for delivery to the latter the net proceeds would be about $US340,000. There is no evidence as to which destination would be more likely.

30. On the evidence I have concluded that it is very unlikely that the two vessels would achieve much more than a scrap value price if sold at Constantza. But there is evidence of an available scrap market in Turkey. It seems to me inherently more likely that the vessels would be sold for delivery there rather than further afield. Therefore, although the evidence is not entirely satisfactory, I have concluded that the sale value of the vessels at Constantza is between $US300,000 and $US340,000, ie enough to meet the claimants’ claim.

31. The nature of the protection of the security given by the Constantza court order

Mr Smith submits that the vessels are not in the custody of the Constantza court in the same way that vessels under arrest in an Admiralty action in rem are in the custody of the Admiralty Marshal. Therefore the protection given by the Constantza court order is not as good as that of an arrest in England. There was some evidence of the nature of the detention of the vessels by the Constantza court. The original application for execution was not specifically an ‘admiralty’ provision, but is a form of execution available against all assets. But the ‘Commandment’ made on 9 February 1999 against each vessel was issued under arts 914 and 915 of the Romanian Commercial Code and is an admiralty provision. That deals with the seizure and enforcement of existing judgments against vessels. The Commandment gives the claimant a priority over subsequent claimants in receiving payment out of the proceeds of sale of the vessel. It is accepted by the Romanian lawyers acting for the defendants that the effect of the suspension (by the Supreme Court) of the execution of award no 12 does not affect the seizure of the two vessels. Mr Smith also accepted that the effect of the seizure was that the defendants could not attempt to sell the vessels, except with the approval of the Constantza court.

32. There was controversy as to whether the defendants could lawfully use the vessels for trading whilst remaining seized by the Romanian court. I asked Mr Garland if his clients would be prepared to give an undertaking not to use the

Page 704 of [2000] 2 All ER 692

vessels whilst remaining seized by the Constantza court. The undertaking that the defendants are prepared to give, assuming that the arrest in the English proceedings was set aside, is set out in a fax from Ince & Co to the court dated 18 June 1999 (although only sent on 21 June), as follows:

‘Not to disturb the enforcement proceedings against the two vessels detained in Constantza pending determination of the appeal to the Romanian Supreme Court, this undertaking specifically reserving [the defendants’] right to apply to the court on 13 July for the suspension of the right of sale to continue throughout that period’.

That undertaking would, I think, adequately preserve the rights of the claimants on the two vessels given the existing orders of the Constantza court over the vessels.

33. Conclusions on principal issue 2

I have concluded that the security obtained by the claimants for the award no 12, in the form of the detention of the two vessels by the Constantza court, is adequate security for the enforcement of that claim. Accordingly, provided that the defendants confirm that they will give the undertaking set out in Ince & Co’s fax of 18 June, I propose to release the Bumbesti from arrest in this action. I should, however, note two further points. First, I was informed by Mr Smith that the claimants would be issuing further proceedings in rem against the Bumbesti and so they had issued a caveat against the release of the vessel. The proposed proceedings were in the form of a claim, brought in rem, based on the original cause of action under the bareboat charter. The right to bring this form of action is said to be based on the decision of Brandon J in The Rena K [1979] 1 All ER 397, [1979] QB 377. In that case Brandon J held that a cause of action in rem does not merge with a judgment made in personam, but remains available so long as the judgment in personam remains unsatisfied. He also accepted that this principle could apply to arbitration awards: see [1979] 1 All ER 397 at 415–417, [1979] QB 377 at 405–406. I do not know whether the claimants will maintain their caveat in the light of my conclusion on principal issue 2.

34. Secondly I note that the claimants were prepared to undertake to release their security over the two vessels in Constantza if the arrest of the Bumbesti were to be maintained. As I have held that it should not be, this undertaking is irrelevant.

Order accordingly.

Rania Constantinides  Barrister.

Holbeck Hall Hotel Ltd and another v Scarborough Borough Council

[2000] 2 All ER 705

Categories:        TORTS; Nuisance: LAND; Other Land        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        STUART-SMITH, SCHIEMANN AND TUCKEY LJJ        

Hearing Date(s):        18–20 JANUARY, 22 FEBRUARY 2000        

Land – Support – Natural right of support – Whether servient owner under positive duty to provide support for neighbour’s land.

Nuisance – Natural processes – Change in nature of land itself – Change giving rise to state of affairs constituting hazard to neighbouring properties – Claimants owning hotel on top of cliff owned by defendant – Cliff prone to land slips because of erosion – Defendant aware of problem but not investigating hazard to claimants’ land – Land beneath hotel collapsing in land slip caused by defect on both sides of boundary – Whether defendant owing claimants duty of care to prevent hazard – Scope of duty.

The claimants were the freehold owners and lessees of a hotel which stood on a cliff overlooking the sea. The land between the hotel grounds and the sea was owned and occupied by the defendant local authority. Due to maritime erosion, the cliff was inherently unstable, and in 1982 a slip occurred on the authority’s land below the hotel. Outside engineers, called in by the authority, failed to identify the slip surface. However, they recommended various remedial measures depending on whether the slip surface was deep or shallow, and suggested that it might be prudent to carry out further investigations to locate the slip plane before remedial measures were designed. After a further slip in 1986, the authority’s chief engineer expressed the fear that the slip could ultimately affect part of the hotel’s land if left unchecked. In 1993 there was a massive slip, far greater in magnitude than the two previous slips, consisting of a single, indivisible, rotational movement of land on both sides of the boundary. As a result, the ground under the hotel’s seaward wing collapsed, and the rest of the hotel had to be demolished for safety reasons. In subsequent proceedings, the  authority contended that, in an action based on loss of support, mere omission on the part of the servient owner was not actionable in the absence of positive action by him in withdrawing support. That contention was rejected by the judge who further held that the authority had been aware or, in any event, ought to have been aware of the hazard caused by the potential failure of support to the claimants’ land, that it was therefore under a measured duty of care to the claimants, that it had breached that duty by failing to investigate the danger to the claimants’ land after the 1986 slip and that, if such investigations had taken place, it would have discovered that a slip of the type that took place in 1993 was imminent. Accordingly, he gave judgment for the claimants, and the authority appealed.

Held — (1) The owner of the servient tenement was under a duty to take positive steps to provide support for a neighbour’s land. There was no difference in principle between the danger caused by loss of such support and any other hazard or nuisance on a defendant’s land, such as the encroachment of some noxious thing, which affected the claimant’s use and enjoyment of land. Encroachment was merely one form of nuisance, and interference causing

Page 706 of [2000] 2 All ER 705

physical damage to the neighbour’s land and building as a result of activities on the defendant’s land was another. Thus where the question was not whether the defendant had created the nuisance but whether he had adopted or continued it, there was no reason why different principles should apply to one kind of nuisance rather than another. In each case, liability only arose if there was negligence, and the duty to abate the nuisance arose from the defendant’s knowledge of the hazard that would affect his neighbour (see p 718 a to c, p 719 d to e and p 726 g, post); Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] 1 All ER 17 and Bar Gur v Bruton [1993] CA Transcript 981 applied; dictum of Greene MR in Bond v Norman, Bond v Nottingham Corp [1940] 2 All ER 12 at 18 not followed.

(2) Where a defect on the defendant’s land created a potential hazard to the claimant’s land, the duty to prevent such a hazard arose only if the defect was patent rather than latent, ie if the defect could be observed. In such a case, it was no answer for the landowner to say that he had not observed it if a responsible servant had done so, or if, as a reasonable landowner, he or the person to whom he had entrusted the responsibility of looking after the land should have seen it. However, in the case of a latent defect the landowner or occupier would not be liable merely because he would have discovered that defect on further investigation. Moreover, where the court was required to determine the scope of a measured duty of care arising in a non-feasance case, similar considerations arose as in a case where the court had to determine whether it was fair, just and reasonable to impose a duty or the extent of that duty (see p 720 j to  p 721 a, p 724 f and p 726 g, post); Goldman v Hargrave [1966] 2 All ER 989 considered.

(3) In the instant case, the local authority had not foreseen a danger of anything like the magnitude that had occurred in 1993, and it was not just and reasonable to impose liability for damage which was greater in extent than anything that was foreseen or foreseeable (without further geological investigation), especially since the defect and danger had existed as much on the claimants’ land as on the authority’s. In those circumstances, the authority’s duty was limited to an obligation to take care to avoid damage which it ought to have foreseen without further geological investigation. It might also have been limited by other factors, so that it was not necessarily incumbent on a person in the authority’s position to carry out extensive and expensive remedial work to prevent damage which it ought to have foreseen. Rather, the scope of its duty might be limited to warning the claimants of such risk as it was aware of, or ought to have foreseen, and sharing such information as it had acquired relating to it. On either approach, it had not been established that the authority had been liable for any loss, and accordingly the appeal would be allowed see p 721 e, p 724 f g and p 725 b to d and p 726 f g, post).

Notes

For natural rights of support and for the general rule of liability in nuisance, see respectively 14 Halsbury’s Laws (4th edn) paras 168–169 and 34 Halsbury’s Laws (4th edn reissue) para 55.

Cases referred to in judgments

A-G v Tod Heatley [1897] 1 Ch 560, [1895–9] All ER Rep 636, CA.

Bar Gur v Bruton [1993] CA Transcript 981.

Barker v Herbert [1911] 2 KB 633, [1911–13] All ER Rep 509, CA.

Bond v Norman, Bond v Nottingham Corp [1940] 2 All ER 12, [1940] 1 Ch 429, CA.

Page 707 of [2000] 2 All ER 705

Bradburn v Lindsay [1983] 2 All ER 408.

Caparo Industries plc v Dickman [1990] 1 All ER 568, [1990] 2 AC 605, [1990] 2 WLR 358, HL.

Goldman v Hargrave [1966] 2 All ER 989, [1967] 1 AC 645, [1966] 3 WLR 513, PC.

Greenwell v Low Beechburn Coal Co [1897] 2 QB 165.

Hall v Duke of Norfolk [1900] 2 Ch 493.

Hughes v Lord Advocate [1963] 1 All ER 705, [1963] AC 837, [1963] 2 WLR 779, HL.

Job Edwards Ltd v Birmingham Navigations [1924] 1 KB 341, CA.

Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] 1 All ER 17, [1980] 1 QB 485, [1980] 2 WLR 65, CA.

Macpherson v London Passenger Transport Board (1946) 175 LT 279.

Rich (Marc) & Co AG v Bishop Rock Marine Co Ltd, The Nicholas H [1995] 3 All ER 307, [1996] 1 AC 211, [1995] 3 WLR 277, HL.

Pontardawe RDC v Moore-Gwyn [1929] 1 Ch 656.

Sack v Jones [1925] Ch 235, [1925] All ER Rep 514.

Sedleigh-Denfield v O’Callagan [1940] 3 All ER 349, [1940] AC 880, HL.

Cases also cited or referred to in skeleton arguments

Cambridge Water Co Ltd v Eastern Counties Leather plc [1994] 1 All ER 53, [1994] 2 AC 264, HL.

Donoghue v Stevenson [1932] AC 562, [1932] All ER Rep 1, HL.

French v Auckland City Corp [1974] 1 NZLR 340, NZ SC.

Giles v Walker (1890) 24 QBD 656, [1886–90] All ER Rep 501, DC.

Home Brewery plc v William Davis & Co (Loughborough) Ltd [1987] 1 All ER 637, sub nom Home Brewery Co Ltd v William Davis & Co (Leicester) Ltd [1987] QB 339.

Hunter v Canary Wharf Ltd, Hunter v London Docklands Development Corp [1997] 2 All ER 426, [1997] AC 655, HL.

Montana Hotels Pty Ltd v Fasson Pty Ltd (1986) 69 ALR 258, PC.

Noble v Harrison [1926] 2 KB 332, [1926] All ER Rep 284, DC.

Page Motors Ltd v Epsom and Ewell BC (1981) 80 LGR 337, CA.

Rylands v Fletcher (1868) LR 3 HL 330, [1861–73] All ER Rep 1.

Smith v Littlewoods Organisation Ltd (Chief Constable, Fife Constabulary, third party) [1987] 1 All ER 710, [1987] AC 241, HL.

Stovin v Wise (Norfolk CC, third party) [1996] 3 All ER 801, [1996] AC 923, HL.

Appeal

The defendant, Scarborough Borough Council (Scarborough), the owner and occupier of land between the grounds of Holbeck Hall Hotel, South Cliff, Scarborough and the sea, appealed from the decision of Judge Hicks QC in the Queen’s Bench Division of the High Court (Official Referees’ Business) on 3 April 1998 whereby he held that Scarborough was liable to the claimants, Holbeck Hall Hotel Ltd and English Rose Hotels (Yorkshire) Ltd, who were respectively the freehold owners and lessees of the hotel, in respect of damage caused to the hotel by a land slip. The facts are set out in the judgment of Stuart-Smith LJ.

Timothy Stow QC and Paul Darling QC (instructed by Hammond Suddards, Leeds) for Scarborough.

Christopher Symons QC and Paul Reed (instructed by Kennedys) for the claimants.

Cur adv vult

Page 708 of [2000] 2 All ER 705

22 February 2000. The following judgments were delivered.

STUART-SMITH LJ.

Introduction

1. Holbeck Hall Hotel was a four-star hotel standing about 65 metres above sea level on South Cliff, Scarborough. It looked out over an expanse of lawn to panoramic views of the North Sea. That was on the morning of 3 June 1993. But three days later, as a result of a massive landslip which took place in four stages, the lawn had disappeared and the ground had collapsed under the whole of the seaward wing of the hotel. The rest of the hotel was unsafe and had to be demolished. Because the slip was progressive everyone was evacuated without injury.

2. The freehold owners of the hotel were the first claimants who in 1980 leased the property to the second claimants on a 21-year lease. The judge drew no distinction between the two claimants in considering the question of liability. I shall do the same and refer to them collectively as ‘the claimants’. The defendant, ‘Scarborough’, is the local authority; however they are not sued as such, but as owners and occupiers of the land between the hotel grounds and the sea.

3. The building which later became the hotel was built in 1880 by Charles Alderson Smith, who at that time owned about nine acres of land extending to the sea. By a conveyance of 1 February 1887 he conveyed on sale the northern part of the ‘undercliff’ forming the eastern slope of his property to the borough of Scarborough. That conveyance contained no covenant for support. On 2 August 1895 he conveyed to the borough the remaining, southern, part of the undercliff in consideration of certain ‘conditions, restrictions and obligations’ which included covenants for the maintenance of the undercliff on which the claimants relied in the action.

4. By his judgment, dated 3 April 1998, Judge Hicks QC held that Scarborough were liable to the claimants for the result of the collapse on the grounds that they were in breach of a measured duty of care at common law. It is against that decision that Scarborough appeal. The judge rejected two other grounds upon which the claimants had based their claims, namely that Scarborough had interfered with their easement of support and failure to comply with the covenant in the 1895 conveyance. There is no cross-appeal on these grounds.

5. There was a parallel action, tried at the same time, in which Scarborough claimed, in the event of their being held liable to the claimants, relief against Geotechnical Engineering (Northern) Ltd (GEN) on the basis that GEN had been negligent in carrying out a site investigation and reporting to Scarborough in 1984 and 1985. The judge held that there was negligence on the part of GEN, but dismissed the claim on the basis that the negligence was not the cause of Scarborough’s liability to the claimants. There is no appeal from this decision.

Geology and history

6. Scarborough own some 42 acres of the coastline. In the area in question the upper part of the cliff consisted of a blanket of what was variously described as boulder clay or glacial till, deposited in geologically recent times during and at the end of a period of glaciation. Below that, outcropping at about 25 metres above sea level, was a layer of mudstones of jurassic origin (and therefore much older), in this locality called the Scalby Formation. That, in turn, overlay a bed of much

Page 709 of [2000] 2 All ER 705

harder quartz sandstone known as the Moor Grit, which outcropped at about 12 metres to form a nearly vertical base to the cliff where not hidden by man-made structures or by fallen debris from above. At sea level that gave way to a limestone, known locally as the Black Rocks, but nothing turns on its presence or properties.

7. In its natural state this part of the coast is subject to marine erosion, and the slopes of the cliffs are therefore steeper than they would be in the steady state which would eventually be reached in the absence of such erosion. In that condition of over-steepness they are inherently unstable. While coastal erosion continues they will retreat in step with it, combining a broadly constant profile overall with continually repeated change in detail from local slips. When the retreat of the coastline is checked by sea defence works, as it was below Holbeck Hall by 1912 and along the adjoining stretch of coast to the north by 1893, the inherited instability above and behind those works will for a while continue to produce similar slips, although if the sea defences hold the process will in time slow down as the slopes behind them become shallower and eventually approach an equilibrium.

8. All these processes, although rapid in the geological timescale and readily foreseeable in broad effect, are very slow and intermittent by human standards, and the timing of particular episodes is entirely unpredictable. It is not in dispute that what is described in the last sentence of the last paragraph is still at an early stage of its evolution in the area with which this case is concerned. It is also not in dispute that within limits its progress can be modified by human intervention, for example by drainage; the maximum slope sustainable in fully drained soil can be up to twice that in the same soil undrained.

9. There was much evidence from 1893 onwards of slips and collapses along the stretch of coastline which included the stretch between the grounds of Holbeck Hall and the sea. Many of these were on a much smaller scale than that of 1993 including all of those which impinged on the site of the slip. But the judge held that there were two, not far away, of comparable magnitude. In this appeal Scarborough accept that there was one, namely that in 1893; they dispute that there was another. But it seems to me that both the defendants’ pleadings (p 99, admission of large scale slope movements; p 207–080A allegation in further and better particulars in the GEN action of large slips in 1737, 1892/1893 and 1915) and the evidence (see particularly p 209–001–002; p 207–004; p 229 Mr Clements; p 207-077, p 227 Mr Chamley) justify the judge’s conclusion that there were two such slips.

10. At p 210 there is a drawing prepared by Scarborough for the purpose of the action which demonstrates the process where, over the period between 1892 and 1983 slips had taken place in the area; this drawing also demonstrates that Scarborough had dealt with these slips by regrading the surface and installing drainage in the form of herring bone drains to remove water from the cliff.

11. In 1982 a slip or slips occurred on Scarborough’s land below Holbeck Hall. Scarborough decided that they needed outside assistance in dealing with it. Mr Clements, the borough’s chief engineer, said this was because of the size of the slip which was larger than that which was repaired by Scarborough in the normal course and because they needed to ascertain if there was anything special or peculiar about this particular site. There was a need for a site investigation to enable Scarborough to consider the form of remedial work for this relatively large slip and to prevent further slipping and to make the slope stable.

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12. In the summer of 1984 GEN were invited to tender for the work. The invitation to tender identified the purpose of the investigation as:

‘A report is required to advise on the treatment required to the cliffs to make them stable and prevent further slipping of material onto paths and promenades below. There is also a problem with groundwater and recommendations are required as to what drainage facilities should be provided in each case.’

13. GEN’s tender was accepted and they were asked to give their urgent attention to the report and recommendations. GEN reported on 14 May 1985. The judge explained the effect of the GEN report at para 91. For present purposes it is sufficient to summarise that explanation. After describing the action taken including sinking boreholes, it was said that the slip surface had not been identified although two slip surfaces were postulated, one being shallow and one deep. GEN advised that stability would be improved by drainage which lowered the ground water levels within the slipped mass. If the slip surface was shallow, a scheme dealing with the ground water just below it would make a substantial difference; but that degree of drainage would be substantially less effective if the slip surface was a deeper one. Drainage down to the base of the postulated slip would produce a big improvement. If any conclusion could be drawn from comparison between the two analyses it would be that the deeper slip was the more likely. In para 5.4 of the report, under the heading ‘Remedial Measures’, GEN said:

‘Before designing remedial measures it may be prudent to carry out further investigation in the form of trial pits dug within the slip mass to try and locate the actual slip plane and to obtain samples suitable for effective stress testing to enable a rigorous slope stability analysis to be carried out.’

14. On 27 November 1986 a further slip occurred at the site of the 1982 slip which effectively doubled the size of the previous one. Scarborough’s engineer’s report of 1 December 1987 noted that the ‘area has been a problem for a number of years because of cliff movement’. As a result of the second slip the top of it was about 30–35 metres from the claimants’ boundary.

15. In a letter to a member of the council, dated 29 September 1988, inviting him to a site meeting, Mr Clements wrote:

‘I am most anxious that such a site visit should take place as I am becoming increasingly concerned that if the slip is left unchecked it will eventually lead to the closure of a part of the Cleveland Way, remove the cliff path that exists between Seacliff Car Park, Holbeck Ravine and ultimately the gardens to the cliff, and finally could affect the land forming part of the property of the Holbeck Hall Hotel. This slip is not one which is, in my view, at any time likely to lead to coast protection grant as it does not appear to be prejudicing the stability of the existing sea defences. It will be necessary, therefore, for any expenditure required to deal with this cliff slip to be met by the Borough Council, and the costs are likely to be not insignificant. It is my intention to make a bid for the scheme in next year’s capital estimates, but unless Members are aware of the scale of the problem I suspect it may be one that will tend to be overlooked in favour of other apparently more urgent needs.’

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16. The judge held that this letter indicated actual knowledge of the hazard to the claimants’ land by the potential failure of support. Mr Stow QC, on behalf of Scarborough, contends that it does not show an awareness of the catastrophic type of slip which occurred, but merely a likelihood of shallow or minor slips which, if not remedied might in due course reach the claimants’ boundary.

17. Mr Clements was asked in cross-examination about this letter at p 231:

‘Q. You and he [Councillor Allinson to whom the letter was addressed] were concerned that, if work was not done, it would continue and go not just to the Cleveland Way but into Holbeck Hall Hotel’s grounds as well? A. Yes, but that was a surmise, I think.’

And later:

‘Q. … You were extremely concerned about this slip, hence your letter to the chairman of the committee? A. I wanted the work done if there was a possibility of it being done, yes.

Q. It had to be done, did it not, Mr Clements? A. I do not know that it had to be done. I am not sure about that. It had been a progressive failure for many, many years, and presumably it would have progressed for many, many years to come.

Q. But your council would not be prepared just to allow erosion to take place in this situation where there were important amenities for local people and property at the top of the slope? A. I do not think that the property, except to the extent that the grounds would be affected, would have been considered an issue because I do not think anybody at that time felt that the hotel was likely to be at risk…’

In my judgment this evidence is important because it indicates what Mr Clements contemplated and knew and justifies Mr Stow’s submission to which I have referred in the previous paragraph. The judge does not refer to this evidence; he certainly does not reject it.

18. In a report by the technical director to the council’s leisure and amenities committee recommending the work and expenditure, it was said:

‘The area of the slip is extensive and, if left unattended, will eventually lead to the loss of the Cleveland Way between Seacliff and Holbeck Ravine, would sever pedestrian communication between these two points and ultimately would be likely to expand into the grounds of the Holbeck Hall Hotel. The cost of the remedial works is anticipated to be in the order of £280,000.’

19. Remedial works were carried out in 1989. Unfortunately for reasons which were never explained because Mr Davies, Scarborough’s engineer who designed them, was dead, they were not, as the judge found, of the correct design. Instead of being herring bone drains, as had previously been adopted by Scarborough in the locality, and as was recommended by GEN, the work consisted of a grading of the slope with removal of some spoil and a 300 mm drainage blanket consisting of granular material on top.

20. I have set out these facts in some detail because in my judgment they justify the conclusion that Scarborough, through their responsible engineers, knew that if appropriate remedial action was not taken the landslip would be likely to progress and at some indeterminate time in the future affect the claimants’ land. They do not show that those engineers either foresaw, still less knew, that the

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hazard was of such a magnitude that it would be likely to involve a large part of the grounds and the hotel itself. Whether such foresight or knowledge is a necessary precondition for liability is a matter in dispute.

21. There is a further feature of this case which is unusual. The hazard existed on both sides of the boundary. The judge explained this at para 54:

‘Whether one looks at the cause of the failure or at the remedial work which would have been necessary to avert it both properties are involved. Even if only the first phase of the 1993 collapse is considered it consisted of a single, indivisible, rotational movement of land on both sides of the boundary. It is true that in terms of both surface area and volume much the greater part of that land was Scarborough’s, but it was the upper section which was the Plaintiffs’ and because of the geometry of the slip circle and the physics of the forces in operation the disproportion in the slip surfaces on each side was less and that of the shearing force creating the slip less still …’

The judge himself did some calculations which broadly appear to have been accepted (see para 52). He said that assuming uniform density the calculations indicated that:

‘… on a … first phase slip … where it penetrated most deeply into the Plaintiffs’ land something like 46% of the shearing face would be developed on the Plaintiffs’ side of the boundary … As to preventive measures the scheme jointly advanced by the Plaintiffs’ expert, Mr Chamley, and GEN’s, Professor Denness, and which I accept as appropriate, would have involved the grading back of the cliff surface to a shallower angle of slope (some 24°), and that would have entailed the removal of the Plaintiffs’ lawn to a depth of some 25 metres behind the then existing brow of the cliff.’

As the plan on p 217 illustrates the first phase of the slip extended only a comparatively short distance into the claimants’ land compared with the subsequent ones.

The judge’s conclusion

22. At para 81 the judge concluded that—

‘Scarborough were aware, and in any event should have been aware, of the hazard to the Plaintiffs constituted by the potential failure of support of the Plaintiffs’ land by Scarborough.’

He relied on three matters as showing actual awareness. (1) Mr Clements’ letter of 29 September 1988. I have already commented on this in paras 16 and 17. (2) The proviso to the covenant in the 1895 conveyance. I cannot see how this can show actual awareness of the hazard in 1986 or subsequently; and Mr Symons QC on behalf of the claimants did not seek to support this ground. (3) The entire history of cliff failures and remedial works along the coastline of which two slips were of comparable magnitude to that of 1993. I accept that this justifies the conclusion stated in para 20 above, but I do not think that it goes any further than this.

23. On the basis of his finding of Scarborough’s knowledge of the hazard, the judge held that Scarborough were under a measured duty of care to the claimants. In so doing he rejected the submission made on behalf of Scarborough that in an action based on loss of support, mere omission on the part of the owner of the servient tenement was not actionable in the absence of positive action by him withdrawing the support. In so doing the judge followed the line of authority

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exemplified by the decision of this court in Leakey v National Trust for Places of Historic Interest or Natural Beauty [1980] 1 All ER 17, [1980] 1 QB 485 in preference to the earlier authorities such as Sack v Jones [1925] Ch 235, [1925] All ER Rep 514 and the dictum of Greene MR in Bond v Norman, Bond v Nottingham Corp [1940] 2 All ER 12 at 18, [1940] 1 Ch 429 at 438. This is an important issue of law which has not been considered in any reported decision of this court. Mr Stow submits that the judge’s decision on this point was wrong.

24. Having held that Scarborough were under a duty of care, the judge considered in what respects they were in breach of it. He made the following findings. (a) That Scarborough were not negligent in failing to appreciate from the GEN report (and indeed it arguably may not have been the case) that a deep seated slip was more likely than a shallow one, but that Scarborough were negligent in designing and carrying out works appropriate only to a shallow slide (although he later held they were not in fact so appropriate) without excluding the possibility that the 1982 and/or 1986 slip had been deep seated. That possibility was raised in the GEN report; it had not been investigated, let alone excluded in relation to the 1986 slip and no slip plane was identified in designing or executing the works. (b) At para 112 he rejected the allegation that Scarborough were negligent in failing to follow GEN’s recommendations in their report that further investigation should be carried out to identify the slip plane, carry out suitable effective stress testing or rigorous slope stability analysis, on the basis that such recommendations were not expressed in firm or positive terms. This indeed was one of the bases of his finding of negligence on the part of GEN; but (c) he said:

‘… the tone of those recommendations has to be gauged in the context of specific suggestions as to drainage which were designed to deal with the deepest conceivable slip surface and which therefore reduced the importance of locating that surface precisely. If those suggestions are disregarded the need to locate the slip surface returns and with it the force of the recommendations for further investigations, test and analyses. Secondly four years had elapsed and the 1986 slip had occurred; further investigation was clearly needed for that reason, especially in the light of the reservations in section 5.5 of the GEN report referred to in paragraph 97 above. Thirdly the scope of the GEN report was limited, being centred on the characterisation of the 1982 slip and its treatment in Scarborough’s own interests. Even if that were extended to include the 1986 slip it would not be adequate to cover the scope of Scarborough’s duty to the Plaintiffs in the light of paragraphs 58 and 81 above. An assessment was needed of the danger to the Plaintiffs’ land as well as Scarborough’s own. I therefore find that Scarborough were negligent in failing to carry out further investigations.’

(d) The nature of these further investigations were described by the judge in para 113:

‘Those investigations would have involved the sinking of boreholes, the taking of samples for effective stress tests, the carrying out of such tests and the use of the resulting data to carry out a slope stability analysis. The area of that investigation might initially have been confined, without ground for criticism, to the site of the 1986 slip, but I accept the evidence of Mr Chamley and Professor Denness, who were in general altogether more impressive and

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credible witnesses than Professor Hanna, that the result would have been to indicate that the most likely failure was one also involving ground further up the slope, and that that would have led to the extension of the area of investigation. The end result (they say, and I accept) would have been advice that the most likely failure was a circular slip of the same order of magnitude as that which in the event occurred in 1993 and along a surface at or close to that of the first phase of the event, and that the factor of safety was at or near 1; in other words that the failure was in geological terms imminent, although that would not have enabled its actual date to be predicted to within months or even a few years.’

(e) The judge further elucidated the significance of these findings at para 117 where he said:

‘… a scheme confined to the area of the 1982 and 1986 slips gave no latitude for any reduction in the overall steepness of the slope. I accept the evidence of Mr Chamley and Professor Denness, however, that had the investigations and analyses described in paragraphs 112 and 113 above been carried out it would have become clear that to ensure long-term stability a more far-reaching scheme was needed, involving a flattening of the slope and consequentially a cutting back of the brow so as to remove part of the lawn of Holbeck Hall.’

(f) The judge was critical of the design and execution of remedial works carried out by Scarborough and held that it was negligent. At para 114 he said:

‘The design made no attempt to lower the groundwater level, an objective which was rightly central to the GEN report and the importance and significance of which should have been apparent to Scarborough’s officers. It did aim to provide drainage to the water-bearing horizons within the slope, but failed to do so because their outlets at the sloping surface had been cut off by the claylike mass of slipped material, which was not all removed before the drainage blanket was laid.’

It is important to note, however, and I do so at this stage, that this negligence was not causative of the loss. At para 118 the judge said:

‘Had these errors alone been corrected there would  still have been only a scheme confined to the area of the 1982 and 1986 slips, which on the Plaintiffs’ own case would not have been adequate, so causation would have been lacking.’

25. It is apparent, therefore, that in order to ascertain the full extent of the hazard and enable remedial works to be carried out which would protect the claimants in the long term, a two-stage investigation was necessary as described in para 24(c) and (d) above.

The appellant’s submissions

26. Mr Stow makes the following submissions on behalf of Scarborough. (a) There is no duty to take positive steps to provide support for a neighbour’s land. Mere omission is not sufficient. The decision in Leakey’s case [1980] 1 All ER 17, [1980] 1 QB 485 is not applicable to the right of support, but is confined to encroachment or escapes from the defendant’s land onto the plaintiff’s land. Accordingly there is no liability. (b) If the proposition in (a) is wrong, the judge’s finding that Scarborough knew of the hazard to the claimants’ land is wrong. It is not sufficient that the defendants knew that some relatively minor damage to

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the claimants’ land might occur if remedial steps were not taken. They did not know and could not know without carrying out further extensive and two-stage investigation by experts, the catastrophic nature of the hazard. In the absence of such knowledge no duty arose. (c) Where, in the authorities to which I shall come, the expression is used that the duty arises if the defendant knew or ought to have known, the concept ‘ought to have known’ is confined to a situation where the defect giving rise to the hazard is patent and can be observed by a reasonable landowner, or his responsible servant, exercising reasonable care in the management of his estate. He must have the means of knowledge, but he is not required to do extensive investigations either by himself or experts. This was not a case where Scarborough ought to have known of the hazard to the claimants.

The law

27. Does the principle enunciated in Leakey’s case apply to cases of failure of support by the servient tenement to the land of the dominant tenement where there has been no withdrawal of support but mere omission? A number of cases at first instance established the rule that while the dominant tenement had a right of support from the land of the servient tenement, the owner of the servient tenement was only liable if he did something to withdraw support. There was no positive duty to provide support. (See Sack v Jones [1925] Ch 235, [1925] All ER Rep 514; Macpherson v London Passenger Transport Board (1946) 175 LT 279.) The principle was stated by Greene MR (with whose judgment Mackinnon and Clauson LJJ agreed) in Bond v Norman, Bond v Nottingham Corp [1940] 2 All ER 12 at 18, [1940] 1 Ch 429 at 438:

‘The nature of the right of support is not open to dispute. The owner of the servient tenement is under no obligation to repair that part of his building which provides support for his neighbour. He can let it fall into decay. If it does so, and support is removed, the owner of the dominant tenement has no cause for complaint. On the other hand, the owner of the dominant tenement is not bound to sit by and watch the gradual deterioration of the support constituted by his neighbour’s building. He is entitled to enter and take the necessary steps to ensure that the support continues by effecting repairs and so forth to the part of the building which gives the support. What the owner of the servient tenement is not entitled to do, however, is by an act of his own to remove the support without providing an equivalent. There is the qualification upon his ownership of his own building that he is bound to deal with it subject to the rights in it which are vested in his neighbour, and can only deal with it, subject only to those rights.’

The dictum was obiter; but there is little doubt that it represented the law as it was understood. It is worth noting that if the owner of the servient tenement withdrew support he was liable irrespective of negligence.

28. To a similar effect were the cases of Greenwell v Low Beechburn Coal Co [1897] 2 QB 165 and Hall v Duke of Norfolk [1900] 2 Ch 493 where it was held that a landowner was not liable for damage caused to neighbouring land by subsidence occasioned by excavations or other acts of his predecessor in title, although the damage did not occur until the defendant came into possession.

29. Originally in private nuisance only the person who by himself or his servant or agent created the nuisance on his land which interfered with the use and enjoyment of his neighbour’s land was liable. The position was different in

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public nuisances where once the existence of a nuisance on his land comes to the knowledge of the occupier it is his duty to abate it or endeavour to do so: see Barker v Herbert [1911] 2 KB 633, [1911–13] All ER Rep 509 and the decision of the majority of the Court of Appeal, Bankes LJ and Astbury J, in Job Edwards Ltd v Birmingham Navigations [1924] 1 KB 341. But in that case Scrutton LJ dissented. The facts of the case are well-known. Trespassers had deposited refuse on the plaintiff’s land which caught fire and posed a threat to the canal company. By agreement between the parties the canal company entered the plaintiff’s land and extinguished the fire. The plaintiffs, without prejudice to the legal position, paid half the cost of the work of extinguishing the fire and in the action sued to recover the cost on the ground that they were not liable to abate the nuisance started by a trespasser. Scrutton LJ considered that there was no justification for the distinction between public and private nuisance. He approved (at 360) a statement by Professor Salmond in his book Law of Torts (5th edn, 1920) p 260

‘When a nuisance has been created by the act of a trespasser, or otherwise without the act, authority, or permission of the occupier, the occupier is not responsible for that nuisance unless, with knowledge or means of knowledge of its existence, he suffers it to continue without taking reasonably prompt and efficient means for its abatement.’

And a little later he said:

‘… the landowner in possession is liable for a nuisance created by a trespasser, which causes damage to others, if he could, after he knows or ought to have known of it, prevent by reasonable care its spreading …’

30. In Sedleigh-Denfield v O’Callagan [1940] 3 All ER 349, [1940] AC 880 the House of Lords approved Scrutton LJ’s dissenting judgment, and held that an occupier of land continues a nuisance if with knowledge or presumed knowledge of its existence, he fails to take reasonable means to bring it to an end when he has ample time to do so; and he adopts it if he makes use of the erection or artificial structure that constitutes the nuisance. In that case a trespasser had laid a pipe or culvert in a ditch which drained the defendant’s land. He had placed a grid, not at some distance from the pipe, but on top of it so that in heavy rain it became blocked with leaves and flood water escaped and flooded the plaintiff’s flats on the adjoining land. The defendant’s responsible servant was aware of the existence and position of his pipe and grid. The defendants were held liable. I shall have to return to this case when I consider what is meant by ‘ought to have known’ of the danger.

31. In Goldman v Hargrave [1966] 2 All ER 989, [1967] 1 AC 645 the Privy Council extended the principle in Sedleigh-Denfield v O’Callagan to a hazard caused on the defendant’s land by the operation of nature. In that case a tall redgum tree on the defendant’s land was struck by lightning and set on fire. The defendant at first took reasonable steps to deal with the problem. He cleared and dampened the area round the tree and then cut it down. Having done so, however, the defendant took no further steps to prevent the spread of fire, which he could readily have done by dousing it with water. Instead, he let the fire burn out. The wind got up and set light to the surrounding area from whence it spread to the plaintiff’s land and damaged his property. The Privy Council held the defendant liable. There was no difference in principle between a nuisance created by a trespasser and one created by the forces of nature, provided the defendant knew of the hazard. Lord Wilberforce, who delivered the advice of the board, said in relation to the supposed distinction:

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‘The fallacy of this argument is that, as already explained, the basis of the occupier’s liability lies not in the use of his land: in the absence of “adoption” there is no such use: but in the neglect of action in the face of something which may damage his neighbour. To this, the suggested distinction is irrelevant.’ (See [1966] 2 All ER 989 at 995, [1967] 1 AC 645 at 661.)

32. In both Sedleigh-Denfield v O’Callagan and Goldman v Hargrave the hazard arose entirely on the defendant’s land; the plaintiff had no knowledge of it before the damage was done; the defendant was liable for failing to take steps to stop the spread or escape to the plaintiff’s land, steps which he could reasonably take.

33. In Leakey v National Trust the Court of Appeal held that the law, as laid down in Goldman v Hargrave, correctly stated the law of England. In that case the plaintiffs’ houses had been built at the foot of a large mound on the defendant’s land. Over the years soil and rubble had fallen from the defendant’s land onto the plaintiffs’. The falls were due to natural weathering and the nature of the soil. By 1968 the defendants knew that there was a threat to the plaintiffs’ properties. After a very dry summer and wet autumn a large crack opened in the mound above the plaintiffs’ houses. They drew the defendant’s attention to the danger to their houses; but the defendant said it had no responsibility. A few weeks later a large quantity of earth and some stumps fell onto the plaintiffs’ land. In interlocutory proceedings the defendant was ordered to carry out the necessary work to abate the nuisance. The Court of Appeal upheld the judge’s decision in the trial of the action to the effect that the defendant was liable.

34. Megaw LJ ([1980] 1 All ER 17 at 34–35, [1980] 1 QB 485 at 523), with whose judgment Cumming-Bruce LJ agreed, said:

‘If, as a result of the working of the forces of nature, there is, poised above my land, or above my house, a boulder or a rotten tree, which is liable to fall at any moment of the day or night, perhaps destroying my house, and perhaps killing or injuring me or members of my family, am I without remedy? (Of course the standard of care required may be much higher where there is risk to life or limb as contrasted with mere risk to property, but can it be said that the duty exists in the one case and not in the other?) Must I, in such a case, if my protests to my neighbour go unheeded, sit and wait and hope that the worst will not befall? If it is said that I have in such circumstances a remedy of going on my neighbour’s land to abate the nuisance, that would, or might, be an unsatisfactory remedy. But in any event, if there were such a right of abatement, it would, as counsel for the plaintiffs rightly contended, be because my neighbour owed me a duty. There is, I think, ample authority that, if I have a right to abatement, I have also a remedy in damages if the nuisance remains unabated and causes me damage or personal injury. That is what Scrutton LJ said in the Job Edwards case ([1924] 1 KB 341 at 359) with particular reference to Attorney-General v Tod Heatley ([1897] 1 Ch 560, [1895–9] All ER Rep 636). It is dealt with also in the speech of Viscount Maugham in the Sedleigh-Denfield case ([1940] 3 All ER 349 at 357–358, [1940] AC 880 at 893–894), and in the speech of Lord Atkin ([1940] 3 All ER 349 at 361–362, [1940] AC 880 at 899–900).'

35. The support cases which I have referred to in para 27 were not cited in Leakey v National Trust. Mr Stow submits that the Court of Appeal, in that case, cannot have intended to modify the effect of the decisions without even adverting to them. This seems to be the view of the editor of Gale on Easements (16th edn, 1997) paras 10, 26 and 27. In the alternative Mr Stow argued that the principle in the three cases of Sedleigh-Denfield v O’Callagan, Goldman v Hargrave

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and Leakey v National Trust should be confined to cases where there is an escape or encroachment of some noxious thing from the defendant’s land to that of the claimant. He points to the repeated use of the word ‘encroachment’ in the judgment of Megaw LJ (see Leakey v National Trust [1980] 1 All ER 17 at 25, [1980] 1 QB 485 at 514). On the other hand it is difficult to see what difference there is in principle between a danger caused by loss of support on the defendant’s land and any other hazard or nuisance there which effects the claimant’s use and enjoyment of land. Encroachment is simply one form of nuisance; interference causing physical damage to the neighbour’s land and building as a result of activities on the defendant’s land is another form of nuisance. There seems no reason why, where the defendant does not create the nuisance, but the question is whether he had adopted or continued it, different principles should apply to one kind of nuisance rather than another. In each case liability only arises if there is negligence, the duty to abate the nuisance arises from the defendant’s knowledge of the hazard that will affect his neighbour.

36. There have been two cases since Leakey v National Trust where the courts have applied the principles in that case to a claim for loss of support. The first is Bradburn v Lindsay [1983] 2 All ER 408. In that case there were two adjoining properties with a party wall. The plaintiffs owned no 55, the defendant no 53. No 53 became dilapidated and vandalised; there was an outbreak of dry rot which spread to no 55. The local authority made a demolition order and when the defendants took no action, demolished no 53 but left the party wall largely unsupported. The plaintiffs sued for damage caused by the dry rot and the loss of support. Judge Blackett-Ord V-C, sitting as a judge of the High Court, gave judgment for the plaintiff. He applied the decision in Leakey v National Trust. Mr Stow submits that the decision with regard to the dry rot is well within the Leakey v National Trust principle and causes him no difficulty; it was a case of encroachment or escape. He submitted that the decision on the interference with support can be upheld on the ground that the destruction of the building, thereby removing the cross walls which afforded support to the party wall, was active interference—it was misfeasance and not non-feasance. That may be so, but it was not the basis of the decision.

37. The second case is Bar Gur v Bruton [1993] CA Transcript 981, an unreported decision of this court. The case seems to have escaped the attention of the law reporters. Perhaps because the facts are somewhat complex and the court was divided in the result. However, I accept Mr Symons’ submission that all three members of the court adopted the Leakey v National Trust principle in relation to a claim for loss of support. The facts are as follows. In 1990 the appellant, P, bought a coach house which had previously been owned or occupied by the other defendants. The coach house was about 100 years old. After it was built a cottage was constructed; one of the walls of the cottage was a wall of the coach house. Moreover the roof of the cottage was supported on one side by 2 ft 8 ins of wall which rose up on and above the wall of the coach house. The coach house had got into disrepair. In 1987 there had been serious ingress of water from the coach house which had entered the cottage. P was not liable for this, though his predecessors were; P had carried out repairs which prevented further ingress of water. But over the years the ingress of water had loosened and softened the mortar in the 2 ft 8 ins of wall which supported the cottage roof. The plaintiff, the owner of the cottage, sued P on the grounds that this section of wall no longer provided support for his roof and was a nuisance. It is clear that P had not caused the state of affairs in the wall; but he knew of it. The county court judge held P liable on the grounds that the wall was a nuisance and P had

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continued it. He applied the decision in Leakey v National Trust. Dillon LJ upheld this decision. But I and Evans LJ allowed P’s appeal. We did so on the basis that although the wall had been affected, it only amounted to a nuisance ‘if the wall is no longer supporting the roof of the cottage or there is an imminent risk that it will cease to do so’ (see my judgment p 30); and this was not established on the facts. Dillon LJ thought that it was. In the course of his judgment Dillon LJ (at p 18), after citing the dictum of Greene MR in Bond v Norman (which I have referred to in para 27) said: ‘The judge rightly recognised that in the light of Leakey’s case that statement needs to be qualified and is no longer good law.' There is no further discussion of the matter. It is clear that both Evans LJ and I proceeded on the basis that Leakey v National Trust applied and had we thought that the wall constituted a nuisance, we would have dismissed the appeal.

38. It may be doubted whether we had full argument on the point since the appellant was in person. But the judgments were reserved and it is clear from Dillon LJ’s judgment that we must have had in mind the law as stated in Bond v Norman. I cannot accept Mr Stow’s submission that both Evans LJ and I might have distinguished Leakey v National Trust, but did not do so because we decided the case on the facts. That being so, the decision is binding upon us; Mr Stow does not submit it was per incuriam, though he reserved the right to argue elsewhere that Leakey v National Trust was wrongly decided, and it follows that he would make the same reservation with regard to Bar Gur v Bruton. In any event, for reasons which I have given, I do not think there is any difference in principle between a danger due to lack of support and danger due to escape or encroachment of a noxious thing so far as the Sedleigh-Denfield v O’Callagan/Leakey v National Trust principle is concerned. I therefore reject Mr Stow’s first submission.

The extent of the defendant’s knowledge

39. In order to give rise to a measured duty of care, the defendant must know or be presumed to know of the defect or condition giving rise to the hazard and must, as a reasonable man, foresee that the defect or condition will, if not remedied, cause damage to the claimant’s land. In Goldman v Hargrave, Leakey v National Trust, Bradburn v Lindsay and Bar Gur v Bruton the defendant had actual knowledge of the defect or condition giving rise to the hazard or alleged hazard. In Sedleigh-Denfield v O’Callagan the defendant’s responsible servant knew. In each case it was reasonably foreseeable that damage would occur to the plaintiff’s land if nothing was done.

40. What then is meant by presumed knowledge or, as the expression is sometimes used, ‘ought to know’. In Sedleigh-Denfield v O’Callagan Viscount Maugham said:

‘All that is necessary in such a case is to show that the owner or occupier of the land with such a possible cause of nuisance upon it knows of it or must be taken to know of it. An absentee owner, or an occupier oblivious of what is happening under his eyes, is in no better position than the man who looks after his property, including such necessary adjuncts to it, in such a case as we are considering, as its hedges and ditches.’ (See [1940] 3 All ER 349 at 353, [1940] AC 880 at 887.)

He approved Salmond’s reference ([1940] 3 All ER 349 at 357, [1940] AC 880 at 893), adopted by Scrutton LJ of the occupier ‘with knowledge or the means of knowledge’. And in his statement of principle ([1940] 3 All ER 349 at 358, [1940] AC 880 at 894) he used the expression ‘knowledge or presumed knowledge’.

Page 720 of [2000] 2 All ER 705

Lord Romer ([1940] 3 All ER 349 at 371, [1940] AC 880 at 913) agreed with this formulation. Lord Atkin considered that the defendants—

‘by their responsible agents had knowledge of the erection of the pipe, of the reasonable expectation that it might be obstructed, of the result of such obstruction …’ (See [1940] 3 All ER 349 at 359, [1940] AC 880 at 896.)

Lord Wright said:

‘If he is to be liable, a further consideration is necessary—namely, that he had the knowledge, or means of knowledge, that he knew, or should have known, of the nuisance in time to correct it and obviate its mischievous  effects.’ (See [1940] 3 All ER 349 at 364, [1940] AC 880 at 904.)

I do not consider that Lord Wright was intending to extend or widen the scope beyond what the other Lords indicated. Finally Lord Porter said:

‘… the respondents at least acquired knowledge of the existence of the pipe and the position of the grid after it had been erected, even if they did not acquire that knowledge at the time of its erection in 1934. Their servants knew, and they certainly ought to have known, immediately after the insertion of the pipe, what the position of affairs was.’ (See [1940] 3 All ER 349 at 373–374, [1940] AC 880 at 917.)

41. In Leakey’s case [1980] 1 All ER 17 at 29, [1980] 1 QB 485 at 518 Megaw LJ said:

‘So long as the defect remains “latent” there is no duty on the occupier, whether the defect has been caused by a trespasser or by nature. Equally, once the latent becomes patent, a duty will arise, whether the causative agent of the defect is man or nature. But the mere fact that there is a duty does not necessarily mean that inaction constitutes a breach of the duty.’

In that passage Megaw LJ referred to the defect. He said:

‘… the duty arising from a nuisance which is not brought about by human agency does not arise unless and until the defendant has, or ought to have had, knowledge of the existence of the defect and the danger thereby created.’ (See [1980] 1 All ER 17 at 33, [1980] 1 QB 485 at 522.)

Here Megaw LJ is referring both to the defect and the danger arising from it. And again when discussing the scope of the duty he posed this question:

‘Was there sufficient time for preventive action to have been taken, by persons acting reasonably in relation to the known risk, between the time when it became known to, or should have been realised by, the defendant, and the time when the damage occurred?’ (See [1980] 1 All ER 17 at 35, [1980] 1 QB 485 at 524.)

Here Megaw LJ refers to the risk or the danger.

42. The duty arises when the defect is known and the hazard or danger to the claimants’ land is reasonably foreseeable, that is to say it is a danger which a reasonable man with knowledge of the defect should have foreseen as likely to eventuate in the reasonably near future. It is the existence of the defect coupled with the danger that constitutes the nuisance; it is knowledge or presumed knowledge of the nuisance that involves liability for continuing it when it could reasonably be abated. Mr Stow submits that the defect must be patent and not latent; that is to say that it is a defect which can be observed; it is no answer for

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the landowner to say that he did not observe it, if a responsible servant did so; or if as a reasonable landowner he, or the person to whom he entrusted the responsibility of looking after the land, should have seen it. But if the defect is latent, the landowner or occupier is not to be held liable simply because, if he had made further investigation, he would have discovered it. I accept Mr Stow’s submission; in my judgment that is what is meant by the expression ‘knowledge or presumed knowledge’.

43. Mr Stow further submits that although Scarborough knew of a defect in their land, and that they realised that there was a risk of a slip, they did not know, and could not have known without the two-stage geological investigation, of the defect; in particular, as Mr Clements said in his evidence in the passage I have cited, that they realised that over many years there might be progressive slips which eventually might affect the plaintiffs’ grounds, but they did not and could not have realised the serious extent of the slip plane or the fact that it extended so far into the claimants’ land as to affect the hotel. He submits that while Scarborough did foresee some damage to the claimants’ land, if nothing was done about the existing slip, they could not reasonably have foreseen the catastrophic danger that materialised. Mr Stow seeks to draw a distinction between a shallow slip, which is what the 1982 and 1986 slips were, and a rotational slide, which is what the 1993 slip was, and the 1893 and the other major slip, to which the judge refers, were. I am not sure that a differentiation between the nature of the slips is a critical one. But it is in my view clear that Scarborough did not foresee a danger of anything like the magnitude that eventuated. It was common ground that the GEN report gave no clue of such an eventuality; and it seems clear that they could not have appreciated the risk without further investigation by experts.

44. The critical question is whether these distinctions affect Scarborough’s liability. In most cases where physical injury either to the person or property of the claimant is reasonably foreseeable, the defendant will be under a duty of care and will be liable for all damage of the type which was foreseeable, whether the actual extent of the damage is foreseeable or not. This is so in cases where the defendant’s activity gives rise to the danger, whether it be the manner of his driving, the operations conducted on his land or in his business, or the treatment he gives as a professional undertaking the care of his patient. It matters not that he did not foresee the full extent of the injury in fact sustained. So too in cases of economic loss; if there is the necessary foreseeability of the type of damage sustained and proximity, subject to the need for it to be fair, just and reasonable for a duty to be imposed, the defendant will be liable for all damage of the type foreseen, even if the full extent was not foreseen or reasonably foreseeable.

45. Mr Symons submits that that principle is applicable here; provided Scarborough knew that there was a defect on their land, ie the existence of a slip plane and consequent risk of a slip, and provided they either did or ought as reasonable people to have foreseen that it might affect the claimants’ land more than to a trivial extent, they are liable for the full extent of the damage. Mr Symons relied on the well-known decision of Hughes v Lord Advocate [1963] 1 All ER 705, [1963] AC 837 in support of his proposition. But there the duty of care existed, damage of the type which occurred, namely injury by burning, was foreseeable as a result of the defendant’s operations, it was merely that the source of danger acted in an unpredictable way. As Lord Morris of Borth-y-Gest put it:

‘My Lords, in my view there was a duty owed by the defenders to safeguard the pursuer against the type or kind of occurrence which in fact happened and which resulted in his injuries, and the defenders are not

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absolved from liability because they did not envisage “the precise concatenation of circumstances which led up to the accident”.’ (See [1963] 1 All ER 705 at 712, [1963] AC 837 at 853.)

In my judgment this does not assist the claimants in this case. It was an application of the ordinary rule which I have referred to in the previous paragraph; the unpredictable nature of the accident did not make the damage too remote.

46. But the present is a case of non-feasance: Scarborough have done nothing to create the danger which has arisen by the operation of nature. And it is clear that the scope of the duty is much more restricted. It is defined in the cases of Goldman v Hargrave and Leakey v National Trust as a measured duty of care. In the former case Lord Wilberforce said:

‘So far it has been possible to consider the existence of a duty, in general terms; but the matter cannot be left there without some definition of the scope of his duty. How far does it go? What is the standard of the effort required? What is the position as regards expenditure? It is not enough to say merely that these must be “reasonable” since what is reasonable to one man may be very unreasonable, and indeed ruinous, to another: the law must take account of the fact that the occupier on whom the duty is cast, has, ex hypothesi, had this hazard thrust on him through no seeking or fault of his own. His interest, and his resources whether physical or material, may be of a very modest character either in relation to the magnitude of the hazard, or as compared with those of his threatened neighbour. A rule which required of him in such unsought circumstances in his neighbour’s interest a physical effort of which he is not capable, or an excessive expenditure of money, would be unenforceable or unjust. One may say in general terms that the existence of a duty must be based on knowledge of the hazard, ability to foresee the consequences of not checking or removing it, and the ability to abate it. Moreover in many cases, as, for example in SCRUTTON L.J.’s hypothetical case of stamping out a fire [see the Job Edwards case [1924] 1 KB 341 at 357], or the present case, where the hazard could have been removed with little effort and no expenditure, no problem arises; but other cases may not be so simple. In such situations the standard ought to be to require of the occupier what it is reasonable to expect of him in his individual circumstances. Thus, less must be expected of the infirm than of the able bodied: the owner of a small property where a hazard arises which threatens a neighbour with substantial interests should not have to do so much as one with larger interests of his own at stake and greater resources to protect them: if the small owner does what he can and promptly calls on his neighbour to provide additional resources, he may be held to have done his duty: he should not be liable unless it is clearly proved that he could, and reasonably in his individual circumstance should, have done more. This approach to a difficult matter is in fact that which the courts in their more recent decisions have taken. It is in accordance with the actual decision in the Job Edwards case ([1924] 1 KB 341) where to remove the hazard would have cost the occupier some £1,000—on this basis the decision itself seems obviously right. It is in accordance with Pontardawe Rural Council v. Moore-Gwyn ([1929] 1 Ch 656) where to maintain the rocks in a state of safety would have cost the occupier some £300 …’ (See [1966] 2 All ER 989 at 995–996, [1967] 1 AC 645 at 663; my emphasis.)

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47. In the passage which I have emphasised Lord Wilberforce refers expressly only to the existence of the duty; but the passage occurs in the middle of that part of the judgment dealing with the scope of the duty. It seems to me that Lord Wilberforce could equally have said ‘existence and scope of the duty’, especially as ability to abate it is related to the subjective characteristics of the defendant.

48. In Leakey v National Trust [1980] 1 All ER 17 at 35, [1980] 1 QB 485 at 524 Megaw LJ dealt with the scope of the duty:

‘The duty is a duty to do that which is reasonable in all the circumstances, and no more than what, if anything, is reasonable, to prevent or minimise the known risk of damage or injury to one’s neighbour or to his property. The considerations with which the law is familiar are all to be taken into account in deciding whether there has been a breach of duty, and, if so, what that breach is, and whether it is causative of the damage in respect of which the claim is made. Thus, there will fall to be considered the extent of the risk. What, so far as reasonably can be foreseen, are the chances that anything untoward will happen or that any damage will be caused? What is to be foreseen as to the possible extent of the damage if the risk becomes a reality? Is it practicable to prevent, or to minimise, the happening of any damage? If it is practicable, how simple or how difficult are the measures which could be taken, how much and how lengthy work do they involve, and what is the probable cost of such works? Was there sufficient time for preventive action to have been taken, by persons acting reasonably in relation to the known risk, between the time when it became known to, or should have been realised by, the defendant, and the time when the damage occurred? Factors such as these, so far as they apply in a particular case, fall to be weighed in deciding whether the defendant’s duty of care requires, or required, him to do anything, and, if so, what.’ (My emphasis.)

49. In both these passages concentration tends to be upon the ease and expense of abatement and the ability of the defendant to achieve it. But in the passage in Megaw LJ’s judgment which I have emphasised, the extent of the foreseen damage is said to be a relevant consideration. Moreover, I do not think either judge was purporting to give an exhaustive list of relevant considerations. While I agree with Megaw LJ ([1980] 1 All ER 17 at 35, [1980] 1 QB 485 at 524) that it would be a grievous blot on our law if there was no liability on the defendants in those cases, I do not think justice requires that a defendant should be held liable for damage which, albeit of the same type, was vastly more extensive than that which was foreseen or could have been foreseen without extensive further geological investigation; and this is particularly so where the defect existed just as much on the claimant’s land as on their own. In considering the scope of the measured duty of care, the courts are still in relatively uncharted waters. But I can find nothing in the two cases where it has been considered, namely Goldman v Hargrave and Leakey v National Trust, to prevent the court reaching a just result.

50. It is clear that Shaw LJ ([1980] 1 All ER 17 at 38–39, [1980] 1 QB 485 at 528) had considerable reservations about the extension of the law as exemplified by Goldman v Hargrave. He said:

‘There are, however, so it seems to me, powerful arguments the other way. Why should a nuisance which has its origin in some natural phenomenon and which manifests itself without any human intervention cast a liability upon a person who has no other connection with that nuisance than the title to the land on which it chances to originate? This view is

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fortified inasmuch as a title to land cannot be discarded or abandoned. Why should the owner of land in such a case be bound to protect his neighbour’s property and person rather than that the neighbour should protect his interests against the potential danger? The old common law duty of a landowner on whose land there arose a nuisance from natural causes only, without any human intervention, was to afford a neighbour whose property or person was threatened by the nuisance a reasonable opportunity to abate that nuisance. This entailed (1) that the landowner should on becoming aware of the nuisance give reasonable warning of it to his neighbour, (2) that the landowner should give to the neighbour such access to the land as was reasonably requisite to enable him to abate the nuisance. The principle was relatively clear in its application and served in broad terms to do justice between the parties concerned. The development of “the good neighbour” concept has however blurred the definition of rights and liabilities between persons who stand in such a relationship as may involve them in reciprocal rights and liabilities.’

He also regarded Goldman v Hargrave as the climax of the development of the law in this field ([1980] 1 All ER 17 at 39, [1980] 1 QB 485 at 529) and evidently must have been unwilling to extend it further. If the scope of the duty is linked to an obligation to take care to avoid damage which is reasonably foreseeable, then the defendant is only liable to that extent.

51. The cases of Goldman v Hargrave and Leakey v National Trust were decided before the decision of the House of Lords in Caparo Industries plc v Dickman [1990] 1 All ER 568, [1990] 2 AC 605, in which the three-stage test for the existence of a duty of care was laid down, namely foreseeability, proximity and the need for it to be fair, just and reasonable. In Marc Rich & Co AG v Bishop Rock Marine Co Ltd, The Nicholas H [1995] 3 All ER 307 at 326, [1996] 1 AC 211 at 235 it was held that the three-stage Caparo test was appropriate whatever the nature of the damage (per Lord Steyn, approving a dictum of Saville LJ). The requirement that it must be fair, just and reasonable is a limiting condition where foreseeability and proximity are established. In my judgment very similar considerations arise whether the court is determining the scope of a measured duty of care or whether it is fair, just and reasonable to impose a duty or the extent of that duty. And for my part I do not think it is just and reasonable in a case like the present to impose liability for damage which is greater in extent than anything that was foreseen or foreseeable (without further geological investigation), especially where the defect and danger existed as much on the claimants’ land as the defendants.

52. The judge did not address the question of the extent of the damage that could reasonably have been foreseen other than in the respects which I have indicated, namely that Scarborough knew or ought to have known of the hazard that might affect the support for the claimants’ land. He must, I think, have acceded to the submission that that was sufficient to give rise to the duty of care and potential liability for all the damage that ensued, whether foreseeable or not, because in considering the scope of the measured duty of care he adverted only to such matters as Scarborough’s ability to do the remedial works and the question of a contribution from the claimants. Yet it is clear, as it seems to me, that he must have considered that Scarborough did not and could not have known of the extent of the defect or potential damage, without the two-stage investigation by experts.

53. In these circumstances he held, as I understand it, that Scarborough were liable for all the damage to the claimants land, hotel and business, subject to a deduction for such contribution as the claimants would have made, if the matter

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had been discussed and agreed between the parties, to an effective remedy. Such a scheme, we were told by counsel, would have cost in the order of £500,000 and would have affected a substantial part of the hotel grounds. The judge has not yet determined what that contribution would have been. In the light of my conclusion that this is not the correct question or measure of damage, I need make no comment on the task the judge had set himself, save to say, that it is by no means an easy matter to decide what the parties would have decided if they had known the full extent of the hazard. It is obvious that the claimants had far more at stake than Scarborough, even though the latter were anxious to preserve the amenity of the cliff walks and gardens if they could, even to the extent of spending about £120,000 on the abortive 1989 works (and, as the report referred to in para 18 above indicated, possibly up to £280,000).

54. For the reasons I have given I conclude that the scope of Scarborough’s duty was confined to an obligation to take care to avoid damage to the claimants’ land which they ought to have foreseen without further geological investigation. It may also have been limited by other factors, as the passages from Goldman v Hargrave and Leakey v National Trust cited in paras 46 and 48 make clear, so that it is not necessarily incumbent on someone in Scarborough’s position to carry out extensive and expensive remedial work to prevent the damage which they ought to have foreseen; the scope of the duty may be limited to warning claimants of such risk as they were aware of or ought to have foreseen and sharing such information as they had acquired relating to it.

55. Taking the first approach the question is, what was the extent of the damage to the claimants’ land which Scarborough ought to have foreseen, (without any further investigation) if they did not carry out effective remedial work of the type they had previously done and which GEN recommended? It is not possible to be precise about this. But in my judgment it is not necessary to send the matter back to the trial judge to determine; I doubt whether any more evidence could be available than that which is before us. The 1986 slip at its nearest point to the claimants’ land was some 35 metres (about 100 metres from the hotel). Progressive slips, if unchecked, might have been expected eventually to extend some way into the hotel grounds, affecting the rose garden and some part of the lawn. The value of such land would represent the damage to the claimants. In theory this should be subject to a deduction for a contribution from the claimants towards the cost of any remedial works. But in practice it does not seem to me to be realistic to attribute any value to this part of Holbeck’s land because in fact, albeit unknown to the parties, this whole section of the grounds was liable to subside because of the underlying defect.

56. I turn to consider the second approach referred to in para 54. In the course of argument some of the problems that are likely to arise in considering the measured duty of care were canvassed. In particular, what should be the position if both parties knew of the defect and the potential risk on their respective land? Mr Symons submitted that each would owe a duty of care to the other and if together they failed to take effective remedial action, Scarborough would be liable to the claimants for all the damage they sustained and vice versa. I am very far from being persuaded that this is so; rather it seems to me that each would have consented to the risk as regard themselves and each would have a defence of volenti non fit injuria.

57. It might be thought in a situation like the present, where the defect existed on both parties’ land, where the 1982 and 1986 slips together with the 1989 remedial works were plain for everyone to see,  that the claimants were in as good a position to assess the problem as Scarborough, save only that the latter

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had skilled engineers on their staff and had longer experience of slips on the cliff than the claimants; though it should be noted that the claimants had owned the property since 1932. The judge recorded in para 55 that it was not suggested that the claimants knew or ought to have known of the potential dangers, so that they were not under any duty to Scarborough to prevent collapse of their land onto Scarborough’s. Mr Stow accepts that that is so, because he says no one knew of the latent defect here which affected both properties and no one foresaw or could reasonably foresee the extent of the damage. But Mr Stow does not accept that the judge’s finding means that the claimants were wholly ignorant of what was happening only a comparatively short distance from the boundary and in full view of their rose garden. I think Mr Stow is probably right about this. But I do not think it is necessary to consider the matter further. The full extent of the defect on both the claimants’ and Scarborough’s land was latent. The extent to which the defect was patent, namely the 1982 and 1986 slips, was not, without further expert geological investigation, such that either party could reasonably foresee the full extent of the danger or likely damage.

58. I think it could well be argued that on the facts of this case Scarborough were under a duty to warn the claimants of such risk as they did appreciate and share with them the information contained in the GEN report. This is on the assumption that the claimants had not realised that there was any risk to them from continuing unchecked erosion. This could well be within the limited scope of the measured duty of care. But that is not how the case was pleaded or argued. Moreover, even if a breach of such a duty could be established, there would be formidable problems of causation, since the claimants would have to establish on balance of probability, that if they had this information they would themselves or in conjunction with Scarborough have undertaken the further geological investigation necessary to discover the extent of the problem and then either themselves or in conjunction with Scarborough have undertaken the extremely expensive remedial works which I have referred to in para 53.

59. Finally I would wish to pay tribute to the clear and careful judgment of the learned judge. Reading paras 45 to 47 of his judgment, it appears to me that he was not altogether at ease with the decision which he felt, as a matter of law, he should reach.

60. For these reasons I would allow this appeal and enter judgment for the defendants.

SCHIEMANN LJ. I agree.

TUCKEY LJ. I also agree.

Appeal allowed.

Dilys Tausz  Barrister.

Broadmoor Hospital Authority and another v R

[2000] 2 All ER 727

Categories:        CIVIL PROCEDURE        

Court:        COURT OF APPEAL, CIVIL DIVISION        

Lord(s):        LORD WOOLF MR, MORRITT AND WALLER LJJ        

Hearing Date(s):        29 NOVEMBER, 20 DECEMBER 1999        

Injunction – Locus standi – Injunction to support performance of statutory duties by statutory body – Patient in special hospital seeking to publish book justifying manslaughter for which he had been convicted and referring to other patients – Hospital authority seeking injunction restraining patient from publishing book to prevent detrimental effect on his health and assaults by other patients – Whether authority having standing to claim injunction.

The defendant, R, was convicted of manslaughter, and was ordered to be detained without limit of time at the special hospital operated by the claimant authority. He wrote and arranged the publication of a book in which he claimed to have carried out the killing for the highest of motives, and referred to other patients at the hospital. The authority brought proceedings against R, seeking an injunction restraining him from publishing the book whose manuscript was held by a publisher as R’s agent. Such an injunction was said to be necessary because of, inter alia, the risk that R would be assaulted by the patients identified in the book and the detrimental effect on R’s mental health that would result from his discovering that others did not accept his claim to be ‘innocent’ and blameless. The injunction was granted on an ex parte application, but was discharged at a subsequent inter partes hearing, the judge holding that the injunction depended upon the assertion of a power that the authority lacked. On the authority’s appeal, R contended, inter alia, that the authority had no standing to claim the injunction.

Held – Where a public body was given a statutory responsibility which it was required to perform in the public interest, it had standing to apply to the court for an injunction to prevent interference with the performance of its public responsibilities, provided that there was no implication to the contrary in the statute. Such an injunction should be granted when it appeared to the court to be just and convenient to do so. In the instant case, the authority had duties, under the legislation dealing with special hospitals, to treat the patients, maintain the security of the hospital and provide a therapeutic environment. As a consequence of those duties, it could be said to have certain implicit statutory rights. Moreover, although there was no express power to seize books outside the hospital, the court could, if appropriate, grant an injunction to restrain an activity outside the hospital if it could be shown that it was having a sufficiently significant impact on the security of the hospital or the treatment of a patient. It followed (Morritt LJ dissenting) that the court had jurisdiction to grant an injunction of the type sought in the instant case. However, the injunction would not be granted since (per Lord Woolf MR) it would be inappropriate to do so in the exercise of the court’s discretion or (per Waller LJ) R’s conduct could not be categorised as interfering with the authority’s public responsibilities. Accordingly, the appeal would be dismissed (see p 734 a to d g h, p 735 e to p 736 f and p 739 g h  and p 740 b to g, post).

Page 728 of [2000] 2 All ER 727

Chief Constable of Kent v V [1982] 3 All ER 36 and South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV; South Carolina Insurance Co v Al Ahlia Insurance Co [1986] 3 All ER 487 considered.

Notes

For locus standi for an injunction, see 1(1) Halsbury’s Laws (4th edn reissue) para 159.

Cases referred to in judgments

A-G v Blake (Johnathan Cape Ltd, third party) [1998] 1 All ER 833, [1998] Ch 439, [1998] 2 WLR 805, CA.

B v Croydon Health Authority [1995] 1 All ER 683, [1995] Fam 133, [1995] 2 WLR 294, CA.

British Airways Board v Laker Airways Ltd [1984] 3 All ER 39, [1985] AC 58, [1984] 3 WLR 413, HL.

Chief Constable of Hampshire v A Ltd [1984] 2 All ER 385, [1985] QB 132, [1984] 2 WLR 954, CA.

Chief Constable of Kent v V [1982] 3 All ER 36, [1983] QB 34, [1982] 3 WLR 462, CA.

Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435, [1977] 3 WLR 300, HL.

McCarthy & Stone (Developments) Ltd v Richmond upon Thames London BC [1991] 4 All ER 897, [1992] 2 AC 48, [1991] 3 WLR 941, HL.

Mercedes-Benz AG v Leiduck [1995] 3 All ER 929, [1996] AC 284, [1995] 3 WLR 718, PC.

Pierson v Secretary of State for the Home Dept [1997] 3 All ER 577, [1998] AC 539, [1997] 3 WLR 492, HL.

Pountney v Griffiths [1975] 2 All ER 881, [1976] AC 314, [1975] 3 WLR 140, HL.

R v Broadmoor Special Hospital Authority, ex p S (1998) Times, 17 February, CA Transcript 143, affg (1997) Times, 5 November.

R v Secretary of State for the Home Dept, ex p Leech [1993] 4 All ER 539, [1994] QB 198, [1993] 3 WLR 1125, CA.

Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina [1977] 3 All ER 803, [1979] AC 210, [1977] 3 WLR 818, HL.

South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV; South Carolina Insurance Co v Al Ahlia Insurance Co [1986] 3 All ER 487, [1987] AC 24, [1986] 3 WLR 398, HL.

TV3 Network Ltd v Eveready New Zealand Ltd [1993] 3 NZLR 435, NZ CA.

Appeal

The claimants, Broadmoor Hospital Authority and Dr Jan Willen Vermeulen, the responsible medical officer for the defendant, R, a patient at Broadmoor special hospital, appealed from the decision of Poole J on 12 October 1998 discharging an ex parte order granted by Colman J on 1 May 1998 and extended by Penry-Davey J on 18 May 1998 restraining R from publishing or seeking to publish a book entitled ‘Armageddon Ahoy’ or any part of it, and from posting that book or any part of it to anyone save those identified in s 134(3) of the Mental Health Act 1983. The facts are set out in the judgment of Lord Woolf MR.

Edward Fitzgerald QC and Mark Warwick (instructed by Reid Minty) for the claimants.

Richard Gordon QC and Paul Bowen (instructed by Gowans, Paignton) for R.

Cur adv vult

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20 December 1999. The following judgments were delivered.

LORD WOOLF MR.

1. This case raises an issue of general importance. The issue is whether a statutory body is entitled to be granted an injunction in civil proceedings to support its performance of its statutory duties.

2. The claimants are Broadmoor Hospital Authority (the authority) and Dr Vermeulen. Broadmoor is a special hospital provided by the Secretary of State for the Department of Health pursuant to s 4 of the National Health Service Act 1977 as amended. Special hospitals are provided for the detention of persons who in the opinion of the Secretary of State ‘require treatment under conditions of special security on account of their dangerous, violent or criminal propensities’. The authority is responsible for the management and the provision of treatment at Broadmoor. Dr Vermeulen is the responsible medical officer (RMO) who has responsibility for treating the defendant.

3. The defendant is a patient suffering from paranoid schizophrenia. He is detained at Broadmoor as a result of his conviction for manslaughter of an occupational therapist in September 1991. At the time of his offence, the defendant was undergoing treatment for his mental illness. At the time of his offence, apparently, he had intended to kill a psychiatrist.

4. By May 1998, the defendant had written a book entitled ‘Armageddon Ahoy’. The defendant at his own expense had made arrangements for the book to be printed and published. On realising this, the authority issued proceedings. Subsequently, Dr Vermeulen was added as a party. The authority’s legal advisers communicated with the Attorney General’s office as to whether the Attorney General would be prepared to bring proceedings in his capacity as guardian of the public interest. The Attorney General was not prepared to do so.

5. In the amended statement of claim the claimants seek an injunction that that the defendant be restrained: (a) from publishing or seeking to publish the book entitled ‘Armageddon Ahoy’ or any parts thereof; (b) from posting to anyone save those persons identified in s 134(3) of the Mental Health Act 1983 the book entitled ‘Armageddon Ahoy’ or any part of the said book.

6. The claimants also by an amendment pursuant to leave granted by this court at a directions hearing on 29 April 1999 seek declarations that: (a) the first and/or second plaintiffs entitled to instruct the defendant not to keep in his possession and/or not to publish or seek to publish the book; (b) it would be unlawful for the defendant to publish the book in its present form; (c) the first and second (plaintiffs) are entitled to seize the book or any parts thereof.

7. The claim for the declarations are not in issue on this appeal. Mr Richard Gordon QC, who appears on behalf of the defendant, accepted in argument that the jurisdiction of the court to grant the declarations which are now claimed may be wider than the jurisdiction to grant the injunctions.

8. On 1 May 1998 Colman J made an ex parte order granting the injunctions. The defendant’s agent delivered up the copies of the book. That order in relation to the first injunction was then continued by Penry-Davey J on 18 May 1998. On 12 October 1998 after hearing argument on behalf of the parties, Poole J discharged the orders made by Colman J and Penry-Davey J. Poole J also ordered that so much of para 7 in the statement of claim as alleges (either expressly or by implication) that the plaintiff has power—(a) to prevent the defendant keeping in his possession, custody or power any copies of the book that are neither: (i) within the confines of Broadmoor, or (ii) in the course of transmission by post

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and/or (b) to prevent the defendant from publishing the book be amended or struck out as disclosing no reasonable cause of action.

9. Poole J also ordered that ‘all copies of the book delivered by the defendant (whether personally or by his agent) from outside Broadmoor Hospital and received by the plaintiff’ as a result of Colman J’s injunction should be delivered up to the defendants’ solicitors within seven days. Pending the hearing of this appeal, the order of Poole J has been stayed.

The statement of claim

10. As the judge struck out part of the statement of claim its terms are relevant. The statement of claim recites the fact that Broadmoor at the relevant times only admitted patients ‘who would present a grave danger to the public’ and that ss 3 and 37 of the 1983 Act provide for the involuntary admission of patients and their detention in hospital for medical treatment. It also sets out that s 63 confers an express power on the RMO to provide medical treatment without the patient’s consent.

11. The statement of claim alleges that the hospital had the power and (by amendment) the right to control and discipline patients in Broadmoor including the defendant and to take all necessary steps to secure a safe and therapeutic environment for patients detained at Broadmoor. By amendment it also alleges that Dr Vermeulen, as the defendant’s RMO, had the right and power to instruct the defendant to surrender or hand over any offensive or potentially harmful book in his possession that would damage or interfere with his effective treatment. It is also alleged that Dr Vermeulen had the power and the right to instruct the defendant not to publish a book or to court publicity in a way that would damage his treatment. Reliance is also placed on s 134 of the 1983 Act which gives the authority to withhold from the post office a postal package addressed ‘to any person by a patient detained’ if in the opinion of the managers of the hospital they consider the package is likely to cause distress to the person to whom it is addressed or to any other person (not being a person on the staff of the hospital) or cause danger to any person or staff.

12. An allegation is also made that by necessary implication Broadmoor has a general duty to ensure that patients do not transmit to the outside world materials or documents that are likely to cause distress to the person to whom they are addressed or to cause danger to any person. Reliance is also placed on a duty which those working in Broadmoor have to patients to preserve the confidentiality of details concerning the patients mental condition, their history, their treatment and their progress in Broadmoor. It is also alleged that the defendant owes a similar duty to his fellow detainees.

13. Paragraph 7 (now para 9.1) of the statement of claim, referred to in Poole J’s judgment, in its amended form states that not only have the claimants the power to do the matters referred to in the judge’s order, but they now have the duty and/or right to do those things and the claimants are entitled to instruct the defendant to deliver up the book or material which relates to the book.

14. The amended statement of claim also refers to the publication by the defendant of an earlier book about his life and the fact that the publication caused a deterioration in the defendant’s mental state and distress to the family of the occupational therapist who the defendant killed. The likely effect of the publication of the book particularly if this attracted the attention of the media is amplified in the witness statements and affidavits prepared by Dr Vermuelen.

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Dr Vermuelen’s evidence

15. In his evidence Dr Vermuelen refers to the contents of the book which the court has had the opportunity to read. As he explains, the book describes how the defendant killed his victim and sets out his justification for doing so. That description includes the fact that the defendant states that he had ‘behaved without malice and with the highest motives’ and that he knew he was moral. A feature of the book is that the defendant explains that he wanted publicity for himself and that the crime was committed to ‘make me newsworthy’. The book describes how he enquired of the police whether his killing had been reported. He ‘wanted to know whether the media had yet picked upon my case’. Dr Vermuelen states that the defendant had no prior knowledge or encounter with his victim and in his, the doctor’s opinion, the publication of the book would cause distress to the victim’s family.

16. Dr Vermuelen also points out that the book contains references to 13 other Broadmoor patients. And that if any of those patients had the opportunity to read the book they would recognise themselves from its contents. The book sets out details of his fellow patients history and offences including in at least one case what the doctor had written about that patient. Some of the details are said to be intimate or embarrassing and there are references to two suicide attempts on the part of fellow patients. He says that if the contents of the book were to come to the patients’ attention they would be deeply disturbed. There is also a suggestion made that the patients could attack the defendant as a result of the publication.

The judgment

17. The argument which was advanced before Poole J was more restrictive than the argument which has been advanced before this court. In addition the statement of claim had not then been amended. However, in regard to that argument and on the pleadings in their then state, Poole J concluded that the injunction had to be discharged because it depended upon the assertion of a power that the authority did not possess and was inconsistent with the structure of the 1983 Act.

18. Mr Gordon’s principle argument in support of Poole J’s decision is that the court had no power to grant the injunctions. However he also submits that, in any event, they should not have been granted as a matter of discretion. The arguments raised on the appeal can therefore be conveniently divided under two heads. First of all, the jurisdiction or the power of the court to grant the injunctions (the jurisdiction issue) and secondly, assuming the court has the power to grant the injunction, whether it was appropriate to grant the injunction on the facts of this case (the discretion issue).

The jurisdiction issue

19. Mr Gordon divides his submissions as to why the court lacks jurisdiction to grant the injunctions under a number of heads. They can however be conveniently regarded as addressing the lack of standing of the claimants and the absence of any involvement of a right of the claimants. The considerations which they raise overlap so I will deal with them together.

20. Usually, and probably invariably, if a person is entitled to be granted an injunction he will have the necessary standing to claim an injunction. Thus a party to a contract who is entitled to rely on a contract has sufficient standing to bring an action based on his rights under the contract, to seek an injunction. The situation is the same in tort. It is also true in relation to equitable rights. If you have an equitable right an injunction is available in support of that equitable

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right. Thus in Siskina (cargo owners) v Distos Cia Naviera SA, The Siskina [1977] 3 All ER 803 at 824, [1979] AC 210 at 256, Lord Diplock pronounced his well-known dicta that an injunction is available ‘in protection or assertion of some legal or equitable right which [the High Court] has jurisdiction to enforce by final judgment’. That valuable dicta has, however, to be applied with a degree of caution. It is far from being an exhaustive statement of the extent of the court’s powers to grant an injunction or as a guide as to who is entitled to bring proceedings to claim an injunction. The correct position is succinctly summarised in Spry Equitable Remedies (5th edn, 1997) at p 323 in the following terms:

‘The powers of courts with equitable jurisdiction to grant injunctions are, subject to any relevant statutory restrictions, unlimited. Injunctions are granted only when to do so accords with equitable principles, but this restriction involves, not a defect of powers, but an adoption of doctrines and practices that change in their application from time to time. Unfortunately there have sometimes been made observations by judges that tend to confuse questions of jurisdiction or of powers with questions of discretions or of practice. The preferable analysis involves a recognition of the great width of equitable powers, an historical appraisal of the categories of injunctions that have been established and an acceptance that pursuant to general equitable principles injunctions may issue in new categories when this course appears appropriate.’

21. I recognise that the editor of Spry in the passage from which I have quoted, cites in a footnote two statements, one of Lord Goff of Chieveley in South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV; South Carolina Insurance Co v Al Ahlia Insurance Co [1986] 3 All ER 487 at 499, [1987] AC 24 at p 44–45 and the other of Lord Nicholls of Birkenhead in Mercedes-Benz AG v Leiduck [1995] 3 All ER 929 at 946, [1996] AC 284 at 308 which are contained in minority speeches in the House of Lords on this subject. However, Lord Brandon of Oakbrook in the South Carolina case in giving the opinion with which Lord Bridge of Harwich and Lord Brightman agreed identified a further category of situation from that identified by Lord Diplock namely ‘where one party to an action has behaved or threatens to behave in a manner which is unconscionable’ ([1986] 3 All ER 487 at 496, [1987] AC 24 at 40) and in addition referred to two exceptional situations which also do not fall within Lord Diplock’s classification, namely the grant of an injunction to restrain proceedings in a foreign court and the grounds for the grant of a Mareva or freezing injunction.

22. Lord Goff’s reluctance in the South Carolina case ‘to accept the proposition that the power of the court to grant injunctions is restricted to certain exclusive categories’ ([1986] 3 All ER 487 at 499, [1987] AC 24 at 44) and Lord Nicholls’ statement in the Mercedes-Benz case that there are ‘highly persuasive voices that the jurisdiction to grant an injunction, should not be rigidly confined to exclusive categories by judicial decision’ ([1995] 3 All ER 929 at 946, [1996] AC 284 at 308) have been echoed in New Zealand by Cooke P (as he then was) in TV3 Network Ltd v Eveready New Zealand Ltd [1993] 3 NZLR 435 at 438 when he stated ‘the remedy of injunction should be available whenever required by justice’. This is an approach which I would respectfully endorse.

23. Lord Diplock in The Siskina and Lord Brandon in the South Carolina case were not, for example, dealing with applications for judicial review. This approach was not exhaustive. From 1977, an injunction has been available as an alternative remedy to the prerogative writs on an application for judicial review and on an application for judicial review there is a different test to establish

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standing, namely that of ‘sufficient interest in the matter to which the application relates’. (RSC Ord 53, r 3(7) and s 31 of the Supreme Court Act 1981.) This test does not depend on rights. ‘Sufficient interest’ has been approached by the courts in a generous manner so that almost invariably if an applicant can establish a case which deserves to succeed, standing will not constitute a bar to the grant of a remedy. This is a sensible and an appropriate approach since the purpose of rules as to standing are to protect the courts from being troubled by litigants who have no interest in the litigation and are mere busy bodies. They are not designed to prevent litigants who have a meritorious claim from pursing that claim.

24. The broad approach on an application for judicial review is in accord with the approach of Lord Goff and Lord Nicholls but it must be recognised that it does not yet reflect the position in ordinary private law proceedings in the courts. In particular without the assistance of the Attorney General, Mr Gordon is right to submit that in general a member of the public is unable to bring private law proceedings and obtain an injunction to uphold public rights or to enforce public duties or to enforce the criminal law. (See Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435.) He submits here we are in the area, if any right is involved, of public law rights. Again, however, it must be recognised that the general rule states how the jurisdiction of the court will be exercised in practice rather than defining that jurisdiction which is statutorily codified by s 37 of the 1981 Act. There can therefore be situations where in private law proceedings there are situations where the courts will recognise the ability of an individual to obtain injunctive relief even though the courts will be intervening to protect a public duty. Thus, in Chief Constable of Kent v V [1982] 3 All ER 36, [1983] QB 34 this court recognised the standing of the chief constable to obtain an injunction to prevent the dissipation of assets which the police had a public law duty to preserve pending the resolution of a criminal trial. Differing reasons were given by the members of the court for this conclusion and the approach of Lord Denning MR has been doubted in subsequent cases including Chief Constable of Hampshire v A Ltd [1984] 2 All ER 385, [1985] QB 132. None the less, the correctness of the result in that case has not been doubted. The justification for the decision in my view is the fact that the chief constable has a special responsibility for the enforcement of the criminal law.

25. In Chief Constable of Kent v V, the chief constable was not in a position to rely on any statute. A statute can expressly authorise a public body to bring proceedings for an injunction to support the criminal law. This is the position under the Local Government Act 1972 (s 222). In relation to many statutory functions the power to bring proceedings can be implicit. The statutes only rarely provide expressly that a particular public body may institute proceedings in protection of specific public interests. It is usually a matter of implication. If a public body is given responsibility for performing public functions in a particular area of activity, then usually it will be implicit that it is entitled to bring proceedings seeking the assistance of the courts in protecting its special interests in the performance of those functions. The position is analogous to that which exists where a member of the public suffers special damage in consequence of a public wrong. Mr Gordon submits this wider jurisdiction is confined to the grant of a declaration and it is correct that most of the examples where a statutory body has been granted relief are cases where what was being sought was a declaration. However, once it is recognised, that the public body has standing, then I can see no reason why the remedy available to the public body should be confined to a declaration and not extend also to an injunction. Of course, the court may be

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more prepared to grant a declaration than an injunction as a matter of discretion but the decision will then not turn on a lack of standing or an absence of jurisdiction. I would therefore summarise the position by stating that if a public body is given a statutory responsibility which it is required to perform in the public interest, then, in the absence of an implication to the contrary in the statute, it has standing to apply to the court for an injunction to prevent interference with its performance of its public responsibilities and the courts should grant such an application when ‘it appears to the court to be just and convenient to do so’.

26. In his submissions Mr Gordon not only challenges the existence of any such approach as I have identified but also submitted that what was involved here was not the authority’s rights or duties but powers. I do not accept Mr Gordon’s approach. The legislation which deals with the running of the special hospitals and the treatment of patients detained there makes it clear that the authority has duties. It has duties to treat the patients; it has duties to maintain the security of the hospital and it has a duty to provide a therapeutic environment. As a consequence of its duties it can be said to have certain implicit statutory rights. It has for example the right to search patients or for that matter visitors. Mr Gordon would describe this not as a right but a power. It can appropriately be so described but once the authority has in its discretion determined that it should exercise the power, it becomes under a duty to exercise the power and has the right to do so. The power, the duty and the right are public law and not private law rights but in my judgment this does not affect the ability of the authority to seek an injunction or the jurisdiction of the court to grant an injunction. (See R v Broadmoor Special Hospital Authority, ex p S (1998) Times, 5 February, R v Broadmoor Special Hospital Authority, ex p S (1997) Times, 15 October and Pountney v Griffiths [1975] 2 All ER 881 at 888, [1976] AC 314 at 335).

27. Mr Gordon accepts that the authority has responsibilities on these lines but he would submit that in addition to being only powers they are confined to what happens within the confines of the hospital and does not extend outside the perimeters of the hospital in the absence of express statutory authority. Furthermore he submits that as the authority is well able to rely on its general powers such as its powers to search the inmates, no intervention by the courts by way of injunction is required.

28. It is important to note that the grant of the injunction need not be to enforce the statutory power directly. So here there is no express power to seize books outside the hospital. However, if it can be shown an activity is taking place outside the hospital the court may, if appropriate, grant an injunction to restrain that activity if it is an activity which can be shown to be having a sufficiently significant impact on the security of the hospital or the treatment of a patient. There would need to be circumstances warranting the interference with a third party. Here this creates no difficulty because the third party, the printer, is only involved as the patient’s agent. If however there were to be someone who was not a patient who was indulging in conduct, for example writing letters to patients which was interfering with security or treatment in the hospital there would be jurisdiction to grant an injunction.

29. Mr Gordon also submits that s 134 of the 1983 Act is inconsistent with the court being able to grant an injunction. Section 134 confers on the authority a specific power to seize postal packets to prevent the dissemination of material by detained patients that is likely to cause distress to the person to whom it is addressed or to any person or to cause danger to any person. Mr Fitzgerald QC relies on this power and submits that the court could where appropriate uphold

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this power by the grant of an injunction. Mr Gordon disputes this and contends that to grant an injunction on this basis would bypass the prisoner’s express statutory right to a review of the exercise of this power under s 121 of the 1983 Act. The power contained in s 134 of the 1983 Act is partly explained by the fact that in the absence of this power, to interfere with a postal package can be an offence under s 56 of the Post Office Act 1953. Furthermore, while it is correct that the grant of an injunction could bypass the statutory right of review, this point has reduced significance because the court before granting an injunction would be required to be satisfied that the intrusion into the patient’s interest which the injunction would involve was justified. Again I regard the existence of the power under s 134 as being relevant to discretion and not jurisdiction.

30. There are submissions of Mr Gordon which I would accept. First I would accept that the authority cannot bring proceedings to protect any patients’ right to privacy or confidence. To protect other patients, the authority have to rely on the interference which the conduct of which complaint is made would have on the performance of their duties. In particular, the duty of the authority to maintain security, order and a therapeutic environment within the hospital. The position is the same with regard to the family of the defendant’s victim. Naturally, the court would wish to protect them from being caused further distress. But regrettably I do not consider that the courts here can help in proceedings brought by the authority. The powers and responsibility of the authority do not extend to providing the protection the family would like unless the conduct complained of affects the authority’s responsibilities within the hospital.

31. As far as jurisdiction is concerned therefore, I regard the court as being able on the application of the authority to grant an injunction if the grant of that injunction is justified in order to enable the authority to perform its statutory responsibilities. It must however be recognised that primarily these responsibilities relate to what happens within the hospital. Conduct outside the hospital can affect what happens within the hospital and if this is so jurisdiction exists in the court to provide protection by injunction.

Discretion

32. I therefore turn to whether it is right for either of the injunctions which were claimed to be granted. Poole J on the more restricted argument before him, came to the conclusion that the injunction should not be granted because they depended upon the assertion of power which the plaintiff did not possess and because of the structure of the 1983 Act. As to the structure of the 1983 Act and the powers of the plaintiff, I take a different view from the judge in so far as what happens outside the hospital affects what happens within. I do however consider that his decision was right as a matter of discretion. My reasons are as follows. (1) To grant an injunction against a patient who is detained, without limitation of time, which is the defendant’s position, is an exercise of jurisdiction which will rarely be appropriate. Mr Gordon is right that generally the authority’s own internal powers will be sufficient and will not require the backing of the court. In addition there are problems where there is no practical step which the courts can take to enforce the injunction because the patient is already compulsorily detained. This underlines the unsuitability of granting an injunction. (2) No doubt the object of obtaining an injunction was to bind the printers and publishers as the defendant’s agent. The injunction would have been capable of being enforced against them and as a matter of principle I would not regard this as an impermissible objective if otherwise the authority’s powers would be

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adversely affected. The fact that the printers and publishers are independent third parties means however that caution should be exercised before an injunction is granted with the intention that it should only in practice bite on a third party. Furthermore, the court would need to be satisfied it is required for example to maintain security or to treat the patient. (3) It follows that the fact that the injunction is designed to operate outside the confines of Broadmoor is not in principle a reason why an injunction should not be granted. If for example an individual was causing interference with the discipline of a special hospital by writing letters to the patients then notwithstanding the ability of the authority to censor correspondence, in the appropriate situation an injunction against the individual could be granted to reduce the risk of discipline being undermined and treatment interfered with. However there would need to be a substantial risk of the authority’s powers being prejudiced and I am not satisfied there is such a risk here. (4) The concern of the authority here is less with the publication of the book than the publicity in the media which could occur as a result of the book being published. Mr Gordon properly draws attention to the importance which the common law and art 10 of the European Convention of Human Rights (Convention for the Protection of Human Rights and Fundamental Freedoms (Rome, 4 November 1950; TS 71 (1953); Cmnd 8969)) attaches to freedom of speech. The freedom is not unqualified but this remains an important consideration. (5) Injunctions should not be granted if they are unlikely to be effective. I have grave reservations as to whether it could be possible to prevent publication in the media now that the book has been printed and has been in limited circulation. The grant of the injunction which the plaintiff’s seek would be likely to have to be followed up by further actions in the court. An illustration of what can happen has already been provided by the application which the authority made to restrain publication of these proceedings. I understand the desire of the authority to protect the defendant and his fellow patients, but I am far from satisfied that this can be in fact achieved by the grant of the injunctions which are sought.

33. On balance I have therefore come to the conclusion that the injunctive relief which is sought is not a remedy which should be granted.

34. Although therefore I would dismiss the appeal, I would emphasise that it is my earnest hope that the media will feel it appropriate to exercise self-restraint in relation to the publicity they give to these proceedings and to the book. Although the court is not in a position to protect the family of the defendant’s victim, I would hope that this is a matter to which the media will give appropriate weight. I would also hope that the media will fully take into account the fact that if they do give extensive coverage to the defendant’s book, they will be fulfilling the purpose for which the defendant committed his horrendous crime.

35. We have not had an opportunity of hearing an argument as to what consequential orders are appropriate in the light of our decision on this appeal and while I would dismiss the appeal I would be prepared to hear submissions as to consequential relief.

MORRITT LJ.

36. The circumstances in which this appeal arises have been fully described by Lord Woolf MR. I gratefully adopt his account of them. The question is whether the court has jurisdiction to grant to the Broadmoor Hospital Authority (Broadmoor) an injunction requiring the defendant (R) to deliver up to them the manuscript of the book he has written so as to prevent its publication. It is

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common ground that the manuscript was not, when such an injunction was originally granted by Colman J on 1 May 1998, physically within the confines of Broadmoor. It was held by a publisher but as agent for R. It is also common ground that R is not incapable, by reason of any mental disorder or otherwise, of managing and administering his own property and affairs. Accordingly the Court of Protection has no jurisdiction over him or his property, s 94(2) Mental Health Act 1983.

37. The factual justification for preventing publication advanced in the evidence is fourfold, namely (1) the distress to the relatives of R’s victim, (2) the serious risk to R of violent assault by those of his fellow patients he has identified in the book, (3) the detrimental effect on the mental health of R of discovering, following publication, that his claim to be ‘innocent’ and blameless is not accepted by others, described in the affidavit of the responsible medical officer as ‘certainly not conducive to his treatment’ and (4) the disturbance to and interference with the treatment of the other patients, details of whose offence, disorders or treatment are disclosed in the book.

38. It is not suggested that any of these concerns is not real. In particular I share the first. It is therefore with the greatest regret that I conclude that it cannot be any justification for the implication or exercise of the requisite power as it would have nothing to do with the performance of the functions or duties of Broadmoor. The second and fourth factors could not justify the width of the injunction sought because there are only about 13 pages out of 150 in which material relevant to other patients in Broadmoor is contained. Thus the claim must be tested by reference to the powers and duties of Broadmoor relating to the treatment of R.

39. Of the three grounds originally advanced in justification of the injunction the only one now pursued is an implied statutory right or power to require a patient undergoing treatment not to publish a book written by him and, if required, to deliver up to Broadmoor the manuscript and any copies of it under the patient’s control even if situate outside Broadmoor. The implication is said to arise from the duties and functions of Broadmoor as a special hospital provided by the Secretary of State for Health pursuant to s 4 of the National Health Service Act 1977 for persons subject to detention under the 1983 Act who require treatment under conditions of special security on account of their dangerous, violent or criminal propensities. It is the function of Broadmoor to provide such treatment and a safe therapeutic environment within which to do so. (See R v Broadmoor Special Hospital Authority, ex p S (1998) Times, 17 February.)

40. In the performance of those functions Broadmoor has both express and implied powers. The express powers include a power, s 63 of the 1983 Act, to carry out most forms of treatment under the direction of the responsible medical officer but without the consent of the patient and a power, s 134 of the 1983 Act, to intercept incoming or outgoing mail. But, as Auld LJ observed in Ex p S, the relevant legislation leaves unspoken many of the necessary incidents of control flowing from a power of detention for treatment. Those powers are to be found by implication. But, as this court held in that case, the test for the implication of such powers is that of necessity. (See Ex p S per Auld and per Judge LJJ).

41. The injunction sought would interfere with the exercise by R of his civic right of free speech and his proprietary right as the owner of the copyright in the book. As such the test for the implication of the necessary power is the stringent one to which Steyn LJ referred in R v Secretary of State for the Home Dept, ex p Leech [1993] 4 All ER 539 at 550, [1994] QB 198 at 212, namely whether ‘there is a self-evident and pressing need’ for the power in question (see Ex p S, per Auld LJ).

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42. The necessity relied on by Broadmoor is the corollary of their power and duty to detain a patient for treatment. Treatment is widely defined in s 145 of the 1983 Act as interpreted by this court in B v Croydon Health Authority [1995] 1 All ER 683, [1995] Fam 133. I can well understand that in certain cases publication may frustrate or undermine particular treatment being administered to a patient. But, in that event, the necessity would not be confined to publications by the patient alone but would extend to publications by third parties. In opening this appeal Mr Fitzgerald QC for Broadmoor limited the implication for which he contended to a power exercisable in respect of the patient only. But in his reply he recognised that if the requisite necessity existed with regard to publications by the patient the power must extend also to publications by third parties. In my view that concession was right. Thus the real issue is whether a right or power for a special hospital to control publications liable to frustrate or undermine the treatment of one of its patients can be implied from the duties and functions imposed on it by statute.

43. The answer to the issue so formulated is, in my view, clear. A power of such constitutional significance is not to be implied. If Parliament is to grant such a power, and in my view it must be a matter for Parliament and not the discretion of the court, then it must do so in terms which admit of no doubt as to its intention. (See Pierson v Secretary of State for the Home Dept [1997] 3 All ER 577 at 592, [1998] AC 539 at 575–576.)

44. Even if the implication sought is limited to a power exercisable in respect of publications of the works of the patient I do not consider that it can be made. It may well be desirable to have such a power, if only to back up that conferred by s 134 of the 1983 Act, but that is not sufficient. (See McCarthy & Stone (Developments) Ltd v Richmond upon Thames London BC [1991] 4 All ER 897 at 902 and 903, [1992] 2 AC 48 at 70 and 71.) I am not satisfied that there is any necessity for it whether expressed as a self-evident or pressing need or otherwise.

45. Section 134 entitles Broadmoor, subject to exceptions concerning MPs and similar persons, to intercept incoming and outgoing mail to or from a patient. But the conditions for the exercise of the power are strict. Outgoing mail from the patient may be stopped if it is likely to cause distress to any person, not being on the staff of the hospital, or danger to any person. Incoming mail addressed to the patient may be stopped if it is necessary to do so in the interests of the safety of the patient or for the protection of other persons. But the decisions of the managers of the special hospital in this respect are subject to review by the Mental Health Act Commission pursuant to s 121(7) of the 1983 Act.

46. The power Broadmoor contends should be implied would not be subject to the express safeguards built into s 134. It was suggested that the discretion of the court whether to grant an injunction and if so on what terms, could be used to provide equivalent safeguards. In my view that would not be sufficient. The court could only provide such safeguards in those cases where it was necessary to resort to the court. In many cases it would not be.

47. It was also suggested that the implication of the power would be inconsistent with the express provisions of ss 134–138 and the assumptions underlying s 134 of the 1983 Act. Sections 134–138 are all concerned with the control of the patient or his communications with persons outside Broadmoor. It is suggested that these provisions provide a code not susceptible of any further implication. Section 134(9) provides that the exercise of the power contained in that section is not to constitute an offence under s 56 of the Post Office Act 1953. The suggestion is that if Broadmoor has the implied power contended for then its exercise could not have given rise to any offence under any of the relevant

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sections, including s 56 of the 1953 Act anyway. There is some force in each of these points but if the requisite necessity for the implication were made out then, in my view, it would override these considerations.

48. For all these reasons, which are essentially the same as those given by Poole J for discharging the injunctions, I would dismiss this appeal.

49. Counsel for R also submitted that if there were any such power as Broadmoor contended for then it could not be enforced by injunction against R at the suit of Broadmoor. It was submitted that there was no private law cause of action within which an injunction could be granted consistent with the decisions of the House of Lords in British Airways Board v Laker Airways Ltd [1984] 3 All ER 39, [1985] AC 58 and South Carolina Insurance Co v Assurantie Maatschappij ‘de Zeven Provincien’ NV; South Carolina Insurance Co v Al Ahlia Insurance Co [1986] 3 All ER 487, [1987] AC 24. If there was the power contended for then, it was submitted, it existed in public law and was not enforceable by Broadmoor consistently with the decision of the House of Lords in Gouriet v Union of Post Office Workers [1977] 3 All ER 70, [1978] AC 435 and of this court in A-G v Blake (Johnathan Cape Ltd, third party) [1998] 1 All ER 833 at 847–849, [1998] Ch 439 at 459–461. The decision of this court in Chief Constable of Kent v V [1982] 3 All ER 36, [1983] QB 34 was described as dependent on the unique position of a chief constable and devoid of any ratio decidendi capable of application in this case.

50. Had I reached a different conclusion on whether the requisite power could be implied I would, in agreement with Lord Woolf MR on this point, have concluded that it could be enforced by Broadmoor. I would have rested my conclusion on the simple ground that if Parliament is to be treated as having conferred the power then it must also have intended that Broadmoor might enforce it. In my view the power would be in the nature of a statutory right conferred on a particular person or class of person to be exercised as occasion required in the performance of their statutory functions. Powers have commonly been conferred on statutory undertakings, such as railway or canal companies, entitling them to go on the land of another for some purpose. So far as I am aware it has never been suggested, let alone decided, that such undertakings may not enforce such a right by injunction if necessary. By parity of reasoning if Broadmoor has the right to require R to deliver up the manuscript of his book and all copies of it in his possession or control or to prevent publication of it and needs an injunction to enforce it I can see no reason for denying the requisite jurisdiction to grant it.

51. For these reasons I agree with Lord Woolf MR that this appeal should be dismissed.

WALLER LJ.

52. I gratefully adopt the circumstances in which this appeal has arisen as described in the judgment of Lord Woolf MR. I have also read the judgment of Morritt LJ. I also agree that this appeal should be dismissed, but as there is not full agreement between Morritt LJ and Lord Woolf MR on the jurisdiction to grant an injunction, I ought to express my own views on that aspect shortly.

53. First, let me say in agreement with both my lords, that the distress that may be caused to the victim’s family is a matter of great regret and one hopes that the publishers of the book will think again in any event. But if the authority were entitled to obtain an injunction to restrain publication simply on the basis of the distress to the family of the victims, then, since I see no distinction between the position of a victim of a patient in Broadmoor from the position of a prisoner, or for that matter an ex-prisoner from any prison, it would follow that every prison

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could bring an action to assist victims. Their statutory powers do not on any view extend so far.

54. Second, let me also say that as regards breaches of the confidence of other inmates, I agree with Lord Woolf MR that it is not within the authority’s statutory power to protect those. To protect those confidences, proceedings would have to be by or on behalf of those patients.

55. On the important question of the authority’s powers and the circumstances in which it can seek the aid of the court, I respectfully agree with Lord Woolf MR and would adopt his ultimate formulation which is in these terms.

‘If a public body is given a statutory responsibility which it is required to perform in the public interest, then, in the absence of an implication to the contrary in the statute, it has standing to apply to the court for an injunction to prevent interference with its performance of its public responsibilities and the court should grant such an application when “it appears to the court to be just and convenient to do so”.’

56. It seems to me that if someone interferes with the carrying out by a statutory authority of its statutory duty, there should be no reason in principle why the court should not come to the assistance of the statutory authority, and, if the circumstances make it ‘just and convenient’, grant an injunction. Thus, for example, if a third party were to set out to frustrate the authority in its treatment of a patient, I can see no reason why the court should not grant an injunction to prevent that conduct. If a third party attempted to interfere with the discipline at Broadmoor, I would see no reason why the court should not assist the authority by injunction if necessary. The example of someone sending in letters designed to hinder the treatment of a patient, or to encourage breaches of discipline, seem to me to be situations where the court might well interfere.

57. Where I think that I differ from Lord Woolf MR and perhaps come nearer to Morritt LJ relates to the facts of the instant case. It seems to me impossible to categorise the activity of ‘R’ as interfering with the performance of the authority’s public responsibilities. His conduct cannot be said to have been designed to frustrate his treatment or the treatment of others. Thus it would be my view that the injunction cannot fairly be said to being sought to prevent interference with the performance of the authority’s public responsibilities, and I would refuse to grant an injunction on that ground alone.

58. If, contrary to what I have said, the only question to consider is whether in the court’s discretion an injunction should be granted, having regard to the powers that the authority do have to prevent patients within the hospital seeing material, I would, in addition to the points that Lord Woolf MR makes on discretion, have refused the injunction.

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

Kate O’Hanlon  Barrister.

Midland Bank plc v Madden

[2000] 2 All ER 741

Categories:        EMPLOYMENT; Unfair Dismissal        

Court:        EMPLOYMENT APPEAL TRIBUNAL        

Lord(s):        LINDSAY J, MR P M SMITH AND PROFESSOR P D WICKENS OBE        

Hearing Date(s):        17 JANUARY, 7 MARCH 2000        

Unfair dismissal – Determination whether dismissal fair or unfair – Dismissal for misconduct – Tests for determining whether employer showing substantial reason for dismissal and whether dismissal fair response – Employment Rights Act 1996, s 98.

Following an internal investigation and disciplinary hearing, the appellant bank dismissed M for gross misconduct, namely alleged involvement in the misappropriation of customers’ debit cards. In subsequent proceedings for unfair dismissal brought by M, the employment tribunal concluded that the investigators had closed their minds to any possibility other than M’s guilt, that the person conducting the disciplinary hearing had accepted the investigation report uncritically, that accordingly the bank had not carried out a sufficient investigation and that M’s dismissal was therefore unfair. On the bank’s appeal to the Employment Appeal Tribunal (EAT), issues arose concerning the tests to be applied in misconduct cases to determine whether the employer had shown a substantial reason for the dismissal for the purposes of s 98(1)a and (2) of the Employment Rights Act 1996 and, if so, whether dismissal was a fair or unfair response to that reason for the purposes of s 98(4). In particular, the EAT was required to consider whether it was permissible in such cases for the employment tribunal to substitute its view for that of the employer.

Held – Where an employer dismissed an employee on the ground of misconduct, an employment tribunal was free to substitute its views for that of the employer in determining each part of the test applicable under s 98(1) and (2) of the 1996 Act, namely whether, at the time, the employer had genuinely believed that the employee was guilty of misconduct, whether the employer had had reasonable grounds in his mind to sustain such a belief and whether he had carried out as much investigation into the matter as was reasonable in the circumstance at the stage when he formed that belief on those grounds. Moreover, although, once that test had been satisfied, a tribunal was not free to substitute its own views for those of the employer as to the reason shown, it was free to do so in determining, for the purposes of s 98(4), the reasonableness of dismissal as a response to that reason. In determining that question, the ‘band of reasonable responses’ test remained binding on tribunals and was determinative, but that test should not

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become one of perversity. Moreover, in applying that test, the tribunal should always remind itself of the terms of the question posed by s 98(4), namely whether the employer had acted unreasonably in treating the shown reason as a sufficient reason for dismissing the employee. In the instant case, there was no basis for interfering with the tribunal’s view that the bank’s investigation had been inadequate. In those circumstances, the bank had not shown a substantial reason for the dismissal for the purposes of s 98(1) and (2), and accordingly the appeal would be dismissed (see p 750 a to f, p 751 e f, p 752 c d, p 754 f, p 756 a to h, p 757 h and p 758 b c, post).

British Home Stores Ltd v Burchell [1980] ICR 303, Gilham v Kent CC (No 2) [1985] ICR 233 and Haddon v Van den Bergh Foods Ltd [1999] IRLR 672 considered.

Notes

For unfair dismissal in the context of alleged misconduct, see 16 Halsbury’s Laws (4th edn reissue) para 335.

For the Employment Rights Act 1996, s 98, see 16 Halsbury’s Statutes (4th edn) (1997 reissue) 654.

Cases referred to in judgment

Baxter v Limb Group of Companies [1994] IRLR 572, CA.

British Home Stores Ltd v Burchell [1980] ICR 303, EAT.

British Leyland UK Ltd v Swift [1981] IRLR 91, CA.

Gilham v Kent CC (No 2) [1985] ICR 233, CA.

Grootcon (UK) Ltd v Keld [1984] IRLR 302, EAT.

Haddon v Van den Bergh Foods Ltd [1999] IRLR 672, EAT.

Iceland Frozen Foods Ltd v Jones [1983] ICR 17, EAT.

Neale v Hereford and Worcester CC [1986] ICR 471, CA.

Rolls-Royce Ltd v Walpole [1980] IRLR 343, EAT.

Smith v Siddall & Hilton (Springs) Ltd [1997] CA Transcript 738.

Stewart v Cleveland Guest (Engineering) Ltd [1996] ICR 535, EAT.

Vickers Ltd v Smith [1977] IRLR 11, EAT.

Watling (N C) & Co Ltd v Richardson [1978] ICR 1049, EAT.

Weddel (W) & Co Ltd v Tepper [1980] ICR 286, CA.

Wilson v Ethicon Ltd [2000] IRLR 4, EAT.

Appeal

The defendant, Midland Bank plc, appealed with permission of the Employment Appeal Tribunal given on 27 November 1998 from the decision of an employment tribunal sitting at London (North) on 17 July 1998 allowing a claim for unfair dismissal brought against the bank by a former employee, Mr J Madden. The facts are set out in the judgment of the appeal tribunal.

Peter McMaster (instructed by Addleshaw Booth & Co, Leeds) for the bank.

Edward Fitzpatrick (instructed by Procaccini Farrell & Co) for Mr Madden.

Cur adv vult

7 March 2000. The following judgment of the appeal tribunal was delivered.

LINDSAY J.

1. This is the appeal of Midland Bank plc in the matter of Madden v Midland Bank plc. Mr Madden, a lending officer who had worked for the bank from 1986,

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was dismissed by the bank on 24 October 1997 because the bank, after an internal investigation and a disciplinary hearing, concluded that there had been gross misconduct on his part, namely that he had been involved in the misappropriation of three debit cards of customers of the bank, which cards were subsequently fraudulently used, resulting in a loss to the bank of £2,878ÿ73.

2. On 23 January 1998 Mr Madden lodged his IT1 alleging unfair dismissal. There was a one day hearing before the employment tribunal at London (North) under the chairmanship of Mr N S Rabin on 16 June 1998. The extended reasons of the tribunal were sent to the parties on 17 July 1998. The unanimous decision of the tribunal was that Mr Madden had been unfairly dismissed and that he was entitled to a basic award of £1,470 and a compensatory award of £11,300.

3. The bank’s notice of appeal was dated 25 August 1998. The appeal came before the president of the Employment Appeal Tribunal (EAT), Morison J, on 27 November 1998. The appeal was permitted to go forward to a full hearing on three points which Mr McMaster, for the bank, neatly summarises as follows: firstly, that the tribunal substituted its own view for that of the employer; secondly, that, in relation to the investigatory process that preceded Mr Madden’s dismissal, the tribunal applied too high a standard (a test of proof beyond reasonable doubt) and, thirdly, that the tribunal had not correctly approached the question of whether the bank had carried out a reasonable investigation.

A. Background

4. The tribunal found that Mr Madden (who appears before us by Mr Fitzpatrick) had been first employed by the bank as a school leaver and that, over a period of 11 years, he had risen from being a trainee bank clerk to chief cashier, foreign clerk and, eventually, lending clerk. He had an unblemished record in his years at the bank. He was regarded, so held the tribunal, as a capable and trusted employee. He worked at the Palmers Green branch of the bank but continued to work one Saturday in four at the Enfield town branch.

5. In their para 4 the tribunal sets out the underlying facts in a manner that cannot be improved on and is not challenged. They say:

‘In June and July 1997 three debit cards were despatched to the Enfield and Palmers Green branches of the Bank to be collected by customers. For various reasons those cards were not collected by the customers but were fraudulently misappropriated, almost certainly by a bank employee. In addition, at various dates in July enquiries were made about the status of those three customers’ accounts (which were domiciled at Enfield, Finsbury Park and Croydon respectively) through the Bank’s internal Nixdorf Computer System. Those enquiries could be accessed by any bank employee without the need to log in a personal identification but there was no apparent good reason for the enquiries. However the enquiries did coincide with the fraudulent use of those cards at various retail stores in North London. A Mr Porter first discovered that his cards had been misused on the 14th July. He notified the Bank and at the Bank’s request he reported the matter to the police. On the 15th July the Bank became aware of a misuse of the cards of another customer, a Mr Wood, and the Bank wrote to him, on the 15th July, advising him that transactions may have been debited to his account without his authority. As it happened, Mr Wood was abroad and took no action for the time being. The third customer, a Mr Clark, spoke to the Bank on the

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18th July and from the information which they gave him, he realised that his card, too, had been used without his authority. A total of £2,878ÿ73 had been charged to the three accounts and the Bank eventually reimbursed that amount to its customers.’

6. The cards had been used at toy and baby-wear shops as well as in other types of shops and supermarkets. The tribunal go on to describe how the police, having had the matters reported to them, contacted the bank’s police liaison officer, a Mr Barnet, and that Mr Barnet made some inquiries and informed the police of his conclusions. The tribunal continues:

‘Unfortunately there is no evidence of what Mr Barnet told the police but based on his recommendations the police called at Mr Madden’s home unannounced at 7.30 am on the 1st September, searched his house and arrested him.’

Mr Madden was interviewed by the police. The tribunal held that a tape had been made of the interview but that by the time Mr Madden had applied to the police to use it in these proceedings it had already been destroyed. The search, it seems threw up no significant facts; there is no suggestion that anything that had been bought with the cards was found. Mr Madden was released without being charged then or later. He was called to the bank’s offices and was interviewed and was told that there had been a misappropriation of three debit cards on the given dates, that inquiries had been made through the Nixdorf system on certain dates and that, as he was told, on each of these occasions he and he alone had been present at the relevant branch of the bank. Mr Madden denied any knowledge of the allegations but he was suspended on full pay pending the bank’s further investigations. The bank’s area manager, Mr Fielder, instructed the bank’s internal investigation branch to carry out an enquiry and make a report.

7. That investigation was conducted by Mr C J Murphy, an investigating officer with Midland Security. He drew up a report dated 7 October 1997 which was signed by him and Mr Overington, deputy head of Midland Security. Mr Fielder, on seeing the report, concluded that there should be a disciplinary hearing and that took place on 24 October 1997. As we have mentioned, it was convened to consider: ‘A breach of staff regulations … in that you have allegedly had involvement in the misappropriation of the three debit cards which were subsequently used fraudulently, resulting in a loss to the Bank of £2,878ÿ73.' Mr Fielder had already sent Mr Madden a copy of the investigation report of 7 October and had reminded Mr Madden that the potential sanctions available included summary dismissal.

8. At the disciplinary hearing Mr Fielder went through the investigation report in detail and invited Mr Madden to comment. Mr Madden said that he had been ‘set up’, possibly by other employees, although he was unable to indicate anyone whom he suspected of having a grudge against him. As the tribunal found:

‘Evidence was given that Mr Madden’s financial circumstances were satisfactory. He was married with no children. His wife had a good job at another bank and he appeared to have no money worries. His bank account did not indicate any sudden increase in wealth. A significant factor was that while all other employees of the two relevant branches of the bank were interviewed by Mr Murphy or one of his colleagues, the interviews were only of a routine nature and Mr Fielder could not say that any investigation

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was made as to the financial or personal affairs of any other employee. We conclude that no such enquiry was made.’

Mr Fielder eventually reached a conclusion as follows, as the tribunal finds:

‘Having considered all the facts, particularly the contents of the investigation report and your comments, I consider that I have reasonable belief that you have been involved in the misappropriation of these cards which were subsequently used fraudulently. As a consequence trust has irretrievably broken down between us. And therefore there is no alternative but to summary (sic) dismiss you from the employment of the bank with immediate effect. This will be without pay in lieu of notice.’

9. Mr Madden was advised of his right to appeal and exercised that right. At the disciplinary hearing he had been represented by Ms Brenda Kelly of his union, BIFU, but she was unable to represent him at the appeal hearing. Mr Madden, it seems, fell out with the union official who was to replace her and, as the tribunal describe it, ‘in view of the things said to him by the Union Official, Mr Madden refused to proceed with the appeal which was rejected in his absence’.

10. The tribunal directed itself by reference to the well-known case of British Home Stores Ltd v Burchell [1980] ICR 303. We shall return in more detail below to the three-part test which Burchell’s case suggests to be appropriate in contested misconduct cases. The tribunal, having set out the Burchell test continued:

‘If the Tribunal is satisfied that the Respondents met the above standards and that the dismissal was a fair sanction then regardless of the Tribunal’s own views as to the Applicant’s guilt, the dismissal ought to be found fair.’

11. After setting out further submissions the tribunal continued:

‘Having looked [at] all the evidence before us the Tribunal does not consider that a sufficient investigation was carried out by the Bank in all the circumstances.’

It accordingly held the dismissal to be unfair and quantified the basic and compensatory awards as we have mentioned. There is no appeal as to the quantification. We now turn to the argument.

B. Haddon

12. A great deal of the argument in this case has been directed to the recent case of Haddon v Van den Bergh Foods Ltd [1999] IRLR 672, a decision of the EAT under Morison J, President. In the ordinary way we would not comment at length on another case at this level but, whilst we shall not attempt to collect all comments upon the case, Haddon’s case has been described as ‘controversial’ and as lighting ‘a bonfire of case law’ (see [2000] IRLR 1). ‘It breaks the taboo’ (see [1999] IRLR 669). It has been said to push unfair dismissal cases into the area of palm tree justice (see [1999] 33 Employment Lawyer 13). It has been described as challenging established guiding principles (see [1999] 34 Employment Lawyer 7). We have been informed by the Court of Appeal’s listing office that an application for permission to appeal Haddon’s case has been filed. If that permission is refused, that could be, perhaps, argued, as we shall show, to have been an endorsement only of the decision on its facts. If permission is granted then, given the pressure on the Court of Appeal, it could be some time before the substantive

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appeal is ruled on. In those circumstances and with the case being so often described as controversial in employment law circles, rather than leaving tribunals devoid of any indication of how the case may be regarded ahead of the decision of the Court of Appeal, we have thought it best to set out our views at some length. Only when we have done that will we return to the particular case before us, a task with respect to which both sides have argued that a correct understanding of Haddon’s case is necessary. We must look at the case with some care.

13. To take the facts of Haddon’s case from the EAT decision, the applicant, it seems, had a job of a kind such that it was recognised as inappropriate for those engaged upon it to have taken alcohol. We say that because it was regarded as relevant to the case that his employer at the material time had a draft policy that ‘no alcohol would be provided at functions when employees are returning to work’. On the day in question Mr Haddon was scheduled to work a 2 pm to 10 pm shift but was also required the very same evening to assemble for drinks at 5.15 pm and thereafter to attend a supper reception until, it was thought, 7.30 pm or so, a reception which was to be provided by the employer to celebrate Mr Haddon’s 15 years of blameless service. He was told by the employer’s business centre manager a week before the reception that he could leave work early to change clothing and to collect his spouse but that he would be required to return to work after the ceremony. It does not appear whether the business centre manager had appreciated that Mr Haddon would be provided with alcohol nor what the manager’s views were or would have been had he understood that the reception might go beyond 7.30 pm. Mr Haddon later spoke to the shifts operations controller who said it was not normal for people to return to duty because alcohol was provided before and during the meal. That observation, too, underlines that the nature of Mr Haddon’s job was such that it was not appropriate to work after taking alcohol. The shifts operations controller told Mr Haddon to take up with the business centre manager the question of whether he had to return to work after the reception but Mr Haddon failed to do so. Mr Haddon went to the reception. The employer gave him a buffet supper and free drink. By the time the reception was over only 1 hours of the shift was left. It must therefore have by then been 8.30 pm or so, later than had earlier been forecast. There is no mention of any finding that Mr Haddon had delayed; it looks as if the event had simply lasted longer than had been forecast. Mr Haddon did not return to work for the balance of the shift and was dismissed for disobedience.

14. The employment tribunal in Haddon’s case, in their para 16, began: ‘We next had to consider whether the instruction to return was reasonable.’ They held that they could not say that it was unreasonable. However, the reason shown for the dismissal cannot have been merely the giving of a reasonable instruction but rather, surely, that a reasonable instruction had been given but had been disobeyed. Disobedience supposes, in this context, that the instruction had still persisted as a reasonable instruction some seven days after it had been given. Mr Haddon had maintained that he had not taken seriously the request to return after the ceremony. A crucial question was thus whether Mr Haddon could reasonably take it that the instruction to return to work no longer persisted as a reasonable instruction in the circumstances as they were, some seven days after it had been given. The new circumstances were these; although the company (as surely must have been taken to be the case) was aware both that he had earlier been told to work the balance of that evening shift and that his job was such that it was inappropriate that he should work after taking alcohol, it had

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none the less plied Mr Haddon with drink and had engaged him in a ceremony over a period of hours longer than had at first been thought probable. In such new circumstances, was it not the case that the instruction given seven days before could have been taken to have been either revoked altogether or to have ceased to be a reasonable one? That question, so far as one can tell, was never addressed by the employment tribunal in Haddon’s case and it is thus hardly surprising that the EAT allowed the appeal. The case may thus not have required a detailed survey of existing authority. However, that is seldom inappropriate and often salutary and so, in Haddon’s case, the EAT then set about it.

15. Haddon v Van den Bergh Foods Ltd [1999] IRLR 672 at 676 (para 27) of the EAT’s decision, having observed that the statute is clear and unambiguous, respectfully suggests that tribunals should now ‘return to the task in hand, which is to apply the section without embellishment, and without using mantras so favoured by the lawyers in this field’. That seems uncontroversial enough and so we, too, thus first look at the unadorned terms of the Employment Rights Act 1996.

C. The statute

16. Section 94(1) confirms upon many employees a right not to be unfairly dismissed. If such an employee wishes to assert a breach of that right, he can complain under s 111(1) to an employment tribunal. The question then becomes whether the grounds of the complaint are well founded—s 112(1); that section is the gateway to various forms of relief which are available if and only if the employment tribunal finds that the grounds of the complaint are well founded. The statute plainly requires a decision of the employment tribunal to that effect, (as opposed to one of the employer or of the employee). One thus reverts to s 98 of the 1996 Act, which is under the headings ‘Fairness’ and ‘General’, with an expectation that there one will find a formulation which the employment tribunal is to apply to the determination by it of whether the grounds of complaint are well founded.

17. Thus it proves. Broadly, s 98 is concerned with two things; the reason (or principal reason) ‘shown’ for the dismissal and the fairness or unfairness of such dismissal as a response to that shown reason. The two things are separate although it is often unnecessary closely to examine each. There are cases where, so long as the alleged reason is adequately shown, it is inescapable but that the dismissal was a reasonable response to it. Conversely there are cases where no reason is adequately shown or a wrong reason is alleged with the result that the dismissal can only have been unfair. Thus, for example, in Baxter v Limb Group of Companies [1994] IRLR 572 at 578 (paras 35, 40) the majority view in the Court of Appeal was that whilst it was not disputed that the decision to dismiss was fair, the reason given for the decision was held to be wrong and the cross appeal, asserting that the employment tribunal’s view was so demonstrably wrong that there was no point in directing a rehearing, was allowed. In a misconduct case such as the one before us the difference between the two things—the reason and the response to it—may be said to be loosely reminiscent, so far as concerns the employment tribunal, of the difference between an appeal against conviction and one against sentence and such separateness is best kept in mind.

18. The first thing that s 98 requires to be done is for there to be established what is the reason (or, if there is more than one, the principal reason) for the dismissal as ‘shown’ by the employer. In many cases there is no dispute as to the reason and the onus on the employer to ‘show’ it is a hurdle he can easily clear.

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In other cases the reason will be disputed especially, perhaps, in alleged misconduct cases where the matter complained of would, if found, involve dishonesty or where the nature of the misconduct depends on a debatable assessment such as that a worker was too drunk safely to operate his machine.

19. Suppose, for example, a case where an employee is accused of stealing spare parts worth £25 from a bin at the works. What is required by the word ‘shown’ is not defined in the 1996 Act; it has been left for the courts to ascertain its meaning. It would be too much to require the employer to show, in the case which we are supposing, that the employee accused had in fact stolen the parts. Even in a criminal trial a conviction would require only that, on the evidence adduced at the trial, the jury could properly feel sure that the person charged had stolen the parts. Total certainty would be too high a standard to require of an employer (see W Weddel & Co Ltd v Tepper [1980] ICR 286 at 300). On the other hand, it would plainly be inadequate for it to suffice for the reasonableness to be ‘shown’ that it should merely have been stated or pleaded or to have been given as the reason under s 92. That could lead to the dismissal not being judged by reference to a true reason for it but by reference to some untrue but stated reason. Equally, suppose it were to suffice merely that the employer truly believed the reason he had stated—that the employee had stolen the parts. That could lead to a situation in which an honest but totally mistaken and unreasonable employer who honestly believed in a reason which no reasonable person could have adopted would none the less have his actions adjudged by reference to his subjective but entirely unreasonable belief. Given that Parliament did not define what was required by the word ‘shown’ it cannot have been wrong for the court to suppose that nothing such had been intended by the legislature and it was thus open to the courts to require, of the ‘showing’ of the reason, some reference to a more objective standard. Accordingly, the familiar Burchell test, to which we shall return in more detail later, has long since required of the reason, in order for it to be shown within the meaning of the statute, that it should satisfy not merely a subjective test, in the sense of being honestly believed in by the employer, but that there is also an objective test, to which we shall return. In consequence, there are cases, such as Grootcon (UK) Ltd v Keld [1984] IRLR 302, a case in the EAT under Lord MacDonald, where it was held that ‘capability’ on medical grounds was not established as the relevant reason because the employer had had no medical evidence before him. An alternative reason in that case, that a customer of the employer had required the employee’s dismissal, was also rejected as there was insufficient evidence to justify a reasonable conclusion to such effect.

20. Thus the word ‘shown’, in reference to the reason or principal reason for the dismissal, thus leads, at any rate in a disputed misconduct case, to a complex question (as to which the burden is on the employer) which embraces that the reason must have been disclosed or made apparent to the employee, that it must later have been made clear to the employment tribunal, that it should have been honestly believed by the employer to be the reason or the principal reason for the dismissal (at any rate by the time the employer acted upon the reason) and, at latest by the time the employer finally formed the belief and acted upon it, that by then the employer should also have had available to him what, objectively regarded, can be seen by the tribunal to have been reasonable grounds for that belief. All that might rightly be regarded as a heavy freight to be borne by the simple word ‘shown’ but such a requirement is not, in our view, in any pejorative sense a gloss upon or a departure from the statute but rather is a reasonable judicial working out of what meaning the undefined word must have been

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intended by the legislature to have had in its context. We make no further comments on s 98(1) to (3).

21. When s 98(4) is come to there emerge what at first sight are two apparently separate questions raised with respect to what, if any, reason or principal reason has been adequately ‘shown’ within the meaning of the earlier subsections. The two questions are: (i) did the employer act reasonably or unreasonably in treating that reason as a sufficient reason for dismissing the employee and (ii) was the dismissal fair or unfair having regard to that reason so shown?

22. Separate provisions are then made in relation to the two apparently separate questions. Thus the former question is to be answered by reference to ‘the circumstances (including the size and administrative resources of the employer’s undertaking)’. As to the second, it is to be determined ‘in accordance with equity and the substantial merits of the case’. However, this apparent separateness is completely undone by the requirement that the answer to the second question is to ‘depend on’ the answer to the first. The 1996 Act does not in terms say ‘depend and depend only on’ but, were one to be able to arrive at decisions on the two questions which pointed in different directions, it would be difficult to see how the answer to the latter could then be said to have depended upon the answer to the former. If, for example, the answer to the former was that the employer had thus acted reasonably, could it be said that an answer to the latter, that the decision was unfair, had ‘depended’ upon the former? In practice, therefore, the two apparently separate questions are required, or at least tend, to merge. But, in relation to all this, it is clear that what is required to be considered under s 98(4), in both parts of the conjoined question, is the reason shown within the meaning of s 98(1). To the extent that s 98(4) examines reason and response—alleged cause and alleged effect—then in disputed misconduct cases, it is only the principal or only reason which has been adequately ‘shown’ within s 98(1), as we have explained that requirement, that is to be looked at and tested as the reason for the dismissal.

23. Having thus sought to explore the provisions of the statute, as Haddon’s case has exhorted us to do, we next look to Haddon’s case’s more controversial components.

D. The tribunal must not substitute its own decision?

24. The first controversial area found in Haddon v Van den Bergh Foods Ltd [1999] IRLR 672 at 676 (para 25) is where the EAT speaks of ‘the mantra’ that ‘the tribunal must not substitute their own decision for that of the employer’. Haddon’s case does not purport to outlaw all use of that observation although it must be said that if it is recited only as a meaningless incantation it can only be undesirable. The observation is, in our view, of particular use in two differing areas.

25. The first is in relation to the determination, pursuant to the test in British Home Stores Ltd v Burchell [1980] ICR 303, of the nature of, the belief in and the objectively judged adequacy of the principal or only reason alleged by the employer to have been ‘shown’ within s 98(1) and (2) of the 1996 Act. Burchell’s case, looking at the showing of such a reason in a misconduct case says (at 304):

‘What the tribunal have to decide every time is, broadly expressed, whether the employer who discharged the employee on the ground of the misconduct in question (usually, though not necessarily, dishonest conduct) entertained a reasonable suspicion amounting to a belief in the guilt of the employee of that misconduct at that time. That is really stating shortly and

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compendiously what is in fact more than one element. First of all, there must be established by the employer the fact of that belief; that the employer did believe it. Secondly, that the employer had in his mind reasonable grounds upon which to sustain that belief. And thirdly, we think, that the employer, at the stage at which he formed that belief on those grounds, at any rate at the final stage at which he formed that belief on those grounds, had carried out as much investigation into the matter as was reasonable in all the circumstances …’

26. That test was described in W Weddel & Co Ltd v Tepper [1980] ICR 286 at 302 by Cumming-Bruce LJ as most useful guidance. Stephenson LJ (at 296) found ‘great assistance’ in it and it has been employed countless times since. It does not require the tribunal unquestioningly to accept the employer’s alleged reason; on the contrary each of the three parts of the test requires an evaluation of the relevant evidence by the tribunal and in each case that is an evaluation which can, on proper evidence, conclude contrary to the employer’s assertions. In that sense a tribunal addressing s 98(1) and (2), is thus free to substitute its own views for those of the employer. When Arnold J in Burchell’s case continued, immediately after the citation above ‘It is the employer who manages to discharge the onus of demonstrating those three matters, we think, who must not be examined further’ all that he had been thus far addressing was the nature, belief in and objectively judged adequacy of the grounds for the reason alleged to be shown for the dismissal. It was, so to speak, a s 98(1) and (2) question that was then being addressed. The topic upon which an employer, having satisfied Burchell, is not to be examined further is thus what was his reason for the dismissal and is not whether the employer acted reasonably in treating that reason as a sufficient reason for the dismissal; that latter is a s 98(4) question which the part of Burchell’s case cited above does not deal with. To suppose that the EAT under Arnold J had regarded the passing of that three-part test as equivalent to satisfying s 98(4) as well as s 98(1) and (2) would require one to assume that he and the members sitting with him had entirely overlooked the reference, in the Trade Union and Labour Relations Act 1974 Sch 1, para 6(8), to ‘equity and the substantial merits of the case’ and to the fact, as then was the case, that the onus, in the then equivalent of s 98(4) of the 1996 Act, was on the employer. We suppose nothing of the kind.

27. The reason why an employer who, as to his alleged reason for dismissal, has survived the Burchell test, is not to be questioned further is that to do so, in relation to that reason would be likely to lead to an employment tribunal ruling, not, as is required by the 1996 Act, on whether the shown reason represented a sufficient reason for the dismissal but on whether such a different reason as might have emerged from the further questioning was a sufficient reason. Nothing in Haddon’s case precludes the ability of an employment tribunal to remind itself, in such cases, that it is not part of its job to assess what it would have thought was the reason for the dismissal once the reason alleged has survived the three-part Burchell test as the sole or principal reason shown for the purposes of s 98(1) and (2). If, to flesh out that notion in less abstract terms, an employer’s given reason for the complainant’s dismissal is his belief, at the time of the dismissal and on the evidence by then adduced, that the complainant had stolen parts worth £25 from a bin at the works, then, if that belief survives the Burchell test, it matters not that the employment tribunal members themselves would not, on that evidence, have believed that the complainant had so stolen the parts or would have thought

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they were worth only £2 or were worth £100. It has always been, and continues to be, appropriate for an employment tribunal to remind itself that in relation to a reason so shown it is not to substitute its own view for that of the employer and, as we have said, we do not take Haddon’s case to say otherwise.

28. The other case where such a reminder can be appropriate is the common case in which things appear very different, by the time they are addressed at the employment tribunal, to their appearance at earlier investigation and disciplinary stages. By that later tribunal stage further inquiries may have been made and fresh resources applied to the questions arising and fresh advisers and advocates will often have addressed the questions arising in connection with the dismissal. Events post-dismissal are likely to be spoken to in the evidence at the tribunal. There may be other factors which a tribunal, dealing with a matter months after the dismissal, may, but for the reminder in question, inadvertently take into account. For example, that the police, after studying the facts, have elected not to prosecute or that there have later emerged reasons to believe that the misconduct in question was by someone other than the complainant. Other examples would be where a witness whose evidence was regarded as crucial at the disciplinary stage later declines to give, and has not been required to give, evidence to the tribunal or where a witness, uncompellable at the disciplinary stage, is compelled to give evidence to the tribunal. In all such cases the observation that the tribunal is not to substitute its own view of the reason which has passed the Burchell test for that of the employer can be salutary.

29. However, this is far from saying that the observation that the tribunal must not substitute its views for those of the employer is in any way appropriate when the tribunal turns to s 98(4) and thus turns to look not at the nature of the reason shown but rather to the reasonableness of the employer’s response to it. The view of an employer, however honestly believed in, that he acted reasonably in treating the shown reason as a sufficient reason for dismissing the employee is not determinative of the questions arising under s 98(4) and does not in any way preclude a holding by the employment tribunal either that the employer acted unreasonably in treating that shown reason as a sufficient reason for the dismissal or the dependent issue of whether the dismissal was unfair. We do not understand any authority to say otherwise in relation to the questions arising under s 98(4) and it is in our view impossible to quarrel with Haddon’s conclusion, that, so far as concerns that subsection and the employment tribunal: ‘Providing they apply the test of reasonableness, it is their duty both to determine their own judgment and to substitute where appropriate.’ (See [1999] IRLR 672 at 676 (para 25).)

30. Equally we can agree with the judgment in the EAT in Wilson v Ethicon Ltd [2000] IRLR 4 at 5 (para 6) where, in relation to s 98(4), Lord Johnston, approving Haddon’s case, says:

‘What, in our opinion, the tribunal in question has to do is to stand back from the decision of the employer and assess in the knowledge of what was known to him at the time, whether or not the dismissal was in the circumstances reasonable.’

The EAT was there examining a case in which the tribunal below had looked into the reason shown by the employer—the s 98(1) and (2) question—and, in particular, the third limb of the Burchell test—but had failed ‘properly to address the whole question of reasonableness, as opposed to reasonable investigation’. In other words, the employment tribunal in Wilson’s case had never turned to s 98(4).

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31. Although s 98(1) and (2) and the concern as to the shown reason for the dismissal is logically separable from s 98(4) rather as is the propriety of a criminal conviction separable from the appropriateness of the sentence or as are cause and effect, we would have to concede they often fail to be separated. It is desirable that they should be kept separate but it can, in disputed misconduct cases, often be of no significance to the practical outcome of a case by an employment tribunal if they are not. An objective consideration of reasonableness by the tribunal plays a part, as we have shown, in the second and third stages of the Burchell test for the purposes of considering the shown reason under s 98(1) and (2) as well as in the later s 98(4) questions. It will, for example, often be of no importance to the outcome to know whether the employer failed at the s 98(1) and (2) stage for want, in the tribunal’s judgment, of, say, reasonableness in the grounds for the employer’s belief in the alleged misconduct or failed for want, again in the tribunal’s judgment, of the reasonableness of dismissal as a response to that reason at the s 98(4) stage. That the outcome may not be affected by running the two together no doubt explains the frequent failure to separate, so to speak, cause and effect, conviction and sentence. However, in disputed misconduct cases, so long as a tribunal is careful not to enquire further into the alleged reason shown once, as to that reason, the Burchell test has been satisfied, so far from disapproving of an objective consideration of reasonableness in the course of which a tribunal may substitute its views for those of the employer, we would wish such consideration to have occurred not once but twice over, at the two stages, preferably kept separate, which we have described.

E. The band of reasonable responses

32. The next area of controversy in Haddon v Van den Bergh Foods Ltd [1999] IRLR 672 at 676 (para 26) grows out of the comment that: ‘The mantra “the band or range of reasonable responses” is not helpful because it has led tribunals into applying what amounts to a perversity test …' As to that we make three initial observations. Firstly, no ‘mantra’, as such, can be helpful. Nothing further need be said as to that. But, secondly, in the light of the doctrine of precedent, it is not, in our view, within the province of the EAT, but only of some higher court, to outlaw reference to the band. Indeed, when, Haddon’s case says (at 676 (para 32)) ‘To dismiss this man in these circumstances is clearly contrary to the actions of a reasonable employer’ it could be that the band test was even there being used as a guide. However, thirdly, it is plainly right to caution against the phrase leading to too stringent a test. We will develop these second and third points.

33. As to the use of the phrase, without our spending time on the archaeology of the law, it can be seen even from the cases cited in Haddon’s case itself that reference to ‘a range of responses’ or to ‘a range of reasonable responses’ goes back at least as far as to the decision of the EAT under May J in Rolls-Royce Ltd v Walpole [1980] IRLR 343. Even earlier, in 1978, the EAT’s judgment delivered by Phillips J in N C Watling & Co Ltd v Richardson [1978] ICR 1049 at 1056 had said: ‘It has to be recognised that there are circumstances where more than one course of action may be reasonable.’